DBRS Confirms Canadian Western Bank Rating at A (low), Stable Trend

DBRS has today confirmed the Issuer Rating and Deposits & Senior Debt rating of Canadian Western Bank (CWB or the Bank) at A (low), as well as its Short-Term Instruments rating, Subordinated Debt rating and NVCC Preferred Share rating at R-1 (low), BBB (high) and Pfd-3, respectively. All trends remain Stable. The Non-Cumulative Preferred Shares rating has been withdrawn because of repayment.

CWB’s has strong asset quality as evidenced by its history of low write-off rates, a proven niche strategy using relationship-based lending, a favourable efficiency ratio that reflects its business mix and strong internal capital generation. Challenges remain, though, particularly concentration in the loan book, both geographically (Alberta and British Columbia) and by industry (commercial, construction and real estate lending). Like its Canadian peers, the Bank has exposure to Canadian real estate-supported lending. A slowdown in the real estate markets may slow earnings generation and could hurt asset quality indicators, which ultimately may have an impact on provisioning levels. Funding diversification at CWB has been slowly improving over the past several years, but continues to rely heavily on brokered deposit.

CWB recently reported earnings available to common shareholders of $160 million (a return on equity of 14.7%) for the nine months ended July 31, 2014, an 18% increase over the same period in 2013. The earnings increase was largely due to loan growth year-to-date and higher non-interest income, offset by a narrower net interest margin in the continued low interest environment. CWB’s 105th consecutive profitable quarter was accompanied by low loan loss provisions. Capital levels are viewed as strong with a Basel III Common Equity Tier 1 ratio of 8.0% based on risk-weighted assets calculated using the standardized approach.

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.

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

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.