Moody's "very comfortable" with top Canada rating

Thu Jun 14, 2012 1:27pm EDT
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By Claire Sibonney and Andrea Hopkins

TORONTO (Reuters) - Moody's Investors Service is "very comfortable" with its top Aaa credit rating for Canada because the country's fiscal and banking strength give it room to react to risks arising from the European debt crisis and Canada's hot housing market, Moody's chief analyst for Canada said on Thursday.

Steven Hess said he did not believe the risk from Canada's booming real estate sector was very great, but that he would not be surprised if there was some price correction. External risks from Europe would mainly flow to Canada from the United States, Canada's largest trading partner, he said.

"We still have a stable outlook on Canada and don't see any reason why that would change anytime soon," Hess said in an interview with Reuters.

"The fiscal situation being pretty good relative to other countries and ... our bank financial strength ratings for the Canadian banking system as a whole are the highest really of any banking system in the world."

Hess said if one is looking for risks to Canada they would come from high household debt and the heated housing market, but that Canada's strong banks and economic strengths would likely limit the fallout of a housing correction.

The Bank of Canada, in its semi-annual Financial System Review on Thursday, said the country's financial system remains highly vulnerable to a further escalation in the European debt crisis and the possibility of a correction in the housing market.

But even if a severe housing correction resulted in problem loans, Hess said Canada's big banks would be able to manage without having to resort to government help.

"It wouldn't be surprising if there was some correction in the housing market," Hess said. "Now will that cause a financial problem, system-wide? In the end we don't think that that risk is very great because of the lending standards that are in the banks, because the economy is still doing relatively well and employment is all right.   Continued...

A Moody's sign on the 7 World Trade Center tower is photographed in New York August 2, 2011. REUTERS/Mike Segar