OSFI chief dismisses fears following recent US banking turmoil
In the wake of recent financial disturbances experienced by New York Community Bancorp, the Office of the Superintendent of Financial Institutions’ (OSFI’s) Peter Routledge has offered a reassuring perspective on the impact of commercial real estate loan losses on the country's largest financial institutions.
During a media briefing in Toronto, Routledge said he sees no reason to shift his stance on the outlook for Canadian banking sector. He is confident its ability to navigate the choppy waters of commercial real estate, particularly office buildings, which have been under scrutiny following the close examination of New York Community Bancorp last week.
“My intuition is that we’ll come through this commercial real estate, office commercial real estate problem pretty well,” Routledge said. “Not without loss, just everything’s relative and I think relatively, we’ll be okay on that.”
This confidence is partly influenced by Jerome Powell, chair of the United States Federal Reserve, who recently described the commercial real estate issue as "manageable" during an interview on 60 Minutes. Powell's comments, along with Routledge's own assessments, suggest a broader consensus on the manageability of the challenges within the commercial real estate sector.
Routledge had previously pointed out that while global banks, including those in Canada, are likely to see "meaningful losses" from commercial property loans, the impact on Canadian banks' capital would be limited. This outlook is crucial for understanding how Canadian banks are positioned to weather potential losses in this area.
An analysis of the exposure of Canada’s six largest banks to U.S. office real estate loans reveals a varied landscape. Lidia Parfeniuk of S&P Global Ratings in Toronto notes that while the National Bank of Canada has no exposure and the Bank of Nova Scotia has minimal lending in this segment, other major banks like the Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada, and Toronto-Dominion Bank have more significant stakes.
Even then, loans to office real estate in the US represent only a small fraction, between one and two percent, of the total lending portfolio for those institutions.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.