Scope Ratings today upgraded Svenska Handelsbanken’s (Handelsbanken) A+ Issuer Rating to AA-. The upgrade also covers the bank’s senior unsecured debt ratings (from A to A+) and Additional Tier 1 (AT1) debt (from BB+ to BBB-). All these ratings now have a Stable Outlook. The S-1+ short-term rating and its Stable Outlook were not reviewed.

Scope’s analysis underpinning Handelsbanken’s ratings reflects the bank’s solid and well-diversified market position in Sweden, the healthy nature of its foreign activities and the solid track record of its risk management. In light of these factors, Scope expects Handelsbanken to preserve and strengthen its reassuring financial and prudential metrics going forward.

When initially assigned in January 2015, Handelsbanken’s ratings reflected Scope’s concern that a potential hard landing of real estate prices in Sweden could hurt the bank’s solid financial position and potentially affect its funding costs (as, like the other large Nordic banks, Handelsbanken relies to a large extent on market funding). Another analytical caveat at that time was the scenario of future prudential regulatory adjustments negatively impacting the risk profile of the bank’s balance sheet and its ample capital position. At this time Scope expects that likely changes to capital requirements proposed by the Swedish FSA for Swedish mortgages will have a negative impact on reported capital ratios. Given that the impact is from higher risk weightings imposed through Pillar 1 rather than any noticeable change in the riskiness of banks’ portfolios, Scope expects the effect to be neutral for capital in real terms.

Scope also pointed out that it no longer considers hard landing as the most likely scenario for Swedish house prices, noting that these have been coming down in a measured way in recent months, a result of market dynamics and specific policy steps (including macroprudential measures).

Against this backdrop, Scope is more reassured that Handelsbanken’s credit fundamentals will remain strong, as the bank remains in a solid position to weather well any expected downsides of the real estate market or a likely normalization of its current historically low credit costs. In this context, Scope cited Handelsbanken’s risk-averse culture and focus on prudent growth.

Upgraded are the following ratings of Svenska Handelsbanken:

Issuer rating From A+ to AA-
Senior unsecured debt rating: From A to A+
AT1 securities ratings: From BB+ to BBB-

The S-1+ short-term rating and its Stable Outlook were not under review.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodologies used for this rating(s) and/or rating outlook(s) Bank Ratings Methodology and Capital Instruments Methodology are available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information 
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures 
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Jennifer Ray, Executive Director
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director 
The ratings/outlooks were first released by Scope on 19.01.2015. The ratings/outlooks were last updated on 13.04.2018

Potential conflicts 
Please see http://www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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