DBRS Ltd. has changed the rating outlook for the major Canadian banks to negative, signalling a possible future ratings downgrade.
The rating agency said Wednesday it has changed the trend on the senior and subordinated debt ratings of six Canadian banks and their subsidiaries, along with Desjardins Group, to negative from stable in anticipation of changes in Canadian legislation and regulation that are expected to reduce the potential for timely systemic support.
The rating agency notes that it will assess the impact of the new regime, which was promised in the latest federal budget, as more details are made available by federal policymakers.
DBRS also notes that as its view of the prospect of Canadian government support for the large banks shifts, the potential for support for other deposit-taking institutions will shift, too.
“While DBRS continues to view support for Desjardins as likely from the province of Quebec, a decline in support from Canada for the large banks and Desjardins may result in a change in the rating,” DBRS says. As a result, Desjardins’ rating trends have also been changed to negative.
In certain other provinces, credit unions remain important, DBRS says. Indeed, DBRS notes that in many rural areas, credit unions are the only providers of banking services; and, various provinces have 100% deposit guarantee programs. However, the credit union system is not included in current legislative proposals to reduce systemic support. So, DBRS has not changed its view of the likelihood that provinces will support their credit union systems and centrals, it says.