Debt concerns lead to Canada banks rating downgrade

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OTTAWA: Moody’s has downgraded its ratings for Canada’s six largest banks by one notch, citing concerns over their exposure to risky mortgages.

The move targeted the Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, National Bank of Canada and the Royal Bank of Canada.

In a statement released late Wednesday, the agency said the banks are likely to face “a more challenging operating environment” as Canadians pile on more and more debt as they purchase homes at record-high prices, raising fears of a real estate bubble.

“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,” said Moody’s senior vice president David Beattie.


The downgrade means the banks will have to pay more to borrow money, which could lead to higher interest rates and fees charged to customers in order to make up for lost profits.

Moody’s noted an increase in private-sector debt to GDP to 185.0 percent in 2016, up from 179.3 for 2015.
The increase was led by Canadians’ household debt, which is now at a record high of 167.3 percent of disposable income and home price appreciations.

Following the announcement, the six banks’ stock price fell about one-two percent.

 

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