Scope Ratings today upgraded Swedbank’s Issuer Rating to A+ from A, thus concluding a rating review initiated one month ago. The upgrade also covers the senior unsecured debt rating (to A from A-), the Additional Tier 1 (AT1) debt rating (to BB+ from BB) and the short-term debt rating (to S-1+ from S-1). All ratings have a Stable Outlook.

Scope’s analysis underpinning Swedbank’s ratings reflects the bank’s solid market position in Sweden, the much-improved performance of its foreign activities since the losses experienced during the financial crisis, its careful cost discipline, and the strong digital offering. In view of these factors, Scope expects Swedbank to preserve and strengthen its reassuring financial and prudential metrics.

At the same time, when initially assigned in November 2014, Swedbank’s ratings mirrored 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, Swedbank 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. However, 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 likely for Swedish house prices, noting that these have come 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 Swedbank’s strong credit fundamentals are likely to hold well, as the bank remains in a strong position to weather any expected downsides of the real estate market.

Upgraded are the following ratings of Swedbank:

Issuer rating: To A+ from A
Senior unsecured debt rating: To A from A-
AT1 securities ratings: To BB+ from BB
Short-term debt rating: To S-1+ from S-1

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

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Ratings Methodology is 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 did not participate 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 19.11.2014. The ratings/outlooks were last updated on 13.04.2018.

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

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