TORONTO — The tough new Basel 3 capital rules combined with slowing consumer loan growth have prompted a strategic shift in Canadian Imperial Bank of Commerce's approach to its mortgage business.
Because of the new Basel rules, CIBC, the fifth-largest lender in Canada by assets, "spent a lot of time" looking at the efficiency of its balance sheet and examining the drivers behind volume and net interest margin, or NIM, growth. It concluded that "deeper client relationships" and investment in its branch and mobile banking business contribute more to NIM growth than volumes, Gerald McCaughey, CIBC's chief executive, said on a fiscal fourth-quarter earnings call.
CIBC, which sources as much as 41% of its mortgages through brokers, won't rely as much on mortgage brokers, focusing instead on selling mortgages through its branches to prepare for Basel and combat low interest rates and fierce domestic competition. "We're trying to pick our channels with net interest rate margins in mind," David Williamson, CIBC's group head, retail and business banking, said on the call.
It's been pricing its mortgages slightly higher in the broker channel to get its broker NIMs closer to its branch NIMs to shift the client relationship inhouse, said Williamson.
"We are going to be targeting businesses and client activities that as much as possible occupy both sides of the balance sheet," added McCaughey.
"To only occupy one side of the balance sheet, with a very narrow NIM product that does not have any attraction to the other side of the balance sheet and no margin, it's just a net. The other side (wholesale funding) is of diminishing value in any event, but of faster diminishing value in the world of Basel 3."
With expectations of slowing consumer loan growth, it's "even more important" to target "higher value-add relationships," McCaughey said.
