Ratings agency Fitch is downgrading its view of the Canadian banking sector on concerns over elevated household and public debt levels.

In a release Thursday, Fitch lowered its view of the operating environment for the big Canadian banks from AA to AA-, stating that said sky-high debt levels are a negative for long-term credit conditions and business volumes.

As a result of the downgrade Fitch lowered its rating on Royal Bank of Canada to AA-, matching the rest of the Big Five. The ratings agency said that while RBC has weathered the pandemic well, those overarching debt concerns impacting the entire sector necessitated the move.

Fitch said the AA- rating on the overall environment will effectively cap any upward revisions to any individual bank’s rating.

The rating change reflects what Fitch sees as a worrying accumulation of debt in Canada; the ratings agency estimated private credit represented 210.4 per cent of gross domestic product (GDP) at year-end of 2020, the highest among similarly-rated markets. That’s up from 192.2 per cent, on average, from 2015 through 2019.

Fitch said that while debt servicing costs were more manageable due to the ultra-accommodative central bank policy put in place to cushion against the worst impacts of the pandemic, the share of private-sector income allocated to debt service has been on the rise and compares poorly to other developed-market economies.