Canada’s financial system remains resilient but faces growing risks, particularly tied to household debt and global uncertainty, the country’s top financial regulator warns.
“To date, subdued growth and a softer labour market, particularly in regions most impacted by the changing trade dynamics, have characterized our risk environment. While considerable progress is underway to address these challenges, near-term economic threats remain,” the report says, adding that the “Canadian economy continues to contend with the negative impacts of the current geopolitical and trade environments.”
In real estate secured lending, the report says, housing activity is subdued amid trade uncertainty and weak consumer confidence. At the same time, falling sales and prices—especially in Toronto and Vancouver—are contributing to rising borrower stress and expected increases in mortgage arrears.
The condo market is particularly strained, and “sales have fallen to levels not seen since the 1990s and are insufficient to absorb the excess inventory built up over the past few years,” OSFI says. “Supply-demand imbalances have resulted in significant price declines, and many new condos are now worth less than their presale purchase prices.”
At the same time, a wave of mortgage renewals—many originating from the low-rate period of 2021–2022—is expected to significantly raise monthly payments for borrowers, potentially aggravating affordability and refinancing risks, OSFI says.
Risks tied to non-bank financial institutions are also growing, as hedge funds and private capital firms use leverage and play a larger role in credit markets, the report says. Stress in these entities could spill over to banks through counterparty exposure, funding strains, or reduced credit protection, especially given the increasing use of complex risk-transfer arrangements, it says.
The regulator says structural risks include vulnerabilities in commercial real estate, rapid adoption of artificial intelligence, escalating cyber threats, reliance on third-party service providers, and integrity risks such as money laundering—all of which could amplify stress in the financial system if conditions deteriorate. These structural risks are most evident in the housing and mortgage market.
Although mortgage arrears in Canada remain low by historical standards, they have begun to edge higher as borrowers adjust to elevated interest rates, according to the report. Many homeowners who secured mortgages at lower rates now face much higher payments upon renewal, increasing pressure on household finances.
The banking sector remains stable, but inflation, higher borrowing costs, and economic uncertainty can still affect homeowners by tightening credit and raising debt-servicing burdens, it says. As these pressures build, some borrowers may find it more difficult to keep up with payments, particularly if housing prices soften or employment conditions weaken, potentially leading to a gradual rise in mortgage delinquencies, OSFI says.
