Moody's Investors Service raised its credit rating outlook on Canada's major banks on Tuesday, just over 14 months after it lowered the ratings citing high debt levels and soaring house prices.
Moody's said it boosted its outlook on Royal Bank, Toronto-Dominion Bank, National Bank, Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia from negative to stable.
The change in outlook reflects the fact that the credit rating agency has lowered its expectation of the need for government support to banks' deposits and senior debt with the implementation of new "bail-in" rules pending in September 2018.
The bail-in rules are meant to prevent taxpayer money from being used in the unlikely event of the failure of one the country's "domestic systemically important banks."
Under those new bail-in rules would see some types of the debt of a struggling financial institution converted into shares so that the bank could be quickly recapitalized and remain viable.
Housing market changes
"The stable outlook also incorporates the stabilizing effect that recent macro prudential measures and rising
interest rates have had on housing prices in Canada's major urban areas, helping to ease pressure on
household finances," Moody's said.
Back in May 2017, Moody's cut the banks' ratings to negative, saying that continued growth in Canadian consumer debt and elevated housing prices left consumers and Canadian banks more vulnerable to downside risks facing the Canadian economy than in the past.
However, since that rating reduction, interest rates have gone up and the federal government has instituted new rules meant to tighten mortgage lending.