Author: Juan Francisco Raful Linkedin: https://www.linkedin.com/in/juanraful/ Date: March 2023

Executive Summary

Strengths

• Robust go-to-market execution: EQ Bank’s market share strengthened by 47 bps in 2022 in residential mortgages and 25 bps in deposits from individuals. The residential mortgage outstanding balance grew 38.2% YoY. EQ captured more share of this market than any domestic bank in 2022.

• Competitive product offer: EQ Savings Plus accounts are the market's most competitive saving products for everyday banking at the current juncture.
• Growth Resiliency: EQ’s residential mortgage growth is less sensitive to rate increases than all its competitors. Most domestic banks' residential mortgage growth rate tanked in October with an MoM expansion of 0,3% vs. an average 0.8% MoM expansion in the year’s first nine months. On the contrary, EQ’s organic growth and Quebec expansion boosted growth during Q4.

Weakness

• Credit Risk is spiking: 18% of the outstanding balance of the residential mortgage book is in stage 2 or 3; this is more than four times the ratio of the industry for a residential mortgage which is currently at 4.4%.

Threads

• House prices and expectations: declining home prices elevate the cost of risk by weakening the Loan To Value of the book. Pessimistic expectations over home prices slow transactions, increasing the Loss given default as it is harder to rotate inventory. This also threatens growth objectives and the general pace of the business.

Opportunities

• Consumers boost savings: Inflation increases demand for yield on cash; EQ Saving plus account offers the most competitive offer in the market for everyday banking.
• Not for sale: Declining home prices increase the demand for reverse mortgages as expectations of lower prices impact the decision to sell a house. Under these conditions, it might make more sense for a consumer to acquire a reverse mortgage.

Strategies

• Proactive collection → Invest in forecasting the book’s elasticity to interest rate to identify clients more sensitive to interest rate increases and inflation. Execute a campaign to assess each client’s situation, inform about contact lines, disclose payment alternatives, and push EQ Card as an option to generate more income.
• Push the dip → Clients less risk-sensitive to interest rate hikes and inflation can be more responsive to investing and taking advantage of low home prices. Leads for targeted campaigns will also signal financial health.

Analysis

Market share by product line, December 2022. Source: OSFI. The loan outstanding net of provisions and loss allowance.

Market Share