General Information & Client Services
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 13, 2017

IMF published its staff report and selected issues and analytical notes report on the 2017 Article IV consultation with Canada. Directors noted that Canada’s financial sector is well-capitalized and has strong profitability, but that there are rising vulnerabilities in the housing sector.

The staff report reveals that Canada’s large banks have a sizable exposure to the housing sector. The Big-6 banks, which account for 93% of the total banking system assets, allocate about 35% of their total assets to consumer and mortgage lending and draw 50% of their total revenues from these loans. Mortgage lending alone accounts for 45% of total loans, with the share of uninsured mortgages now exceeding insured mortgages. Tighter macro-prudential rules in the insured space has caused the shift to uninsured mortgages. OSFI has consistently updated its expectations of residential mortgage and insurance underwriting practices (B-20 and B-21 Guidelines), with a strong emphasis on rigorous income verification, nonconforming loans, debt service and loan-to-value (LTV) calculations, property appraisals and the risk profile of new mortgage loans, and full assessment of a borrower’s ability to withstand plausible financial and economic shocks. The Big-6 banks have strengthened their capital ratios from 10% a year ago to 11.3%; improved their leverage ratios to 5%; enjoy high profitability, averaging 15% return on equity; and maintain strong asset quality, with less than 1% of non-performing loan ratios (NPLs).

 

While Canada has a strong supervision culture, addressing gaps identified in the 2014 FSAP on regulatory mandates and operational independence would further strengthen the financial sector policy framework. Staff’s research indicates that macro-prudential measures have generally been effective in slowing the growth in mortgage credit and, to a lesser extent, house prices, and, to this end, financial stability. For macro-prudential policy to work effectively, more granular real estate data and close supervision to manage potential spillovers and other unintended consequences are needed. In addition, there has been little progress in addressing several major recommendations of the FSAP. However, addressing the following gaps identified in the 2014 FSAP would further strengthen the framework for financial sector policy:

 

Clear regulatory mandates to monitor systemic risk to facilitate macro-prudential oversight and carry out system-wide crisis preparedness continue to be missing.

Consistent with Basel Core Principles, legislation should be amended to give OSFI operational independence, without ministerial power to override supervisory judgment.

Legislation should be amended to give OSFI the authority to conduct group-wide supervision, a key component of the Insurance Core principles, to promote a consolidated view of risks and prevent arbitrage across differently regulated structures within the group.

 

The selected issues and analytical notes report discusses the proposed Canada Infrastructure Bank (CIB) and its expected role; analyzes the macroeconomic effects of public infrastructure in different Canadian provinces; presents lessons learned for Canada by examining how advanced economies tackle housing market imbalances; and assesses the effectiveness of macro-prudential measures in Canada. Canada’s macro-prudential policy seems to have lowered mortgage credit growth, thus moderating the surge in house prices on a national basis. International experience over 2000–16 suggests that tighter LTV limits and lower caps on debt service-to-income (DSTI) ratios could be effective in moderating both mortgage credit and house price growth.

 

Related Links

Staff Report (PDF)

Selected Issues and Analytical Notes (PDF)

Keywords: Americas, Canada, Banking, Insurance, Article IV, FSAP, OSFI, IMF

Related Insights

IMF Reports on 2017 Article IV Consultation with China

August 15, 2017 WebPage Regulatory News

EBA Updates Data Used for the Identification of G-SIIs

August 11, 2017 WebPage Regulatory News

Basel III Monitoring Updates for August 2017

August 10, 2017 WebPage Regulatory News

ESMA Published Opinions on Position Limits Under MiFID II

August 10, 2017 WebPage Regulatory News

FED Updates Reporting Form FR Y-14Q in August 2017

August 08, 2017 WebPage Regulatory News

MAS Consults on Revisions to the Deposit Insurance Scheme

August 04, 2017 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for August 2017

