(The following statement was released by the rating agency)
NEW YORK, May 09 (Fitch) Fitch Ratings expects the cost of credit to rise in
Canada as banks feel continued pressure from the slow recovery of oil prices
impacting Alberta and other oil provinces and concerns about record consumer
debt levels, according to Fitch's latest North American Financial Institutions
Chart of the Month.
"Canadian banks have a sizable exposure to energy lending, however Fitch views
this as manageable and a bigger impact on earnings rather than capital," said
Doriana Gamboa, Senior Director, Fitch Ratings. "The rating outlook is neutral
for Canadian Banks so far as any losses are unlikely to erode the diversified
business mix and generally solid loss-absorption buffers."
Funded direct exposure to energy lending has been manageable, accounting on
average for 2.3% of total loans and 33% total tier common equity tier 1 (CET1).
Canadian bank exposures seem relatively higher as a percentage of CET1 compared
to U.S. banks. Notably, banks have a sizable exposure to oil field services,
which tend to have higher loss content than traditional energy & power
companies. For Canadian banks, Fitch expects downward credit migration to impact
earnings but not necessarily capital although risk weighted averages (RWAs)
could increase.
"Consumer credit health is a concern due to the record household debt levels and
energy pressure on consumer loan portfolios in oil provinces which is pushing up
delinquencies in auto lending and credit cards," added Gamboa.
Alberta and other oil provinces are showing signs of stress. In March 2016,
Alberta's unemployment rate jumped to 7.1% (in line with the national average)
compared to 5.9% in March 2015. For Canadian banks, exposure to Alberta and oil
provinces on average has been 15% of Canadian loans. However, excluding insured
mortgages, the figure declines to an average of about 8%.
Strong asset quality, robust housing demand, and low interest rates offset some
of the pressure for the Canadian banks. However, if sustained energy price
declines dampen economic activity, Fitch expects to see broader consumer lending
asset quality deterioration.
Contact:
Doriana Gamboa
Senior Director
+1-212-908-0865
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email:
hannah.james@fitchratings.com.
Additional information is available on www.fitchratings.com
North America FI Chart of the Month
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881193
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