Fitch Ratings has affirmed its ratings on Royal Bank of Canada, citing its sound financial fundamentals and leading domestic franchise in several business lines.

The rating agency affirmed the bank’s long-term issuer default rating at ‘AA’. The outlook is stable.

The rating agency says that RBC’s financial performance has remained solid so far this year, helped by growth in domestic retail and commercial lending, combined with moderate loan loss provisions, and solid contributions from the wealth management, insurance and capital markets segments. And, it says the sale of the bank’s underperforming U.S. retail operation is viewed “encouragingly”, despite its negative impact on reported earnings.

Current strategies include aggressive growth targets for wealth management, Fitch notes. “This, combined with the sale of the loss-making U.S. retail operations, should reduce the revenue contribution of comparatively higher risk capital markets activities,” it says. However, it notes that the success of RBC’s ambitious wealth management strategy is highly dependent on the level of interest rates and market returns.

Fitch says that RBC’s asset quality indicators compare favourably with its peers. “Weakness in the Caribbean region has added to the level of impaired loans. Peripheral European exposure is small. Exposure to other European countries is greater but appears manageable. Spill-over risk of the Eurozone crisis is more of a concern,” it says.

It also believes that RBC’s capital position remains sound, bolstered by internal capital generation, the issuance of common and preferred shares, and an absence of stock repurchase activity since 2008.

Fitch adds that RBC’s ratings also benefit from Canada’s strong economic and regulatory environment, as well as a stable domestic banking market. Although it notes that household debt is at record levels, leaving Canadian households much more exposed to an adverse shock than in previous periods.

Looking ahead, Fitch says that if delinquencies in the domestic retail loan book increase beyond expectations, the ratings could come under pressure. Also, a significant increase in inherently volatile wholesale banking activities, meaningful reductions in profitability due to outsized market-driven losses, and/or elevated execution risk associated with acquisitions could negatively affect ratings. “Positive momentum is difficult to envision”, it says, given RBC’s already high ratings.