National Bank of Canada’s ratings affirmed at ’A+’ by Fitch

Investing.com -- Fitch Ratings has affirmed National Bank of Canada (OTC:NTIOF)’s (TSE:NA) Long- and Short-Term Issuer Default Ratings at ’A+’ and ’F1’, respectively, with a Stable outlook. The rating agency also affirmed the bank’s New York Branch’s Short-Term IDR at ’F1’.

The affirmation follows National Bank’s completion of its $5.6 billion acquisition of Canadian Western Bank (TSX:CWB) on February 3, 2025. Fitch views this acquisition as strategically sound as it will expand the bank’s national footprint, particularly with commercial clients in Ontario and Western Canada.

As Canada’s sixth largest bank, National Bank derives half of its revenues from Quebec, where it maintains approximately 20% deposit market share along with leading positions in SME and corporate lending. The CWB acquisition is expected to accelerate the bank’s pan-Canadian growth strategy by extending full-service banking to CWB’s client base.

National Bank’s risk profile remains stable, reflecting its conservative underwriting practices and diversified commercial loan exposure. The bank’s due diligence found CWB’s underwriting standards to be robust prior to the acquisition.

Like other Canadian peers, National Bank has seen some asset quality deterioration as the economy softened. Gross impaired loans rose to 0.86% in the second quarter of 2025 (excluding CWB) from 0.54% in the same period last year. Including CWB, gross impaired loans reached 0.98%, within the peer mid-range.

The bank’s asset quality benefits from its larger exposure to Quebec, where housing prices and consumer leverage remain below other parts of Canada. Fitch anticipates a short-term cyclical increase in impairments, particularly due to tariff uncertainty impacts on the Canadian economy.

National Bank continues to deliver strong profitability, reporting an operating profitability-to-risk-weighted asset ratio of 3.39% for fiscal year 2024, among the highest in its peer group. While the CWB acquisition is expected to further diversify revenue, short-term profitability might fall below peer ranges due to integration costs.

The bank has increased performing provisions to counter potential tariff impacts. As of the second quarter of 2025, National Bank’s common equity Tier 1 ratio stood at 13.4%, at the top of the peer average.

National Bank’s funding and liquidity remain favorable compared to peers, with loans-to-deposits at 95.9% in the second quarter of 2025, supported by excess liquidity and deposits collected through the bank’s deposit network.

Fitch noted that negative rating pressure could emerge if the bank’s CET1 ratio approaches or falls below 12% on a sustained basis, or if impairments rise above 2% of gross loans on a sustained basis. Upward rating momentum would depend on improved business profile and reduced geographic concentration in Quebec.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.