Provisions for credit losses came in at $10.4 million, doubling the street’s expectations of $5 million
Alternative lender Home Capital Group Inc. set aside more money for bad loans in the fourth quarter than it has at any time since the Financial Crisis in another sign that stresses are forming in the economy.
National Bank of Canada analyst Jaeme Gloyn warned that these levels were similar to those seen during financial crises.
“We note that the 20 (basis points) of (provisions for credit losses) as a percentage of gross loans is the highest on record since Q3 2009 and is higher than the 17 (basis points) reported at the height of the 2018 oil crisis,” said Gloyn in a note to clients following the results.
While GDP growth has slowed, the labour market has shown surprising resilience. However, there are cracks forming in the economy, in particular in real estate, where prices have fallen by double-digits over last year and sales have declined dramatically. The drop in mortgage demand is showing up in Home Capital’s results as the company reported $1.81 billion in mortgage originations in the fourth quarter, down from $2.72 billion a year earlier.
John Aiken, senior analyst and head of research at Barclays Bank PLC, said in a Feb. 13 note that his firm expects total credit losses will ebb from fourth quarter levels and that provisions for credit losses will ease to $2.07 billion in the first quarter compared to $2.31 billion in the fourth quarter.
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