Investors might look to Canada's banks - Barron's

NEW YORK, Nov 1 (Reuters) - Canadian banks have fared better in the economic downturn that U.S. and European institutions and represent an attractive investment, Barron's business weekly reported on Sunday.

"With their stout balance sheets and conservative bent, Canada's banks look healthy," the paper said.

It noted that a recent World Economic Forum report rated the Canadian banking system the world's soundest -- ahead of Switzerland, which ranked 16th, the United States, which was 40th and Britain at 44 in the world rankings.

"Thanks to strict regulation, Canada's banks don't make subprime loans," it said.

Barron's quoted RBC analyst Andre-Phillipe Hardy as saying Canadian banks are less exposed to credit risk because loans make up only 40 percent of their assets

Barron's noted that the banks -- Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO), Canadian Imperial Bank of Commerce (CM.TO) and Bank of Montreal (BMO.TO) -- had only $16 billion in U.S. residential mortgages on their balance sheets -- just 3.5 percent of their total residential loans.

The banks are also benefiting from a robust Canadian dollar as well as the fact that Canada's recession has been milder than in the United States and Europe, Barron's said.

"The next 12 months still look good," it quoted Rohit Sehgal, a money manager at Toronto's Goodman & Co Investment Counsel. Sehgal said the banks should be helped by cost-cutting, a more favorable yield curve and a likely decline in nonperforming loans.

(Reporting by Steve James, editing by Martin Golan)