Canada's big banks have responded to the evacuation of 80,000 people from Fort McMurray, Alta., by making multimillion-dollar donations to the region, waiving service fees and allowing their customers to defer payments associated with mortgages, loans and credit cards.
But the immense dislocation caused by the wildfires also has an economic dimension, raising the question of how the banks themselves will fare as consumers and businesses in the region struggle to adjust.
Credit-rating agency DBRS addressed this issue in a short note on Friday, which argued that bank ratings are unaffected by the devastation of Fort McMurray: "While the town remains unsafe for a detailed and accurate assessment of the damages, it is DBRS's view that DBRS-rated bank exposures through both loan and insurance exposures are generally not material and easily absorbable through earnings," the agency said.
It put into perspective what's at stake for the banks: Overall loans to consumers and businesses in the Fort McMurray region account for less than 1 per cent of their total loan portfolios.
And not all of these loans are at risk. DBRS pointed out that the vast majority of bank exposure to the region is in the form of residential mortgage loans – where borrowers are required to have fire insurance and the loans themselves are either conservative relative to the value of the homes or are insured through Canada Mortgage and Housing Corp. (CMHC) and private insurers.
"While there will likely be an interim period of late payments and concessions made by banks to affected homeowners, actual loss content should be small," DBRS said in its note.
Commercial loans tend to be with oil companies, whose operations for the most part were spared from the wildfires. Even if production is affected by the dislocation of workers, DBRS expects that production will rise again shortly.
Banks with insurance operations will be exposed to higher claims but, again, DBRS expects liabilities can be easily absorbed by bank earnings.
The agency also believes that the banks could benefit from any rebuilding efforts in Fort McMurray.
"Indeed, once insurance proceeds start being paid, they will likely be deposited at banks, bolstering deposit balances. Additionally, banks will finance the rebuilding efforts leading to loan growth," DBRS said.