Backgrounder: Revised Regulatory Notice on Commercial Real Estate Lending

Overview

The Revised Regulatory Notice on Commercial Real Estate (CRE) Lending has been updated to clarify and reinforce expectations around forbearance practices for CRE lending. The updated expectations reinforce the importance of prudent forbearance practices, including sound internal policies, limits, risk governance and monitoring.

Forbearance refers to concessions granted to a borrower for reasons of temporary financial difficulty that would not otherwise be considered by the lender on market terms.

The Office of the Superintendent of Financial Institutions (OSFI) initially published the Regulatory Notice in September of 2023. It applies to federally regulated financial institutions (institutions).

Why it’s important

CRE is highly cyclical with the potential for significant losses when risks are not managed effectively. As discussed in OSFI’s 2024-25 Annual Risk Outlook, CRE continues to face stress and a high degree of uncertainty, particularly construction and development, and the office sectors. 

While OSFI recognizes the importance of institutions working constructively with CRE borrowers experiencing financial difficulty, gaps in identification and monitoring of borrower stress can delay appropriate action and increase the potential for higher than necessary losses.

Additionally, forbearance should not be applied in situations that will extend, mask or delay taking action to recognize or mitigate credit risk. Institutions should also carefully evaluate their use of forbearance to ensure appropriate provisioning and capital treatment, and alignment with their forbearance risk appetite.

Effective date

The Revised Regulatory Notice on CRE Lending comes into effect on November 21, 2024.