Alternative lender Equitable Group Inc. said that it is preparing itself for an increase in loan defaults this year due to the unprecedented fiscal impact of the COVID-19 pandemic.
This is despite the widespread deferral of mortgage payments, according to Equitable President and CEO Andrew Moor.
The Toronto-based lender’s first-quarter net income was $25.97 million, significantly lower than the $41.66 million level during the same time last year.
Moor said that on the whole, the extra risk from deferrals will be manageable as long as the jobs market improves and no dramatic price drops take place in the next few months.
“But nonetheless, we expect higher levels of defaults in the loan book in 2020 than we have historically experienced,” Moor said last week.
In its latest “Financial System Review,” the Bank of Canada pointed at refinancing as a particular risk area for non-Big Six mortgage providers.
“The risk of credit downgrades is intensifying refinancing risks,” the BoC’s report said. “Recently, some alternative lenders suspended investor redemptions to avoid potential liquidity pressures. Other small independent lenders traditionally involved in the financing of SMEs have reported challenging market conditions that, if persistent, could jeopardize the future of their business. Households and SMEs that are being served by some of these lenders may find it more difficult to access credit in the future and may have limited alternative options if they cannot access traditional lenders.”
As of April 30, Equitable has postponed the mortgages of 14,547 clients for up to six months. These amounted to $81 million in deferred payments, representing 17.9% of the lender’s portfolio, The Financial Post reported.