S&P: Mtgs Bolstering Canada Banks’ Strong Quarterly Performance

Text:S&P: Mtgs Bolstering Canada Banks’ Strong Quarterly Performance

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WASHINGTON (MNI) – The following is the text of a statement Thursday by Standard & Poor’s on the impact mortgage volume is having on the revenues of Canadian banks:

Strong mortgage volume growth fueled Canadian banks’ still-solid domestic retail revenues (mortgages are about 50% of the seven largest Canadian banks’ loan portfolios) in second-quarter 2010, according to a report published today by Standard & Poor’s Ratings Services.

The commentary, “Still-Strong Demand For Mortgages And Improving Credit Quality Highlight Canadian Banks’ Second-Quarter Results” notes that mortgages continued to bolster Canadian banks’ quarterly performance, reflecting the low rate environment and benefiting the banks’ Canadian retail lending operations.

“We believe that the strong growth seen in secured real estate lending is likely to abate somewhat with rising rates, so revenue growth for the retail lending business is likely to slow in coming quarters,” said Standard & Poor’s credit analyst Lidia Parfeniuk.

Loan quality in Canada is in our view showing signs of improvement, as seen in the credit metrics of Canadian banks’ consumer and business loan portfolios.

We expect domestic credit quality to improve further as the Canadian economic recovery gathers momentum in 2011 from the broadening base of GDP growth already observed at the start of 2010.

A risk to asset quality recovery would be sharply higher interest rates–in our opinion an unlikely scenario at this time–which could lead to mortgage affordability issues given relatively high consumer debt levels in Canada and potentially translate into higher losses for the Canadian banks. Also, although the banks’ U.S. loan portfolios may be showing early signs of stabilization, we believe that U.S. mortgages (including commercial) might see higher losses.

** Market News International Washington Bureau: 202-371-2121 **

Posted via web from Toronto Real Estate News, Blog

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