Lending conditions eased in the Q3, loan officers say

Mortgage lending conditions continued to ease in the third quarter of 2019, while non-mortgage lending conditions tightened, according to the latest senior loan officer survey conducted by the Bank of Canada.

Household lending

Household lending conditions have been easing overall since the first quarter of 2018. Easing in mortgage lending conditions in the third quarter of 2019 took the form of price easing, as competition drove lenders to pass on more of their decreased funding costs to customers. Non-price conditions were unchanged. Lending conditions for low-ratio mortgages and home equity lines of credit (HELOCs) are also expected to remain unchanged, although high-ratio mortgage lending conditions are expected to ease in the fourth quarter, reflecting the Canada Mortgage and Housing Corporation’s (CMHC) First-Time Home Buyer Incentive.

Lower interest rates drove an increased demand for mortgage loans. Demand is expected to continue to increase next quarter for mortgage lending because of strong fundamentals as well as CMHC’s First-Time Home Buyer Incentive.

Price conditions tightened, while non-price lending conditions were mostly unchanged for non-mortgage lending. Tighter conditions for auto loans occurred across all regions, but tighter conditions for other consumer lending were limited to Quebec—due to the province’s new requirement that banks charge borrowers at least 2% of their outstanding credit card balance as part of the minimum payment.

Non-mortgage demand increased in the third quarter of 2019, driven by other consumer lending.

Business lending conditions

Business lending has been either easing or unchanged since mid-2016, based on results from the BoC senior loan officer surveys. Overall business lending conditions were unchanged in the second quarter of 2019, with a slight tightening in non-price conditions and unchanged price conditions.

For corporate borrowers, a slight easing in price conditions was offset by a tightening in non-price conditions for firms in the energy sector. This ends the extended period of overall corporate easing that began in the fourth quarter of 2017 and peaked in the fourth quarter of 2018.

Concerns about the economic outlook and energy sector in the Prairies continued to result in a tightening of both price and non-price lending conditions for small and commercial borrowers in that region. Outside the Prairies, lending conditions were unchanged apart from some price easing for commercial borrowers.

Overall, demand was unchanged for all business borrowers.

Access to capital markets decreased for all risk grades of corporate borrower, particularly non-investment grade. Several respondents mentioned that firms in the energy sector had less access to capital markets.

The Senior Loan Officer Survey collects information on the business-lending practices of Canadian financial institutions. In particular, the Survey gathers the perspectives of respondents on price and non-price terms of business lending and on topical issues of interest to the Bank of Canada.

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