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Scope reviews for possible upgrade Svenska Handelsbanken’s A+ Issuer Rating

Scope’s review will cover Handelsbanken’s ability to weather weakness in Sweden’s housing market and the effects of the Swedish regulator’s related macro-prudential measures, as well as expected changes to capital requirements for Swedish mortgages.

Scope Ratings today placed on review for possible upgrade Svenska Handelsbanken’s (Handelsbanken) A+ Issuer Rating as well as the bank’s A senior unsecured debt ratings and the BB+ rating of its Additional Tier 1 (AT1) securities. The S-1+ short-term rating and its Stable Outlook are not being reviewed. Scope noted that its rating review will focus on the extent to which Handelsbanken’s so far successful weathering of softer housing prices in Sweden will enable it to preserve and strengthen its solid fundamentals. The review will also assess the expected impact on the bank’s balance sheet risk and business activities of regulatory adjustments (including on capital charges).

Scope’s analysis underpinning Handelsbanken’s ratings reflects the bank’s solid and well-diversified market position in Sweden, the healthy nature of its foreign activities, the solid track record of its risk management, and its reassuring financial and prudential metrics.

At the same time, when initially assigned in 2015, Handelsbanken’s ratings mirrored Scope’s concern that a potential hard landing of real estate prices in Sweden could hurt the bank’s solid financial position and potentially affect its funding costs (as, like the other large Nordic banks, Handelsbanken relies to a large extent on market funding). Another analytical caveat at that time was the scenario of future prudential regulatory adjustments negatively impacting the risk profile of the bank’s balance sheet and its ample capital position.

At this time, Scope said that it no longer considers hard landing as very plausible for Swedish house prices, pointing out that these have been coming down in a measured way in recent months, a result of market dynamics and specific policy steps (including macroprudential measures and expected changes to Swedish banks’ capital calculations).

Against this backdrop, Scope is more reassured that Handelsbanken’s credit fundamentals are not likely to deteriorate materially, as the bank remains in a strong position to weather well any expected downsides of the real estate market. In this context, Scope cited Handelsbanken’s risk-averse culture and focus on prudent growth.

Reviewed for possible upgrade are the following ratings of SvenskaHendelsbanken:

Issuer rating: A+
Senior unsecured debt rating: A
AT1 securities ratings: BB+

The S-1+ short-term rating and its Stable Outlook is not under review.