National Bank of Canada

The stable outlook reflects S&P Global Ratings' expectation that over a two-year time horizon: NBC will maintain fairly strong operating results though a number of headwinds will modestly squeeze performance; The bank will maintain conservative underwriting standards and measured risk appetite; The RAC ratio will likely remain modestly above 10%, supported by decent internal capital generation; and Funding and liquidity metrics will be in line with peers. We could lower NBC's stand-alone credit profile (SACP) if net charge-offs (NCOs) rise meaningfully, and are sustainably higher than those of peers; if liquidity falls below what we consider adequate and appropriate for the business; or if revenues from the capital markets operations become oversize relative to those of peers. We could raise

...The NIM decline is weighing on National Bank of Canada's (NBC) profitability. The overall net interest margin (NIM) has fallen more than the peer average (1.14% from 1.64% at year-end 2022) because term deposits have risen materially while non-interest-bearing deposits have declined by 6% year to date. We expect the pressure on NIM to moderate once interest rates flatten out. The NIM (nontrading) was 2.09%, compared with 2.04% at year-end 2022. Regulatory capital ratios are at the peer average. The bank's S&P Global Ratings risk-adjusted capital (RAC) ratio of 11.3% (versus 11.4% at year-end 2022) is higher than the peer average of close to 10% (we consider 7%-10% adequate). However, the proportion of hybrid instruments in the bank's capital structure, a weaker form of capital in our view, is higher than the peer average, and the common equity Tier 1 (CET1) ratio of 13.3% is close to the peer average of 13.1%. Given these offsets, we score NBC's capital and earnings as adequate. Unrealized...

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