Moody’s placed six Canadian banks on review for downgrade on Friday, citing concerns about high consumer debt levels and elevated housing prices, but RBS analysts said downgrades would not lead to negative rating actions on the banks’ covered bonds.

The banks placed on review for downgrade and their ratings are: Bank of Montreal (Aa2), Bank of Nova Scotia (Aa1), Caisse Centrale Desjardins (Aa1), Canadian Imperial Bank of Commerce (Aa2), National Bank of Canada (Aa2), and Toronto-Dominion Bank (Aaa).

Moody’s said that all Royal Bank of Canada ratings were affirmed (Aa3, stable) as they were addressed by its rating actions on “Firms with Global Capital Markets Operations” in June, but that RBC’s supported subordinated debt ratings have been placed on review for downgrade.

“Today’s review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy,” said David Beattie, a Moody’s vice president, “and for some banks a sizeable exposure to volatile capital markets businesses is of concern.

“Moody’s recognizes the strong domestic franchises and solid earnings capacity of these large Canadian banks, and they will continue to rank among the highest rated banks globally following this review.”

Any downgrade of the senior debt and deposit ratings is expected to generally be by no more than one notch, according to Moody’s.

RBS analysts noted that all Canadian covered bond programmes are rated Aaa with an average Timely Payment Indicator (TPI) of 4.

“Thus, the negative rating actions on the Canadian banks will not affect the covered bond ratings,” they said.

During the review Moody’s will consider the removal of systemic support from the ratings of all seven Canadian banks’ subordinated debt instruments that benefit from support.

“It is our view that the global trend towards imposing losses on junior creditors in the context of future bank resolutions may reduce the predictability of such support being provided to the sub debt holders of the large Canadian banks,” said Moody’s.

The rating agency incorporates two notches of systemic support into the subordinated debt ratings of the six banks placed on review for downgrade.