Scope’s review will cover Swedbank’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 Swedbank’s A Issuer Rating as well as the bank’s A- senior unsecured debt ratings, the BB rating of its Additional Tier 1 (AT1) securities and the S-1 short-term debt rating. Scope noted that its rating review will focus on the extent to which Swedbank’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 Swedbank’s ratings reflects the bank’s solid market position in Sweden, the much improved performance of its foreign activities since the losses experienced during the financial crisis, and its reassuring financial and prudential metrics.
At the same time, when initially assigned in 2014, Swedbank’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, Swedbank 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 Swedbank’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.
Reviewed for possible upgrade are the following ratings of Swedbank:
Issuer rating: A
Senior unsecured debt rating: A-
AT1 securities ratings: BB
Short-term debt rating: S-1