DBRS Ltd. has confirmed its ratings on Bank of Montreal, noting that the bank’s increased focus on risk management should help it weather the weaker credit cycle.

The rating agency said Thursday that BMO’s ratings and trends are supported by the bank’s sizable domestic franchise and its financial risk profile. “Over the last 18 months, BMO has been reviewing and implementing changes to its risk management system following charges related to its energy trading business. DBRS believes this scrutiny is positive in adding more rigour to the risk management framework, especially given the weakening credit environment,” it said.

“Following a lengthy period of better credit performance than the industry, fiscal 2008 and [the first half of] 2009 witnessed a reversal of performance. It is too early to determine whether this reversal is a trend or whether BMO is being conservative by aggressively provisioning early in the credit cycle,” DBRS said.

Nevertheless, DBRS noted that BMO has solid domestic consumer, commercial and wholesale businesses. It added that the bank has been steadily growing market share in its retail bank by using a customer-focused approach.

“It appears the investments in technology for front-line staff, changing the mix of staff (through reducing non-client-facing employees and redeploying these savings into front-line staff) and better training are starting to produce results,” it observed. “While mortgage market share continues to decline, the rate of decline is slowing as the mortgage-broker-originated portfolio runs off. DBRS believes any meaningful gains in productivity will take some time given the shift in the bank’s culture.”

IE