Fitch completes bank review, warns of housing over-valuation

Ratings agency Fitch has completed its review of Canada’s largest lenders and has rated all but one of their outlooks as ‘stable’. BMO, Bank of Nova Scotia, CIBC, Caisse Centrale DesJardins, National Bank and TD are all held at stable with Fitch highlighting their “consistent performance” and “good funding profile”. RBC though has been downgraded to a negative outlook from stable due to fears that the bank’s “credit performance and future earnings volatility may be higher than Canadian bank peer averages as well as in comparison to similarly rated global financial institutions.”

Overall, Fitch says that Canadian banks are expected to outperform global peers but warns of macroeconomic conditions which could create issues. The agency says it believes the Canadian housing market is overvalued by 25 per cent and although the risks to the lenders, and to the CMHC, are manageable under current conditions, it warns that if oil prices lead to a sharp rise in unemployment then credit deterioration could hasten.

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