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Streetwise TD CEO says bank could weather Toronto housing crash

TD Bank Group president and CEO Bharat Masrani speaks during the bank's annual meeting of shareholders in Toronto, Ontario, March 30, 2017.

PETER POWER/REUTERS

A severe correction or crash in Toronto's real estate market would not spell disaster for Toronto-Dominion Bank, its top executive says, moving to quell fears as home prices in Canada's most populous city roar into record territory.

TD, Canada's largest bank by assets, has the second-highest exposure of any domestic bank to the country's mortgage market. But chief executive officer Bharat Masrani expressed comfort with TD's portfolio on Thursday, noting the lender regularly conducts "stress tests" to analyze the impact of various economic scenarios, including fluctuations in real estate prices on its loan book.

"There would be some impact [of a housing correction or crash in Toronto], but I don't think it would be a disaster for the bank. It would be a manageable situation for TD," Mr. Masrani told journalists following the company's annual general meeting in Toronto.

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"We've done a lot to make sure we have the resiliency in our lending not to have any major problems if and when a particular scenario might hit."

Home prices in Toronto rose 23 per cent year over year in February, more than any other major city in Canada, with detached properties fetching an average of $1.2-million.

TD had $188.2-billion in exposure to Canadian residential mortgages as of the end of January. Only Royal Bank of Canada with $224.1-billion, had greater exposure among Canadian banks.

While Canadian housing prices dipped during the 2008 and 2009 global financial crisis, the declines were minuscule in comparison to what played out in the United States. Canada has not gone through a severe housing crash in decades, with the last major downturn occurring in the 1990s.

TD's CEO says a number of factors are driving prices skyward in the Greater Toronto Area, including steady demand driven by continuing waves of immigration, restrictions on the use of land for single-family homes, and "extraordinarily low" interest rates.

In his speech to shareholders, he predicted that rising U.S. interest rates will put pressure on the Bank of Canada to eventually raise rates in Canada too, which would likely act as a dampener on Canadian real estate prices.

With files from reporters Janet McFarland and Tamsin McMahon

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