Canadian banks have a good quantity and quality of capital and their capital positions are expected to remain robust, says DBRS.

In a newsletter published today, the rating agency said that it believes that all six of the large Canadian banks will have strong capital ratios at the end of second quarter.

“Our expectation is to see capital ratios level off in the near term given the slowing of internal capital generation,” it adds.

It also points out that the mix, quality and composition of capital are important considerations in the overall assessment of capital positions. It prefers common equity over hybrids, as the first loss cushion for bondholders and other senior creditors.

“On average, 17% and 14% of the regulatory Tier 1 capital is made up of preferred shares and innovative instruments, respectively, which DBRS views as reasonable,” it says, adding, “DBRS expects the quality of capital to remain relatively steady given the recent focus by the market on ‘core capital’.”

Most of the banks have also been able to raise common equity over the last 12 months, it notes.

IE