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

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 Criteria: Support Assessment for Banks and Banking Organisations,” Manulife Bank’s support assessment is assessed to be SA1, reflecting a very strong to good likelihood and predictability of timely external support. The Bank receives this support from its parent, The Manufacturers Life Insurance Company (MLI; rated AA (low) by DBRS), given their ownership of the Bank and strategic relationship. 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 lower on the long-term rating scale for the long-term rating of Manulife Bank relative to the long-term rating of MLI.

Manulife Bank has solid asset quality, a strong earnings platform and sound liquidity, funding and capital profiles. The Bank’s challenges include its reliance on spread income, which leaves it exposed to the prevailing interest rate environment, and its reliance on a narrow range of key products, though the Bank has begun to evaluate expanding its product suite further. The Bank continues to deliver strong earnings through robust loan and deposit growth generated by its sizable independent advisor network. The Bank’s funding and liquidity capabilities have broadened over the past several years, with notable developments, including the expansion of the Bank’s National Housing Act Mortgage Backed Securities issuance as a source of low-cost funding and becoming a large value transfer system direct participant, which offers improved liquidity risk management capabilities in crisis scenarios.

Manulife Bank’s asset quality profile is very strong, given the conservative composition of its loan portfolio, which is primarily residential mortgage lending. The Bank has experienced a proportional decline in the level of insurance within its mortgage portfolio as a result of the federal government’s change to mortgage insurance rules. The Bank continues to have strong asset quality metrics as measured by impaired loans and provisions relative to gross loans, which helps mitigate concerns associated with decreased levels of insurance.

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 Criteria: Support Assessment for Banks and Banking Organisations (January 2014), which can be found on the DBRS website.

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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.