Dominion Bond Rating Service has upgraded all the ratings of National Bank. However, the ratings agency says it remains cautious on the bank’s ability to build the retail investment business outside of Quebec.

DBRS says that the ratings upgrade is consistent with its preliminary opinion that the improvements in National Bank’s earnings, asset quality, and financial risk profiles are sustainable due to the ongoing successful execution of its strategy. The upgrade is also supported by the bank’s more balanced business mix, which DBRS believes should provide a base of stability to earnings.

“The bank continues to solidify its strong retail banking position in Quebec (although the Desjardins Group is a formidable competitor), grow retail earnings in the rest of Canada through its strategic partnership program (with, among others, the Power Financial group of companies), expand its distribution capabilities, and increase the diversification of its corporate and investment banking businesses,” the rating agency notes. “Additionally, DBRS anticipates the more conservative lending philosophy, adopted over the last several years, will contribute to respectable asset quality in the longer term, and an improving financial risk profile should position the bank for growth either organically or through acquisitions.”

DBRS adds that the bank’s ratings are limited by its inherent leverage to capital markets volatility, “given National Bank is a sizeable player in the Canadian capital markets business”, and by its ability to build wealth management market share from outside of Quebec, particularly in Ontario through the Altamira brand. “So far, the bank‚s management has been focused on stemming net redemptions as opposed to cross-selling products to these clients,” it says.