Canadian banks’ higher reliance on interest-bearing deposits and wholesale funding make them more susceptible to future interest rate hikes, which will be pivotal heading into next year, New York-based Fitch Ratings said Friday.
Specifically, in the wake of 75 basis points (bps) in rate hikes over the past 12 months in both the United States and Canada, the Canadian banks’ cost of funding increased by 49 bps, whereas U.S. banks’ funding costs are up by 37 bps.
“While U.S. banks are comparably fragmented in terms of pricing power, Canadian banks’ higher cost of customer deposits also reflects a higher proportion of interest-bearing deposit funding,” Fitch says in a news release.
“With the prospect of more rate hikes working their way through the banking system, Canadian funding costs will remain more sensitive than U.S. banks due to structural differences,” Fitch says.