Earnings growth for the top-six Canadian banks will moderate in 2013, according to Fitch Ratings. Fitch's ratings, however, incorporate the expectation that profitability at these institutions will remain at sound levels.
Fitch expects future earnings performance will come against a relatively less favorable backdrop of various market conditions. These include ongoing risks in the Canadian housing market, global economic headwinds, slowing loan growth, margin compression, increased provisions, and greater competition.
In Fitch's view, the main domestic threat to Canadian bank stability is the record level of consumer indebtedness and the risk of overvaluation in the housing market. The increased vulnerability of Canadian households to an adverse shock could pressure Canadian banks' ratings should borrowers' ability to pay weaken due to a worsening of domestic or global economic conditions.
Capital levels are commensurate with the Canadian banks' asset mix and loss experience and leave the banks well positioned to withstand a moderate housing stress. Continued profitability has aided in preparing for higher capital requirements under Basel III rules effective in 2013, ahead of the international 2019 deadline.
Following a peer review, Fitch affirmed its ratings on the big six Canadian banks with a Stable Outlook on Jan. 28, 2013. Fitch views the risk associated with the Canadian housing market and the global economic headwinds to be mitigated by the banks' solid capital levels, sufficient liquidity positions, and consistent earnings profiles.
The 'Big-Six' banks in Fitch's portfolio are: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada.
The full report 'Canadian Banks: 2012 Results and Performance Outlook' is available at www.fitchratings.com.
Additional information is available at www.fitchratings.com.