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The banks all reported an increase in funds set aside to cover losses to energy clients in the first half of 2016 and warned of further losses in the coming quarters.

Canada’s banks are also facing heightened scrutiny of their mortgage underwriting practices as Canadian authorities look to tackle the potential threat of a housing bubble in Vancouver and Toronto, where prices have soared.

Canada’s banking regulator in July moved to tighten oversight of mortgage lending, citing concerns over record household debt and the sharp jump in prices. The regulator has also asked smaller lenders to test their resilience to sharp drops in house prices in Vancouver and Toronto.

National Bank analyst Peter Routledge says the household credit risk represents the primary threat to the performance of Canadian banks.

“We believe falling home prices would trigger a spike in loan losses, not from residential mortgage lending, but rather from unsecured household debt and household loans secured by other collateral,” he said.

The last quarter, which covered the three months to the end of June, also included the impact from the Alberta wildfires, which contributed to a 0.6 per cent fall in Canada’s gross domestic product during May.

© Thomson Reuters 2016