Moody’s puts most of Canada’s banks on downgrade notice

Adding to the growing chorus of analysts predicting a bursting of the Canadian housing bubble, ratings agency Moody’s Investor Service placed almost all of Canada’s major banks on review for a downgrade Friday, citing the country’s growing household debt levels.

Among the banks that Moody’s warned may be downgraded are: Bank of Montreal, Bank of Nova Scotia, CIBC, TD Bank and National Bank, along with Quebec’s Caisse Centrale Desjardins. The agency said its rating for Royal Bank of Canada, which was downgraded earlier this year, would be left unchanged.

Canadian household’s debt to disposable income ratio hit 163 per cent in the second quarter of the year, up from 137 per cent in the same period in 2007, the ratings agency noted. House prices are up 21 per cent over the same time period, it said, far outstripping the growth in incomes.

“Today’s review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy,” Moody’s vice-president David Beattie said in a statement.