The Straits Times
Published on Oct 27, 2012

Moody's warns may downgrade five big Canadian banks


NEW YORK/TORONTO (REUTERS) - Moody's Investors Service warned on Friday it could cut its ratings on five top Canadian banks on concerns about a softening economy and volatile capital markets, a blow to a banking system named the soundest in the world four years in a row.

But the outlook for the sector is no longer as rosy, Moody's said, because of the risks presented by the macroeconomic environment and a business mix that leans heavily on domestic mortgages and other consumer lending.

Canadian consumer debt has risen to record highs in recent months, a situation reminiscent of the United States before its 2008 housing crisis. Canada's housing market appears to be cooling after several years of red-hot gains.

"Domestically, we're concerned about the high and increasing levels of consumer indebtedness and elevated housing prices, and we feel that they may tend to leave the Canadian banks more vulnerable to downside risks to the economy than they have been in the past," Mr David Beattie, Moody's vice-president and senior credit officer, told Reuters.