RBC Capital Market’s bank research team, led by Darko Mihelic, published a 39-page report discussing the upcoming mortgage payment shock on domestic earnings in the sector,
“We believe a significant number of mortgages are coming due in the next three years (around 60 per cent of all outstanding mortgages at the Canadian chartered banks) and that payment shock (the increase in payment at renewal) could be significant and represents a tail risk to Canadian banks. Unless there are significant declines in interest rates, we believe that credit losses will inevitably rise, perhaps significantly in 2025 and beyond … We are not changing our estimates with this report but feel confident that our tepid outlook for revenue growth of approximately 4 per cent in 2024 and 3 per cent in 2025 in Canada retail banking is reasonable as we believe banks will be managing through this phenomenon carefully with slow loan growth, low NIMs [net interest margins] , and fee pressure. We will revisit PCL [provisions for credit losses] estimates at year-end … We believe there will be more than $186-billion of mortgages renewing in 2024 at the chartered banks in Canada and at current interest rates (for example, the 5-year fixed mortgage rate of 5.54 per cent is over 180 bps higher than five years ago), a weighted average payment shock of 32 per cent could be expected. .. In 2025, we believe there will be $315-billion of mortgages renewing at chartered banks in Canada
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