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Fitch: Canadian Banks Rating Outlook Stable

Staff writer |
The Rating Outlook for rated Canadian banks is Stable for 2014, according to a newly published report from Fitch Ratings. Solid earnings and liquidity continue to balance against an otherwise negative sector outlook as a result of the caution surrounding the Canadian housing market.

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In Fitch's view, Canadian housing market growth and home prices have led to an unsustainable level of consumer indebtedness, as well as a degree of overvaluation in the housing market. This is particularly the case in the Vancouver and greater Toronto areas, which could make housing-related losses at the banks more regionalized. The Canadian housing market is Fitch's key macroeconomic driver for the banking sector.

Fitch recognizes the Canadian government's attempts to slow housing market growth through various measures, assisted by high mortgage rates. Fitch's base case scenario encompasses the expectation of a leveling of the housing market with consumers actively deleveraging their personal balance sheets.

Fitch's Canadian bank ratings are among the highest rated in the agency's global portfolio. Earnings remain solid, given the continued strength of the mortgage and housing market. The result is an increase in volumes and very low provisioning as home prices remain elevated.

Fitch also notes that wealth management earnings also improved amid higher global markets and ongoing efforts to build out these business segments.