Limited exposure to U.S. commercial real estate (CRE) is giving shareholders hope that Canada’s big banks can weather the storm that has rocked rivals in the United States and Europe.
However, investors will be on alert for signs of stress when Canada’s top six banks next week post first quarter earnings, that will continue to be pressured by high bad loan provisions.
The beleaguered U.S. CRE sector has taken a toll on banks in Europe and Asia, with borrowers at the risk of defaulting on loans as high interest rates and low occupancies hit valuations.
The recent sell-off of New York Community Bancorp has soured sentiment and dragged down U.S. peers, reviving fears of a global contagion stemming from the sector.
“While the space is undoubtedly challenged … it will be largely unimpactful to the Big-6 Canadian banks given their diverse loan books,” Canaccord Genuity analyst Matthew Lee said.
Canadian Imperial Bank of Commerce, the country’s fifth largest lender, has the biggest CRE exposure at 11 per cent of its loan book, quarterly filings show.
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Around 10 per cent of total loans at the top three Canadian banks involved CRE, while National Bank of Canada’s exposure was eight per cent, the banks said at the end of fiscal 2023.
Of the country’s six biggest banks, National Bank of Canada has no exposure to office real estate in the U.S., while Bank of Nova Scotia’s lending is minimal, filings showed.
The others have said their portfolios are largely diversified, with U.S. office accounting for less than one per cent to two per cent of overall lending books, with many holding
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