Moody's Investors Service has raised its credit rating outlook on Canada's major banks 14 months after it lowered the ratings citing high debt levels and soaring house prices.
Moody's said it boosted its outlook on Royal Bank, Toronto-Dominion Bank, National Bank, Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia from “negative” to “stable.”
The change in outlook reflects the fact that the credit rating agency has lowered its expectation concerning the need for government support to banks' deposits and senior debt with the implementation of new bail-in rules in September 2018.
The bail-in rules are meant to prevent taxpayer money from being used in the unlikely event of the failure of one the country's “domestic systemically important banks.” Those new bail-in rules would see some types of the debt of a struggling financial institution converted into shares so that the bank could be quickly recapitalized and remain viable.
In May 2017, Moody's cut the banks' ratings to negative, saying that continued growth in Canadian consumer debt and elevated housing prices left consumers and Canadian banks vulnerable to downside risks facing the Canadian economy. But since that rating reduction, interest rates have gone up and the federal government has instituted new rules to tighten mortgage lending.
