As economic conditions worsen in Canada, the largest banks in the country have set aside almost $2.5 billion to prepare for an expected increase in credit and loan losses. This is the biggest buffer for credit losses since the first year of the pandemic, when the banks built up provisions before government financial supports and consumer savings helped stave off a wave of loan delinquencies.
The banks reported significant increases in provisions for credit losses (PCLs) compared to a year earlier, when they totaled just $373 million. Bank executives said this week they don’t expect a dramatic spike in defaults, particularly as employment remains high, but they anticipate what they call a “normalization” of credit loss trends.
What does this mean for homeowners in Canada? It means that now more than ever, it’s important to ensure you’re financially prepared for any potential economic downturns. While the banks are reporting that they don’t expect a significant spike in defaults, it’s still important to be proactive with your finances to avoid any potential financial hardships.
One thing homeowners can do is ensure they have a solid emergency fund in place. This fund should be able to cover at least three to six months of living expenses, including mortgage payments, in case of a job loss or other unexpected financial emergency. If you don’t have an emergency fund yet, start by setting aside a small amount each month and gradually building it up.
Additionally, homeowners should take a close look at their monthly budget and identify areas where they can cut back on expenses. For example, if you’ve been dining out frequently, consider cooking at home more often to save money on food costs. Small changes like this can add up and help you save more money each month.
If you’re a homeowner with a mortgage, it’s also important to consider your options for refinancing or restructuring your loan. With interest rates on the rise, now might be a good time to consider refinancing to a lower interest rate or restructuring your loan to a longer term to lower your monthly payments.
Finally, it’s important to be aware of your credit score and take steps to maintain or improve it. A good credit score can help you qualify for better interest rates on loans and credit cards, which can save you money in the long run.
In conclusion, while the banks are reporting that they don’t expect a significant spike in defaults, it’s still important for homeowners in Canada to be proactive with their finances and ensure they’re financially prepared for any potential economic downturns. By building up an emergency fund, cutting back on expenses, considering loan restructuring, and maintaining a good credit score, homeowners can help protect themselves financially in uncertain times.