Ratings firm issues new warning over household debt, home prices
The current state and outlook for Canada’s banks remains good but Fitch says the sector is at risk from rising home prices and high household debt.
In its latest assessment this week, the ratings firm says that Canada’s banking sector has sound capital and solid liquidity coupled with consistent earnings and strong credit quality.
However, the ongoing risk from consumers’ debts and a potential slowdown in the housing market are concerns.
Not that Fitch is expecting a banking sector failure. It highlights that even if there was a severe house price correction the impact on the banks would be limited by CMHC mortgage insurance.
The more likely scenario is for a moderation of the growth of house prices or a decline, which the report says would be cushioned by policy action taken by provincial and federal government.
While the recently announced tightening of mortgage regulations which come into effect in January 2018 may well cool the housing market and dampen banks’ revenue from mortgage lending, Fitch believes that this will lead to greater stability for the sector longer term.
Household debt levels remain a concern and the report highlights that the expected increases in interest rates during 2018 may mean challenged consumers cutting back on consumption, which could mean a slowdown in the economy.
In its latest assessment this week, the ratings firm says that Canada’s banking sector has sound capital and solid liquidity coupled with consistent earnings and strong credit quality.
However, the ongoing risk from consumers’ debts and a potential slowdown in the housing market are concerns.
Not that Fitch is expecting a banking sector failure. It highlights that even if there was a severe house price correction the impact on the banks would be limited by CMHC mortgage insurance.
The more likely scenario is for a moderation of the growth of house prices or a decline, which the report says would be cushioned by policy action taken by provincial and federal government.
While the recently announced tightening of mortgage regulations which come into effect in January 2018 may well cool the housing market and dampen banks’ revenue from mortgage lending, Fitch believes that this will lead to greater stability for the sector longer term.
Household debt levels remain a concern and the report highlights that the expected increases in interest rates during 2018 may mean challenged consumers cutting back on consumption, which could mean a slowdown in the economy.
