Canada’s six largest banks can likely withstand a moderate to severe housing downturn, says Fitch Ratings.
TD, RBC, Bank of Montreal, CIBC, Scotiabank and National all have equity ratios well above what is required under the new Basel III requirements, however…
“…any future downturn in the housing market could put pressure on those banks’ risk-weighted assets (RWA) and regulatory capital ratios,” the Chicago-based ratings service explains in a release.
Fitch says Canadian home prices are likely nearing a plateau and could exhibit some weakness over a medium-term time horizon.
“We believe a sharper than expected price correction would flow through to higher RWA levels, thereby putting further pressure on regulatory capital ratios at a time when rising credit losses will likely hurt retained earnings.”
Still, Fitch believes the six banks’ capital buffers will be adequate to withstand a moderate to severe housing price shock.