Moody's Lowers Debt Ratings Of Six Canadian Banks
Zacks Investment Research | May 12, 2017 12:30AM ET
Moody’s Investors Service, the ratings service arm of Moody's Corporation (NYSE:MCO) has lowered the long-term debt and deposit ratings of six Canadian banks by a level, according to a Bloomberg report. This is because the rating agency believes that lenders are nowadays more vulnerable to losses amid increasing household debt and runaway housing prices.
The affected banks are The Toronto-Dominion Bank (TO:TD) , Bank of Montreal (TO:BMO) , The Bank of Nova Scotia (TO:BNS) , Canadian Imperial Bank of Commerce (TO:CM) , National Bank of Canada (OTC:NTIOF) and Royal Bank of Canada (NYSE:RY) .
Except for Toronto-Dominion, Moody’s has also cut its counterparty risk assessment for the remaining five firms.
As a result of the downgrade, Toronto-Dominion now has a long-term debt rating of Aa2 while the other five banks have a debt rating of A1. The outlook for all the six banks is negative.
Moody’s senior vice president, David Beattie, said in the statement: “Expanding levels of private-sector debt could weaken asset quality in the future.”
He added, “Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.”
Recently, a deposit related issue at alternative mortgage lender Home Capital Group Inc. created concern over a broader slowdown in the nation’s real estate market. It comes as a major concern as Canadians have recently started taking on higher levels of household debt.
Moody’s said, “We do note that the Canadian banks maintain strong buffers in terms of capital and liquidity, however, the resilience of household balance sheets, and consequently bank portfolios, to a serious economic downturn has not been tested at these levels of private sector indebtedness.”
Moody’s also said in its statement that housing prices have been increasing despite efforts by policy makers. It noted that private-sector debt amounted to nearly 185% of Canada’s gross domestic product in 2016.
Of the banks mentioned above, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce carry a Zacks Rank #3 (Hold). You can see Zacks Investment Research
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