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BIS Warns of Canadian Banking Crisis

BIS Warns of Canadian Banking Crisis

The Bank of International Settlements cited Canada as one of three high-risk economies alongside China and Hong Kong.

Say it quietly, but Canada may be at risk of financial crisis.

According to early-warning indicators compiled by the Bank for International Settlements (BIS), the Canadian economy — which last year grew at its fastest pace since 2011 — sits alongside those of China and Hong Kong as one of three major economies most at risk.

Canada was included on the list thanks to its households’ maxed-out credit cards and high debt levels in the wider economy. “The indicators currently point to the build-up of risk in several economies,” the report stated.

Canada’s impressive recent growth has been largely driven by high consumer spending, particularly in the property sector. Indeed, in the first three months of 2017, property prices in Toronto rose at unprecedented rates — an average of 25 percent each month between January and March.

Meanwhile, Canadians’ borrowing habits have put household debt at record highs, and made the country the most indebted in the developed world. For every dollar of household disposable income, credit market debt stands at $1.68, according to a report by Vice Money.

The Royal Bank of Canada has reported that the Canadian economy is set to slow in 2018 due to a rise in interest rates and drop in consumer spending. Inevitably, as the cost of borrowing increases, consumers will borrow less, leading to a decline in spending.

There are also doubts as to what extent Canadians can meet their mortgage repayments with the average citizen holding roughly $200,000 in mortgage debt alone, according to credit monitoring firm TransUnion.

The report by the Royal Bank of Canada suggests that the Canadian dollar will probably hover at around 78 U.S. cents throughout 2018 before rising to 82 cents by the end of the year, while oil-producing provinces will continue to face significant budgetary shortfalls this year as oil prices and royalty revenues remain low.