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Canada regulator targets bank lending practices

Canada's financial services regulator is asking the country's banks to take a deeper look at their consumer lending practices as concerns rise about Canadians' household debt.

The country's Office of the Superintendent of Financial Institutions (OSFI) is also questioning the banks about how they monitor their loan portfolios, spokesman Rod Giles said Monday, adding that the move is connected to regular "stress tests" that the regulator does with the banks.

"When we see issues in the external environment like what's going on with consumer debt at the retail level and housing and those kinds of things, then we naturally start to pay closer attention to that," he said.

Concerns about rising household debt prompted warnings last week from Bank of Canada Governor Mark Carney, Prime Minister Stephen Harper, and Finance Minister Jim Flaherty that high debt levels pose a threat to the country's economy.

The concern is that when interest rates rise, it will cause defaults and bankruptcies among Canadians who have taken advantage of low rates to borrow money.

Canadian household debt rose to a record $6.1 trillion, or 148 percent of disposable income at the end of the third quarter, according to Statistics Canada.

Flaherty said the government will tighten mortgage rules if needed, which is a position supported by chief executives of some of the banks.

Toronto-Dominion Bank's CEO told the National Post newspaper last week that the federal government should shorten maximum mortgage amortizations periods to 25 years from the current 35 years, or lower loan-to-value ratios to curb borrowing.

OSFI often issues advisories on bank practices, which are generally followed by the industry. For instance, the regulator recommended banks curb large spending moves, such as dividend increases, in 2008 after the financial crisis hit. The regulator recently rescinded that recommendation.

"If we found they were overexposed in a certain area or they didn't have the appropriate risk management practices in place to properly manage a certain risk, we would say, 'hey guys, there's an issue here'," Giles said. CTV Two CTV News CTV News Channel BNN - Business News Network CP24