Real estate sector exposing banks to risk, says analyst

The ups and downs of the Canadian house market do have a hand in increasing the level of risk carried by the five formidable Canadian banks, says economics blogger Matt Smith aka The Motley Fool.  

He opines that these financial institutions have more than sufficient capitalization and are in a position to weather a declining credit environment.

However, he advises them to keep an eye out for the fluidity of the housing market as significant movement there can increase the level of risk that these banks carry.

Banks are vulnerable to consumers and the factors that affect them such as mortgages, borrower ability to pay,  credit standing and savings.  The Canadian real estate sector has seen prices rise as well as fixed interest rates, and these can impact the amount of debt that homeowners can carry and pay for. Unemployment and the possible decline of the real estate market can hit them harder.

The inability of homeowners and consumers to hurdle these obstacles can leave the banks equally vulnerable.

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