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OTTAWA, Dec 8 (Reuters) – Canada’s monetary regulator said on Friday it would maintain the amount of capital the country’s biggest lenders will have to hold, saying its past measures had bolstered the capital buffers of the big six banks.
The Office of the Superintendent of Financial Institutions said (OSFI) maintained the domestic stability buffer (DSB) at 3.5%, and said it would continue to closely monitor financial system developments and could raise the DSB to a level no higher than the top of the current range of 0% to 4% if vulnerabilities intensify.
“Over the last year, OSFI has increased the DSB by 100 basis points. … We believe this action has bolstered the banking system’s capacity to absorb losses if current vulnerabilities materialize into actual losses,” Superintendent Peter Routledge said.
Banks have a Common Equity Tier 1 (CET1) ratio, which compares a bank’s capital to its risk-weighted assets to measure its resilience in the event of a market downturn, of at least 11. 5%.
That ratio for Canada’s top banks averaged 13.4% at the end of fiscal 2023, well above the requirement.
OSFI’s announcement comes at a time banks are struggling with high funding costs, increasing bad loan provisions and rising expenses, forcing banks to look for new ways to raise capital.
To cut costs, banks have already eliminated thousands of jobs, and some banks have sold noncore assets to raise cash in hand.
Scotiabank sold its stake in retailer Canadian Tire for C$895 million ($658 million) to boost capital, Bank of Montreal (BMO) exited its indirect auto lending business, and RBC said it would continue to build capital as it seeks to close its C$13.5 billion HSBC Canada deal.
“We’ve written off some non-core assets. They were a little noisy. We don’t do it very often, but we did it this quarter,” RBC CEO Dave McKay told analysts on its post-earnings conference call in November. .
TD, on the other hand, is rich with capital after its $13.4 billion acquisition of First Horizon failed. The lender since has returned some of it to shareholders while keeping its CET1 ratio of 14.4%.
Since the OSD was published in 2018 to help banks improve their capital resilience to vulnerabilities, OSFI has increased the buffer six-fold. It applies to Canada’s largest banks and is set twice a year. ($1 = $1. 3602 CAD) (Reporting via David Ljunggren in Ottawa and Nivedita Balu in Toronto; editing by Jonathan Oatis)