Canada’s Big Five banks are well positioned to face further fallout from the weak capital markets and deteriorating economy, says a DBRS report issued on Wednesday.

The rating agency says that the banks’ strong capital positions prepare them to weather further weakness. Meanwhile, it adds that the earnings resilience of the Canadian banks’ retail banking segments underpin their credit ratings .

That said, the banks also likely face revenue pressure in a number of their main business lines. Weakening consumer confidence is expected to impact consumer borrowing, it notes.

Also, “with the continued uncertainty in markets and increased volatility in the capital markets, particularly equity markets, wealth management businesses are expected to produce lower revenue during 2009,” it adds. “The absolute lower levels of assets under management and administration coupled with a flight to money market assets will negatively impact fee-based revenue.”

DBRS says it also expects that all the large Canadian banks will be challenged to generate positive operating leverage in the current environment. “Historically expense reductions have lagged revenue compression despite expense management efforts put in place by most of the banks,” it notes.

The rating agency also anticipates “significantly higher loan loss provisions” from all segments of the loan portfolio in 2009.

Additionally, DBRS expects Tier 1 capital levels be maintained in the 9.5%-10.5% range for 2009.