Moody’s expects Canada’s banks to be stable over the next 12-18 months due to high concentration and stable policies. The Canadian housing bubble still looms as a threat.
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“Our outlook on the Canadian banking system is stable. The credit profiles of the major banks that are the focus of this report benefit from sustainable double-digit market shares across all significant retail and commercial financial services and products. These strong market positions provide the large banks in this concentrated banking system with scale and recurring earnings power, as well as efficiency advantages that present formidable barriers to competitive entry in their domestic market.
The major Canadian banks have leading profitability and asset quality metrics compared with international peers, and their capital levels are sound. While low consumer loan growth and low interest rates will pressure bank profitability, this is unlikely to become a key credit concern over the outlook period of 12-18 months. The banks’ domestic retail and commercial franchises are very profitable, primarily owing to low-risk activities centered on the banks’ residential mortgage platforms. The residential mortgage portfolios are strongly protected by government-supported insurance on approximately 65% of the system’s residential mortgages. The creditworthiness of Canadian banks is also supported by relatively modest and well-diversified corporate exposures. Key threats to the stability of the Canadian banking system are high household indebtedness, elevated housing prices, and the banks’ diversification strategies outside of their domestic retail and commercial operations. Elevated Canadian household indebtedness leaves…”
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