RBC, BMO and the rest of the Big Six, consider yourselves warned: The Office of the Superintendent of Financial Institutions (OSFI) has its eye on you, moving to increase its scrutiny of your lending practices to ensure prudence isn’t sacrificed for volume.
“What we are doing is stepping in to increase the monitoring of that portfolio,” OSFI head Julie Dickson told reporters Monday. “I think the concern is that the conditions are such that there would be tremendous pressure on banks to loosen those standards.”
Brokers are increasingly voicing the same concerns as the rate war presses, charging that RBC and other big banks are actively undercutting broker channel rates, most often at the branch level and as a way of retaining and growing clientele as the housing market slows.
Ostensibly, razor-thin margins have exacerbated the need to increase volumes, a strategy focused on making up for the dwindling profit on individual mortgage deals, suggested Dickson, echoing the analysis of industry veterans.
Despite those narrower margins, the banks largely met earnings expectations in the last quarter, in large part because of that growth in lending deals.
RBC, alone, recorded an $11 billion gain in its residential mortgage portfolio over the 12 months ending July 31, according to its latest quarterly report. The performance helped cement its position as No. 1 among the “Big Six” in terms of mortgage market share.
The financial institution also beefed up its branch personnel over that period, adding 1,000 new employees – five times as many new workers as it took on the previous year and
a large percentage of them mortgage specialists.
That lenders may be ignoring their own lending guidelines in order to meet their mortgage sales target is something OSFI is pledging to look into.
Anecdotally, brokers are pointing to banks increasingly willing to accept deals at prime rates they would otherwise have rejected.
Still, Canada's big lenders have so far been prudent in their practices, Dickson said Monday, at the same time warning them that any significant move to let standards slide would attract regulatory censure.
It is unclear what if any complaints have already been lodged with the government agency, responsible for implementing those global regulations agreed on by the Basel banking committee.