Moody’s Ratings has upgraded the core credit score of Butterfield Bank, pointing to several years of solid performance, stable earnings and strong capital buffers at Bermuda’s largest bank.

The ratings upgrade is significant, sending a positive signal to the market, opening the door to several benefits, making the financial institution a more attractive investment and potentially providing easier access to capital markets.

The rating enhances the bank's reputation for financial stability and responsible management.

Michael Collins, Butterfield’s chairman and chief executive, said: “We are pleased with Moody’s decision to upgrade our baseline credit assessment and recognise Butterfield's established track record in the effective management of financial and non-financial risk.

“As Moody’s notes, Butterfield’s BCA and ratings upgrade to A2 from A3 reflect the bank’s long history in Bermuda as well as our leading market share in the Cayman Islands.

“Our market depth drives strong shareholder returns, allowing us to maintain low risk weighted assets and high levels of capital and liquidity.”

The agency raised Butterfield’s baseline credit assessment to baa1 from baa2.

The upgrading of the bank’s long-term issuer rating and foreign-currency long-term deposits to A2 from A3, came with a lifting of its foreign-currency short-term bank deposit rating to P-1 from P-2.

All counterparty risk ratings were affirmed, and the outlook on the long-term ratings shifted to stable from positive.

Moody’s said the higher rating reflects expectations that Butterfield will continue the “solid execution” seen in recent years, which has delivered strong profitability, low credit losses and a stable funding base.

The bank’s dominant position in Bermuda and leading share in the Cayman Islands continue to support “healthy core profitability and capital generation”.

Butterfield’s balance sheet remains highly liquid. As of June 30, high-quality liquid assets made up about 43 per cent of tangible banking assets, a key strength for a bank without access to a lender of last resort.

Moody’s, however, again pointed to concentration risks in both loans and deposits, along with the bank’s reliance on less-stable funding sources. Its less-stable funds ratio stood at about 37 per cent.

Capital buffers remain well above global peers. Moody’s-adjusted tangible common equity was nearly 30 per cent of risk-weighted assets at September 30.

Still, the agency noted that large unrealised losses on the bank’s available-for-sale and held-to-maturity securities portfolios — 9 per cent and 38 per cent of TCE, respectively — continue to weigh on its capital assessment. Moody’s also expects Butterfield may lower current capital levels through acquisitions or share buybacks.

The agency said compliance remains an “inherently high risk” given Butterfield’s offshore footprint, though it pointed to the bank’s mature anti-money-laundering programme and continued low operational losses. Asset quality trends are improving, with problem loans declining and net charge-offs staying below three basis points for five straight quarters.

Moody’s says the bank continues to be highly likely to receive government support, noting Butterfield’s systemic importance and past precedent. That keeps the bank’s issuer and deposit ratings two notches above its core assessment.

Upward rating pressure is limited unless Bermuda’s sovereign rating rises. Downward pressure could emerge if asset quality, capital or liquidity weakens, or if the bank suffers a major compliance failure or loss of correspondent banking relationships.