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Mortgage lending among top risks facing financial system: OSFI



Canada's banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), has identified mortgage lending as a significant risk to the country's financial system. As interest rates rise, homeowners are feeling the pressure when renewing their mortgages, leading to potential payment shocks.


In its annual risk outlook, OSFI highlighted that many homeowners might face significantly higher mortgage payments compared to their initial loan terms. This increase in payment obligations is expected to lead to more residential mortgage loans falling into arrears or default.


Beyond residential mortgages, OSFI also pointed to other major risks. These include wholesale credit risk, which encompasses commercial real estate lending and corporate debt. These sectors face challenges as businesses deal with higher borrowing costs and economic uncertainty.


OSFI further noted funding and liquidity risks as critical concerns. These risks involve the ability of financial institutions to access sufficient funds to meet their obligations, particularly during times of market stress.


Another area of concern for OSFI is the impact of social and political conflicts. The regulator warned that major geopolitical events could disrupt markets, causing instability for financial institutions. Additionally, the increasing polarization and political tensions could make Canadian institutions targets for politically motivated attacks.


In summary, OSFI's report underscores the importance of vigilance and preparedness among financial institutions. With rising interest rates and a complex global landscape, Canadian banks and lenders must navigate these challenges carefully to maintain stability in the financial system.


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