Canada's elevated housing prices and the extra debt taken on by consumers as a result could be problems for its banks should the economy hit bumps in the road, Moody’s Investors Service said in downgrading its credit ratings for six major financial firms.
Canada's banks are still highly rated, Moody’s said Monday, tied for second place among the world's financial institutions, behind Singapore.
The affected banks -- Bank of Montreal, Bank of Nova Scotia, Caisse centrale Desjardins, Canadian Imperial Bank of Commerce, National Bank of Canada and Toronto-Dominion Bank -- continue to have excellent credit ratings.
But Moody's said it was raising a cautionary flag because consumer debt was greatly outstripping gains in wages.
As of Sept. 30, "Canadian household debt to personal disposable income reached a record 165%, up from 137% as of 30 June 2007," Moody’s said.
"Growth in consumer debt has been driven by rising house prices, which have increased by approximately 20% since November 2007."
Canada's housing markets escaped the deep recession that hit the United States and Europe after the financial crisis struck, but Moody's said the Canadian economy has been flagging of late.