MOODY'S UPGRADES LONG-TERM DEPOSIT AND FINANCIAL STRENGTH RATINGS OF SVENSKA HANDELSBANKEN TO Aa2 AND B+ AND LONG-TERM DEBT RATINGS OF ITS SUBSIDIARY STADSHYPOTEK TO Aa2
Moody's Investors Service upgraded the long-term deposit and financial strength ratings of Svenska Handelsbanken (SHB) to Aa2 and B+ from Aa3 and B, and upgraded the long-term debt rating of its subsidiary Stadshypotek to Aa2 from Aa3. Both institutions' short-term ratings were confirmed at Prime-1. In upgrading SHB's ratings, Moody's said that the bank benefits from its very strong franchise in Sweden and from a leading position in the Nordic area, where it is the largest bank.
Moody's said that SHB's future expansion plans focus on both organic growth and acquisitions, illustrated by its recent plan to purchase Bergensbanken, a regional bank in Norway. The 1997 acquisition of Stadshypotek, Sweden's largest mortgage lender, significantly bolstered SHB's position in the rapidly consolidating Swedish mortgage lending market. Moody's added that, based on SHB's excellent track record, it expects the banking group to maintain its focused strategy and to avoid unduly high risks, in the Nordic area and elsewhere.
SHB posts healthy financial fundamentals, including sustained revenue-generation capacity and good operating efficiency. Going forward, growth in income generation is expected to come mainly from residential mortgage lending through Stadshypotek, from asset management and from life insurance. In addition, management targets cost savings in the domestic branch network through technological substitution and economies of scale from the operational integration of Stadshypotek.
The bank's risk profile is low as asset quality has been steadily improving since the crisis of the early 1990s. The acquisition of Stadshypotek in 1997 significantly changed SHB's asset mix towards a materially lower risk profile. Capitalization decreased as a result of the impact of the Stadshypotek acquisition but has been increasing again on the back of solid internal capital generation.
Concerning Stadshypotek, Moody's noted that the upgrade reflects that institution's strategic role and the benefits of being part of the SHB Group. Stadshypotek now functions as SHB's principal mortgage-lending vehicle. The institution now distributes its products through its parent bank's branch network although the Stadshypotek brand has been retained. Stadshypotek is now focusing on residential housing finance. Given its strong market position, SHB, through Stadshypotek is well placed to influence conditions in the Swedish mortgage market. In addition, cross-selling opportunities and economies of scale between Stadshypotek and SHB itself are being targeted.
As a more general background to these rating actions, Moody's noted that the Swedish banking system, which is by now highly consolidated, is one of the better performing in Europe, notably regarding operating efficiency. The banks' performance has improved in parallel with the gradual resolution of the asset quality problems dating from the crisis of the early 1990s. In recent years, the banks have for the most part exhibited a solid earnings-generation capacity based on sustained volume growth and on the development of fee income from savings management activities which has compensated for narrowing margins. Asset quality indicators have recovered markedly, added the rating agency. Going forward, tighter credit underwriting and monitoring policies implemented by several banks should maintain loan losses at a manageable level. Economic capitalization is sound overall.
The following ratings were upgraded:
ú Svenska Handelsbanken AB: long-term deposit and senior unsecured debt ratings to Aa2 from Aa3, senior and junior subordinated debt ratings to Aa3 from A1, financial strength rating to B+ from B and issuer rating to Aa2 from Aa3; and
ú Stadshypotek AB: long-term senior unsecured debt rating to Aa2 from Aa3.
The following ratings were confirmed:
ú Svenska Handelsbanken AB: Prime-1 short-term deposit rating and commercial paper rating;
ú Svenska Handelsbanken, Inc: Prime-1 backed commercial paper rating; and
ú Stadshypotek AB: Prime-1 short-term debt rating.
SHB is based in Stockholm, Sweden. As of December 31, 1998, SHB posted consolidated assets of SEK926 billion (Euro97 billion).
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