DBRS Confirms NA at Pfd-2(low); cuts Trend to Stable

DBRS has announced that it:

confirmed the ratings of National Bank of Canada (National or the Bank) and its related entities, including the Bank’s Long-Term Issuer Rating at AA (low) and Short-Term Issuer Rating at R-1 (middle). DBRS Morningstar also changed the trend on all ratings to Stable from Positive. National’s Long-Term Issuer Rating is composed of an Intrinsic Assessment of A (high) and a Support Assessment of SA2, reflecting the expectation of timely systemic support from the Government of Canada (rated AAA with a Stable trend by DBRS Morningstar). The SA2 designation results in a one-notch uplift to the Long-Term Issuer Rating. Once the Bank has issued a sufficient level of Bail-inable Senior Debt to provide for an adequate buffer for other obligations under the Canadian Bank Recapitalization Regime, DBRS Morningstar expects to remove the uplift from systemic support.

The change in trend to Stable from Positive reflects DBRS Morningstar’s concern regarding the negative impact of the Coronavirus Disease (COVID-19) pandemic on the Bank’s revenue, earnings, and asset quality, reflecting the wide and growing scale of the economic disruption it has caused. Nevertheless, there has been unprecedented support measures put in place by governments and regulators around the globe, which will mitigate some of the negative impacts of this crisis. Additionally, National is entering this downturn from a position of strength with a strong balance sheet.

Capitalization is strong as National continues to organically generate sufficient capital to support its balance sheet growth and enable the Bank to support its customers during this period. As at January 31, 2020, National’s Common Equity Tier 1 ratio stood at 11.7%, well above the Office of the Superintendent of Financial Institutions’ (OSFI) minimum requirements and at the top range of large Canadian bank peers. On March 13, 2020, OSFI lowered the Domestic Stability Buffer (DSB) requirement for Domestic Systemically Important Banks (D-SIBs) to 1.0%, which effectively reduces the CET1 regulatory minimum to 9.0%. As the DSB was intended, OSFI is providing the D-SIBs with more flexibility to extend loans to their customers during the coronavirus pandemic. Simultaneously, OSFI announced that it expects all D-SIBs to halt any new dividend increases and common share buyback activity.

Affected issues are: NA.PR.A, NA.PR.C, NA.PR.E, NA.PR.G, NA.PR.S, NA.PR.W and NA.PR.X.

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