Moody’s downgrades outlook for Canada’s banks

first_imgJames Langton G7 tax pledge may be upstaged by CBDC work Moody’s says that the Canadian government’s plans to implement a ‘bail-in regime’ for domestic, systemically important banks, coupled with the global trend by governments to seek increased ‘burden-sharing’ from creditors, is behind its decision to change its outlook on the banking system. “The accelerating global trend of governments to share the burden of bank resolutions with senior bondholders could reduce the predictability of government support in bank failure scenarios,” said David Beattie, senior vice president at Moody’s. “Most of the Canadian banks we rate receive rating uplift based on our very high expectation of support from the Canadian government and that expectation may diminish in the future.” Moody’s says that the banks’ strong earnings power, driven by their formidable franchises in a concentrated market, will be the Canadian banking system’s major strength over the next 12 to 18 months. However, it also cautions that their efforts to ramp up growth has led them to diversify into riskier businesses and geographies “which dilute their strong domestic credit profiles and represent a growing risk to the Canadian system’s stability.” Additionally, it notes that high household indebtedness and elevated housing prices remain key risks to banking system stability in Canada. High debt levels threaten banks’ strong results: Fitch Share this article and your comments with peers on social media U.S. action on climate benefits banks, asset managers: Moody’scenter_img Keywords Banking industry With expectations for government support declining, Moody’s Investors Service has changed its outlook for the Canadian banking system to negative from stable. The rating agency says that its assessment of the credit quality of the Canadian banks it rates remains unchanged, and that Canada remains one of the highest rated banking systems in the world. Nevertheless, the outlook has shifted to negative on reduced expectations for the support a failing bank would receive from the government. Related news Facebook LinkedIn Twitterlast_img read more