NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) has released its 2017 Canadian Banking Outlook report.
The 2017 financial outlook remains moderately negative for Canadian banks, reflective of the following factors: potential asset quality risks, uncertainties surrounding government support, relatively high levels of household debt in Canada, a sluggish Canadian economy, and vulnerability to any renewed pressure in commodity prices. However, at present, the largest banks in Canada continue to report solid capital ratios, profitable operations, and relatively low levels of impaired loans. Though the banks have overall strong financials, risks remain for the Canadian banking sector. The housing market in Canada remains frothy and is susceptible to negative trends in commodities particularly if these developments translate to higher unemployment over time. Partially mitigating housing market concern is the high proportion of mortgages insured by the Canada Mortgage and Housing Corporation (CMHC), a Crown corporation, and the generally sound mortgage underwriting practices in Canada, especially relative to the U.S. before the 2008 financial crisis. Moreover, the Canadian economy is exposed to energy, mining, and other commodities sectors which would likely impact asset quality, particularly if a negative trend in commodity prices is re-established. Commodity prices have generally rebounded from lows early in 2016 and many banks have already absorbed considerable losses related to direct exposure to commodity and related industries.
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