Big Six ratings upgraded: Fitch

Certain long-term credit ratings on the Big Six banks and Desjardins Group have been upgraded by Fitch Ratings, following the adoption of a revised rating methodology.

Last week, the rating agency announced a series of changes to its approach to rating banks in jurisdictions with developed frameworks for resolving institutions that run into financial stress — including revisions to its debt notching practices, allowing for wider notching for certain deposits and forms of senior debt.

Fitch said it expects that up to 20% of bank long-term ratings will be upgraded as a result of the changes, and that up to 30% of global senior obligation ratings will be affected. 

Now, the rating agency has announced upgrades for all of the Big Six banks, saying that the upgrades reflect its “revised view of increased creditor protection from the very large resolution debt buffer.”

For the first quarter, these buffers ranged between 15% (Bank of Nova Scotia) and 19% (CIBC and National Bank of Canada) of risk-weighted assets (RWAs) across the banks — and Fitch said that for each of the banks it expects these buffers to “remain sustainably above 15%.”

At Desjardins, the rating agency said the upgrade was driven by both the firm’s large resolution buffer — which was lower than the banks at 12% of RWAs — combined with its very high tier 1 capital ratio (23.7% in its latest quarter), attributed to “its cooperative ownership which provides structural protections that constrain capital payout to limited levels.”

Looking ahead, the ratings for any of the Big Six could be downgraded if their resolution debt buffers fall below 15% of RWAs, and for Desjardins, a downgrade is possible if the buffer falls below 8% of RWAs, or its tier 1 ratio falls below 17.5%, Fitch said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.