Bank of Canada sees households managing in 2009

Wed Dec 17, 2008 12:07pm EST
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OTTAWA (Reuters) - Bank of Canada Governor Mark Carney said on Wednesday that 2009 would be a challenge for many Canadians but he cautioned against overplaying the "extreme scenario" of a possible collapse in household income.

"While the Canadian household sector remains relatively healthy, its resilience will be tested during the recession," he said. Though the debt-to-income ratio was at a record 140 percent, the debt-service ratio had declined to below the historical average because of lower borrowing costs, and this gave "a measure of assurance that most households can comfortably manage their debts."

He referred to one scenario the bank had examined -- which received widespread media attention last week -- in which nominal household income fell by 2 percent a year for six quarters and Canada's banks would incur significant losses.

"However, it is important not to overplay this scenario, since it actually illustrates the strength of our system," he said. He said annual growth in nominal income had never been negative during any quarter for at least 37 years, and Canada's banks would still have strong capital ratios.

Addressing an audience in Toronto, he also said measures taken globally to confront the "full-blown financial crisis" would work although it would take time for confidence to return and capital to flow.

(Reporting by Randall Palmer; editing by David Ljunggren)