Fitch Ratings: Banks in AAA Jurisdictions Face Rising Household Debt Risk

(The following statement was released by the rating agency) Link to Fitch Ratings' Report(s): 'AAA' rated Banking Jurisdictions Facing Household Sector Risks - Australia, Canada, Norway, Sweden https://www.fitchratings.com/site/re/10067980 Fitch Ratings-London-April 15: Banks in several 'AAA' rated countries face rising risk from the household sector amid a build-up of financial imbalances, Fitch Ratings says in a new report. In Australia, Canada, Norway and Sweden, high household debt amid slowing housing markets represent a growing risk to banks in those countries, which are among the world's most exposed to residential mortgage lending. The major banks also have, to varying degrees, a reliance on wholesale funding, which can increase their vulnerabilities during a market stress. Fitch expects modest home-price falls to continue in these countries' major cities over the next two years due to tighter credit standards and regulations, declining consumer confidence and the possibility of higher interest rates. As benign macroeconomic conditions recede, banks may face higher credit losses, particularly if unemployment increases. However, we expect major banks to maintain their risk discipline. This should support asset quality through the cycle. Proactive policy-setting in the form of targeted macro-prudential policies and increasing supervisory scrutiny have reduced vulnerabilities and mitigate rising macro risks. Increased capital requirements have improved major banks' resilience to macroeconomic risks. Supervisory stress tests for Australia, Norway and Sweden, and a Fitch stress test for Canada, demonstrate banks' resilience to plausible but harsh scenarios.