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Some of Canada’s largest banks have extended programs that allow clients to defer payments on personal loans through the end of September, signalling that many borrowers still need support even as some early deferrals have expired.

Royal Bank of Canada and Toronto-Dominion Bank have each pushed back the deadline to apply for deferrals until Sept. 30, extending the window to pause payments on mortgages, credit cards, lines of credit and other loans for up to six months, depending on the product.

Canadian Imperial Bank of Commerce will also approve new mortgage deferrals for clients that haven’t yet used the program until Sept. 30, and extend other help to personal banking clients on a case-by-case basis, spokeswoman Trish Tervit said. Bank of Montreal and National Bank of Canada are granting extensions based on each client’s needs, spokespeople said.

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A Bank of Nova Scotia spokesperson declined to comment.

What you need to know about managing your finances during the pandemic

Banks are still getting new requests for deferrals – about 400 in an average week at RBC, for example – though demand has dropped dramatically from the early weeks of the COVID-19 crisis. By extending the period, banks are looking to keep the pressure off hundreds of thousands of clients, many of whom lost income as the pandemic locked down large parts of the global economy. But the extensions also prolong uncertainty about how the deferrals will be unwound without tipping borrowers into default, which has emerged as a key concern for regulators, investors and analysts.

The deferral programs “mask growing credit risk, make it more opaque,” said Jamey Hubbs, assistant superintendent in charge of regulation at Canada’s banking regulator, the Office of the Superintendent of Financial Institutions. At a May event held by the Global Risk Institute, he said OSFI is trying to gauge how likely it is that there could be a wave of defaults after deferral programs expire, and asking: “Do they create potential cliff effects?”

“I do get concerned about our ability to understand and to see and be prepared for potential credit risks, primarily credit risks, that might be building,” he said.

At RBC, the country’s largest lender, about 370,000 clients have taken deferrals on 450,000 loans, meaning some clients have paused payments on more than one loan. About a quarter of those customers took one-month deferrals, more than 35 per cent took the maximum six months, and the rest asked for between two and five months.

More than 90,000 one- and two-month deferrals expired by the end of May, and about 80 per cent of those clients resumed making payments. The other 20 per cent had their deferrals extended. And some clients voluntarily made payments even during their deferral period – including 64 per cent of customers with deferred credit card payments.

“Many clients took deferrals who really weren’t in financial distress,” said Jacqui Allard, RBC’s executive vice-president of personal financing products, in an interview. “They just wanted the surety of cash flow flexibility until they determined what the impact would be on them.”

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For many more clients, however, payments are still on pause. Much of TD’s lending is in regions of Canada that are only starting to loosen restrictions to control the spread of the novel coronavirus that causes COVID-19, and “only a small portion of our customers who opted for payment deferrals have returned to full payment status,” said spokeswoman Ana Aujla.

At National Bank, “most clients ending a deferral return to regular payments,” said spokesperson Jean-François Cadieux, in an e-mail. “For those still in need, teams will also look for personalized solutions.”

Banks such as CIBC have also been reaching out to clients before deferrals expire “to assess how they are doing and ask how we can assist them,” Ms. Tervit said. For customers in more serious financial distress, the bank will seek to create “a sustainable long-term plan in place to get them back on track,” she said.

To date, RBC has been in touch with more than three million clients, most of whom haven’t yet asked for deferrals, through a check-in program. “It’s hard to say what’s going to happen when they expire, but we’re not going to wait until they expire,” Ms. Allard said. “We’re trying to get in front of it.”

In turn, she said, the data on customers’ financial situations are available in real-time for risk managers, helping the bank plan for potential credit losses as relief programs end and the economy reopens.

Ms. Allard said RBC will adapt to client needs, but she doesn’t think another extension of the deferral program beyond September will be necessary. For those facing serious financial hardship, “I don’t think further deferrals is what’s in the best interest of that client,” she said. “Kicking the can down the road isn’t going to help them.”

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