Fitch Ratings has affirmed its ratings on TD Bank with a stable outlook, citing the bank’s solid results, and strong capital and liquidity positions.
The rating agency says that its rating action reflects TD’s leading franchise in Canada as well as its strong earnings performance, good asset quality, and solid capital and liquidity positions. “TD has reported consistent earnings over the last few years as the group was able to avoid significant asset quality problems during the credit crisis,” it notes.
Liquidity remains comfortable, Fitch says, and its Tier 1 capital ratio of 13% under Basel II rules compares well to global peers. The bank also expects to meet the common equity Tier 1 minimum under Basel III rules by the second quarter of 2012, comfortably ahead of the initial effective date of January 2013.
The rating outlook is stable. Fitch says that positive rating action could occur if TD is able to increase the profitability and scale of its U.S. operations while maintaining a prudent risk profile. However, upward rating potential is somewhat constrained since TD is already one of the highest rated banks globally, it says.
On the downside, Fitch says it would review TD’s current ratings if macro economic weaknesses, such as severe problems in the Canadian consumer sector or contagion from the U.S. or Eurozone, weaken the bank’s overall risk profile. Similarly, downward pressure could develop if management significantly increases its risk appetite through existing operations or through aggressive acquisitions.