S&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

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