Which Canadian Bank Is Most at Risk From a Housing Slowdown?

A simple comparison of Canada’s big 5 banks yields some interesting findings.

| More on:
The Motley Fool

With all the attention placed on Canada’s housing market, there is a lot of concern about how the Canadian banks are affected. But which ones are the most exposed?

When comparing the different banks, it is important to keep one thing in mind: Canada is not like the United States. Here, mortgages are the lowest-risk loans that banks can hold. But a housing downturn would have other knock-on effects on the Canadian economy. Home and condo developers would struggle. People would lose their jobs. Businesses and individuals may have trouble paying their loans and credit card bills. Economic growth would slow.

So in the end, the bank with the biggest exposure to the Canadian housing market is really the bank with the biggest exposure to Canada overall. Here is how the banks compare:

Bank Canadian Loans (% of total) Canadian Income (% of total)
Royal Bank of Canada 89% 76%
TD Bank 74% 64%
Bank of Nova Scotia 69% 52%
Bank of Montreal 73% 69%
CIBC 92% 83%

The least exposed: Bank of Nova Scotia

This should surprise no one. Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) is well-known as Canada’s most international bank, and this shows up in the numbers. Only 69% of its loans are in Canada, as well as barely half its net income. As a bonus, two-thirds of its Canadian loans are mortgages, more than any of the other big banks.

Not just in the U.S.: TD Bank and Bank of Montreal 

The two banks most aggressively pursuing the United States are TD Bank (TSX:TD)(NYSE:TD) and Bank of Montreal (TSX:BMO)(NYSE:BMO). But these banks also have similar exposures in Canada, and they are certainly higher exposures than Bank of Nova Scotia. Also these banks have less than half of their Canadian loans in mortgages. So investors should certainly be careful.

The most exposed: Royal Bank of Canada and CIBC

Again, this should not be surprising. Royal Bank (TSX: RY)(NYSE: RY) and CIBC (TSX: CM)(NYSE: CM) have no significant retail banking operations outside of Canada. As a result, they are the most exposed. One mitigating factor is their strong emphasis on mortgages, accounting for 60% of the Canadian loan book for each bank. But both companies will certainly feel the pinch if the Canadian housing market does poorly.

Foolish bottom line

All this has been moot so far, with the Canadian housing market performing so well to this point. But these comparisons are important to make when deciding which bank to own.

Of course there is no rule that you have to own any of the banks at all. If you really believe that a housing crash is coming to Canada, it’s probably a good idea to avoid the banks altogether.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Ways to Invest $10,000 in Canadian Markets Now

Here’s a well-rounded basket of three top Canadian stocks to have on your watch list today.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, June 17

The TSX may face a muted open today as investors brace for key U.S. retail sales data ahead of the…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

TFSA Investors: 2 Dividend Stocks to Buy for Immediate Passive Income

We could all use some extra cash flow, and these dividend stocks certainly look like strong options.

Read more »

data analyze research
Dividend Stocks

1 Undervalued TSX Stock Down 12% to Buy and Hold

This TSX stock might be down, but don't count it out, especially with a dividend involved.

Read more »

Man data analyze
Dividend Stocks

3 Great Investments for Monthly Dividend Income

Investing in monthly dividend stocks such as Exchange Income and Savaria should help Canadian investors create a passive-income stream in…

Read more »

space ship model takes off
Tech Stocks

This Canadian Stock Could Be the Best Investment This Decade

This tech stock is one of the best options out there for investors, especially for long-term growth.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Is Magna Mining a Good Stock to Buy?

Magna Mining is a Canadian penny stock that trades at a cheap valuation in June 2025, given its growth estimates.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Dividend Investors: Why I’d Buy Telus Stock Over BCE Any Day

Telus (TSX:T) has a higher dividend yield and potentially more attractive comeback story.

Read more »