Royal Bank of Canada had seen increased demand for mortgages ahead of tougher tests for borrowers being introduced in January, a top executive said after the bank reported better-than-expected quarterly earnings.
Canada’s banking regulator last month finalized tougher new rules on mortgage lending aimed at safeguarding lenders and borrowers. The B-20 rules, which take effect in January, mean borrowers taking out uninsured mortgages must be stress-tested to determine their ability to make repayments at a rate 200 basis points above their contracted mortgage.
Their pending introduction has led some borrowers to rush to get a mortgage before the stricter tests take effect, Neil McLaughlin, RBC’s head of personal and commercial banking, told analysts on a conference call.
“We have seen a little bit of pull-forward this fall,” he said. “As we talk to customers some of them are surprisingly aware of exactly what the stress test is about and have decided to move more quickly.”
McLaughlin said RBC had reviewed how the new rules will affect its mortgage book in the longer term and expected the impact to be “fairly modest.”
“Over 90 per cent of our mortgages are already underwritten at these higher rates so the vast majority of our originations are not going to be impacted,” he said.
RBC, Canada’s biggest bank by market value, on Wednesday reported fourth-quarter earnings that beat analysts’ forecasts. The bank has beaten market expectations in each quarter of the past year, brushing off concerns about Canada’s housing markets and record levels of household debt.
Earnings per share excluding one-off items rose to C$1.92 in the quarter to Oct. 31 from $1.65 a year ago. Analysts had on average forecast earnings of $1.87, Thomson Reuters I/B/E/S data showed.
On Tuesday, Scotiabank reported earnings that were below market expectations.
Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will report earnings on Thursday.
“These RBC results provide a more positive read through to peers and should help stabilize sentiment around the bank group,” said Eight Capital analyst Steve Theriault.
Shares in RBC were up 0.6 per cent at 1030 EST. They have risen by 10.5 per cent since the start of the year, making it North America’s fifth biggest bank by market value.