-- We are assigning our 'BBB+' long-term and 'A-2' short-term
counterparty credit ratings to Sweden-based retail bank Swedbank Sjuharad AB.
-- The outlook is stable, reflecting our expectation that the bank will
be able to maintain its capitalization in excess of 10% according to our
risk-adjusted capital framework.
On June 25, 2012, Standard & Poor's Ratings Services assigned its 'BBB+'
long-term and 'A-2' short-term counterparty credit ratings to Swedish retail
bank Swedbank Sjuharad AB. The outlook is stable.
The ratings reflect Swedbank Sjuharad's "moderate" business position, "strong"
capital and earnings, "moderate" risk position, "average" funding, and
"adequate" liquidity, as our criteria define these terms. We consider Swedbank
Sjuharad to have "low" systemic importance, which provides no uplift to the
bank's stand-alone credit profile, which we assess at 'bbb+'.
Our bank criteria use our Banking Industry Country Risk Assessment (BICRA)
economic risk and industry risk scores to determine a bank's anchor, the
starting point in assigning an issuer credit rating. Our anchor for a bank
operating only in Sweden is 'a-', based on an economic risk score of '2' and
an industry risk score of '3'.
We view Sweden as a highly competitive and diverse economy, with limited
economic imbalances and low credit risk. In terms of industry risk, the
Swedish banking sector benefits from a favorable institutional framework,
restrained risk appetite, and a high level of industry stability. A relatively
low degree of deposit funding and a relatively high degree of reliance on
cross-border funding are mitigated by a deep domestic capital market and the
authorities' capacity and propensity to provide support.
Swedbank Sjuharad's business position is "moderate" in our opinion, reflecting
the bank's narrow regional focus on the vicinity of the town of Boras in
southwestern Sweden, its savings bank business model, and its close
integration with 47.5% owner Swedbank AB (A+/Stable/A-1). Swedbank AB provides
all Swedbank Sjuharad's information technology systems and product
infrastructure. It also provides mortgage loans to Swedbank Sjuharad AB
customers through subsidiary Swedbank Mortgage AB. Swedbank AB controls
Swedbank Sjuharad's internal capital adequacy assessment process, while
Swedbank Sjuharad employs the same scoring models and capital allocation tools
as Swedbank AB. Swedbank Sjuharad's total assets amounted to Swedish krona
(SEK) 13 billion on March 31, 2012 (EUR1.44 billion at SEK8.97 to EUR1). Because
of the operational integration between the two banks we incorporate support
from Swedbank AB into our assessment of Swedbank Sjuharad's business position.
However, we do not use our group rating methodology as Swedbank AB is a
We assess Swedbank Sjuharad's capital and earnings as "strong", reflecting our
expectation that the bank's risk-adjusted capital (RAC) ratio will remain well
in excess of the 10% "strong" threshold as defined by our criteria. The RAC
ratio reflects the bank's pricing policy, which targets a higher return than
those of its peers, a limited requirement to upstream dividends to Swedbank
AB, and a risk appetite that focuses on long-term survival. The bank's net
loans have grown at an annual average of 2.87% over the past four years, which
is below the Swedish average.
We assess Swedbank Sjuharad's risk position as "moderate", balancing the
bank's narrow geographic focus against its limited and well entrenched
business model, which frees it from pressure to expand or add new lines of
business. The bank is unlikely to escape any downturn in the Swedish economy
but has been able to perform in line with the wider industry during the
financial turbulence of recent years. Losses have been limited and at no point
have exceeded our normalized loss assumption of SEK69 million annually, or 46
basis points of net loans. The most recent peak impairment cost was 27 basis
points of average net loans in 2009.
We assess Swedbank Sjuharad's funding as "average" and its liquidity as
"adequate", compared with the "intermediate" score we assign to Swedish
system-wide funding as part of our BICRA assessment. This reflects a ratio of
loans to deposits that compares favorably with the Swedish banking industry
average, having improved to 99% as at March 31, 2012 from 113% at year-end
2008. In addition, the bank has established a Swedish medium term note
program, which has been used to extend its funding maturity profile. The
long-term funding ratio consequently rose to 80% as at March 31, 2012 from 78%
at year-end 2008.
The stable outlook reflects our expectation that the bank will be able to
maintain its capitalization in excess of 10% according to our RAC framework.
We also expect the bank to maintain its solid earnings record over the next
three years, with a robust three-year average earnings buffer of about 200
basis points. In addition, we expect impairment losses to remain well below
our normalized loss level of SEK69 million annually, or about 46 basis points
of net loans. We further expect continued operational integration with
Swedbank AB and that Swedbank AB will maintain its ownership position.
We could raise the ratings or revise the outlook to positive if we see a
sustained improvement in capitalization above the 15% threshold as defined by
our RAC framework.
We could lower the ratings or revise the outlook to negative if we see
deterioration in asset quality that would lead to impairment losses above our
normalized loss ratio. Strategic changes that increase risk, such as expansion
into new regions or lines of business, could also trigger negative rating
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
-- BICRA On Sweden Revised To Group '2' From Group '1', 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
New Rating; Outlook Action
Swedbank Sjuharad AB
Counterparty Credit Rating BBB+/Stable/A-2
(Caryn Trokie, New York Ratings Unit)