Fitch Affirms Swedbank AB at 'A+'; Outlook Stable

Thu Apr 4, 2013 9:37am EDT

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(The following statement was released by the rating agency) LONDON/PARIS, April 04 (Fitch) Fitch Ratings has affirmed Swedbank AB's (Swedbank) Long-Term Issuer Default Rating (IDR) at 'A+' and Viability Rating (VR) at 'a+'. The Outlook on the Long-term IDR is Stable. Fitch has affirmed the Short-Term IDR at 'F1'. A full list of rating actions is at the end of this comment. RATING ACTION RATIONALE The affirmation of Swedbank's Long-term IDR and VR reflects its strong Swedish franchise, solid capitalisation, good profitability, and resilient asset quality in its domestic portfolio. These outweigh the negative considerations with respect to Swedbank's reliance on wholesale funding, and exposure to the Baltics, although the bank has reduced this risk significantly. KEY RATING DRIVERS AND SENSITIVITIES - IDRS, VR AND SENIOR DEBT The Stable Outlook reflects Fitch's expectation that Swedbank will retain its focus on strong capital and liquidity, while not increasing risk in the business. Given its already high ratings, and reliance on wholesale investors for structural funding, upside potential for its ratings is limited. The bank's IDRs, driven by its VR, are sensitive to investor sentiment turning against the bank, or a material deterioration in asset quality, in particular in Swedbank's non-Swedish loan portfolio. Downward pressure on the bank's ratings is most likely to be a result of prolonged inability to competitively access debt capital markets or renewed uncertainty in its Baltic portfolio. Swedbank's ability to absorb moderate shocks is supported by its good profitability, which compares well with its peers. The bulk of the bank's profitability is driven by its Swedish business, which makes it reliant on the Swedish economy to support growth. Fitch expects Swedbank to maintain its revenue-generating capacity while keeping its costs low, and for Swedbank's loan impairment charges to normalise in 2013. The stock of non-performing loans - largely related to Swedbank's Baltic, Russian and Ukrainian businesses - has shrunk significantly since 2009, and the bank is exiting Russia and Ukraine. Fitch expects that asset quality will remain sound, supported by strong risk management implemented by the new management after 2009, with a focus on risk-returns rather than volume growth. Funding and liquidity management are important ratings drivers for Swedbank. Like its peers, Swedbank's structural reliance on wholesale funding makes it sensitive to prolonged dislocations in funding markets, as was experienced at the height of the crisis. A substantial proportion of funding is also raised in international markets. Swedbank has extended its funding maturity profile, and Fitch expects it to maintain its large liquidity reserve, as well as its focus on liquidity stress testing, to mitigate risks. Swedbank's capital adequacy ratios compare well with those of both Nordic and international peers, although its large portfolio of mortgages with low risk weights boosts capital ratios. Full implementation of CRD IV (Basel III), including IAS19, is expected to reduce the bank's core Tier 1 ratio by around 200bp at end-2012, to a still strong 15.4%. KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating and Support Rating Floor reflect Fitch's expectation that there would be an extremely high probability that support would be forthcoming from the Swedish authorities if required. This is driven by Swedbank's importance within the Swedish financial sector, with 20% market share in deposits at end-2012. The Support Rating is potentially sensitive to any change in Fitch's assumptions around the propensity or ability of Swedish authorities to provide timely support to the bank. They are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for banks more generally. In this context, Fitch is paying close attention to on-going policy discussions around bank support and 'bail in', especially in Europe. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by Swedbank are all notched down from Swedbank's VR in accordance with Fitch's assessment of each instruments respective non-performance and relatively loss severity risk profiles, which vary considerably. Swedbank's subordinated debt ratings are broadly sensitive to the same considerations that might affect the bank's VR. The rating actions are as follows: Swedbank Long-Term IDR: affirmed at 'A+'; Stable Outlook Short-Term IDR: affirmed at 'F1' Viability Rating: affirmed at 'a+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A-' Senior unsecured debt: affirmed at 'A+' Short-term debt: affirmed at 'F1' Subordinated debt: affirmed at 'A' Contact: Primary Analyst Jens Hallen Director +44 20 3530 1326 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Olivia Perney Guillot Senior Director +33 144 299 174 Committee Chairperson Michael Dawson-Kropf Senior Director +49 69 768076 113 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria,' dated 15 August 2012, and 'Evaluating Corporate Governance,' dated 12 December 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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