Canada’s Big Six banks can withstand declines in the office real estate market, says a new DBRS Morningstar commentary

The global credit ratings agency reiterated its general negative outlook for office properties in Canada and the U.S. But Canadian banks have prudently limited new lending in the office space and are closely monitoring and increasing provisions from credit losses on existing commercial real estate loans, says DBRS Morningstar.

“Conservative underwriting should help mitigate potential credit risks, with generally low loan-to-value levels at origination providing a buffer against collateral value risk,” states the report. “DBRS Morningstar remains cautious that these lenders will likely experience deterioration in their office portfolios; however, any losses that do materialize, especially given office property valuations in parts of the U.S., should be manageable given the relatively small size of office portfolios at these banks.”

The Big Six banks’ total office exposure was $51 billion in the third quarter of 2023, representing just 1.2% of total loans and acceptances on average.