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Moody's keep Canada banks on 'negative' outlook

Published 2016-07-11, 07:00 a/m
© Reuters. Moody's keep Canada banks on 'negative' outlook

TORONTO, July 11 (Reuters) - Canadian banks remain on a
"negative" outlook, ratings agency Moody's said on Monday,
citing a likely reduction in government support following the
introduction of laws shifting some of the responsibility for
propping up failing lenders to creditors.
Moody's has had a negative outlook on Canadian banks since
July 2014.
Canada said in March it would allow authorities to convert
eligible long-term debt of a failing lender into common shares
in order to recapitalize the bank.
The plan is in line with international efforts to address
the potential risks to the financial system from institutions
that are deemed too big to fail and reduce the need for costly
taxpayer-funded bailouts. It also means banks that hit trouble
may not be able to rely on the same level of government support
in the future, potentially making them more risky investments.
Moody's also said on Monday that it expected a modest
deterioration in the quality of banks' lending, reflecting
rising losses from loans to oil and gas firms and weak economic
growth and higher unemployment in oil-producing provinces.
However, it said any increase in credit costs will be offset
by the banks' solid capital positions and profitability.
Moody's also cited rising house prices and high household
debt, which it said created vulnerability to increased
unemployment or a rise in interest rates.
Canada's banking regulator said on Thursday it is tightening
oversight of mortgage lending, citing concerns about record
household debt and a sharp jump in house prices.

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