Dominion Bond Rating Service has confirmed its ratings of Laurentian Bank of Canada.

“The ratings and trends of the bank are supported by some improvement in the bank’s earnings and internal capital generation,” DBRS says. “However, it remains to be seen if the branch expansion and efforts to improve cross-selling will eventually result in an acceptable level of profitability.”

DBRS says it agrees the bank is following the best path available to it to improve earnings over the longer term, but execution has been slow. “Laurentian also continues to face significant hurdles in reducing its high cost structure, which will be difficult to address as a result of the unionized workforce and the comparatively small scale of the operation,” it adds.

“However, despite the low level of internal capital generation, the bank retains a reasonably strong financial risk profile and a generally low business risk profile,” it notes.

The rating agency says that Laurentian’s credit risk metrics have improved on an absolute basis, but they have not improved as much as for the larger chartered banks, “largely as a result of unprecedented improvements in the larger banks’ corporate portfolios, where Laurentian has less exposure”.

“However, when the corporate credit cycle eventually turns, Laurentian should be in good shape relative to its larger competitors as a result of its greater emphasis on personal lending,” it says.

While the bank has seen some expansion in its businesses outside of Québec, primarily through B2B Trust, it remains heavily dependant on the Québec economy, DBRS also notes.