Although Canadian banks remain in a solid position, Canada’s overheated real estate market and high household debt levels pose a continuing risk, according to S&P Global Ratings’ mid-2017 report on the Canadian banks, published on Friday.

The report warns about continued macro risks to the big banks. In particular, S&P notes that household debt levels are elevated, and “still-growing”; and that debt growth continues to outpace personal income growth.

In addition, residential real estate prices remain high, particularly in Toronto and Vancouver, the report says. Furthermore, policy-makers have introduced regulatory changes designed to increase risk sharing by lenders.

Despite these challenges, S&P also says that it expects the banks to be able to weather any likely storm. For one, it notes that the banks reported solid earnings in the first half of 2017. It also saysthat they are well capitalized and that the Canadian mortgage system will insulate them from some of the risks posed by the housing market.

“We maintain stable outlooks on most Canadian banks in light of structural features that are expected to insulate Canadian banks from a housing-market downturn,” said Nikola Swann, credit analyst with S&P. “Furthermore, we believe positive operating leverage and capital levels provide an adequate buffer for the remaining risks.”

Photo copyright: macfromlondon/123RF