‘Nobody Knows’: Home Capital’s Loan Loss Provisions Soar, Preparing for the Unexpected

Home Capital Group Inc. saw triple-digit growth in funds set aside in the last quarter for loans that could go wrong, a potentially worrying sign for credit quality in Canada. But CEO Yousry Bissada isn’t ready to guess how badly Canadian households will be affected by COVID-19.

“It is very, very difficult to understand,” he said Thursday in an interview with Amanda Lang of BNN Bloomberg.

“No one knows what the new normal – and the return to the new normal – how positively it will affect, or how quickly it will positively affect [Canadian livelihoods], “he added.” It’s waiting and seeing, and it’s “going out and getting the data” and looking at it every time and trying to reflect as best or as accurately as possible. “

Home Capital said Thursday that its loan loss provisions jumped 674.4% to $ 30.2 million in the first quarter of 2020, compared to the last quarter of 2019. Year over year, provisions jumped 397.9%.

“This largely reflects an accumulation of losses on performing loans, resulting from the uncertain macroeconomic environment caused by lockdowns related to COVID-19,” Graham Ryding, analyst at TD Securities, wrote in a report to clients.

Despite the increase in provisions, Home Capital’s net income was stable for the quarter at $ 27.7 million, compared to $ 27.8 million a year earlier. On an adjusted basis, the lender earned $ 0.56 per share. Analysts on average expected adjusted earnings of $ 0.72 per share. The company recorded a total of $ 1.62 billion in mortgage originations in the first quarter, matching the amount recorded in the previous quarter.

“Home Capital believes that the impact of COVID-19 on its operations will depend on the length of the lockdown conditions, the effectiveness of relief programs in mitigating the economic effects on our customers and the resulting impact on real estate and consumer credit markets, “the company said in its release.

Bissada said he could not speculate on how or when Canada would recover because the data his company must continue on is from a period that ended just as the pandemic began to slow economies. Canadian and global.

“In accounting it is very specific that you have to take it from the date you make your report. You don’t look past that date, and in our case it’s March 31, ”Bissada said of the company’s practices, which are based on models used by Moody’s Corporation. “Moody’s model – when you look at it on April 30 – hasn’t changed much. But, could that change more in May and June? It’s quite possible.

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