The credit rating outlook for Canadian banks is stable in the year ahead, Fitch Ratings says, although it has a negative view on the sector itself.
The rating agency released its outlook for Canadian banks in 2014 Monday, noting that the credit outlook is stable as solid earnings and liquidity are balanced against a negative sector outlook due to the caution surrounding the Canadian housing market.
Fitch maintains that the growth in the Canadian housing market, and home prices in particular, have led to an unsustainable level of consumer indebtedness, as well as overvaluation in the housing market. And, it says that the Canadian housing market is its key macroeconomic driver for the banking sector.
But, despite these concerns, Fitch expects the market to level off, or decline modestly, not to drop precipitously. It cites the Canadian government’s attempts to slow housing market growth through various measures, as one reason for its base case expectation of a leveling of the housing market.
Moreover, it notes that the banks remain highly rated. Their earnings are solid due to the continued strength of the mortgage and housing market, it says. Fitch also notes that wealth management earnings have also improved amid higher global markets and ongoing efforts to build out these business segments.
The major Canadian banks also have solid liquidity profiles and have increased access to wholesale funding markets, it says.