By Ketki Saxena
Investing.com -- The Canadian Imperial Bank of Commerce ( CIBC (TSX:CM)) has been under remediation orders from Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), for over a year, the Globe and Mail reports.
The bank has been under scrutiny from the OFSI after a routine regulatory audit conducted by OSFI, revealed breaches in rules that limit how indebted borrowers can be within their mortgage portfolio, according to sources familiar with the matter.
Thousands of clients were said to have lines of credit or home equity secured against their homes which when combined with a CIBC mortgage pushed them above acceptable thresholds for total debt obligations relative to their home’s value or income.
In some instances, while clients were required to close other credit lines as part of obtaining a CIBC mortgage, there was no follow-up by the bank to ensure compliance even after mortgages had been issued.
This discovery alarmed OSFI and led CIBC to engage consultants from Deloitte who helped review mortgages dating back decades and retool systems aimed at preventing such problems from recurring. In certain cases where non-compliance was identified quickly enough, adjustments could be made to bring loan profiles into line with regulatory requirements.
However, new batches of problematic mortgages continue being found on CIBC’s books even in recent months.
The issue initially affected retail clients but has since expanded to include those within the bank’s Simplii financial brand, CIBC's digital-only banking subsidiary.
As of now, the full extent of this issue remains unknown, and internal estimates suggest it could take up to two more years to fully resolve these issue.
The timing of these revelations coincides with OSFI expressing concerns about Canada’s competitive housing market amid rising interest rates, and has its raise the domestic stability buffer for banks from its current level of 3% to 3.5% of risk-weighted assets.
CIBC holds a higher proportional exposure to Canada’s mortgage market than any other Big Six banks, with mortgages and other loans secured against real estate accounting for approximately 55 per cent of its loan book.