The rating outlook for the big Canadian banks is expected to remain stable for the rest of 2018, absent a major negative economic shock, S&P Global Ratings says its Canadian Banks Midyear 2018 Outlook.
“Operating performance is likely to continue on a positive trajectory, with strong contributions from the banks’ domestic, U.S., and other international businesses,” Nikola Swann, credit analyst with S&P, sus in a statement. “We also expect asset quality metrics to remain stable and operating leverage to be positive.”
According to the report, the rating agency’s view also assumes that the domestic operating environment remains favourable for the banks, which is expected to drive positive revenue and earnings growth; coupled with rising interest rates, which would benefit operating performance, even as mortgage growth slows. Additionally, a continued benign credit environment will benefit earnings, the report says.
As well, disciplined cost management by the banks is expected to keep revenue growth outpacing expense growth, the report says.
Key risks to the outlook, none of which S&P currently expects, include:
- a sudden, sharp drop in home prices and a rise in unemployment, which would leave the banks facing higher loan losses;
- revisions to the North American Free Trade Agreement (NAFTA) could negatively affect industries to which Canadian banks make loans; and
- global macroeconomic instability, which could also impact the banks.
In addition, S&P has reviewed Canada’s new bank resolution (“bail-in”) regime — which will come into force on Sept. 23 — and kept its ratings and outlooks on the Canadian domestic systemically important banks (D-SIBs) unchanged.