UPDATE 3-Moody's warns may downgrade five big Canadian banks
* Cites concerns on housing sector, economy, consumer debt
* Concerned with four banks' capital markets exposure
* RBC, which was downgraded in June, excluded
By Luciana Lopez and Cameron French
NEW YORK/TORONTO, Oct 26 (Reuters) - Moody's Investors Service warned on Friday it could cut its ratings on five top Canadian banks on concerns about a softening economy and volatile capital markets, a blow to a banking system named the soundest in the world four years in a row.
But the outlook for the sector is no longer as rosy, Moody's said, because of the risks presented by the macroeconomic environment and a business mix that leans heavily on domestic mortgages and other consumer lending.
Canadian consumer debt has risen to record highs in recent months, a situation reminiscent of the United States before its 2008 housing crisis. The household debt-to-income ratio jumped to 163.4 percent in the second quarter from 161.8 percent in the first quarter, Statistics Canada said a week ago.
Meanwhile, Canada's housing market appears to be cooling after several years of red-hot gains.
"Domestically, we're concerned about the high and increasing levels of consumer indebtedness and elevated housing prices, and we feel that they may tend to leave the Canadian banks more vulnerable to downside risks to the economy than they have been in the past," David Beattie, Moody's vice president and senior credit officer, told Reuters. Continued...