Business and financial district in a city with pillars

Having weathered the disruptive effects of Covid-19 well so far, the outlook for the Canadian banks remains stable, says Moody’s Investors Service.

In a new report, the rating agency said that, while asset quality will likely remain stressed, the banks’ income buffers held up well in the face of the pandemic, and credit losses will be absorbed by existing provisions.

“The banks made unprecedented amounts of loan-loss provisions during the economic slowdown in 2020, building robust allowances that we expect will provide more than adequate coverage for write-downs in 2021,” said David Beattie, senior vice-president at Moody’s, in a release.

As the economies and labour markets in both Canada and the U.S. strengthen later this year, the Canadian banks will benefit, Moody’s said.

“We expect a moderate recovery in the second half of the year to temper the need for further incremental loan-loss provisions, despite residual stress in some sectors hardest hit by the Covid-19 pandemic,” Beattie said.

Additionally, Moody’s noted that the banks’ regulatory capital levels improved in 2020 and early 2021.

The rating agency said it expects capital levels to “decline at the margin, once the regulatory capital distribution moratorium is lifted.”