Stockholm, April 06, 2021 -- Moody's Investors Service ("Moody's") today affirmed
Volvofinans Bank AB's long-term and short-term, foreign
and local currency A3/P-2 bank deposit ratings and its subordinated
debt rating at Baa3. The Baseline Credit Assessment (BCA) and the
Adjusted BCA were affirmed at baa2. Furthermore, the long-term
and short-term, foreign and local currency Counterparty Risk
Ratings (CRR) of A2/P-1, and the long-term and short-term
Counterparty Risk Assessments (CR Assessment) of A2(cr)/P-1(cr)
were affirmed. The outlook on the long-term deposit rating
was changed to stable from negative.
The affirmation of Volvofinans Bank AB's (Volvofinans) long-term
deposit rating of A3 incorporates (1) the affirmation of the bank's baa2
BCA, reflecting Moody's expectation of a moderate deterioration
in asset risk, balanced against the protection afforded to the bank
by its recourse agreements with Volvo dealers and Volvofinans' very strong
capitalisation; and (2) the results from Moody's Advanced Loss Given
Failure (LGF) analysis, which takes into account the sizable volumes
of liabilities that would cushion depositors in case of failure,
leading to two notches of uplift.
The stable outlook on Volvofinans' long-term deposit ratings reflects
the continued recovery in global light vehicle sales during the next 12
to 18 months, which reduced Moody's concerns of downside risks
materializing. Accordingly, the stable outlook also factors
in the bank's links with the car maker, Volvo Car AB (Ba1,
Stable), whose ratings outlook changed to stable, from negative,
on 30 March.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
BASELINE CREDIT ASSESSMENT
The affirmation of Volvofinans' BCA at baa2 reflects Moody's view that
the expected moderate deterioration in the bank's asset risk, due
to weaker borrowers not being able to meet timely repayments as the pandemic
continues into 2021, is mitigated by its very strong capitalisation,
as well as the additional protection the bank has against loan losses
from the recourse agreements it has with Swedish Volvo dealers.
While reported non-performing loans and leases to gross exposures
has remained low at 0.6% in 2020 compared to 0.2%
in 2019.
While, demand for new vehicles fell sharply in 2020, the used
car market remained strong, and Moody's expects a growth of
new car sales in 2021. Profitability during 2020 was stronger than
Moody's previously expected, with reported operating results
increasing to SEK 568 million compared to SEK 516 million in 2019 as loans
and leases were upheld and loan loss provisions remained manageable at
SEK 21.7 million compared to SEK 16 million in 2019. The
rating agency expects continued strong performance during 2021 with net
income to tangible assets of 0.8%.
Continued internal capital generation and low loan loss provisions support
the bank's strong capitalisation, a material credit strength,
with tangible common equity to risk weighted assets to remain above 21%
excluding dividends for 2019 and 2020.
Volvofinans funding position remains stable, with a larger share
of deposits compared to other auto lenders. During 2020,
Volvofinans was designated as a temporary monetary policy counterpart,
ensuring that it could access additional liquidity made available by the
Swedish central bank. The continued monetary stimulus has ensured
excellent access to capital market with lower cost of funding as a result.
LONG-TERM RATINGS
Volvofinans long-term deposit and subordinated debt ratings reflect
the bank's BCA and Adjusted BCA of baa2 and the application of Moody's
Advanced Loss Given Failure (LGF) analysis to its liabilities, reflecting
the volumes of loss absorbing obligations protecting creditors and depositors
in case of failure. The A3 deposit rating incorporates two notches
of uplift from the bank's Adjusted BCA due to the large volumes
of more junior obligations protecting depositors in case of failure.
The Baa3 rating on Volvofinans subordinated debt incorporates a negative
notch due to the higher loss severity, given this instrument's
limited protection from losses.
Volvofinans's long-term CRRs incorporates three notches of LGF
uplift above the bank's Adjusted BCA of baa2. Volvofinans long-term
CR Assessment incorporates three notches of LGF uplift above the bank's
Adjusted BCA of baa2.
OUTLOOK
The stable outlook on Volvofinans' long-term deposit ratings reflects
the continued recovery in global light vehicle sales during the next 12
to 18 months. This trend has reduced Moody's concerns of
downside risks materializing. During 2021, the rating agency
expects Volvofinans's problem loans ratio to remain below 2%,
and tangible common equity to risk weighted assets to remain above 21%,
while profitability remains overall stable. The stable outlook
also factors in the bank's links with the car maker, Volvo Car AB,
whose ratings changed to stable outlook on 30 March, 2021.
The press release regarding Volvo Car AB can be found here: https://www.moodys.com/research/--PR_442994.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Volvofinans' ratings and assessments could be upgraded if the bank strengthens
its profitability without accumulating more credit risk and further reduces
its reliance on market funding while simultaneously maintaining solid
capitalisation.
We could downgrade Volvofinans' BCA and long-term deposit ratings
if: i) its profitability and asset quality significantly deteriorate;
ii) the bank is constrained by a lack of access to wholesale funding;
iii) or a substantial reduction in its volume of deposits compared with
its tangible banking assets, resulting in higher loss severity for
deposits in the event of the bank's failure.
Furthermore, notwithstanding the fact that Volvofinans is more effectively
ring-fenced from its industrial parent than certain peers,
a downgrade of Volvo Car AB's ratings could cause a downgrade of Volvofinans'
ratings. .
LIST OF AFFECTED RATINGS
..Issuer: Volvofinans Bank AB
Affirmations:
....Adjusted Baseline Credit Assessment,
Affirmed baa2
....Baseline Credit Assessment, Affirmed
baa2
....Long-term Counterparty Risk Assessment,
Affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Long-term Counterparty Risk Ratings,
Affirmed A2
....Short-term Counterparty Risk Ratings,
Affirmed P-1
....Short-term Bank Deposit Ratings,
Affirmed P-2
....Subordinate Regular Bond/Debenture,
Affirmed Baa3
....Long-term Bank Deposit Ratings,
Affirmed A3, Outlook Changed To Stable From Negative
Outlook Action:
....Outlook, Changed To Stable From
Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Niclas Boheman
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Simon Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
