Fitch Ratings has affirmed the ratings of the seven largest Canadian
banking institutions by assets (referred to as Canadian Banks) following
a peer review. The seven financial institutions included in this peer
review are as follows: 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
The Rating Outlook for RBC has been revised to Negative from Stable.
This Outlook revision is driven by Fitch's view that RY's credit
performance and future earnings volatility may be higher than Canadian
bank peer averages as well as in comparison to similarly rated global
financial institutions. In addition, RY's tangible capital ratios, while
satisfactory and supportive to the rating, compare less favorably to
other similarly rated financial institutions. For complete discussion,
please see full release on Royal Bank of Canada dated Jan. 25, 2016.
The Rating Outlook for BMO, BNS, CIBC, CCD, NBC and TD is maintained at
Stable. The Stable Outlook is supported by Fitch's view that Canadian
banks have solid fundamentals evidenced by their consistent performance
through various downturns and global shocks. Further, the banks have
good funding profile with strong access to wholesale funding and solid
Although Fitch recognizes that the Canadian banking sector is likely at
an inflection point in terms of performance, the expectation remains
that Canadian banks will continue to compare favorably versus global
peers, which continues to support their high ratings level.
Nonetheless, Fitch remains cautious given the negative trends in
macro-economic factors. As such, all Canadian Banks are vulnerable to
credit deterioration in their domestic loan portfolios, particularly at
a time when consumer indebtedness is at record high levels. Further,
Fitch believes that the Canadian housing market is overvalued by over
25% creating some downside risk. Importantly, the Canada Mortgage and
Housing Corporation (CMHC) insures a large portion of the mortgages on
bank balance sheets, which means that any wider systemic risks will more
likely have implications for the sovereign.
For now, these risks have been manageable given the steady unemployment
rate, low interest rate environment, and low inflation. However, should
the rapid decline in global oil and gas prices pressure the broader
economy in Canada that leads to a sharp rise in unemployment, Fitch
believes credit deterioration could be hastened. Fitch has highlighted
asset quality deterioration as a rating sensitivity for ratings for all
In Fitch's view, most of the Canadian banks direct exposure to oil & gas
lending appears manageable when compared to total loans. Nonetheless,
banks could still be susceptible to losses should the oil price find an
equilibrium point much lower than stress tests have indicated and if it
takes multiple years for oil price to recover.
For 2016, Fitch believes most Canadian banks earnings will be challenged
given the view that provision expenses will likely increase, the
persistent low rate environment, and economic pressures in their home
market. For further discussion, please refert to the Canadian Bank Peer
Review Special Report, which Fitch intends to publish shortly.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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