The pandemic caused by the novel coronavirus is the most urgent challenge our country has faced in recent memory. The speed and global scale of this phenomenal crisis is unlike anything known in history.
Federal and provincial governments, public health authorities, and everyday citizens across Canada have done an exemplary job of helping to flatten the curve of COVID-19. To confront the financial dimensions of this challenge, the federal government, the Bank of Canada and prudential regulators have worked in lockstep with the country’s banks to align our collective efforts aimed at easing the financial impact of COVID-19. Together, we are mitigating the economic shock resulting from the necessary public-health measures that have disrupted the lives of many.
Quick and decisive action
Banks assembled quickly to help Canada through the unprecedented COVID-19 crisis. They immediately launched comprehensive programs to make a positive difference for those who need their help, and are committed to supporting individuals, businesses, employees, and communities as we come together to manage the financial uncertainty and economic disruption faced by our families, friends, and neighbours.
Mortgage deferral program
At this writing, almost 600,000 requests for mortgage deferrals or skip a payment have been completed or are in process since Canada’s banks announced a mortgage deferral program on March 17. Taken together, the country’s six largest banks have deferred roughly 12% of the mortgages in their portfolio, and small- and mid-sized banks have also deferred a significant number of the mortgages on their books. Banks of all sizes are providing relief to Canadian homeowners in their time of need, and some have publicly reported that more than 90% of those seeking a deferral are approved.
To contextualize the impact that brings, the average monthly mortgage payment of Canadian homeowners is $1,326i. This means the cash flow freed up for Canadians from the mortgage deferrals completed to date is roughly $778 million per month, or $2.3 billion per quarter. This keeps money in the pockets of people who need it now. That number will grow in the weeks ahead, as more deferral requests are processed by banks of all sizes.
Reducing credit card interest rates
To further help clients during this difficult time, several banks in Canada reduced interest rates on credit cards for customers who choose to defer their payments. Giving more options to Canadians affected by COVID-19 is a major step in helping manage their cash flow and other financial pressures.
Additionally, banks are working directly with their customers to offer financial relief on other credit products. Almost 200,000 credit card deferral requests have been completed since the deferral program was announced last month.
Access to low-cost credit, particularly during an unexpected shock, is critical to freeing up short-term cash flow to help Canadians weather the storm. Emergency government programs have been thoughtfully designed to help with temporary income replacement, but banks can offer additional channels through credit products at attractive interest rates, including personal lines of credit. Many banks also have hardship programs in place to help their customers make debt more manageable and structure the right solution – for example, rolling in credit card debt into term products with lower rates.
Facilitating access to emergency benefit
Several banks in Canada enabled access to Canada Revenue Agency’s (CRA) direct deposit so Canadians can quickly and securely access SIN-based benefits payments, including the new Canadian Emergency Response Benefit (CERB). People that are experiencing financial hardship due to COVID-19 are encouraged to use CRA’s direct deposit solution to access CERB faster and more directly.
Business support programs
Small businesses are the lifeblood of the Canadian economy and continued access to capital during this difficult time is all-important. In fact, the majority of business customers served by banks in Canada are small and medium-sized, and we understand the drastic effect of COVID-19 on these hard-working Canadians.
Banks in Canada have personal relationships with their small business customers and are working closely with the federal government to ensure clients have the support they need right now. To that end, banks are delivering fast access to the Canada Emergency Business Account (CEBA) program for small businesses confronting the significant challenges brought on by COVID-19. Under this new, $25-billion federal plan, small and medium-sized companies (SMEs) that need help to meet their operational cash flow requirements can access interest-free loans of up to $40,000 to manage through the financial impacts of the pandemic. Whole teams at banks have worked incredibly hard to operationalize this nation-wide program.
Beyond CEBA, banks are also working with the Business Development Bank of Canada (BDC) to provide loans to SMEs through a co-lending program between a business’s financial institution and BDC. Further, financial institutions are also working with Export Development Canada to administer loans to SMEs.
Community response efforts
Banks in Canada have a long history of standing by their customers and communities during both good and challenging times. As they have done before, Canada’s banks are working closely with all stakeholders to help Canadians through this unprecedented event and have made signification contributions to help to alleviate some of the pressure experienced by vulnerable members of our society.
In it together
For hundreds of years, Canada’s banks have helped Canadians through many challenging times, building global recognition for our financial strength, stability, and resilience.
Today, we find ourselves in another economic challenge. Without question, these are unprecedented and unsettling times that have put so many Canadian families and small businesses under strain.
We’ve been through challenging times before, but with the unwavering guidance of Canada’s banking industry working cooperatively with government, there are new solutions to come.
Canada’s banks will stand by Canadians and step up to help our country build a bridge to a strong future. Together, we will get through this.
i Canada Mortgage and Housing Corporation, Mortgage and Debt Data, www.cmhc-schl.gc.ca/en/data-and-research/data-tables/mortgage-debt.