Moody's investors Service has downgraded its ratings on Canada's Big Six banks over concerns about the risks posed by increasing household debt, the ratings agency announced on Thursday.

Moody's downgraded the baseline credit assessments (BCAs), the long-term ratings, and the counterparty risk assessments (CRAs) of each of the six large Canadian banks — Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Royal Bank of Canada and National Bank of Canada — and their affiliates.

The downgrades reflect its expectation of, "a more challenging operating environment for banks in Canada for the remainder of 2017 and beyond, that could lead to a deterioration in the banks' asset quality, and increase their sensitivity to external shocks," Moody's says in a news release.

The ratings also continue to have negative outlooks due to expectations that the federal government will introduce an operational resolution regime in Canada, which would reduce the likelihood of taxpayer bailouts.

"Today's downgrade of the Canadian banks reflects our ongoing concerns that expanding levels of private-sector debt could weaken asset quality in the future," says David Beattie, senior vice president at Moody's, in a statement. "Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past."

The banks' ratings could be downgraded further, "if their fundamentals weaken, as evidenced by an even more challenging operating environment and/or deterioration in their financial metrics," Moody's adds.

Although the rating agency does not expect any upward rating pressure in the near term, the Canadian banks' ratings could be upgraded, "if macro-economic conditions in Canada improve and the Canadian banks maintain sound financial metrics," Moody's says.

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