By Nichola Saminather
TORONTO (Reuters) – Canada’s banking regulator kept the amount of capital the country’s six biggest lenders must hold at a record-low 1% of risk-weighted assets on Tuesday, and said it was prepared to lower it further if needed.
The Office of the Superintendent of Financial Institutions (OSFI) noted elevated financial system vulnerabilities and pressure on highly indebted households and businesses due to the coronavirus outbreak, but said the current Domestic Stability Buffer (DSB) level remains effective in supporting the banking system and overall economy.
OSFI made an out-of-schedule 1.25-percentage-point reduction to the buffer in March, freeing up more than C$300 billion ($222.24 billion) of additional lending capacity as part of a broader push by authorities to maintain liquidity and limit the pandemic’s economic hit.
“This action was taken to support banks’ ability to continue to provide loans and services to Canadians,” OSFI said in Tuesday’s statement. “OSFI expects banks to continue to draw on this capacity to support Canadian businesses and households.”
Canada’s six biggest banks increased lending to households and businesses by 10.8% in the three months ended April 30, and put aside nearly C$11 billion to cover potential losses.
OSFI, which reviews and sets the DSB level every June and December, had raised it by 25 basis points every time since it was introduced at 1.5% in June 2018 until December.
When it made the reduction in March, it said any increases following that would not take effect for at least 18 months.
(Reporting by Nichola Saminather, editing by Louise Heavens and Nick Zieminski)
