A report from Moody’s is vindicating brokers by pointing out unsecured debt – and not secured mortgages – poses the real threat to RBC and other Canadian banks.
"It's an uncertain world that we're living in,” said author David Beattie, VP and senior analyst at Moody's Investor Services in Toronto. “The macro environment is unclear as to what negative shocks may occur, and the banks that have positioned themselves a bit more aggressively against an increasingly leveraged Canadian consumer could run into problems in the event that we have some adverse economic developments."
To be perfectly clear: that possible bump in the road is unsecured debt, says the report.
RBC, for one, had the highest exposure to all types of uninsured consumer debt among the Big Six at the end of its fiscal 2010 – some 24 per cent of its total managed assets. Scotiabank’s accounted for 21 per cent of its overall assets and CIBC’s exposure stood at 20 per cent.
Those levels are coming dangerously close to the 30 per cent of total managed assets Moody’s says would negatively impact their ratings.
The analysis jives with that of brokers who argue the government’s focus on tightening up mortgage rules has been misplaced, leaving the country exposed the more-urgent problems associated with easy access to credit card debt.
“What may have been more effective as for the government to place limits on credit card interest and force the credit card companies (and banks) to do better underwriting to minimize default,” said Curtis Cannon, a sub-mortgage broker with TMG The Mortgage Group in Prince George, B.C., this summer.
The worrying level of debt at the big banks includes uninsured mortgages as well as personal lines of credit.
Moody’s and, indeed, brokers, will get a close look at that exposure later this week when the first of the big guys share their fourth-quarter earnings.