The Globe and Mail reports in its Friday edition that credit-rating agencies are keeping an eye on Canadian banks' commercial-loan books after eight years of rapid growth.
The Globe's James Bradshaw and Alexandra Posadzki write that commercial lending has been an increasingly important source of new revenue for the banks as rising interest rates and stricter mortgage rules have led to slower growth in consumer borrowing. Last year, commercial lending by the Big Six banks rose by an average of 10.7 per cent.
When DRBS published its 2019 outlook for the banking sector this week, the agency highlighted fast growth in those portfolios as a potential vulnerability for banks down the road. As the current economic cycle enters its later stages, and fears of a looming downturn linger, some analysts worry newer loans could be crafted with looser standards, making them more prone to turn sour should employment and economic growth falter.
"We're keeping a close eye on it," said Robert Colangelo at DBRS. So far, the commercial loan books at Canada's largest banks appear healthy, but as competition intensifies, Mr. Colangelo worries that banks could start taking on less creditworthy borrowers or relaxing debt covenants.
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