Citing the bank’s continued earnings strength and a growth strategy that has enabled it to outperform the other big Canadian banks, Moody’s Ratings is upgrading its long-term ratings of the National Bank of Canada.
On Monday, the rating agency said it upgraded all of its long-term ratings of the bank, including its long-term deposit and counterparty risk ratings, to Aa2 from Aa3. Its rating outlooks are stable.
Moody’s said the upgrade “reflects the bank’s solid and stable profitability supported by its disciplined growth strategy, its strong asset quality and capital position, and healthy levels of funding and liquidity that protect against any market shocks.”
Additionally, the bank’s diversified business mix, combined with its growth strategy, “has allowed the bank to outperform its Canadian bank peers despite a weakening macroeconomic environment.”
Moody’s said National Bank reported strong profits for fiscal 2024 (year ended Oct. 31), with positive performance across all business lines and robust cost discipline.
It also expects the bank to realize cost synergies from its acquisition of Canadian Western Bank (CWB), which is expected to close in early 2025. The acquisition should also boost profitability, the rating agency said.
“Asset quality remains sound, despite credit metrics deteriorating toward pre-pandemic levels as expected,” Moody’s said.
“We expect the bank’s asset quality to remain strong over the next 12-18 months despite a weakening macroeconomic environment which may result in more loans migrating from performing to impaired.”
The bank’s capital position is strong too, with its common equity tier 1 ratio of 13.7% sitting, “at the top end of the range” for the big Canadian banks, Moody’s said.
“We expect the bank to quickly rebuild capital after the close of the planned acquisition [of CWB] and to consistently operate with a [tier-1] ratio above the Canadian peer average,” the rating agency said.
Finally, the bank’s funding and liquidity profiles remain healthy, Moody’s said, adding it expects the bank’s liquidity to remain elevated until macroeconomic uncertainty starts to ease.