Principles of Mortgage Loan Portfolio Formation in Commercial Banking

Citation: Jinye Zhang, "Principles of Mortgage Loan Portfolio Formation in Commercial Banking", Universal Library of Business and Economics, Volume 02, Issue 03.

Copyright: This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This article is dedicated to the principles of forming a commercial bank’s mortgage loan portfolio, drawing on Canadian practices and comparing them with international approaches. The relevance of the topic is driven by the high share of mortgage assets on bank balance sheets and the increased debt burden of households. The novelty is formulated by linking regulatory requirements, insurance mechanisms, diversification, and asset-liability matching into a unified risk management framework. The paper describes underwriting standards, the logic of mandatory and portfolio insurance, diversification strategies that account for climate factors, and the impact of securitization on liquidity and capital. The study examines regulatory documents, industry reports, and academic publications on credit risk and stress testing. Particular attention is given to the consequences of short-term interest rate fixation in Canada and the impact of term renewals on portfolio stability. The work aims to develop a set of principles for maintaining an acceptable risk-return trade-off. To achieve this objective, comparative analysis, synthesis, regulatory analysis, and elements of scenario-based stress testing were employed. The conclusion describes the practical applicability of the findings for banks and supervisory authorities. The article will be useful for risk managers, regulators, and researchers of banking stability.

Keywords: Mortgage Portfolio, Mortgage Insurance, Diversification, Liquidity, Securitization.

https://doi.org/10.70315/uloap.ulbec.2025.0203023