DBRS Inc. has revised its long-term rating trend on Toronto-Dominion Bank (TD) to positive from stable, citing the bank’s strong track record at improving its financials.
The Toronto-based credit-rating agency says TD’s credit ratings will likely be in line for an upgrade if the bank continues to demonstrate strong credit fundamentals, improved earnings in its U.S. divisions and outperformance in Canada.
In revising the rating trend, DBRS points to its view that, “TD’s long-tenured track record of improving its fundamentals and franchise points to an improving [intrinsic assessment].”
Furthermore, DBRS notes that factors such as U.S. tax reform and the prospect of higher interest rates in both Canada and the U.S. should help boost the bank’s earnings.
TD reported solid earnings growth in the first half of 2018, with higher earnings in all business segments, partially offset by a higher provisions for credit losses, DBRS says. Nevertheless, credit quality “remains strong,” the credit-rating agency says, adding that TD’s liquidity and capital levels also are robust.
DBRS says that it doesn’t see any near-term negative rating pressure for the bank. However, it cautions that “a severe downturn in the economy that leads to a sustained deterioration in asset quality, especially from deficiencies in risk management or underwriting, could have negative rating implications.”
Adds DBRS: “While historically a source of lower credit risk, TD’s focus on retail lending in Canada makes it somewhat more exposed to a potential downturn in the consumer segment in Canada.”