Moody’s down­grades rat­ings for Canada’s big banks

The Hamilton Spectator - - BUSINESS -

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.

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