The agency also pointed to the fact both countries were "sparsely populated, large countries" with diversified economies, which it said benefited banks that could achieve economies of scale.

S &P Global’s Australian banking analyst Lisa Barrett said the big banks remained dominant in their respective mortgage and deposit markets, supporting their strength.

“The big banks are getting bigger, so to speak,” she said.

While Canada and Australia’s banks are among the strongest in the world, investors have shown concern about increasing house prices accompanied by rising household debt.

The analysts said in both markets “these effects are highly localised in the two largest metropolitan areas in both countries", and they forecast an "orderly unwind" in which their property markets would correct without too much damage to the broader economy and banking system. The credit quality of the banks would be supported by the relative strength of their economies, low unemployment and low interest rates, they said.

"In Canada, to get a significant downside shock you need an upside shock to employment, which has been holding up well and is actually at a 40-year low," Mr Swann said.

Immigration a factor


Immigration was also a factor supporting bank strength. "Canada has the highest flow of new immigrants in the OECD and the vast majority go to the two largest centres – Toronto and Vancouver. So there are solid fundamentals that have been supporting mortgage activity," he said.

The agency acknowledged increased risks in both economies, leading it to downgrade the economic risk scores of each banking sector.

In Canada, the evidence of weakness in mortgage underwriting, which emerged in institutions such as Home Capital Group, led the downgrade.

In Australia, the failings of regulators exposed by the Hayne royal commission led the agency to re-evaluate its view. Ms Barrett said the findings of the royal commission were "not quite consistent with our very high assessment of regulatory supervision".

The analysts also pointed to trade risks as a threat to the banks.

Perennial targets

Among the fixed-income managers that dialled into the briefing, 48 per cent said they thought Australian banks faced greater risks than the Canadian banks, 28 per cent said the risks were greater for Canadian banks and 24 per cent considered risks to be equal.

The Canadian and Australian banks are perennial targets of short-sellers, who have questioned whether the banks can withstand a property correction in a market where households carry record levels of debt.

Steve Eisman, the hedge fund manager who famously shorted American banks in the lead-up to the 2008 financial crisis, has been vocal about his bet against Canada’s lenders.

Meanwhile, foreign hedge funds are revisiting what has been dubbed the "widow-maker" trade – because investors keep losing money on it – by accumulating short positions in Australian banks.