BCBusiness

jULY/AUGUST 2018 BCBusiness 89 bcbusiness.ca cryptocurrency and cannabis, he remarks. "Rising interest rates typically would be a good thing from a bank or credit union perspective because they make money o the spread, what they can borrow money for and what they can lend it out to their clients at," Grewal observes. "That spread has been depressed recently due to his- torically low interest rates." One bene•ciary appears to be HSBC Bank Canada, the only major bank based in B.C. and No. 25 on this year's Top 100 list. HSBC's net interest income grew 4.4 percent from 2016 to 2017 and 8.5 percent year-over-year in the •rst quarter of 2018. The bank's pub- lished results attribute the increase to growth in loans and advances, in particular mortgage balances; inter- est recovered on impaired loans; and BoC rate changes. Net interest income is a much big- ger part of credit unions' business than it is for banks, explains David Gaskin, CFO of Surrey-headquartered Coast Capital Savings Credit Union, which sits at No. 88 in this year's ranking. "We're not as diversi•ed, so interest rate changes do have a more signi•icant impact to our revenue sources," he says. Although yields from assets like loans and mortgages kept dropping, interest paid on depos- its couldn't go any lower, so margins were being squeezed. Gaskin adds that as interest rates start rising, so will assets, but it remains to be seen whether deposits will increase. Regulatory changes are another challenge. In 2016, Canada Mort- g a ge a nd Hou si n g Corp. made it tougher for lenders to buy bulk insurance for their portfolios of uninsured mort- gages, bundle them and use them to securitize, Gaskin notes. Conse- quently, deposits are more valuable, so while interest rates on chequing accounts haven't climbed, there's more competition to generate term and other deposits. This January the Of•ice of the Superintendent of Financial Institu- tions Canada (OSFI) introduced Guide- line Bž20, a so-called stress test that raises the bar to qualify for a high- ratio mortgage from a federally regu- lated •nancial institution. Most credit unions are provincially regulated and not subject to Bž20, but Coast Capital, which will become Canada's second federal credit union this fall, plans to adopt the test on July 1. As a result, borrowers will have to seek other sources of funding or buy a smaller house so it commits them to less debt, Gaskin points out. That's a good thing, according to EY's Grewal. "It actually is a bit of a risk mitigator for the •nancial indus- try, because it's forced the lending institutions to make sure that loans they're issuing are to quali•ed indi- viduals," he says. "The Canadian •nancial system held out amazingly well during the credit crisis a decade ago, and a lot of that's due to the regu- lation that's imposed on Canadian banks and credit unions." But with Bž20 reducing the number of quali•ed borrowers, banks are com- peting for a shrinking pool of potential customers. Variable rate mortgages generally move in line with the BoC benchmark overnight rate, Grewal observes. "Interestingly, however, we have seen recently that as the Bank of Canada has increased its benchmark rate, some of the major lenders have decreased their variable mortgage rates," he says.£ "This is contrary to the norm." In May, HSBC Canada dropped its mortgage rates for new and exist- ing customers to 2.39 percent on a •ve-year variable rate mortgage and VARIABLE RATE mORTGAGES GENERALLY mOVE WITH THE BENCHmARK OVERNIGHT RATE. "HOWEVER, WE HAVE SEEN RECENTLY THAT AS THE BANK Of CANADA HAS INCREASED ITS BENCHmARK RATE, SOmE Of THE mAjOR LENDERS HAVE DECREASED THEIR VARIABLE mORTGAGE RATES" –MAl GREWAl, EY

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