The ratings of Svenska Handelsbanken reflect the Group’s reassuring credit fundamentals, to some extent supported by a positive macroeconomic backdrop, but also by factors specific to the company, such as its well-tested risk culture and incentive structure, with a focus on long-term profitability and decision-making supported by local knowledge through the branch network.

The ratings also reflect a concentrated exposure to the real estate sector in Sweden, which after a bull market lasting over two decades has been looking vulnerable to a potential correction for some time, while household debt levels have been rising. As highlighted by the Riksbank in its latest financial stability report, Sweden’s banking system is sensitive to shocks due to its significant reliance on wholesale funding.

Handelsbanken’s property-related lending has expanded more rapidly in recent years than other segments of the loan book, and made up 85% of all loans as of YE16. Of this amount, Swedish exposures accounted for two-thirds, with residential mortgages, which have a strong track record in Sweden, making up the largest portion. 

The benign credit environment in Sweden, supported by income growth and negative interest rates, has helped to keep the cost of risk remarkably low during this part of the cycle. Scope believes this may not prove to be fully sustainable. Sweden’s housing and mortgage markets are showing signs of a slowdown – though not, as yet, a correction. Handelsbanken’s degree of international diversification offers some additional protection against possible domestic asset quality shocks. International revenues have grown strongly in recent years, with the UK driving the growth.

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