November 20, 2013 / 1:06 PM / in 4 years

RPT-Fitch Affirms Svenska Handelsbanken at 'AA-', Outlook Stable

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Nov 20 (Reuters) - (The following statement was released by the rating agency)

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 (VR) at ‘aa-'. The Outlook on the Long-term IDR is Stable. Fitch has also affirmed the ratings of Handelsbanken’s wholly-owned subsidiary Stadshypotek. A full list of rating actions is at the end of this release.


The affirmation of Handelsbanken’s VR and IDRs (and senior debt rating) reflects Fitch’s view that Handelsbanken’s historical focus on risk-return and its strong risk culture, including conservative underwriting policies, will enable it to maintain healthy internal earnings generation. The ratings are based on the bank’s strong Swedish franchise, solid capitalisation, resilient asset quality and stable earnings. They also factor in its low absolute size of capital compared with similarly rated peers and structural reliance on wholesale funding, mitigated by a large liquidity buffer and diversified funding sources.

Handelsbanken has a strong track record of generating robust revenue and strong operational efficiency. Its stable profitability compares well with peers. A material part of the bank’s profit is generated in Sweden, making it sensitive to the Swedish economy’s muted growth forecast. Fitch expects a relatively flat performance in Sweden in 2013. However, this is mitigated by continuous organic growth in its other home markets, particularly the UK.

Fitch expects the impact on asset quality of potential deterioration in the Swedish economy to be limited, given the bank’s conservative underwriting, strong starting position and generally good financial health of Swedish corporates. Its notable exposure to commercial real estate is mainly to large property managers, and Fitch expects these companies to continue to perform strongly. However, in the unlikely event of a prolonged economic downturn, large individual exposures could pose a risk, albeit manageable in Fitch’s opinion. Handelsbanken is sensitive to the seasoning of its relatively young UK loan book, but Fitch takes comfort from its strong historical credit risk management and focus on cash flows and risk-returns. Fitch expects the bank’s problem loan volume to remain low.

Like its Nordic peers, Handelsbanken relies on the wholesale funding markets for a high proportion of its structural funding. Nordic banks benefit from a stable domestic investor base, particularly for their covered bonds. However, a material proportion of wholesale funding is from international investors, which makes the banks sensitive to prolonged dislocations in the debt capital markets.

Funding and liquidity management are therefore important rating drivers for Handelsbanken. Its market access has proven strong through the cycle. To mitigate liquidity risk, Fitch expects the bank to keep a large liquidity buffer. Fitch also expects a continued lengthening of Handelsbanken’s debt maturity profile Handelsbanken’s risk-weighted capital ratios compare well with those of both Nordic and international peers, boosted by the low risk-weights on its mortgages. The bank reported a fully loaded Basel III core Tier 1 ratio of 18.8% at end-September 2013. Leverage is relatively solid in a European context, with a tangible common equity to tangible assets ratio of 3.9% at end-September 2013. Fitch expects the bank to maintain sufficient capital to uphold investor confidence, particularly in the light of its wholesale funding reliance and the current development of bank resolution and bail-in legislation.


Although not expected, the most likely reason for a downgrade would be a reduced focus on holding high-quality liquid assets or a significant increase in its leverage. A material worsening in asset quality, also unlikely in Fitch’s view, would also put negative pressure on the ratings. An upgrade is unlikely as a result of the bank’s already high ratings, absolute size of capital and its reliance on wholesale investors for structural funding.


Fitch believes that there is an extremely high probability that support would be forthcoming from the Swedish authorities if required, given Handelsbanken’s importance within the Swedish financial sector.


The Support Rating and Support Rating Floor are potentially sensitive to any change in Fitch’s assumptions about the ability (as reflected in its ratings) or willingness of the Swedish state (AAA/Stable) to provide timely support to the bank, if required. They are also sensitive to a change in Fitch’s assumptions around the availability of sovereign support for banks more generally. In Fitch’s view, there is a clear intention ultimately to reduce implicit state support for financial institutions in the EU, as demonstrated by a series of legislative, regulatory and policy initiatives. On 11 September 2013, Fitch outlined its approach to incorporating support in its bank ratings in light of evolving support dynamics for banks worldwide (see “Fitch Outlines Approach for Addressing Support in Bank Ratings” and “Bank Support: Likely Rating Paths”, at

The Support Rating would be downgraded and the Support Rating Floor revised down if Fitch concluded that potential sovereign support had weakened relative to its previous assessment.


Subordinated debt and hybrid securities issued by Handelsbanken are notched off the bank’s VR. Therefore, their respective ratings have been affirmed and are sensitive to any change in Handelsbanken’s VR.

In accordance with Fitch’s criteria ‘Rating Bank Regulatory Capital and Similar Securities’, subordinated (lower Tier 2) debt is rated one notch below Handelsbanken’s VR to reflect below average loss severity of this type of debt when compared to average recoveries.

Upper Tier 2 debt and hybrid Tier 1 securities are rated three and four notches below Handelsbanken’s VR, respectively, to reflect higher loss severity risk of these securities when compared with average recoveries (one and two notches from the VR, respectively) as well as high risk of non-performance (an additional two notches).


Stadshypotek is the group’s specialised mortgage lender. Its IDRs are aligned with Handelsbanken’s because of its close integration within the group. The ratings are sensitive to the same factors that might drive a change in Handelsbanken’s IDRs. Fitch does not assign a VR to Stadshypotek.

The rating actions are as follows.

Svenska 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+’


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+’

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