Scope upgrades Svenska Handelsbanken’s Issuer Rating by one notch to AA-, with Stable Outlook

This rating action concludes the review initiated a month ago. It reflects Handelsbanken’s ability to weather weakness in Sweden’s housing market, prudent growth strategy, and reassuring financial metrics.

Scope Ratings today upgraded Svenska Handelsbanken’s (Handelsbanken) A+ Issuer Rating to AA-. The upgrade also covers the bank’s senior unsecured debt ratings (from A to A+) and Additional Tier 1 (AT1) debt (from BB+ to BBB-). All these ratings now have a Stable Outlook. The S-1+ short-term rating and its Stable Outlook were not reviewed.

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 and the solid track record of its risk management. In light of these factors, Scope expects Handelsbanken to preserve and strengthen its reassuring financial and prudential metrics going forward.

When initially assigned in January 2015, Handelsbanken’s ratings reflected 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 expects that likely changes to capital requirements proposed by the Swedish FSA for Swedish mortgages will have a negative impact on reported capital ratios. Given that the impact is from higher risk weightings imposed through Pillar 1 rather than any noticeable change in the riskiness of banks’ portfolios, Scope expects the effect to be neutral for capital in real terms.

Scope also pointed out that it no longer considers hard landing as the most likely scenario for Swedish house prices, noting 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).

Against this backdrop, Scope is more reassured that Handelsbanken’s credit fundamentals will remain strong, as the bank remains in a solid position to weather well any expected downsides of the real estate market or a likely normalization of its current historically low credit costs. In this context, Scope cited Handelsbanken’s risk-averse culture and focus on prudent growth.

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