International ratings agency, Moody's Investors Service has said that it is reviewing long-term ratings of six Canadian banks and warned that the customers should be prepared for some downgrades.

The agency is reviewing ratings for Bank of Montreal, Bank of Nova Scotia, Caisse Centrale Desjardins, Canadian Imperial Bank of Commerce, National Bank of Canada and Toronto-Dominion Bank. Any downgrade would increase the cost of borrowings for the banks that are already facing a difficult market situation.

The agency indicated that the review is being conducted because the current ratings do not capture the current challenges being faced by the banks. Analysts at Moody's have expressed concerns over several factors affecting the banks including debt levels, housing prices, macro-economic risks and the weight of their capital markets divisions within their business mix.

Interestingly, the Royal Bank of Canada is not in the list of banks to be reviewed after the agency downgraded its rating two notches down this year. During the downgrade of major institutions, the agency had downgraded the Royal Bank of Canada to Aa3 from Aa1. RCB was the only bank from the country that was affected by the downgrade earlier this year.

"Moody's recognizes the strong domestic franchises and solid earnings capacity of these large Canadian banks, and they will continue to rank among the highest-rated banks globally following this review," said David Beattie, a senior credit officer at Moody's.

In some relief, the agency said that even if some banks might face downgrades, it might not be larger than one notch.