So that gives us confidence with our base outlook because it’s based on a bottoms-up assessment of all of those moving parts.
Lemar Persaud: Thanks, I’ll adhere to the one question.
Operator: Thank you. The following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Sohrab Movahedi: Okay, thank you. Capital ratio is going to look pretty strong. Maybe a question for Victor and/or Hratch. Can I get a sense of what are the priorities and at what sort of levels are you comfortable running the cap ratios for the bank, given the type of outlook that you’ve kind of presented to us? And I guess implicit in that, Hratch and Victor, is whether or not you intend to continue to keep the DRIP on? Thank you.
Victor Dodig: Good morning, Sohrab. Thanks for that question. We’ve been as a leadership team, very focused on accreting capital over the course of the year. And as I said in my opening remarks, we’ve done that every quarter through organic capital generation, through our DRIP, as well as through a strategic risk transaction. We continue to focus on a strong capital level. We look at it through three lenses. What is the regulatory stance today vis-a-vis the buffer that OSFI has put in place? How do we compare against our peer group? And three is how do we view the macroeconomic environment? Our goal is to continue to maintain a strong level of capital and liquidity. I’ll hand it over to Hratch to take it through the numbers, how we think about the buffer, how we think about the DRIP. But you can rest assured that that focus of ours as a leadership team on capital is paramount.
Hratch Panossian: Thanks for the question, Sohrab. Let me just add a little bit to what Victor said. First of all, we have very strong capital generation on an ongoing basis, and we do not need the DRIP on in order to continue growing our business and delivering on the EPS targets that we’ve laid out. If you look at any given quarter, we generate 25 basis points to 30 basis points of capital net of our dividend payments and our ROE is such that that allows us to grow our risk-weighted assets in the high single-digits and continue growing our business alongside with that. And so what that means is over — the DRIP program over this year has been to absorb the headwinds and to drive our capital ratio up. And we talk about how much we’ve driven the capital ratio up year-over-year 70 basis points, but that is after having absorbed a significant amount of headwinds through some of the legal charges, some of the regulatory changes, and so forth that have happened.
So that’s what the DRIP has allowed us to do. We’re in a good place now. If you look at those three factors Victor spoke about, there’s still a little bit of uncertainty around regulatory requirements where they stabilize around the peer group and where it stabilizes, we’re in a very good place entering north of [12.5%] (ph) and accreting from there in 2024. And we’ll look at as we get more certainty on those factors. Once we’re satisfied that we’re stabilizing around these levels on a relative and absolute basis, we’re able to shut down the DRIP and able to continue growing our business through our strong organic generation.
Sohrab Movahedi: Thank you.
Operator: Thank you. Our following question is from Nigel D’Souza from Veritas Investment Research. Please go ahead.
Nigel D’Souza: Thank you. Good morning. This is another question for Frank. On performing credit losses this quarter, a couple of factors here. First, it doesn’t look like your FLIs fully reflect the recent softening macroeconomic outlook and specifically on home prices, I would understand your economic team has negatively revised the outlook for house prices for 2024. So just wondering how sensitive your performing PCLs would be to that downward revision in home prices and maybe some comments on why you elected not to apply management overlay to build more provisions given the challenging macroeconomic backdrop?
Frank Guse: Yeah, so thanks for the question, Nigel. Overall, as I said, we feel very comfortable with our allowances. We reflected some of those adjustments last quarter and didn’t feel like there was anything that we had to add materially this quarter for those outlooks. Generally, and across all products, I would say, it’s probably debt service ratios, unemployment, GDP, that is more sensitive to actual PCLs. House prices, of course, would play a role in the mortgage allowances, but that is an area where we actually have built quite a lot of reserves. And then again, we are reflecting a variety of outcomes and have adequately reflected that in our allowance.
Nigel D’Souza: Okay, that’s my one question. Thank you.
Operator: Thank you. Our following question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca: Good morning. On this new Canadian mortgage charter, I’ve gone through it and I am having a little difficulty finding stuff that’s brand new. Just high level from your perspective, is there anything in there that’s new that affects CIBC that could affect earnings or capital? That’s my first question.
Victor Dodig: You’re right. It’s very well aligned with previous guidance and expectations. It’s something that we do. We work with clients in financial hardship and we try to get to the best possible outcomes with our clients wherever possible. So there’s nothing new that I would say that sticks out and would impact us as we already have established practices of how we work with clients in financial hardship.
Mario Mendonca: Two quick follow-ups on that then. So the notion that banks can’t charge interest on interest, presumably that only applies to mortgages that fall under that relief category under the charter. It doesn’t apply to existing mortgages that are a negative M. Is that appropriate? Is that fair?
Victor Dodig: That is our understanding.
Mario Mendonca: And then finally on the hardship, when mortgages fall into hardship, does that necessarily increase the capital requirements and is that meaningful?
