Canada Banks Could Weather Severe Housing Stress, Fitch Says

Royal Bank of Canada, Toronto- Dominion Bank and four other Canadian lenders could manage through a “severe stress” from a housing crisis even after collectively taking real estate losses of C$41.5 billion ($40.2 billion), according to Fitch Ratings Ltd.

The country’s six-biggest banks could face residential real estate losses of C$4.1 billion to C$41.5 billion based on five stress scenarios by Fitch, Christopher Wolfe, a managing director in Fitch’s financial institutions group, said today at a presentation in Toronto. Fitch used stress loss rates of between 1 percent and 10 percent for its scenarios.

“Generally, any of those scenarios don’t seem to, in and of themselves, create any severe capital shortfalls,” Wolfe said.

Royal Bank, the biggest Canadian lender with the lowest proportion of insured mortgages, would face the largest absolute drop in capital under the most severe scenario, Wolfe said. Canadian Imperial Bank of Commerce, which has the highest proportion of residential real estate loans to total loans, would face the second largest drop in that scenario.

Even a 10 percent loss rate “wouldn’t necessarily hurt any of the major banks that significantly,” Wolfe said.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net