Fitch cuts outlook on Canadian banks

Amid a deteriorating economic outlook, Fitch Ratings has downgraded its outlook on the Canadian banking sector.

The rating agency revised its outlook on Canadian banks to “deteriorating” from “neutral,” citing the negative impact of the U.S. trade war on the economic environment.

In a research note, Fitch said it cut the banks’ outlook “as business and consumer sentiment has plunged and the economy may be headed for recession.”

“These factors will likely add some pressure to asset quality and profitability,” it noted.

At the same time, the rating agency also downgraded its outlooks on the banking sectors of Mexico, South Korea and Taiwan to “deteriorating,” and it moved the outlook for Vietnam from “improving” to “neutral” — moves that it also attributed to dimming economic growth prospects due to the U.S. trade war.

For the U.S. bank sector, Fitch maintained a “neutral” outlook, saying it expects “conditions to remain broadly stable in 2025, despite tariff uncertainty and resulting slower economic growth.”

However, the outlooks for the U.S. health and non-life insurance sectors were revised to “deteriorating” and “neutral,” respectively.

The outlook on China’s banks was already at “deteriorating,” and Fitch maintained that rating, citing “persisting challenges for banks, as government policies weigh on profitability and banks experience asset quality pressure from a slower economy and property sector.”

For western European banks, the overall outlook also remains “neutral,” the rating agency said.

“Within the region, the ‘deteriorating’ sector outlook for French banks is driven by political uncertainty and risks arising from fiscal policy, despite our expectation that profitability will improve moderately in 2025,” it said.

While several southern European countries, including Spain, have “improving” outlooks on their banks, Fitch said that reflects “improving business opportunities.”

Additionally, over a third of Fitch’s outlooks for non-bank financial institutions (NBFIs) were also reduced to “deteriorating” at mid-year — including global investment managers and North American finance and leasing companies — again due to “potential adverse effects from slowing growth and tariff-related pressures.”

The outlook for North American and European securities firms remains neutral, as do certain other non-bank sectors.

For the global insurance sector, the outlook remains “neutral,” Fitch said, “reflecting broadly supportive operating conditions despite weaker growth prospects and market volatility.”