DBRS Ltd. is confirming its ratings on Bank of Montreal, citing the bank’s large domestic franchise and its financial risk profile.

The rating agency says that it sees positive signs in the bank’s efforts to grow the market share of its retail bank by using a more customer-focused approach to banking, including investments in technology and front-line staff. “Significant gains will take time, given the necessary shift in the bank’s culture,” it says, but improving customer service scores are a good sign.

The bank has made gains in market share for personal deposits and business loans, DBRS notes, while market shares in mortgages and for personal loans continue to decline.

The rate of decline in mortgages is slowing as the mortgage-broker-originated portfolio runs off, it says. Also, the bank management’s desire to maintain the quality of the personal loan book resulted in market share decline from the first quarter of 2009 to the third quarter of that year, but there sequential growth began in the fourth quarter, it notes. However, DBRS says it believes any meaningful gains in both these asset categories will be challenging, given the efforts of the bank’s competitors to do the same.

The bank’s credit performance is moving closer to the industry average, DBRS notes, following worse-than-average performance in fiscal 2008 and the first half of 2009. It says that actions taken by BMO, coupled with deteriorating credit performance at a number of its competititors, is responsible for the shift. “It appears that BMO was provisioning early in the credit cycle, but it is difficult to determine whether there has been a change in posture from the historical conservative lending culture,” it adds.

The bank also continues to make progress in controlling risk, DBRS says, following the implementation of changes to its risk management system in 2008, “Evidence includes the reduction in levels of risk in the trading business, with trading revenue as a percentage of operating revenue at the bottom end of its Canadian banking peers and market-risk risk-weighted assets as a percentage of total risk-weighted assets at or below the Canadian bank peer group average.”

IE