The rating outlook for Canadian banks remains stable for 2020, says Moody’s Investors Service Inc.
In a new report, the rating agency pointed to a “favourable” operating environment along with banks’ solid liquidity and capital positions.
“Asset quality remains strong and problem loans are among the lowest in the global peer group,” Moody’s said.
Additionally, Moody’s noted that Canadian banks’ capital buffers have increased in recent years due to regulatory demands.
“The minimum common equity tier 1 requirement is now 10%, up from 8% just two years ago thanks to the implementation of a domestic stability buffer,” the report said. “Internal capital generation along with the higher common equity requirements will continue to build capital levels and provide a cushion against unexpected losses.”
Moody’s noted that high household debt remains a risk, even though the growth in debt has slowed.
“The debt service ratio, which measures how much of disposable income consumers are using to pay that debt, has now matched the peak of almost 15% reached in the last recession in 2009. Many consumers have now taken on the maximum amount of debt their incomes allow,” Jason Mercer, vice president at Moody’s, said in a statement.
“Employment remains strong, but bank asset quality will deteriorate from consumer insolvencies if there is a significant increase in unemployment,” he added.