August 04, 2017 WebPage Regulatory News

EBA Consults on Its Approach to Financial Technology

August 04, 2017 WebPage Regulatory News

OCC Seeks Comments on Revising the Volcker Rule

August 02, 2017 WebPage Regulatory News

PRA Update on BEEDS Portal UAT for Capital+ Reporting

July 31, 2017 WebPage Regulatory News

IAIS Consults on Revisions to ICP 24

July 31, 2017 WebPage Regulatory News

EBA Single Rulebook: Final Q&A Updates in July 2017

July 28, 2017 WebPage Regulatory News

ESRB Publishes Its Annual Report for 2016

July 28, 2017 WebPage Regulatory News

EIOPA Consults on Information Requests on IORPs

July 26, 2017 WebPage Regulatory News

Bundesbank Updates Structured Q&A on AnaCredit

July 25, 2017 WebPage Regulatory News

EIOPA Q&A on Regulations for July 2017

July 24, 2017 WebPage Regulatory News

BOM Updates Guidelines and Guidance Notes in July 2017

July 21, 2017 WebPage Regulatory News

OSFI Revises Implementation Timeline for the FRTB Rules

July 20, 2017 WebPage Regulatory News

FSB Report on the Peer Review of France

July 20, 2017 WebPage Regulatory News

IMF Report on the Use of Supervisory Standards in FSAP

July 20, 2017 WebPage Regulatory News

APRA Announces Stronger Capital Benchmarks for Banks

July 19, 2017 WebPage Regulatory News

IAIS Newsletter for July 2017

July 18, 2017 WebPage Regulatory News

ESMA Updates Q&A on UCITS and AIFMD

July 11, 2017 WebPage Regulatory News

ESRB Report on Resolving Non-Performing Loans in Europe

July 11, 2017 WebPage Regulatory News

SRB Publishes the 2016 Annual Report

July 11, 2017 WebPage Regulatory News

ESMA Updated Q&A on MiFID II/MiFIR Investor Protection

July 10, 2017 WebPage Regulatory News

EC Consults on Development of Secondary Market for NPLs

July 10, 2017 WebPage Regulatory News

ESMA Updates Q&A on Implementation of MiFID II

July 07, 2017 WebPage Regulatory News

ESMA Consults on Simplifications for Prospectuses

July 06, 2017 WebPage Regulatory News

ESMA Updated Q&A on Market Abuse Regulation

July 06, 2017 WebPage Regulatory News

FSB Progress Report on Financial Regulatory Reforms

July 03, 2017 WebPage Regulatory News

FED Reporting Updates for July 2017

July 03, 2017 WebPage Regulatory News

EBA Single Rulebook: Final Q&A Updates in June 2017

June 30, 2017 WebPage Regulatory News

FSB Reports on Reforms to OTC Derivatives Markets

June 29, 2017 WebPage Regulatory News

FED Reporting Updates for June 2017

June 28, 2017 WebPage Regulatory News

DNB Issued Banking Newsletter for June 2017

June 28, 2017 WebPage Regulatory News

EBA Publishes Annual Consumer Trends Report for 2017

June 28, 2017 WebPage Regulatory News

DNB Issues Insurance Newsletter for June 2017

June 28, 2017 WebPage Regulatory News

FPC Publishes Financial Stability Report in June 2017

June 27, 2017 WebPage Regulatory News

ECB Recommends Amendment to Article 22 of its Statute

June 23, 2017 WebPage Regulatory News

HKMA Circular on AML/CFT Amendment Bill 2017

June 23, 2017 WebPage Regulatory News

JFSA Consults on BCBS Pillar 3 Disclosure Requirements

June 23, 2017 WebPage Regulatory News

PRA Updates SS35/15 on Guidelines for Completing MLAR

June 23, 2017 WebPage Regulatory News

HKMA Consultation on Implementation of IRRBB Standards

June 22, 2017 WebPage Regulatory News

IAIS Newsletter for June 2017

June 22, 2017 WebPage Regulatory News

FCA Update on Regulatory Sandbox Under Project Innovate

June 22, 2017 WebPage Regulatory News

EBA Launched 2016 CVA Risk Monitoring Exercise

June 21, 2017 WebPage Regulatory News

PRA Published Consultation Paper on Recovery Planning

June 21, 2017 WebPage Regulatory News

EBA Responds to the EC Consultation on Fintech

June 15, 2017 WebPage Regulatory News

ESAs Published Annual Reports for 2016

June 15, 2017 WebPage Regulatory News

EIOPA Q&A on Regulations for June 2017

June 15, 2017 WebPage Regulatory News

RBI Accredits Another Credit Rating Agency INFOMERICS

June 13, 2017 WebPage Regulatory News

PRA Published CP6/17 on Regulatory Reporting

June 12, 2017 WebPage Regulatory News

Bundesbank Updates on AnaCredit Project for June 2017

June 12, 2017 WebPage Regulatory News

EC Approved Resolution of Banco Popular

June 07, 2017 WebPage Regulatory News

ESMA Chair Says Preparation for MiFID II is on Track

June 07, 2017 WebPage Regulatory News

Response of ESMA to EC Consultation on Fintech

June 07, 2017 WebPage Regulatory News

EC Report on Information Barriers in SME Funding Market

June 06, 2017 WebPage Regulatory News