In a statement released Thursday, Fitch downgraded his view of the operating environment for large Canadian banks from AA to AA-, saying these high leverage levels are negative for long-term credit conditions and business volumes. .
Following the downgrade, Fitch downgraded its Royal Bank of Canada rating to AA-, matching the rest of the Big Five. The rating agency said that while RBC has weathered the pandemic well, these global debt concerns affecting the entire industry have necessitated the move.
Fitch said the AA- rating on the overall environment will effectively cap any upward revision of any individual bank’s rating.
The rating change reflects what Fitch sees as a worrying build-up of debt in Canada; the rating agency estimated that private credit represented 210.4% of gross domestic product (GDP) at the end of 2020, the highest among similarly rated markets. This is an increase from 192.2% on average from 2015 to 2019.
Fitch said that while debt servicing costs were more manageable due to the central bank’s ultra-accommodative policy put in place to protect itself from the worst impacts of the pandemic, the share of private sector revenue allocated to servicing debt has increased and compares poorly with other developed market economies.