CHICAGO--(BUSINESS WIRE)--Ratings for Canadian banks are Stable despite slowing consumer borrowing and the potential for credit deterioration at some point in 2014, according to Fitch Ratings.
Canadian bank earnings remain largely stable as low provisioning amid continued good credit quality and reasonable expense management continue to offset some margin compression. Furthermore, wealth management and capital markets revenue supported earnings as global equity and debt markets improved during 2013.
While Fitch currently believes that the Canadian housing market will experience a soft landing, a severer decline than expected could be driven by increased unemployment or interest rates, either of which would impact borrowers' ability to service outstanding debt. Catalysts for such changes could potentially include commodity market shocks or other exogenous macroeconomic factors that have contagion effects on the Canadian economy.
Canadian bank capital levels remain sound, and provide a buffer to absorb credit deterioration in the banks' consumer lending portfolios. Fitch has performed a point-in-time severe stress test on the consumer loan portfolio, indicating that the banks' capital position can withstand a stress in all but the most severe scenarios. In more severe scenarios it is likely the banks could take mitigating actions to support their capital levels.
On Jan. 24, 2013, Fitch completed a peer review of the seven large Canadian financial institutions in its portfolio and affirmed all ratings with a Stable Outlook. At present, Fitch views the risks associated with Canadian consumer indebtedness and the Canadian housing market to be mitigated by the banks' good capital levels and adequate liquidity positions.
The full report 'Canadian Banks 2013: Another Solid Year but Consumer Risks Lurk' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Canadian Banks: 2013: Another Solid Year, But Consumer Risks Lurk