Canada’s big banks have strong capital positions, but they face slower earnings growth in the year ahead, according to rating agency DBRS Ltd.
DBRS says it believes the earnings of the Canadian banks are resilient, “because of the strength and diversity of their franchises” — a factor that underpins their credit ratings too. The six largest Canadian banks also have strong capital levels, it notes, which should position them to implement the new Basel III capital rules in 2013, “and to weather any economic headwinds that come their way”.
However, the rating agency says that it also expects that the banks earnings growth will be slower in 2012, “given the low interest rate environment, the slow growth of the North American economies, the highly competitive consumer environment and the uncertain European economic outlook.”
“The domestic retail businesses of Canadian banks are expected to continue to produce solid results, but consumer borrowing is slowing as a result of weakening consumer confidence and de-leveraging,” says Brenda Lum, managing director at DBRS.
“The quality of the capital structures of Canadian banks is expected to continue to improve with the ongoing redemption of innovative Tier 1 instruments and preferred shares,” adds Lum.