(Toronto) Bank of Montreal believes recent changes to mortgage stress testing rules and slowing prices and sales in some areas could help calm the country’s real estate market.
“We can assume, given what we’re seeing now with home prices and sales, that there will be some moderation,” America’s head of personal and business banking said Wednesday. Northern Banker Erminia Johannson on a conference call with analysts.
“But Canada’s mortgage market will certainly remain robust enough for quite some time. ”
Mme Johannson was making the comments as the Bank of Montreal surpassed pundits’ expectations by releasing a second quarter profit almost twice as high as reported for the same period last year – a period for which it had set aside large provisions for bad debts in the context of high uncertainty that prevailed at the start of the pandemic.
The new mortgage rules will come into effect on 1er June. They will set the eligibility rate for uninsured mortgages two percentage points above the contract rate, or 5.25%, whichever is greater.
The change is aimed at relieving real estate markets like those in Toronto and Vancouver, where bidding wars, soaring prices and a multitude of sales were the norm during the COVID-19 pandemic.
While real estate boards in the most active markets have reported that sales are slowing and prices are falling, the most popular markets remain overpriced for many buyers.
It is difficult to predict the impact of the new stress test, but associated with lower house prices in some areas, Mme Johannson believes she could push buyers to seek more affordable housing or to turn to their parents for help.
The Bank of Montreal is already preparing for what could happen with the new simulation, the bank’s chief risk officer explained.
“We are channeling more mortgages to manual auction, especially where […] we have seen a rapid appreciation in house prices, just to make sure we are comfortable, ”said Patrick Cronin on the same conference call.
Bank of Montreal chief executive Darryl White stressed that the pandemic had brought unprecedented hardship, and that it would have repercussions for some time.
“We have become stronger, supported by our goal-driven strategy and culture that will help drive a sustainable and inclusive recovery,” said White.
Results on the rise
During the quarter ended April 30, Bank of Montreal reported net income of $ 1.3 billion, or $ 1.91 per share, compared to that of $ 689 million, or $ 1.00 per share, of the same period a year ago.
One of the reasons for this increase is the decline in the total allowance for credit losses, which fell to $ 60 million in the most recent quarter from $ 1.1 billion a year earlier when the pandemic took the economy down. stopped.
Quarterly revenues totaled nearly $ 6.1 billion, up from nearly $ 5.3 billion a year ago.
On an adjusted basis, the Bank of Montreal said it earned nearly 2.1 billion, or $ 3.13 per share, for the quarter, up from adjusted earnings of 715 million, or $ 1.04 per share, for the quarter. action, a year ago.
Analysts on average expected adjusted earnings of $ 2.77 per share for the most recent quarter, according to forecasts gathered by financial data firm Refinitiv.
Last month, Bank of Montreal announced the sale of its asset management businesses in Europe, Middle East and Africa to Ameriprise Financial for $ 1.09 billion.
The Bank of Montreal was the first of the major Canadian banks to release its second quarter results.
CIBC, Royal Bank and TD Bank will unveil theirs on Thursday, followed by National Bank on Friday. Scotiabank will report its results next week.