Moody’s Investors Service has changed the rating outlook on National Bank of Canada (A1 for long-term deposits) to positive from stable.

The ratings agency says the change in outlook is in response to National Bank’s increasingly predictable profitability and asset quality indicators from its direct banking franchise centered on Quebec. That predictability has been enhanced by actions National Bank has taken to improve its credit profile. These include the strengthening of its credit policies and procedures as well as the redeployment of resources to address its past asset quality problems.

In addition, the differentiating factors that make Quebec a unique market within the Canadian banking landscape provide National Bank with an enhanced barrier from competitive pressures, the rating agency noted. National Bank has a sizable number two market position in Quebec retail banking and number one market position in Quebec commercial banking.

Despite the outlook change, Moody’s said that National Bank’s credit portfolio continues to include a level of non-performing assets that remains higher than a number of banks of similar size in North America. However, National Bank’s stable core franchise generates a level of earnings that gives it good flexibility to deal with asset quality issues.