CREDIT QUALITY
Highlights of 2021
• The provision for credit losses on total loans represented nine basis points of average loans, compared to 32 basis points last year and well below our historical range of 18 to 23 basis points. • The provision for credit losses on performing loans represented an eight basis points recovery as a percentage of average loans, compared to a 14 basis point charge last year, primarily due to the impact of a more favourable macroeconomic outlook associated with the ongoing economic recovery. • The provision for credit losses on impaired loans as a percentage of average loans of 17 basis points was one basis point lower than last year and remained below our five-year average of 19 basis points. • Write-offs as a percentage of average loans (1) of 19 basis points remained below our five-year average of 20 basis points. • Gross impaired loans represented 0.61% of gross loans, compared to 0.85% last year.
(1) Non-GAAP measure – refer to definitions and detail provided on page 18.
IMPAIRED LOANS Loans are determined to be in default and classified as impaired when payments are contractually past due 90 days or more, when we have commenced realization proceedings, or when we are of the opinion that the loan should be regarded as impaired based on objective evidence. Objective evidence that a loan is impaired may include significant financial difficulty of a borrower, default or delinquency of a borrower, breach of loan covenants or conditions, or indications that a borrower will enter bankruptcy.
Table 12 - Change in Gross Impaired Loans ($ thousands)
2021
2020
Change from 2020
Gross impaired loans, beginning of year
$
257,141 199,514
$
148,250 310,704
$
108,891
73 %
New formations
(111,190)
(36)
Reductions, impaired accounts paid down or returned to performing status
(196,231)
(153,282)
(42,949)
28
Write-offs
(58,100)
(48,531)
(9,569)
20
Total (1)
$
202,324
$
257,141
$
(54,817)
(21) %
Balance of the ten largest impaired accounts
$
77,227
$
72,311
$
4,916
7 %
Total number of accounts classified as impaired (2)
330 282
420 365
(90) (83)
(21) (23)
Total number of accounts classified as impaired under $1 million (2)
Gross impaired loans as a percentage of gross loans (3)
0.61 %
0.85 %
(24) bp
(1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $2,253 (October 31, 2020 – $4,357). (2) Total number of accounts excludes CWB National Leasing. (3) Total loans do not include an allocation for credit losses or deferred revenue and premiums.
bp – basis point
The dollar level of gross impaired loans at October 31, 2021 totaled $202 million, down from $257 million last year. This amount represented 0.61% of total loans compared to 0.85% last year. The level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved, and does not directly reflect the dollar value of expected write-offs given tangible security held in support of lending exposures. Gross impaired loans decreased across all provinces during the year. Gross impaired loans also declined across most portfolios, with the exception of our general commercial loan portfolio. New formations of impaired loans totaled $200 million, compared to $311 million last year. Strong resolutions of $196 million this year were up from $153 million last year, which reflected our ongoing proactive management of the loan portfolio through the ongoing development of our Special Asset Management Unit, a team that specializes in resolving troubled loans and minimizing credit losses. The loan portfolio is delineated by the assignment of internal risk ratings to each borrower, which are based on assessments of key evaluation factors for the nature of the exposure, applied on a consistent basis across the portfolio. Risk ratings are updated at least annually for all loans, with the exception of personal loans and mortgages. We regularly review the overall loan portfolio and undertake credit decisions on a case-by-case basis to provide early identification of possible adverse trends. We continue to carefully monitor the entire loan portfolio to assess evolving risk profiles, with a focus on industries particularly affected by restrictions put in place to slow the spread of the COVID-19 virus, including restaurants and hotels. Our exposure within these industries is well-diversified and supported by high-quality, resilient borrowers, and have delivered very stable credit performance through the pandemic so far. Our strong credit risk management framework, including well-established underwriting standards, the secured nature of our lending portfolio with conservative loan-to-value ratios, and proactive approach to working with clients through difficult periods is further enhanced by our AIRB tools and has continued to be an effective approach. This is demonstrated by our history of low write-offs as a percentage of average loans, including through past periods of economic volatility. Refer to the Risk Management section of this MD&A for additional information.
32 | CWB Financial Group 2021 Annual Report
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