Canada’s largest banks are heading into 2026 under mounting pressure from trade uncertainty, slower economic growth and rising strain on household finances, according to Fitch Ratings.
BNN Bloomberg spoke with Maria-Gabriella Khoury, senior director, banks – North America, at Fitch Ratings, about why the agency continues to hold a deteriorating outlook on the Canadian banking sector and the risks shaping the year ahead.
Key Takeaways
- Fitch Ratings is maintaining a deteriorating outlook for Canadian banks in 2026 due to economic headwinds and elevated uncertainty.
- Trade risk remains the most significant concern, particularly ahead of potential USMCA renegotiations starting in mid-2026.
- Elevated household leverage and a wave of mortgage renewals could pressure consumer credit quality next year.
- Slower population growth and softer housing activity may limit loan growth, even as recent rate cuts provide some support.
- Increased competition from challenger banks and fintechs is expected as open banking and payment reforms move forward.
Read the full transcript below:
ROGER: Let’s take a look now at the big banks’ highlights for the year and get an outlook on what to keep a close eye on in the year ahead. We’re joined by Maria-Gabriella Khoury, senior director, banks – North America, at Fitch Ratings. Maria-Gabriella, thank you very much for joining us.
MARIA-GABRIELLA: Thanks for having me, Roger.
ROGER: In your report, you maintain a deteriorating sector outlook for Canadian banks. What’s behind that view?
MARIA-GABRIELLA: The sector outlook reflects the business environment for banks. It doesn’t speak to the banks’ creditworthiness themselves, but rather what it’s like to operate in that environment. While banks have proven very resilient this year, we still think the headwinds leave some room for potential deterioration in the coming year.
ROGER: What are your biggest concerns? Is it GDP growth, geopolitics or trade?
MARIA-GABRIELLA: Trade is the biggest headwind in our view. Our economics team has revised GDP growth to about 1.1 per cent for 2026. However, the USMCA renegotiations expected to start in July 2026, along with the current pause in U.S.-Canada trade negotiations, create additional uncertainty.
ROGER: Why does USMCA matter so much for banks?
MARIA-GABRIELLA: Right now, about 90 per cent of Canadian exports are protected under USMCA. The sectors that experienced the bulk of recent tariff increases were not included in the agreement, which is where some commercial and corporate clients began to feel pressure. If USMCA is renegotiated and broader export sectors are affected, that could materially shift the risk profile.
ROGER: Another concern we’ve seen is slowing population growth, including a slight decline this quarter. How does that factor in, particularly with changes to immigration policy?
MARIA-GABRIELLA: It’s a bit of a double-edged sword. On one hand, it can help employment metrics. On the other, foreign students and newcomers contribute to economic growth by bringing capital and spending into the economy. Right now, the federal government is more focused on capacity constraints in employment and housing. That may limit growth, even if it helps ease some near-term pressures.
ROGER: Housing activity has also slowed, with sales down. How concerned are you about that?
MARIA-GABRIELLA: Housing activity has slowed, but mortgage volumes have held up reasonably well. Bank of Canada rate cuts have helped, as has moderation in housing prices in large markets such as Toronto and Vancouver. That supported mortgage demand in recent quarters. Looking ahead, employment is critical — you can only get a mortgage if you have a job. If trade-related pressures spread beyond specific sectors and affect the broader economy, that becomes a bigger concern.
ROGER: The Bank of Canada appears likely to hold rates steady for some time. How does that affect the outlook?
MARIA-GABRIELLA: Our economics team also expects the Bank of Canada to hold rates through 2026, with rate cuts largely behind us. That said, about 60 per cent of mortgages are set to renew between 2025 and 2026, and roughly one-third of those borrowers will face higher rates. Lower rates today help asset quality and consumer profiles, particularly compared with the period when policy rates were above five per cent.
ROGER: Finally, we’ve seen some consolidation, including recent acquisitions. Do you expect more of that in 2026?
MARIA-GABRIELLA: Those transactions are interesting because they support consolidation and improve scale. Challenger banks are becoming stronger, which increases competition. We’re also seeing momentum around policy discussions on consumer fees, open banking and real-time payments. That could bring more competition from non-incumbents, including fintechs. Importantly, these changes are happening within a clearer regulatory framework, which is constructive. Overall, we expect more change in the Canadian banking sector than we’ve seen over the past decade.
ROGER: We’ll have to leave it there. Maria-Gabriella Khoury, thank you very much for joining us.
MARIA-GABRIELLA: Thank you.
ROGER: Maria-Gabriella Khoury is senior director, banks – North America, at Fitch Ratings.
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This BNN Bloomberg summary and transcript of the Dec. 17, 2025 interview with Maria-Gabriella Khoury are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
