The latest assessment from Fitch Ratings says the banks have strong capital, liquidity, earnings and credit quality. Economic growth should be 2% in 2018 and employment should be around long-term averages.
Concern remains though regarding high levels of household debt and rising house prices, mainly in Toronto and Vancouver, which pose a risk to the banks.
This is likely to be exacerbated in 2018 by further increases in interest rates and a slowdown in the housing market due to several policy changes including tightened mortgage lending regulations.
Fitch says that Canadian banks’ earnings may be pressured by a slowdown in mortgage lending but it does not expect them to be at high risk from a ratings perspective due to measures taken to provide a buffer, and the insurance of many mortgages by CMHC.
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Canadian banks are fundamentally solid but risk from household debt and the housing market will remain into 2018.