According to the Dominion Bond Rating Service (DBRS) based in Toronto, Canada, yesterday it has confirmed the Deposits & Senior Debt rating of Canadian Western Bank (CWB) at A (low) and its Subordinated Debt rating at BBB (high) with all trends remaining Stable.  DBRS also recognizes CWB’s long history of low write-off rates and its use of “relationship-based lending” (a key principle well depicted in “The Banker Who Saved  His Soul”.

From the CBRS website –

CWB’s most important strengths are its strong asset quality as evidenced by its very long history of low write-off rates, its proven niche strategy using relationship-based lending, its low-cost base (partially due to its business mix) and its strong internal capital generation characteristics. Funding diversification has improved over the past several years. 

Challenges include concentration in the loan book, both geographically (Alberta and British Columbia) and by industry (commercial, construction and real estate lending), although the secured nature of the loan book and the low write-off rates suggest this issue has been well managed throughout the Bank’s history.

CWB recently reported earnings of $133 million (a return on equity of 15.7%) for the nine months ended July 31, 2011, a 15% increase over adjusted earnings for the similar period in 2010, when it reported an adjusted profit of $116 million. The earnings increase was in part due to higher net interest income and the acquisition of National Leasing Group Inc. (NL) in Q2 2010. Both periods included significant gains on securities, which are not expected to recur. The most recent quarter was CWB’s 93rd consecutive profitable quarter (more than 23 years). Loan loss provisions relative to average loans were 20 basis points (bps) annualized in the first three quarters of 2011, down a little from 21 bps for full-year 2010. Gross non-performing loans as a percentage of gross loans have improved over the course of the year relative to both the loan book and to common equity and reserves. Liquidity levels were temporarily below targeted levels at the end of Q3 2011, but they have since recovered. 

Under DBRS’s global rating methodology for banks, Canadian Western Bank’s long-term Deposits & Senior Debt rating has an intrinsic assessment of A (low) and a support assessment of SA3. The SA3 rating, which reflects the expectation of no timely external support, results in the final rating being equivalent to the intrinsic assessment.

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