Standard & Poor’s Ratings Services (S&P) has raised its ratings on National Bank of Canada (TSX:NA) after deciding that the bank has greater systemic importance than previously thought. The outlook is stable.
The credit rating agency raised its long- and short-term issuer credit ratings on National Bank to ‘A/A-1′ from ‘A-/A-2’citing a reassessment of the bank’s systemic importance. “We now view National Bank as having ‘moderate’ systemic importance, compared with our previous view of ‘low’ systemic importance,” it says.
S&P notes that National Bank’s unique position as a large Quebec-based bank also contributes to its view of the bank’s systemic importance. “We expect that its position as the largest Quebec-based bank would increase the potential for political intervention in response to impending distress,” it says.
National Bank’s 26% share of commercial lending in Quebec underscores the importance of the bank’s key role in the Quebec economy, S&P notes; adding that it also has market shares of more than 20% in retail financial services including mortgage lending, wealth management, and deposits in the province, which also contributes to S&P’s view of the bank’s importance.
Additionally, S&P said that National Bank’s participation in Canadian wholesale funding and securities markets contributes to its systemic importance as a source of potential contagion under conditions of extreme stress.
Federal banking regulators have already designated National Bank as a domestic systemically important bank, meaning that it faces enhanced regulatory supervision, a 1% capital surcharge, and increased financial disclosure obligations.
“Our revised view is based on the bank’s overall scale, its significant role in providing financial services to the Quebec economy, and on the general scale and interconnectedness of its capital markets activities in the Canadian financial system,” said Standard & Poor’s credit analyst, Tom Connell.