The recent changes to mortgage rules designed to curb household debt are a positive for the credit outlook of the Canadian banking system, say analysts with Moody’s Investors Service.

A research note by Peter Nerby, senior vice president at Moody’s, says that “changes to the government’s mortgage guarantee insurance program that are intended to curb consumer mortgage indebtedness and cool the housing market … changes are credit positive for Canada’s banking system and their bondholders.”

While, in isolation, the withdrawal of government insurance for new home equity lines of credit is negative for the banks, according to Moody’s, the overall measures are positive for the banks and the stability of the Canadian system as a whole, it says, noting that the banks’ exposure to Canadian consumer debt has grown quickly over the past couple of years.

“One potential unintended consequence of tighter mortgage rules would be Canadian consumers continuing to increase their overall leverage through other means, including unsecured lines of credit,” it cautions.

IE