DBRS Confirms Laurentian Bank’s Long-Term Rating of A (low), and Short-Term Rating R-1 (low), Stable Trends

DBRS Limited (DBRS) has today confirmed Laurentian Bank of Canada’s (Laurentian or the Bank) long-term ratings, including its Issuer Rating and Deposits & Senior Debt ratings at A (low), and the Short-Term Instruments rating of R-1 (low). All trends are Stable.

Laurentian’s credit profile benefits from an overall lower-risk business profile, its solid Québec based personal and commercial banking franchise and ownership of a country-wide capital markets business plus ownership of B2B Bank ,which provides products to brokers and financial advisors across Canada.

The B2B business has added some diversification to Laurentians relatively conservative loan portfolio, which nevertheless remains challenged with considerable concentration in Quebec. Laurentian reports no direct loan exposure to the oil and gas industry. Profitability is satisfactory, but solid, which reflects the Bank’s size and a higher efficiency ratios than larger peers. The B2B business has recently been Laurentians primary growth engine. In August 2015, the Bank purchased a $600 million investment loan portfolio from TD Bank Group. The 5,000 client portfolio was added to the B2B Bank roster.

Laurentians funding and liquidity profile is generally strong, supported by a sizable branch deposit base. The Banks capital levels are satisfactory. Although the limited buffer relative to regulatory minimums limits the Bank`s flexibility, the risk-based ratios are calculated using the standardized approaches, which results in a higher capital requirement for similar risk assets relative to the advanced approaches used by larger peers.

Despite the fact that the Bank`s low loan loss provisions are supportive of the rating, like its 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 and, ultimately, have an impact on provisioning levels.

While greater geographic diversification or improved efficiency and profitability could have a positive impact on DBRS’s assessment of Laurentian’s credit quality, negative influences could also appear in the event of evidence of loan portfolio losses which begin to impact capital ratios or an increase in risk appetite or notable weakening of asset quality. Additionally, a reduction in capitalization could also negatively impact the rating evaluation.

Under DBRS’s methodologies Laurentian’s long-term Deposits & Senior Debt is derived from an intrinsic assessment of A (low) and a support assessment of SA3. The SA3 rating, which reflects the expectation of no timely external support, results in the final rating being at the same level as the intrinsic assessment.

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 methodology and primary criteria are the Global Methodology for Rating Banks and Banking Organisations (June 2015), DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015) and DBRS Criteria: Support Assessment for Banks and Banking Organisations (March 2015), which can be found on the DBRS website under Methodologies.