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(Agency corrects the original version of this release published earlier today, where the BICRA Score Snapshot section was misstated. A corrected version follows.) (The following statement was released by the rating agency)
Nov 20 -
-- Economic risks in the export-oriented Finnish economy have increased in our view, leaving the banking sector moderately more exposed to a longer recession in the eurozone (European Economic and Monetary Union).
-- We think that economic risk could rise further as we see potential additional pressure from a more negative economic scenario.
-- We are revising the outlooks to negative from stable on Finnish-based banks Pohjola Bank and Bank of Aland and affirming our ratings on the banks.
Standard & Poor's Ratings Services said today that it had revised its outlook to negative from stable on Finnish Pohjola Bank PLC and its core subsidiary Pohjola Non-Life Insurance Co. Ltd., and on Finnish Bank of Aland PLC. At the same time, we affirmed the 'AA-/A-1+' long- and short-term counterparty credit ratings on Pohjola Bank and Pohjola Non-Life Insurance Co. and the 'BBB/A-3' long- and short-term counterparty credit ratings on Bank of Aland.
We view economic risks in Finland's banking industry as having increased moderately, and we view the trend as negative. Our assessment of industry risk is unchanged, and we view the trend as stable.
Our assessment of increased risks in Finland's export-oriented economy is caused by our expectation of a more prolonged recession in the eurozone and deteriorating performance among its major trading partners. Subdued domestic demand, the restructuring of important domestic sectors such as the pulp and paper and electronic manufacturing industries, and deteriorating competitiveness, will also put pressure on the economy and, in our view, lower its resilience.
We have also observed that private sector credit growth in Finland (AAA/Negative/A-1+), especially among households, has been substantially outpacing GDP growth and has fuelled house price appreciation above long-term trends in the last decade. This has led to a higher debt burden and Finland has now nearly reached European average indebtedness levels. However, we see a meaningful difference between Finland and its Nordic peers, where debt levels are significantly higher, and we don't think that the share of impairments from household mortgage lending will constitute a significant portion of the higher losses we expect to see in the Finnish banking sector.
We still consider Finland's economy to be relatively strong and resilient overall, as manifested in the sovereign rating. Although factored into our assessment of worsening economic risk, we believe Finland's relatively high dependence on exports, especially investment goods, will, in a protracted contraction in Europe, potentially put additional pressure on the economy. We therefore consider the economic risk trend to be negative.
Any further worsening in economic risk may lead to one-notch downgrades of Pohjola Bank and Bank of Aland.
We affirmed our ratings on both Pohjola Bank and Bank of Aland because we think that the Finnish banking system continues to be characterized by low risk. Therefore, we have maintained the baseline assessment (the "anchor") on banks operating only in Finland at 'a-'.
We revised our outlooks on both Pohjola Bank and Bank of Aland to negative as we believe that a more negative economic scenario could put additional pressure on the banking sector's financial performance, increase impairment costs, and potentially lead us to lower the ratings on both banks.
-- The Eurozone's New Recession--Confirmed, Sept. 25, 2012
-- Un-Finnished Business: Assessing Finland's Growth Prospects, Sept. 20, 2012
-- Full analysis on Finland, June 14, 2012
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
-- Group Rating Methodology And Assumptions, Nov. 9, 2011
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010
-- General Criteria: Use of CreditWatch and Outlooks, Sept. 14, 2009
-- Criteria | Insurance | General: Group Methodology, April 22, 2009
BICRA Group 2 2
Economic risk 2 1
Economic resilience Low risk Very low risk
Economic imbalances Low risk Low risk
Credit risk in the economy Low risk Very low risk
Industry risk 3 3
Institutional framework Intermediate risk Low risk
Competitive framework Low risk Low risk
Systemwide funding Intermediate risk Intermediate risk
*Banking Industry Risk Assessment (BICRA) scores are on a scale from 1 (lowest risk) to 10 (highest risk). For more details on our BICRA scores on banking industries across the globe, please see "Banking Industry Country Risk Assessment Update," published monthly on RatingsDirect.
CreditWatch/Outlook Action; Ratings Affirmed
Pohjola Bank PLC
Counterparty Credit Rating AA-/Negative/A-1+ AA-/Stable/A-1+
Pohjola Non-Life Insurance Co. Ltd.
Counterparty Credit Rating AA-/Negative/-- AA-/Stable/--
Bank of Aland PLC
Counterparty Credit Rating BBB/Negative/A-3 BBB/Stable/A-3
NB: This list does not include all ratings affected. \