Fitch Ratings Downgrades Canada’s Banking Sector Amid High Household, Public Debt Levels

Fitch Ratings has lowered its view of Canada’s banking sector, amid concerning levels of household and public debt.

In a news release published on Thursday, the credit rating agency downgraded its view of the big five Canadian banks from AA to AA-, citing surging debt levels as a disadvantage to credit conditions and business volumes in the long-run. Due to the overall downgrade, Fitch also lowered its credit rating of RBC to AA-, to match Canada’s remaining big five banks.

In its report, Fitch added that the new reduced credit rating for Canada’s overall banking sector will also result in a limit on any forthcoming upward revisions to an individual bank’s rating. The latest downward shift is in response to what Fitch says is a growing level of debt that is becoming worrisome. The credit rating agency projects that private credit amounted to approximately 210.4% of total GDP by the end of 2020— the highest across comparable markets.

Fitch acknowledged that although debt servicing costs have become more accommodative amid the central bank’s dovish monetary policy, the share of private-sector income being directed towards servicing debt has been soaring as of late, putting Canada at a disadvantage compared to other developed economies.

Information for this briefing was found via Fitch Ratings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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