Mortgage renewals, cyber threats, and weak oversight could pressure Canada's financial system stability
Canada has the highest household debt-to-GDP ratio among G7 nations, according to the International Monetary Fund’s 2025 Financial System Stability Assessment.
More than half of Canadian mortgages will renew by 2026 at likely higher rates.
This renewal cycle could strain household finances and increase delinquencies if economic conditions worsen.
While this reflects strong access to credit and widespread homeownership, it also exposes households—and the broader financial system—to sharper risks if interest rates rise, unemployment increases, or housing markets decline.
The IMF projected that under an adverse scenario, mortgage default rates could rise to 0.9 percent for uninsured loans and 1.4 percent for insured ones.
Corporate defaults could also climb from 0.5 percent to 1.3 percent by 2027.
Although Canada’s mortgage delinquency rate remained low at 0.2 percent as of December 2024, the IMF cautioned that payment burdens could increase, raising the risk of defaults in the medium term.
Despite these risks, the IMF stated that Canada’s financial system remains broadly resilient.
Banks, insurers, and pension funds are well-capitalized and capable of withstanding severe economic shocks.
The Common Equity Tier 1 (CET1) capital ratio stood at 13 percent in 2024, well above the global regulatory minimum of 4.5 percent and exceeding the generally recommended range of 10 to 11 percent.
Liquidity coverage ratios for the six largest banks were also above 125 percent, as per the IMF.
The report noted that total assets of Canadian financial institutions reached 756 percent of GDP in 2024—an increase of 43.3 percent since 2019.
Non-bank financial institutions (NBFIs) now hold 65 percent of total assets. Investment fund assets grew from $2.6tn in 2020 to $3tn in 2023, equivalent to about 110 percent of GDP.
Canada’s pension funds held $2.2tn in assets in 2023, or 75 percent of GDP, making it one of the largest pension sectors in the G7.
The IMF said that the insurance market ranked ninth globally in terms of written premiums.
However, the report identified significant gaps in oversight, particularly for NBFIs and large pension plans. While these sectors have grown in size and complexity since the last assessment in 2019, regulatory coordination and data collection have not kept pace.
The IMF flagged inconsistencies in supervision, limited stress testing, and a lack of comprehensive oversight frameworks.
In addition to real estate exposure, the IMF pointed to rising cyber threats and climate-related risks.
It described cyberattacks as a “high” risk to the financial system, with the potential to disrupt payments and operations.
Climate-related disasters, such as wildfires and floods, were assessed as medium-level risks, with the potential to trigger credit and liquidity stress in affected regions.
The IMF’s findings underscore the importance of enhanced interagency coordination, improved regulatory oversight, and robust stress testing to address vulnerabilities across the system.
While capital and liquidity positions remain strong, the report urged continued vigilance, particularly around household leverage and the evolving risk landscape.
