TEXT-Fitch affirms Svenska Handelsbanken AB ratings

Thu Jul 12, 2012 10:57am EDT

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(The following statement was released by the rating agency)
    July 12 - Fitch Ratings has affirmed Svenska Handelsbanken AB's
 (Handelsbanken) Long-term Issuer Default Rating (IDR) at 'AA-',
Short-term IDR at 'F1+', and Viability Rating at 'aa-'. The Outlook for the
Long-term IDR is Stable. A full list of rating actions is at the end of this
release. 
    
    The affirmation reflects Handelsbanken's strong Swedish franchise, solid
capitalisation, resilient asset quality and stable earnings. It also factors in
the bank's relatively high leverage, as well as structural reliance on wholesale
funding. The latter is mitigated by a large liquidity portfolio, diversified
funding sources and lengthening maturity profile.
    Handelsbanken's solid profitability and liquidity management, enabling it to
absorb short term shocks, and strong risk culture drive the Stable Outlook. 
Given its already high ratings, absolute size of capital, and reliance on 
wholesale investor for structural funding, upside potential for its ratings is 
limited. The bank's ratings are sensitive to any reduced focus on holding high 
quality liquid assets, significantly increased leverage, and, although currently
unexpected, material worsening in asset quality. The latter would most likely be
driven by the bank's corporate exposures from longer-than-expected difficult 
European economic environment.

Fitch expects Handelsbanken to maintain its strong revenue generating capacity 
while keeping costs low. The agency expects loan impairment charges to remain 
easily manageable for the bank and for non-performing loans to gross loans to 
remain at a low level. 

Funding and liquidity management are important rating drivers for Handelsbanken.
Like its Nordic peers, it is reliant on wholesale funding markets for its 
structural funding, making it sensitive to prolonged dislocations in debt 
capital markets. Given the necessity of predominately domestic financial 
institutions, insurance companies and pension funds to hold highly liquid, high 
quality, securities in domestic currency, Fitch expects domestic demand for 
Handelsbanken's securities, in particular covered bonds, to remain stable. In 
this context, Handelsbanken's focus on holding additional high-quality liquid 
assets is sufficient to mitigate liquidity risk. Fitch expects Handelsbanken to 
maintain its good access to wholesale funding markets, although its ratings 
would be sensitive to international investor sentiment turning against the 
Nordic region or the bank.

Handelsbanken's risk-weighted capital ratios compare well with those of both 
Nordic and international peers. The low risk weights on its mortgages boost 
capital ratios, although these might be negatively affected if the Swedish 
regulators introduce a mortgage risk weight floor. Leverage is relatively high 
with a tangible common equity/tangible assets ratio of around 3.5% at end-March 
2012 (3.8% excluding derivatives and insurance assets). 

Fitch has also affirmed Stadshypotek's ratings including its Long-term IDR at 
'AA-' with a Stable Outlook, Short-term IDR at 'F1+', and Support Rating at '1'.
Given the close integration of Stadshypotek in the Handelsbanken group, Fitch 
does not assign a Viability Rating to the subsidiary.

The rating actions are as follows.

Handelsbanken: 
Long-term IDR: affirmed at 'AA-'; Stable Outlook
Short-term IDR: affirmed at 'F1+'
Viability Rating: affirmed at 'aa-'
Support Rating: affirmed at '1'
Support Rating Floor: affirmed at 'A-'
Senior unsecured debt: affirmed at 'AA-'
Subordinated debt: affirmed at 'A+'
Upper tier 2 debt: affirmed at 'A-'
Hybrid debt: affirmed at 'BBB+'

Stadshypotek: 
Long-term IDR: affirmed at 'AA-'; Stable Outlook
Short-term IDR: affirmed at 'F1+'
Support Rating: affirmed at '1'

    
Svenska Handelsbanken Inc.:
US commercial paper: affirmed at 'F1+'

 (Caryn Trokie, New York Ratings Unit)
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