Rating action

Scope Ratings GmbH (Scope) has affirmed the AAA rating on the Finnish mortgage covered bonds (Katettu joukkolaina) issued by Danske Mortgage Bank PLC (Danske Kiinnitysluottopankki Oyj). The Outlook is Stable.

Download the covered bond performance update.

Key rating drivers

Covered bond rating anchor: A+/Positive. The issuer rating is the starting point of the covered bond rating. It is aligned with its Danish parent, Danske Bank A/S. Danske Banks assessment reflects the broad diversification of its resilient universal business model, which includes retail and corporate banking, capital market activities, insurance and asset management. In all these areas, the bank has a strong franchise in Denmark and other Nordic markets. The positive rating Outlook reflects the group’s improvements in governance and risk management as the closure of the corporate probation period under ad-hoc regulatory oversight is approaching.

See more information see here.

Governance support (plus up to five notches). This rating uplift reflects the high likelihood of covered bonds being maintained as a going concern in the event of regulatory action in the issuer and its parent as well as a smooth transition from the first (issuer) to the second recourse (cover pool) if needed. It consists of two notches from Scope’s legal framework and structural support assessment and three notches from its resolution regime and systemic importance assessment.

Scope’s legal framework and structural support analysis for Danske Mortgage Bank PLC’s Finnish mortgage covered bonds considers: 1) the cover pool’s valid segregation from a potential insolvency estate of Danske Mortgage Bank PLC; 2) the very high likelihood of bond payments continuing after a moratorium or insolvency; 3) strong legal asset eligibility and risk management principles; 4) that enhancements to the covered bond programme remain available after a moratorium or insolvency of the issuer; and 5) the strong regulatory oversight specifically for Finnish covered bonds (ESG factor).

The resolution regime and systemic importance assessment considers: 1) the existence and clarity of statutory provisions that allow to maintain an issuer and its covered bonds as a going concern upon a regulatory intervention; 2) the strength of such statutory provisions protecting covered bonds against regulatory actions or bail-in; 3) the moderate systemic importance in Finland of the issuer and the moderate relevance of Finnish covered bonds; and 4) the Finnish strong proactive stakeholder community. We have not assigned the maximum uplift of four notches under our resolution-regime assessment to account for the (cross-boarder) complexity around resolution and the small to moderate size and relevance of Danske Mortgage Bank PLC. It also considers that the Finnish resolution framework is evolving, with some areas where further refinements are still underway. As such an orderly wind-down or sale to another covered bond issuer may be more likely than a going concern under its Danish parent (ESG factor).

Cover pool support (plus up to three notches). This potential additional rating uplift reflects the impact of the second recourse. It considers the programs cover pool complexity (CPC) risk category of “Low-risk” which could translate into an additional cover pool supported uplift of up to three notches (ESG factor).

The current rating supporting overcollateralisation (OC) relies on the legal minimum OC which would also allow to shield the current rating against a four-notch issuer downgrade. This is the lowest issuer rating that still allows to maintain the current assigned ratings.

The rating supporting overcollateralisation (OC) relies on the legal minimum OC of 2%. An OC of 10% would allow to shield the current rating against a four-notch issuer downgrade which is the lowest issuer rating that still allows to maintain the current assigned ratings.

This OC reflects:

• Credit risk – Granular domestic residential loans. The bonds are covered by a portfolio of Finnish owner-occupied mortgage loans. Collateral types include shares of housing companies (60%) and single properties. The securing properties are spread in Finland, with a concentration to Uusimaa region in which Finland’s capital Helsinki is located. Granularity is high. As of March 2025, the portfolio accounts for 68k loans and a top 10 of only 0.20%. The mortgage loans have a moderately low loan-to-value of on average 55.0% (up from 53.0% one year ago). The default projection is based on an inverse Gaussian distribution, characterised by an annualised default rate of 0.60% and a coefficient of variation of 55%. The stressed mortgage recovery rate is 77.5%.
   
• Market risk – Maturity mismatches prevail. Market risks exist as the programme is exposed to maturity mismatches. The weighted average life (WAL) of cover assets is 8.8 years compared to 3.1 years for the liabilities. Mismatches are partly mitigated by the bonds’ legal soft-bullet structure. Interest rate mismatches from the fixed covered bonds are hedged into floating matching the profile of the (hedged) assets. The covered bonds are not exposed to FX risks as all assets and bonds are denominated in EUR. The programme is most sensitive to a combination of low prepayments (1%) and declining interest rates (-1%). This sensitivity is primarily driven by maturity mismatches arising from the remaining life of the mortgage loans.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook on the covered bonds reflects Scope’s view on the credit performance of the issuer, and that governance support or cover pool support factors will not materially change.

Upside scenarios are not applicable as the rating is the highest achievable.

The downside scenarios for the rating and Outlook are (individually or collectively):

• An issuer rating/Outlook downgrade by more than four notches.
   
• A reduction in the governance support uplift by five notches or more.
   
• A deterioration in Scope’s CPC assessment that could reduce the potential credit support from the cover pool.
   
• Available or committed OC below rating-supporting or legal minimum.

Environmental, social and governance (ESG) factors

Governance is a key rating driver. For more detail, please refer to ‘governance support’ and ‘cover pool support’ (CPC assessment) under the ‘key rating drivers’ section above.

Quantitative analysis and assumptions

For its quantitative analysis Scope applied assumptions as laid down in the covered bond methodology. In addition, the stressed security value haircuts include another 10%, accounting for the portfolio’s exposure to second lien mortgages.

Stress testing
No stress testing was performed.

Cash flow analysis
The assessment of potential cover pool support uplift is based on a cash flow analysis using Scope Ratings’ covered bond model (Covered Bonds Expected Loss Model Version 1.2). The model applies Credit Rating distance-dependent stresses to scheduled cash flows to simulate the impact of increasing credit and market risks. The outcome of the analysis is an expected loss rate and an expected weighted average life for the instruments based on the generated cash flows.

Methodology
The methodology used for this Credit Rating and Outlook, (Covered Bond Rating Methodology, 26 July 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for this Credit Rating and Outlook is (Covered Bonds Expected Loss Model Version 1.2), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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 Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and Outlook and the principal grounds on which the Credit Rating and Outlook are based. Following that review, the Credit Rating and Outlook were not amended before being issued.

Regulatory disclosures
The Credit Rating and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating and Outlook are UK-endorsed.
Lead analyst: Mathias Pleißner, Executive Director
Person responsible for approval of the Credit Rating: Karlo Fuchs, Managing Director
The Credit Rating/Outlook were first released by Scope Ratings on 4 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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