A decline in metropolitan housing markets that has been "more pronounced and longer" than expected is weighing on mortgage growth at the Canadian Imperial Bank of Commerce.
CIBC, the fifth Canadian bank, reported a profit of nearly $ 1.35 billion for its second fiscal quarter, up two percent from a year ago. However, the portfolio of loans secured by the bank's Canadian real estate sector fell 0.9 percent year-over-year to $ 223 billion at 30 April.
Christina Kramer, head of the bank's personal and banking sector, said that an important part of the lender's strategy over the past few years has been to large urban centers, where mortgage and housing markets have contributed to considerable growth for the bank.
But those markets have cooled, Kramer said, dragging mortgage growth.
"And this is due to the fact that the market turned out to be different from what we had expected, influencing us more than our colleagues thanks to our strategic focus," he said during a conference call. "In large urban markets, the withdrawal of activity has been more pronounced and more prolonged than we thought."
The Otto Capital analyst Steve Theriault wrote in a note that the CIBC management had seen "overgrowth" from urban areas, but that, when it comes to secured real estate loans in Canada, "it seems to us that every expansion will remain under market levels in 2019. "
CIBC shares closed more than four percent on Wednesday after the bank also reported adjusted earnings per share for the second quarter of $ 2.97, slightly less than analysts' estimates.
CIBC President and CEO Victor Dodig stated during the conference call on profits that, given the market conditions to date and the bank's plans to continue investing in its business, the lender expects its earnings per share growth (EPS) annual is "relatively flat" for its 2019 financial statements.
"In the longer term, the implementation of our strategy will enable us to achieve all our financial goals over time, including our medium-term growth target of ESP from 5 to 10%," said Dodig .
Among the large Canadian banks, a slowdown in the real estate market was predicted due to interest rate increases and new measures by governments and regulators, including stress tests for loans and taxes on buyers esters. The recent revision of the Bank of Canada's financial system has also found that housing sales and price growth have "slowed significantly" in Toronto and Vancouver over the past two years.
A report by analyst Edward Jones James Shanahan said that CIBC's residential mortgage portfolio has declined for three consecutive quarters, "a surprising reversal after several years of market-leading loan growth".
"While a slowdown in Canadian consumer banking is a challenge for all banks, CM (CIBC) has an above-average exposure to this obstacle," the National Bank's financial analyst wrote in a statement. Gabriel Dechaine.
Kramer said that there was a resumption of mortgage business across Canada, but that was not significant. He also said that there was more activity through "third-party" channels where CIBC no longer actively participates, as well as more competition among lenders.
"We remain competitive, but also disciplined on prices, which means we don't pursue mortgages at all costs," Kramer added. "So going forward, if the markets continue to function as they have, it will take longer to reach the growth levels of the industry for the product."
A cruder prospect for the Canadian economy also influenced CIBC's second-quarter earnings.
While other segments have seen growth, CIBC's leading Canadian private and business unit saw a 2% drop in its earnings, reaching $ 570 million.
The provision for credit losses (PCL) for the unit increased by $ 26 million compared to the same quarter the previous year, to $ 229 million, "mainly due to an increase in indemnities on the performing loans, reflecting the impact of some unfavorable changes in our economic outlook, as well as an update of the model parameters in the current quarter, "said CIBC.
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