The outlook for the Canadian banking sector is stable for 2011 as most institutions remain on solid footing after weathering the past few years better than banks in many other developed markets, according to Fitch Ratings.

Fitch expects Canadian bank earnings to remain sound and credit costs to be manageable, with both solid liquidity and affordable access to capital markets. Retail loan growth within Canada, which was a meaningful driver of revenue growth in 2010, will remain positive albeit at a slower pace than 2010. There is some uncertainty about the precise impact of Basel III, although Fitch believes the Canadian banks are well positioned to adapt to expected new requirements well within the phase-in period.

Most of the major Canadian banks are currently rated in the 'AA' category, so there are few factors that could improve the sector outlook to positive. Similarly, the Canadian banks have shown such resiliency through the most recent financial crisis that there are few factors that seem both plausible and sufficiently influential to negatively affect the sector outlook over the near term.