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The banks could also take steps to reduce their risk-weighted assets by not replacing securities in their portfolios when they mature, and adjusting pricing to attract less new business in their loan books.

At the moment, Canadian Imperial Bank of Commerce and Bank of Nova Scotia would have the highest estimated losses in terms of CET1 capital — at around 100 basis points — under extreme oil and gas stress, Beattie said. But the actual outcome would depend on if and when low oil prices and their fallout lead to the conditions in the severe stress scenario, he added.

Loans to the energy industry make up an average of six per cent of corporate credit at Canada’s largest banks, two per cent of total gross credit, and 26 per cent of the closely watched CET1 capital cushions, according to Moody’s.

“Under the expected case in our stress test of the Canadian banks’ energy exposures, the profitability of the banks will decline but their capital would not be impaired,” the agency report says.

However, “in a severe stress scenario… some of the banks might be required to take capital conservation measures, cut dividends or raise additional equity.”

In the severe-stress scenario, which assumes above historical recession level losses in consumer loan portfolios in oil producing provinces, as well as a 20 per cent cut in capital markets net income, Moody’s says losses would amount to about 1.5 times quarterly net income for the group.