Our ratings reflect Handelsbanken’s reassuring financial fundamentals, supported by company-specific factors, such as a well-tested risk culture and incentive structure. The bank has recently initiated a strategic review designed to keep it focused on core, profitable businesses while limiting risk.

In addition to its strong domestic franchise, Handelsbanken’s degree of international diversification offers additional protection against potential domestic asset quality shocks, as Sweden’s housing market has undergone a degree of correction since late 2017, albeit having partly recovered. International revenues have become more important to the Group in recent years, with the UK and Dutch franchises driving the growth.

The ratings also reflect concentrated exposure to the Swedish real estate sector, in an economy with very high levels of household borrowing. We 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 liquid asset portfolio and substantial unencumbered mortgage assets together with overcollateralization of its covered bond issuance. 

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