Moody’s downgrades ratings for Canada’s big banks

TORONTO — Moody’s Investors Service has downgraded Canada’s six big banks in another worrying sign about growing consumer debt and housing prices.

The cut reflects an ongoing concern that expanding levels of private-sector debt could weaken asset quality, Moody’s senior vicepresident David Beattie said.

“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.

Shares of TD Bank, Bank of Montreal, Scotiabank, CIBC, National Bank and Royal Bank all fell Thursday in the wake of the downgrade, which may increase their cost of borrowing.

Royal Bank fell 58 cents to close $92.75, while TD Bank fell 47 cents to close at $63.42.

David Madani, senior Canada economist at Capital Economics, said the downgrade comes amid mounting concerns about the housing market and its effect on the economy.

“Even the banks themselves have admitted recently that housing is a problem,” he said.

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 Moody’s 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.”

However, Madani noted that Canada’s banks have taken steps to protect themselves even if there is a major housing correction that leads to a broader economic slowdown.