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Moody’s Investor Services says it could cut the credit ratings of six Canadian banks, citing high consumer debt, housing prices and other economic headwinds facing the Canadian economy.
"Today's review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy, and for some banks a sizeable exposure to volatile capital markets businesses is of concern," says David Beattie, Moody's Vice President said in a statement.
Moody’s cited record debt-to-income levels of Canadian households and the impact soaring home values have had consumers' taste for debt. The average Canadian household currently has a debt-to-income ratio of 163 percent – near the same point reached in the U.S. and other developed economies before the financial crisis.
Canadian banks would be impacted by a slowdown in exports, particularly in the commodities sector, due to a weak U.S. recovery and pullback in emerging markets, Moody’s said.
"Should these risks materialize, they would have significant ramifications for the Canadian economy that would be transmitted into the banking system," Moody's says.