DBRS highlighted the inroads Canadian financial institutions have made into US markets in an annual report on structured finance in Canada yesterday (Tuesday), with US dollar issuance having helped Canadian covered bond outstandings more than double in 2011.

Consumer credit reached 153% of annual after-tax income as of September 2011, according to Statistics Canada, and DBRS said that this drove large issuances in the covered bond as well as asset backed securities and asset backed commercial paper markets. The rating agency said that in light of this issuers are tightening underwriting policies and improving collection processes to mitigate losses in a potential downturn.

Canadian covered bond issuance reached a record C$25.7bn in 2011, according to DBRS, more than doubling outstandings from C$25bn to C$50bn. US$1bn debuts for National Bank of Canada and Caisse Centrale Desjardins du Québec meant that the seven largest deposit taking institutions in Canada issued covered bonds in 2011.

DBRS noted the ability through 2011 of Canadian financial institutions to tap US debt markets for funding. According to DBRS, 12 US dollar issues totalling C$21.7bn accounted for 84.6% of covered bond issuance from Canadian issuers in 2011.

“The majority of new issuance was placed in the US market as US investors favoured Canadian placements, because of the relative financial strength of Canadian financial institutions compared with their US and European counterparts and because most of the mortgages pledged as collateral are CMHC insured,” said DBRS.

All but RBC’s covered bond programmes use CMHC insured mortgages, said DBRS. The rating agency cited its AAA rating for CMHC, with Stable trend, but did not address questions that have arisen recently in Canada about the crown corporation’s role or how impending covered bond legislation could affect the part it plays in covered bond issuance.

CIBC and Bank of Nova Scotia also placed Australian dollar issues, noted DBRS, as a result of Australia’s new covered bond legislation, which increased demand for covered bonds in the country.

DBRS rates all Canadian programmes AAA.