Fitch Ratings has affirmed Butterfield Bank’s viability rating at “bbb-” and says it expects the bank’s earnings to improve in the coming years.

Fitch has a positive view on the Butterfield’s “strong market position, liquid balance sheet, and solid capital levels”.

But it adds that the bank has a “modest earnings profile, product and geographic concentration in Bermuda residential lending, and some lumpiness in the commercial loan portfolio”.

Fitch said in its commentary that Butterfield’s credit situation had improved as non-performing loans had continued to trend down, while charge-offs had remained low.

“Although BNTB will continue to face asset quality pressures, specifically in its residential loan portfolio, Fitch expects net losses to remain manageable,” Fitch stated.

“Despite BNTB’s non-performing assets (NPAs; inclusive of accruing troubled debt restructurings and foreclosed real estate) remaining high at 3.3 per cent as of the first quarter of 2016, net charge-offs to average loans remain extremely low at 24 basis points.”

Fitch described Butterfield’s earnings profile as “modest, but improving” as the company builds out its fee-based businesses, cost-cutting initiatives gain traction, and as non-recurring items roll off.

“As such, Fitch expects earnings and profitability measures to improve in the near to medium term,” the agency said.

“Nonetheless, Fitch recognises on a risk-weighted assets basis, the company’s earnings profile compares favourably. Financial returns reflect the company’s liquid balance sheet structure where loans make up only 40 per cent of the asset base and the company carries a large amount of low yielding cash and cash equivalents totalling $2.2 billion as of the first quarter of 2016. The New York-based rating agency also downgraded Butterfield’s long-term issuer default rating to “BBB” from “A-”, because of a new law passed earlier this year that means Government will be less inclined to provide support to banks in distress in future.

The Banking (Special Resolution Regime) Act 2016, passed by Parliament in February, provides regulators with powers to transfer part or all of a failing bank’s business to a private-sector buyer and take temporary public ownership of a bank where required.