“Nobody knows”: Home Capital’s loan loss provisions are soaring and preparing for the unexpected

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Home Capital Group Inc. posted triple-digit growth in funds set aside in the last quarter for loans that could deteriorate, a potentially worrying sign of credit quality in Canada. But CEO Yousry Bissada is not ready to guess how hard Canadian households will be affected by COVID-19.

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

“No one knows what the new normal – and back to the new normal – how much it will affect positively, or how quickly it will affect positively [Canadian livelihoods], ” he added. “It is a wait-and-see attitude, and it is” go get the data “and look at it every time and try to reflect it as best or as precisely as possible. “

Home Capital said on Thursday that its loan loss provisions jumped 674.4% to $ 30.2 million in the first quarter of 2020 from the last quarter of 2019. On an annual basis, provisions increased by 397.9%.

“This largely reflects an accumulation of performing loan losses resulting from the uncertain macro environment caused by the blockages associated with COVID-19,” wrote Graham Ryding, TD securities analyst, in a report to clients.

Despite the increase in provisions, Home Capital’s net income remained stable during 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 mortgages in the first quarter, corresponding to the amount recorded in the previous quarter.

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

Bissada says he cannot speculate on how or when Canada will recover, as his company data must come from a period that ended just as the pandemic began to slow economies Canadian and global.

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



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