Canada bank regulator says watching housing risk, pleased so far
TORONTO May 21 (Reuters) - Canada's top banking regulator said on Tuesday she is focused on the risk Canada's big banks face from low interest rates and real estate lending, but is happy that the housing market is moving into more balanced territory.
Julie Dickson, head of the Office of the Superintendent of Financial Institutions, or OSFI, said the impact of low interest rates can clearly be seen in the Canadian real estate market.
Canada's housing market was red hot in the years following the recession. But it began cooling in the middle of 2012 in the wake of government moves to tighten mortgage lending rules, even though rates remain near historic lows.
"The real estate lending market has been a significant area of focus for OSFI, because of the significant incentives for consumers to borrow and for banks to maintain revenues, the size of mortgage lending portfolios, the concerns about some markets being over-valued, and the possibility that customers' debt serviceability could be masked by low interest rates," Dickson said in remarks to the Bloomberg Canada Economic Summit.
"We're happy to see there has been some adjustment in the real estate market. We're seeing a more balanced situation now, but one has to always pay attention."
The tighter lending rules were aimed at preventing consumers from taking on too much debt to get into an expensive housing market.
The changes shortened the maximum term of an insured mortgage loan to 25 years and limited the amount of equity that could be taken out of a home using an insured mortgage.
The move to rein in lending was a bid by the government to prevent a U.S.-style housing crash and banking system meltdown.
Dickson noted that Canada's big banks, named soundest in the world for five straight years by the World Economic Forum, are already in compliance with Basel III capital requirements, aimed at bolstering the global banking system against future shocks.
She also noted that the bulk of the banks' mortgage portfolio is insured by the Canada Mortgage and Housing Corp., a government-backed agency.
Canada's top six lenders in order of size are: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada.
Dickson, who has drawn praise for her firm supervision of the banks, also said she did not intend to seek a new term as Canada's regulator when her term ends in mid-2014.
"I love Canada's banks but I do not want another seven years in that role," she said. "On July 4, 2014, I will be on my way."