Canadian consumers continue to pile on mortgage debt despite repeated warnings that they need to crank back on borrowing if this country is to avoid a painful real estate correction, the chief executive of Bank of Montreal says.
Consumers "have certainly had plenty of opportunity to think about it," Bill Downe said.
"The governor of the central bank (Mark Carney) has done a good job of sending out cautionary notes, and we've put a lot of effort into trying to help people make better decisions."
The good news is that BMO customers are starting to take heed "on the margins" by paying down more on their credit cards. However, growth in the overall home loan market "is continuing to be more robust," Downe said, adding that Bank of Montreal's portfolio is growing more slowly than the overall market.
Canada's fourth-largest lender recently kicked off the second-quarter bank earnings season with a 7.5% increase in profit on the back of lower provisions for bad loans.
For the three months ended April 30, BMO had net income of $800 million, or $1.34 a share, up from $745 million ($1.26) in the same period last year.
The bank set aside $145 million in provisions for credit losses, down $104 million as more customers repaid their loans.
Since the financial crisis, Canadian banks have been consistently cutting back on credit provisioning, which has helped boost results, and at BMO they're now close to where they were in the latter half of 2007 before the turmoil hit.
The biggest surprise was a $47-million after-tax loss from exposure to the earthquakes in New Zealand and Japan, resulting in net income in the insurance business of just $1 million, compared to $43 million in the same period last year.
On a conference call with analysts, BMO executives said natural disasters of such magnitude are rare events and the losses are unlikely to be repeated anytime soon.
The domestic personal and commercial operation, BMO's biggest driver, had a profit of $401 million, up $7 million as strong loan volume growth mostly offset rising expenses.
There is evidence that consumer creditcard balances are declining as bank customers start to heed warnings about taking on too much debt. On the residential mortgage side, Downe said he expects to see growth start to "soften" in the coming months.
Carney has warned several times over the past 12 months that record household debt levels have left this country vulnerable to economic shocks.
Analysts anticipate the Canadian banks will report a slight increase in profit for the quarter as they contend with declining consumer borrowing
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