As part of its drive to closely scrutinize threats to the national financial system, the Bank of Canada has announced that it will begin collecting more detailed data on HELOCs this month.
This is especially important as HELOCs have emerged as a powerful and versatile solution amid a regulatory regime governed by the considerably rigid strictures of B-20.
By the end of January 2019, Canada’s Big Six banks had $223 billion in outstanding HELOCs. This represented a little over 10% of the country’s $2.17 trillion in total household debt as of that month.
“Given the flexibility HELOCs can provide, borrowers can use them even in a downturn or if they lost their jobs to sustain household spending and continue to service their other debt,” Robert Colangelo of DBRS Ltd. said in an interview with BNN Bloomberg. “It makes it difficult for lenders to identify emerging credit problems.’’
Examining HELOCs will help shed further light on their evolving nature. Bloomberg Intelligence credit research analyst Himanshu Bakshi said that stand-alone HELOCs have experienced little growth, while the largest banks are seeing their share of partly-amortizing hybrid HELOCs increasing at an accelerated pace.
Analyzing this aspect of Canadian HELOCs might prove more troublesome than expected, however. None of the Big Six institutions categorize and report balances in the same manner, according to regulatory filings and confirmations by the banks’ representatives.
Toronto-Dominion Bank’s HELOCs totalled $87 billion, with $52.2 billion on the amortizing portion of its hybrid product, and the remaining $34.8 billion non-amortizing.
Bank of Montreal operates on a similar reporting scheme as TD, with $17.4 billion (out of a $31.7 billion total) in HELOCs amortizing, and $14.3 billion non-amortizing.
National Bank of Canada clearly delineated that its reported $22.2 billion in HELOCs was divided in two, between amortizing and non-amortizing halves.
On the other hand, Royal Bank of Canada classifies its amortizing home equity product as a mortgage, and that “home equity lines of credit include term loans collateralized by residential mortgages.” The institution reported $39.6 billion in non-amortizing HELOCs.
Bank of Nova Scotia reported $20.8 billion in HELOCs, which covers only the non-amortizing part. Amortizing balances are categorized under residential mortgages.
Likewise, Canadian Imperial Bank of Commerce doesn’t itemize its balances for its hybrid product, only reporting $21.8 billion in non-amortizing HELOCs.