The rating agency known as Moody's is sounding alarm bells, expressing the view that high debt levels and soaring house prices could be bad news for Canada's big banks. Moody's has downgraded their credit rating as a result.
Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada all saw their credit ratings cut by one notch late Wednesday.
Moody's cited a "more challenging operating environment for banks in Canada for the remainder of 2017 and beyond."
Moody's also made mention of Canada's record-high debt-to-income ratio of 167% as being a cause for concern, and added debt levels are now beyond the usual risk models in place to determine whether businesses could withstand a crisis.
A downgraded credit rating increases slightly the banks' cost of doing business, since those banks are seen as a slightly worse credit risk, meaning they have to pay a bit more to borrow money, which eats into their profitability.
TD Bank's rating, for example, was lowered to Aa2, while the other big banks were dropped to A1.
While their credit ratings were put down a notch, all of Canada's major lenders are still at levels well above what's considered investment grade, and therefore, still desirable for major institutional investors.
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