By Paul Vieira and Robb Stewart
OTTAWA--Canada's banks have fortified their financial position over the past year and would be able to lend to customers should the war in Iran escalate and lead to a prolonged period of higher energy prices, a Bank of Canada report said.
The central bank's annual Financial Stability Report said businesses and households remain in stable financial condition. "Vulnerabilities look manageable," the Bank of Canada's No. 2 official, Carolyn Rogers, said Thursday. Indicators of both household and business financial stress have stabilized over the past year, the bank said. Household indebtedness remains high but below recent peaks when measured as a share of after-tax income.
Fears that U.S.-Canada trade tensions and a wave of renewal of mortgages at higher rates could disrupt financial stability have yet to materialize, the report said.
Nevertheless, the report indicates that economic and geopolitical risks have increased, in part due to the conflict in the Middle East. The bank's own stress-test exercise concluded that Canada's large lenders are expected to remain resilient in the event the conflict in the Middle East escalates, leading to a prolonged period of high oil prices and acute financial-system pressure. The stress test assumed crude-oil prices would remain at $100 a barrel for a three-year period, fueling inflation and an increase in interest rates.
