Financial risks to Canada are rising — and fragile corporate debt is one of the culprits

OTTAWA — The Bank of Canada said on Thursday the overall risk to the Canadian financial system was slightly higher than in June 2018, and expressed concern about the increasing threat posed by fragile corporate debt funding.

The central bank cited a slowdown in economic growth, last year’s oil price slump, continuing problems in the energy sector and expanded risk-taking in global financial markets as reasons for the increased risk. In the review it said the main risks to the system remained a severe nationwide recession, a large house price correction and a sharp repricing of risk in financial markets. Canadian banks were well positioned to handle such challenges, it added.And for the first time, it specifically highlighted the risks posed in Canada and other nations by fragile corporate debt funding, especially among lower-rated companies.

Market participants continue to see cyber incidents as the greatest risk to the Canadian financial system, in particular problems at third-party service providers.

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