After a flurry of competition in the Canadian mortgage market over the past month, the undercutting between major banks appears to have subsided, says a top banking executive.
HSBC Bank Canada chief executive officer Lindsay Gordon said the price war that erupted between banks, which were offering historic-low mortgage rates of 2.99 per cent on four- and five-year fixed rate mortgages with 25- and 30-year amortizations, was an indicator of just how cutthroat the lending market has become of late.
"It was a very interesting quarter in that you had some of the banks professing concern [about the mortgage market]and then basically the next day offering incredibly competitive, low rates," Mr. Gordon said in an interview Monday.
The CEOs of several Canadian banks, including Royal Bank of Canada, Canadian Imperial Bank of Commerce and Bank of Montreal, raised concern in January about a drop in Canadian housing prices, particularly condo markets in Vancouver and Toronto. That same week, however, the banks slashed mortgage rates in a short-lived price war.
"It suddenly got very aggressive, but then I think the banks in general have throttled back a little bit on the aggressive pricing," Mr. Gordon said.
His comments came as HSBC Canada announced a 14-per-cent increase in fourth-quarter profit. The Canadian subsidiary of U.K.-based HSBC Holdings PLC made $135-million in the fourth quarter, up $17-million from a year ago. HSBC Canada reports on a different fiscal schedule than Canada's other major banks, which are preparing to report their first quarter starting this week.
The bank's profit boost was due mostly to fewer impaired loans, but was partially offset by slimmer interest margins and a writedown related to the value of investment property assets.
Mr. Gordon said his bank wasn't eager to wade too far into the mortgage price war if it meant attracting riskier borrowers. "We're not going to pursue [loan]volume at the expense of risk," he said.
At a time when business lending is in a slump, Mr. Gordon said HSBC Canada is seeing signs that the market is picking up. Its commercial lending division made $110-million before tax, an increase of $13-million over a year ago. Those results would have been higher if not for the $42-million writedown related to investment property.
"I would say that we are cautiously optimistic that will continue," Mr. Gordon said.
He noted the low interest rate environment has presented challenges for banks, which must work to keep costs from rising. A report by PricewaterhouseCoopers LLP on Monday flagged that issue as one of the key challenges for banks this year.
"Last year Canadian banks presented solid results, primarily thanks to their strong retail banking businesses and growth in loan portfolios," Diane Kazarian, PwC's Canadian financial services leader, said in a statement. "However, 2012 may see slowing growth in consumer credit markets and continued pressure on margins as banks battle for market share."