Fitch: Housing Risks Escalate for Canadian Banks

(The following statement was released by the rating agency)
Link to Fitch Ratings’ Report: Chart of the Month: Canadian
Banks
here
NEW YORK, June 07 (Fitch) Home prices continue to hit new highs
which could
cause challenges for Canadian banks if there is a severe
economic shock,
according to Fitch Ratings’ latest North American FI Chart of
the Month. Banks
with more mortgage exposure to greater Toronto and Vancouver may
be more
sensitive to any rapid market correction in these two markets.
“Home price growth in Toronto and Vancouver is outpacing
fundamentals however
most Canadian banks should be able to withstand a market
correction, but in the
event of an adverse unemployment shock or rapid rise in interest
rates, banks
could be more heavily impacted,” said Doriana Gamboa, senior
director, Fitch
Ratings.
In the event of a severe economic shock, Fitch expects that
Canadian Mortgage
and Housing Corporation (CMHC) would act as a shock absorber for
the insured
mortgage exposure, which is about an average 55% of total
mortgage exposure for
the Big Six. Ratings could be affected in such a scenario;
however, Fitch
believes banks have adequate capital cushions to absorb this
risk.
“Recent attempts by federal, provincial and local governments to
cool the
housing market through various measures, so far have not
dampened prices and
risks may escalate for banks, though given healthy capital
levels a modest
correction would be manageable,” added Gamboa.
The big six Canadian banks still dominate the housing sector and
Fitch does not
see this changing even with the rise of the nonbank mortgage
sector. Currently,
nonbank mortgage companies account for 13% of the $1.4 trillion
mortgage market.
With eyes on Home Capital Group (HCG), the largest alternative
mortgage lender,
Fitch notes that the liquidity issues are specific to its
business model and
current credit measures do not suggest asset quality problems.
“It’s unlikely that nonbank mortgage companies will dominate the
housing sector
anytime soon as the tightening of CMHC mortgage insurance rules
implemented in
October 2016 impacted a significant funding source for mortgage
companies,”
concluded Gamboa.
The Chart of the Month “Housing Risks Continue to Escalate” can
be found at
www.fitchratings.com or by clicking on the link.
Contact:
Doriana Gamboa
Senior Director
+1-212-908-0865
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Christopher Wolfe
Managing Director
+1-212-908-0771
Media Relations: Hannah James, New York, Tel: + 1 646 582 4947,
Email:
hannah.james@fitchratings.com.
Additional information is available on www.fitchratings.com
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