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Free AccessS&P:Structurl Features Shld Insulate Cdn Bnks From Hsg Dwnturn
By Yali N'Diaye
OTTAWA (MNI) - While the performance of Canadian banks faces "significant"
macroeconomic risks despite strengthening GDP growth, S&P Global expects banks'
structural features to insulate them from a potential housing downturn.
So overall, the rating agency is keeping a stable outlook on most Canadian
banks, highlighting that "positive operating leverage and capital levels" should
help offset macroeconomic risks.
In a report released Friday, S&P Global cited "elevated and still-growing"
household debt, a key vulnerability to Canada's financial system also identified
by the Bank of Canada along with high house prices.
In its July 26 quarterly Housing Market Assessment, Canada Mortgage and
Housing Corporation said evidence of problematic conditions in Canada's housing
market remain "strong" overall.
While evidence of overheating and overbuilding remained "weak", it has
increased, CMHC's report showed. On the price front, evidence of price growth
acceleration and overvaluation remained "moderate".
S&P Global agency also cited, among risks, tighter macro prudential
measures that include lender risk sharing.
"Nevertheless, we maintain stable outlooks on most Canadian banks in light
of structural features that are expected to insulate Canadian banks from a
housing-market downturn," analyst Nikola Swann said in the report.
In a July 24 rating commentary, Fitch said that Canada's banking system
capital cushion and government-backed mortgage insurance "would allow it to
absorb even a severe property price shock."
Fitch Ratings estimates that house prices are overvalued by 26% in Canada.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$,MR$$$$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.