DBRS Ltd. has assigned Canadian Western Bank (TSX:CWB) a deposits & senior debt rating of A (low) and a subordinated debt rating of BBB (high), the rating agency said Monday. All trends are Stable.

CWB has historically not been rated by any credit rating agency.

DBRS says CWB’s most important strengths are its strong asset quality as evidenced by its very long history of low charge-off rates, its proven niche strategy using relationship based lending, its low cost base, and its strong capital and internal capital generation.

While somewhat improved over the past several years, DBRS notes that concentration issues in the loan book remain both geographically (Alberta and British Columbia) and by industry (commercial and construction & real estate lending), although the secured nature of the loan book and low charge-off rates suggest this issue has been well managed throughout the bank’s history.

CWB recently reported adjusted earnings of $116 million (an adjusted ROE of 22.2%) for the nine months ended July 31, 2010, a 53% increase over the similar period in 2009, when it reported a profit of $75.9 million (a 15.2% ROE); the increase was in part due to higher net interest income and the acquisition of Winnipeg-based National Leasing Group Inc.

The bank acquired National effective February 1, for $126.5 million. The fim, which is involved in small- and mid-size commercial equipment leases across Canada and in a variety of different industries, had a $323 million on-balance sheet leasing portfolio at the time of the acquisition, as well as an additional securitized portfolio of approximately $280 million. DBRS views this operation as a good fit with core operations.

The most recent quarter was CWB’s 89th consecutive profitable quarter (more than 22 years). Revenues remain focused on net interest income (74%), as revenue growth has been relatively balanced between interest and non-interest-related income since the acquisition of the insurance and Valiant Trust businesses in 2004.

Insurance operations have been growing along with the banking operations of CWB and have consistently generated 8% to 9% of the bank’s net income. DBRS says it views this as a positive attribute as it modestly helps diversify CWB’s earnings.

IE