Kroll Bond Rating Agency Releases Canadian Banks: Resilient Despite Macro Uncertainties Report

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) has released a report titled “Canadian
Banks: Resilient Despite Macro Uncertainties.” The report makes the
following points:

  • The Canadian banking sector has demonstrated resilience to date and
    continues to perform better than expected, yet macro uncertainties,
    including relatively high levels of household debt in Canada and
    economic vulnerability to declining energy and other commodity prices,
  • The largest banks in Canada continue to report solid capital ratios,
    profitable operations, and relatively low levels of impaired loans
    despite economic headwinds. In fact, the aggregate level of gross
    impaired loans has improved for the major banks after peaking in the
    second quarter of 2016.
  • Canada’s banks have reduced direct exposure to oil and other
    commodities. Energy prices have generally recovered from lows in early
    2016, but have been under renewed pressure recently. Banks have
    already absorbed considerable losses related to direct exposure to
    commodity and related industries and remaining exposure remains a
    manageable portion of the credit portfolio.
  • The housing market in Canada remains frothy and is susceptible to
    negative trends in commodities particularly if these developments
    translate to higher unemployment over time. For the major banks, this
    is partially mitigated by the high proportion of mortgages insured by
    the Canada Mortgage and Housing Corporation as well as and the
    generally sound mortgage underwriting practices among the Canadian
    banks, especially relative to those of American banks before the 2008
    financial crisis. Non-bank mortgage lenders are just a small portion
    of the overall mortgage market.
  • The largest Canadian non-bank mortgage lender, Home Capital Group,
    Inc. (HCG), experienced a liquidity crunch in April 2017; however, a
    systemic crisis is unlikely as the causes of the liquidity problems
    appear to be specific to the company. Just recently, Berkshire
    Hathaway agreed to acquire a 38% stake in HCG combined with a $2
    billion credit facility. This action will likely stabilize the HCG
    situation and, at least in the short run, boost confidence in the
    non-bank mortgage sector.
  • On June 16, 2017, a proposal for the Canadian bail-in regime and a
    draft guideline for total loss absorbing capacity (TLAC) standards
    were released for public comment. The adoption of the bail-in regime
    is designed to limit the impact of potential bank failures on
    taxpayers. Banks will have until November 2021 to fully meet TLAC
    requirements. When these initiatives come closer to implementation,
    KBRA may have to review our support assumptions for Canadian bank

Please use the following link to access the report.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a
Nationally Recognized Statistical Rating Organization (NRSRO). In
addition, KBRA is recognized by the National Association of Insurance
Commissioners (NAIC) as a Credit Rating Provider (CRP).


Kroll Bond Rating Agency

Ashley Phillips, Director,
(301) 969-3185
Samuel Apovor, Associate,
(301) 969-3244
Joseph Scott, Managing Director,
(646) 731-2438