DBRS Confirms National Bank at AA (low) and R-1 (middle)

DBRS has today confirmed the ratings of National Bank of Canada (National or the Bank), as listed below, including its Deposits & Senior Debt at AA (low) and Short-Term Instruments at R-1 (middle). All trends remain Stable. DBRS has also discontinued its rating of the Bank�s Cumulative Preferred Shares, because there are none outstanding.

National continues to maintain its strong regional franchise in Qu�bec, with particular emphasis on its retail, small business and commercial banking units, as well as its wealth management business and national financial markets franchise. While strong market shares in its home province remain a key strength of the Bank, the ratings reflect the Bank�s regional concentration in Qu�bec. The overall quality of the Bank�s lending portfolio remains strong.

National delivered moderate earnings growth in its Personal & Commercial Banking and Financial Markets units and stronger earnings growth in its Wealth Management unit in the first six months of 2014. Wealth Management and Personal & Commercial Banking growth is benefiting from a greater national presence outside of its traditional core Qu�bec market as the Bank begins to leverage national expansion strategies and interprovincial acquisitions made over the past few years.

National�s efficiency ratio (operating expenses over operating revenue) continues to sit above the average of its peer group, partly as a result of the high cost structure in the Bank�s Wealth Management segment. Given the number of acquisitions undertaken in Wealth Management over the past five years, most recently the acquisition of TD Waterhouse Institutional Services in November 2013, the Bank needs to continue aligning the different pieces of the division to generate the most value from the comprehensive portfolio.

Like its other Canadian peers, the Bank has exposure to the Canadian residential mortgage market and other real estate lending. A slowdown in these markets may slow earnings generation, while a downturn in the residential mortgage or commercial real estate markets could hurt asset quality indicators and ultimately have an impact on provisioning levels.

National�s Deposits & Senior Debt rating of AA (low) is composed of an intrinsic assessment of A (high) and a support assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada), which results in a one-notch increase from the intrinsic assessment to the Issuer Rating and the Deposits & Senior Debt and Subordinated Debt ratings.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2014), Rating Bank Capital Securities � Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013) and Criteria: Support Assessment for Banks and Banking Organisations (January 2014), which can be found on the DBRS website under Methodologies.

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