Fitch Completes Review of Canadian Banks

CHICAGO--()--Fitch Ratings has affirmed the ratings of the seven largest Canadian banking institutions by assets (referred to as Canadian Banks) following a peer review committee. The seven financial institutions included in this peer review are Bank of Montreal (BMO; rated 'AA-/F1+'), Bank of Nova Scotia (BNS; rated 'AA-/F1+'), Canadian Imperial Bank of Commerce (CIBC; rated 'AA-/F1+'), Caisse Centrale DesJardins (CCD; rated 'AA-/F1+')National Bank of Canada (NBC; rated 'A+/F1'), Royal Bank of Canada (RBC; rated 'AA/F1+') and Toronto-Dominion Bank (TD; rated 'AA-/F1+').

Please see separate rating action commentary for each institution detailing the specific rating action and rationale.

The Rating Outlook for the Canadian banks remains Stable.

Fitch's ratings for the Canadian banks remain some of the agency's highest ratings globally, supported by the banks' resilient operating performance over multiple cycles and most banks' preponderance of mortgages insured with the Canadian Housing and Mortgage Corporation (CMHC), which in effect makes any losses on these loans a sovereign obligation.

Additionally, the banks's good funding profiles and attractive access to wholesale funding markets also support their high ratings.

However, Fitch is becoming more and more cautious about macroeconomic concerns beginning to impact the Canadian banking sector. This includes a high level of consumer indebtedness in Canada, some overvaluation in the housing market, and to the extent that the drop in global oil prices causes higher credit losses or have negative spillover effects to the overall economy, this could also potentially impact ratings over time.

Additionally, Fitch believes that Canadian bank earnings have been supported by low provision expense over the last few years, and with the potential reversion in asset quality metrics, Fitch would expect higher provisioning to begin to weigh on overall earnings.

With the drop in earnings--particularly in the retail businesses--Fitch believes that some of the Canadian banks' earnings mix may skew more towards capital markets and wealth management. To the extent that this modestly increases the overall volatility of earnings, this could be a negative ratings driver.

Similarly, Fitch believes that the Canadian banks' asset quality metrics are near a trough and there is likely to be some reversion in asset quality metrics for the reasons noted above. To the extent that a banks' reversion in asset quality metrics is above peer levels or impact's the company's capital ratios could also impact ratings over time.

Fitch will published a special report on the Canadian banks entitled "Canadian Banks: Nearing a Tipping Point" in the coming weeks.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
+1-312-368-2057
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
or
Christopher Wolfe
Managing Director
+1-212-908-0771
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
+1-312-368-2057
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
or
Christopher Wolfe
Managing Director
+1-212-908-0771
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com