Canadian banks are fundamentally solid but risk from household debt and the housing market will remain into 2018.

The latest assessment from Fitch Ratings says the banks have strong capital, liquidity, earnings and credit quality. Economic growth should be 2% in 2018 and employment should be around long-term averages.

Concern remains though regarding high levels of household debt and rising house prices, mainly in Toronto and Vancouver, which pose a risk to the banks.

This is likely to be exacerbated in 2018 by further increases in interest rates and a slowdown in the housing market due to several policy changes including tightened mortgage lending regulations.

Fitch says that Canadian banks’ earnings may be pressured by a slowdown in mortgage lending but it does not expect them to be at high risk from a ratings perspective due to measures taken to provide a buffer, and the insurance of many mortgages by CMHC.

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