The ratings reflect Handelsbanken’s reassuring financial fundamentals, to some extent supported by a positive macroeconomic cycle but also by company-specific factors, such as a well-tested risk culture and incentive structure.

In addition to its strong domestic franchise, Handelsbanken’s degree of international diversification offers some additional protection against potential domestic asset quality shocks, as Sweden’s housing market has undergone a degree of correction since late 2017. We note that international revenues have grown strongly in recent years, with the UK and Dutch franchises driving the growth.

The ratings also reflect the concentrated exposure to the real estate sector in Sweden, an economy with very high levels of household borrowing. We also note that the Swedish banking sector is vulnerable to shocks due to its size, interconnectedness and reliance on wholesale funding. In Handelsbanken’s case this is somewhat mitigated by a large portfolio of liquid assets and the substantial level of unencumbered mortgage assets together with overcollateralization of its covered bond issuance.
 

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