Bank of Canada: The financial system is stable, but risks remain

Although Canada's financial system is stable, risks remain due to debt among households and businesses, the Bank of Canada said. The central bank published its financial stability report on Thursday, in which it assessed the risks and stability in the Canadian financial system.

"Over the past year, households, businesses, banks and other financial institutions have taken proactive steps to adjust to higher interest rates and deal with economic shocks, but this adjustment still has a long way to go," Bank of Canada Governor Tiff Macklem said in Ottawa. and continues to create risks for financial stability.

This report indicates that people who have loans other than mortgages experience the greatest amount of financial problems. Renters seem to be most affected by financial stress.

Delinquencies on credit cards and auto loans among households without mortgages have returned to pre-pandemic levels and are continuing to rise.

Among mortgage holders, half of borrowers have not yet renewed their mortgages because they have 5-year fixed-rate mortgages. These borrowers will have higher average monthly payments than borrowers who have already renewed.

The bank noted that in the event of an economic shock or an increase in unemployment, paying the monthly mortgage loan installments will become a problem among these families.

Business bankruptcies rose sharply between 2022 and 2023. As of March this year, business bankruptcies have surpassed the pre-pandemic average. Although bankruptcies occurred across industries, they mostly affected the small business sector. Factors that led to this fiscal problem include high debt, sluggish economic activity, and the phasing out of federal and provincial job support programs during the pandemic.

 

news source