Scotiabank questions S&P's cut, citing international reach

Fri Dec 14, 2012 3:55pm EST
 

By Cameron French

TORONTO (Reuters) - Bank of Nova Scotia (BNS.TO: Quote), one of Canada's largest banks, took issue on Friday with Standard & Poor's decision to cut its debt ratings, saying its international reach helps cushion it from a slowdown in Canadian lending.

S&P downgraded credit ratings on six Canadian financial institutions late on Thursday, a move that could raise their borrowing costs and crimp profit margins on the loans they make.

In addition to Scotiabank, Canada's No. 3 lender, the credit rating agency lowered ratings on Caisse Centrale Desjardins, a Quebec-based federation of credit unions. Also cut were No. 6 bank National Bank of Canada (NA.TO: Quote), Montreal-based Laurentian Bank of Canada LB.TO, mortgage lender Home Capital Group HCG.TO and Vancouver-based Central 1 credit union.

The downgrade, which follows Moody's Investors Service's move in October to put five top Canadian banks on credit watch, is the latest sign of trouble for a banking industry widely considered the world's soundest.

Like Moody's, S&P said it was concerned about high Canadian consumer debt and a vulnerable housing market, which has shown signs that it may be peaking, raising worries of a sharp reversal.

It also raised concerns that slowing profit growth could force the lenders to embrace riskier assets.

Scotiabank and Desjardins disagreed with the ratings agency's assessment of risks.

"One of our key strengths is our broad diversification - by geography, product and customer. However, S&P's methodology does not adequately recognize the benefits of this diversification," Scotiabank spokeswoman Ann DeRabbie said in an e-mail.   Continued...