Moody’s downgrades ratings for Canada’s big banks amid consumer debt worries

Moody’s downgrades Canada’s six big banks

TORONTO — Moody’s Investors Service has downgraded Canada’s six big banks amid worries about growing consumer debt and housing prices.

David Beattie, a Moody’s senior vice-president,said the downgrade reflects an ongoing concern that expanding levels of private-sector debt could weaken asset quality in the future.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past,” Beattie said.

The debt-rating agency said it expects TD Bank (TSX:TD), Bank of Montreal (TSX:BMO), Scotiabank (TSX:BNS), CIBC (TSX:CM), National Bank (TSX:NA) and Royal Bank (TSX:RY) will face a more challenging operating environment for the remainder of this year and beyond.

Moody’s downgraded the baseline credit assessments, the long-term debt and deposit ratings and the counterparty risk assessments of the banks and their affiliates by one notch, with the exception of TD Bank’s counter party risk assessment which was affirmed. It also maintained its negative outlook for the relevant ratings on the six banks.

A lower debt rating may mean an increased cost of borrowing for the big Canadian banks.

Despite moves by the federal government in recent years to cool the housing market, Moody’s noted that house prices and consumer debt levels remain historically high and business credit has also grown rapidly.

“We do note that the Canadian banks maintain strong buffers in terms of capital and liquidity,” the report said.

“However, the resilience of household balance sheets, and consequently bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness.”

The Canadian Press


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