Toronto-based credit-rating agency DBRS Ltd. has raised its long-term ratings trend on Royal Bank of Canada (RBC) to positive, citing the bank’s operational momentum.
DBRS announced on Tuesday that it has revised the trend on all of its long-term ratings for RBC to positive from stable due to the bank’s “strong momentum … building its diversified franchise that has delivered consistent earnings growth, while maintaining a sound risk profile.”
DBRS reports that RBC’s net income increased by 4% year-over-year in the first half of 2018 and that it was up by 8% excluding the gain on the sale of Moneris’ U.S. operations in the prior year.
“Results reflect improvement in each business segment apart from the insurance segment, which was flat,” DBRS notes.
In addition, DBRS reports that RBC has “well-established and prudent risk management practices, which have contributed to relatively stable credit trends.”
Adds DBRS: “Given the expectation for solid gross domestic product growth in both Canada and the United States, DBRS views RBC as well positioned to continue to deliver strong results over the next year, reflecting higher short-term interest rates in both Canada and the United States and a lower corporate tax rate in the United States following tax reform.”
DBRS suggests that RBC’s strengths distinguish the bank from its peers in both Canada and around the world.
“If RBC continues to show strong credit fundamentals, franchise momentum and better-than-peer performance, the ratings would likely be upgraded,” DBRS says.
DBRS adds that it does not see any near-term negative rating pressure on RBC but that the ratings could come under pressure if a severe downturn in the real estate market materializes, leading to “a sustained deterioration in asset quality.”