What you need to know about Canadian banks, their credit rating and Canada’s credit rating outlook
More than two dozen major Canadian banks are among those named in a scathing report released Thursday, saying the financial sector in Canada is facing a crisis.
The Bank of Canada said Canada’s largest banks are “underperform” and the creditworthiness of the Canadian economy is at risk.
The BOC’s Financial Stability Report said the country’s biggest banks “have underperformed their peers, have been in deep financial distress, and are in jeopardy of being left to fail” by investors and government bailouts.
Banks are now rated as “overperforming” or “stable” by Credit Suisse, Moody’s, Fitch and Standard & Poor’s, which are among the countrys largest rating agencies.
The report said “significant changes in bank credit quality have occurred over the past year, with the impact on overall creditworthiness becoming greater” as banks become more risk-averse and as their risk-weighted capital requirements and leverage ratios have been cut by some 90 basis points.
It said the financial market is “undervalued” in Canada.
The banks are named in the report as Toronto-Dominion Bank, Calgary-based Bank of Montreal, Toronto-based Scotiabank, Ottawa-based Royal Bank of Scotland and Quebec-based CIBC.BMO says it has a rating of AA+ on its BBB, meaning it has an acceptable credit rating, which means it’s rated in the middle of the spectrum.
The BBB rating is given to a company that has the potential to provide a sustainable, high-quality service.CIBC says it is a “stable credit rating,” which means that it has “acceptable credit quality.”
Scotiabek says it “has been rated AA+” on the BBB by S&P.
But it says its creditworthiness has deteriorated significantly, citing a decline in the value of the value added in the last three years.
It says its ratings have declined by 30 basis points since last year, including a 50 basis point reduction in its credit-quality rating from AA to AA+.
CIBC also says it’s on the downgrade watch list.
The other major banks are all rated AA+, meaning they are in the same category as BMO and Scotiadis.
The four banks on the report are all members of the S&s’ International Credit Rating and Development Association.
They are Toronto-Chatham Bank, CIBC, CI Capital Corp., TD Bank and Scrivener.
The ratings agency also found that CIBC is a major underperformer on its credit quality, with its ratings falling by 30 to 60 basis points, while the other four banks have ratings in the double-digits.
Scotiabean says it had “moderate” creditworthiness last year.
All four banks say they’re working to fix the problems, including reducing leverage ratios.
Scotiados credit rating is down by 30 percentage points from last year and its leverage ratio is down from about 4 to 6.5 percent.
But the banks say there is no evidence they’re facing a significant reduction in leverage, which could affect their ability to pay their employees.
CIBC says its leverage is in line with the industry norm.
The ratings agency says CIBC’s leverage ratio has been reduced from 6.6 percent to 5.4 percent.
Scriverner says its current leverage ratio “is in line” with the sector norm.
The banking industry is facing tough times, but the government is working to help those struggling with the downturn, the government said in a statement.
The federal government has pledged to spend $10 billion over the next five years to help banks and credit unions, while other financial institutions are working to cut costs.
The bank’s rating is a downgrade from AAA by SAC Capital and a stable from AA by SAA.