Fitch is affirming its high ratings of Canada’s banks, despite persistent housing risks. But the bond rating agency has lowered its outlook for CIBC on concerns about its exposure to the housing and consumer sectors.

Fitch maintained its ratings for all of Canada’s banks, saying the fundamentals for Canada’s banks are strong – and their ratings “are among the highest in Fitch's global bank universe.” However, Canada’s bank’s cannot ignore continued risk from the hot housing markets, the agency said.

“Uncertainties remain regarding the potential impact of recent mortgage reform announcements on the broader mortgage market,” Fitch said in a report. “As such, a faster price correction that is prolonged and/or a slowdown in the housing market will likely impact earnings growth for all the banks.”

Fitch maintained its rating for CIBC at “AA-“  but said outsized exposure to that housing risk prompted the agency to lower its outlook for the bank’s debt to “negative” from “stable.”

“The Negative Outlook reflects Fitch's view that CIBC is the most exposed to a potential housing correction and the health of the Canadian consumer,” the agency said in a release.

More than 62 per cent of CIBC total loans were made up of domestic mortgages (including home lines of credit). That compares with an average of 49 per cent among Canada’s other banks – and is the highest among its peers.

CIBC’s mortgage business is continuing to grow, says Fitch. CIBC’s residential loan growth was 12 per cent last year, compared with an average of about 5.4 per cent among other banks.

“CIBC has the largest exposure to Canadian consumers at 76.9 per cent of total Canadian loans compared to the “Big Six” Canadian banks’ peer average of 66.8 per cent,” Fitch said.

The bank’s capital position is strong and gross impaired loans have improved over last year, said Fitch.

CIBC’s recent acquisition of Chicago-based The PrivateBank and Trust Co. carries some risks as well, but should help the bank diversify its asset base and is expected to add to the bank’s bottom line, said Fitch.

“There are operational and execution-related risks, particularly for CIBC that has a limited record of bank acquisitions,” Fitch said in the report.

Fitch also boosted its outlook for the Royal Bank from negative to stable.  The agency said the bank’s capital markets business is unlikely to have an “outsized impact on operating performance volatility over the medium term.”