Dominion Bond Rating Service has confirmed its ratings of National Bank, noting that expansion outside of Quebec remains a challenge.

The ratings agency said that the bank’s ratings are supported by its ongoing progress in strengthening its regional bank and national investment bank, while maintaining a favourable financial risk profile.

During the past 12 months, the bank has been solidifying its strong retail banking position in Quebec, DBRS notes. “Given its importance as a home base and revenue contributor, DBRS believes actions taken (including increasing client satisfaction, focusing on cross-selling of products to existing customers, and expanding the product suite) will further strengthen the franchise in the future,” DBRS said.

National Bank is solidly ranked second in Quebec retail banking, with the Desjardins Group holding the largest market share. The third-largest player has a significantly lower market share than National Bank, DBRS said.

“Despite the loan growth experienced over the past two years, DBRS anticipates that the more conservative lending philosophy adopted by National Bank over the past several years will contribute to respectable asset quality over the credit cycle,” it noted. “The favourable financial risk profile should position the bank for growth, either organically or through acquisitions; so far the majority of the growth has been organic.”

DBRS said it feels some progress has been made towards geographically diversify earnings, but regional concentration in Québec remains a long-term challenge. “The bank continues to grow earnings outside of Quebec through its strategic partnership program (with, among others, the Power Financial group of companies), expand its distribution capabilities, and increase the diversification of its financial markets businesses,” DRBS concluded.