DBRS Confirms Manulife Bank of Canada at R-1 (middle), A (high)

DBRS has today confirmed the long- and short-term ratings of Manulife Bank of Canada (Manulife Bank or the Bank) at A (high) and R-1 (middle), respectively. All trends remain Stable.

Under DBRS’s bank rating methodology, Manulife Bank’s support assessment is SA1, which reflects very strong to good likelihood and predictability of timely explicit or implicit support by its parent, The Manufacturers Life Insurance Company (MLI). However, it is difficult for implicit support to match the clarity and legality of an unconditional guarantee. DBRS considers this difference to be worth one notch on the long-term rating scale for the long-term rating of Manulife Bank. The Bank’s business model remains inseparable from the operations of MLI, with which the Bank shares strategic alignment, branding and significant cross-relationships in management and systems. Furthermore, the Bank relies on MLI’s relationships with financial advisors for asset gathering and funding.

On its own, Manulife Bank has solid asset quality, a strong earnings profile and sound liquidity, funding and capital profiles. Funding diversification is an area in which the Bank is still working on improving, as funding sources have been historically concentrated; however, the Bank has made notable diversification improvements over the past few years. Manulife Bank’s challenges include its reliance on spread income, which leaves the Bank susceptible to spread compression, as has been experienced in the current low interest rate environment, with its reliance on a narrow range of key products.

Manulife Bank’s asset quality profile is very strong, given the composition of its loan portfolio, notwithstanding the proportional decline of insured to uninsured mortgages from historical levels given the federal government’s change to mortgage insurance rules.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2012) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website.

In the rating table below, “no guarantee” refers to the fact that The Manufacturers Life Insurance Company provides no explicit guarantee.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.