Between a weak economic environment and looming trade tensions, the outlook for the Canadian banking sector is gloomy for 2026, Fitch Ratings says.
In a report published Thursday, the rating agency maintained its “deteriorating” outlook for the sector, citing expectations for “muted” GDP growth in the year ahead and the downside risk posed by further trade disruptions.
“A prolonged trade impasse would likely dampen investment and intensify cyclical pressures in exposed sectors,” Fitch said, adding that, “A material increase in tariffs would elevate asset quality risks, particularly for corporates with significant U.S. export exposure.”
Additionally, weaker household finances and slowing immigration represent headwinds for the banks too, it said.
In particular, the report cited “elevated household leverage and affordability constraints, especially for renters and mortgaged homeowners” as key risks to the outlook, noting that savings rates for both of these groups turned negative this year.
“Ongoing mortgage repricing in 2026 will further pressure consumer debt-service ratios,” it said.
The report added that any further interest rate cuts — which may ease the pressure on households — would still likely be negative for the Big Six banks.
While lower interest rates “should reduce banks’ funding costs, [this positive] will be offset by fixed-asset repricing headwinds and weaker domestic loan growth,” it said.
Finally, banks could also face increased competition from fintechs in 2026, Fitch said, as regulators facilitate open banking and the development of digital asset rules.