In its latest financial report, BMO has noted a rise in delinquencies during the second quarter and anticipates that high interest rates will persist for a while. Here are the key points from their report:
Rise in Delinquencies
Real Estate Secured Lending (RESL): Delinquencies for payments overdue by 90+ days increased to 0.19%, up from 0.17% last quarter and 0.14% a year ago.
Unsecured Lending: Actual losses have mainly occurred in unsecured loans such as consumer loans, credit cards, and business loans.
Credit Challenges
Loan Loss Provisions: BMO set aside $705 million in loan loss provisions, an increase from $627 million in the previous quarter.
Future Losses: Losses are expected to rise as clients struggle with payments due to high interest rates.
Interest Rate Predictions
Rate Cuts: BMO has revised its rate-cut expectations, now predicting fewer and delayed cuts. The Bank of Canada might start lowering rates this summer, with the U.S. Federal Reserve following in the fall.
Mortgage Portfolio Insights
Negative Amortization: 42% of BMO’s variable-rate mortgages are in negative amortization, down from a peak of 62%.
Negative Amortization Explained: This occurs when monthly payments do not cover the full interest amount, causing the mortgage balance to increase.
Mortgage Renewals: Only 14% of mortgage balances are set to renew in the next 12 months, with the majority up for renewal after fiscal 2025.
Payment Increases: Those renewing their mortgages have seen average payment increases of 22% for variable mortgages and 19% for fixed mortgages.
Proactive Customer Outreach
Success in Reducing Negative Amortization: BMO’s outreach efforts have been successful, helping many customers take actions to manage their mortgages better.
Continued Efforts: BMO plans to continue its proactive outreach to assist customers with various lending products, aiming to reduce potential losses.
Financial Metrics
Net Income: Adjusted net income for Q2 was $2 billion, a 7% decline year-over-year.
Earnings Per Share: Adjusted earnings per share stood at $2.59.
Mortgage Portfolio: The total residential mortgage portfolio increased to $151.8 billion.
Loan-to-Value (LTV): The average LTV for the uninsured mortgage book is stable at 56%.
Canadian Banking Net Interest Margin (NIM): Increased slightly to 2.80%.
Deposit Growth and Customer Acquisition
Canadian Deposits: Grew by 9% year-over-year, driven by new customer acquisition and successful onboarding programs.
Newcomers to Canada: Saw a 35% increase in momentum due to BMO’s New Start program.
Commercial Real Estate
Impaired Loan Provisions: Canadian commercial impaired loan provisions increased to $48 million.
Performance: Commercial real estate, including office space, is performing as expected, though modest provisions are anticipated.
Risk Appetite
Unchanged Practices: BMO’s risk appetite and underwriting practices remain unchanged, maintaining strong coverage and lead relationships.
Overall, BMO is navigating a challenging economic environment with proactive measures and adjustments to its forecasts, aiming to support its customers and manage credit risks effectively.
Source From: Wealth Professional
Adapted by Jose Gustavo
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