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10 Oct 2008
Moody's downgrades Swedbank (Sweden) to Aa3/C+ and Hansapank (Estonia) to A1/C-
London, 10 October 2008 -- Moody's Investors Service has today downgraded the bank financial
strength rating (BFSR) of Swedbank AB to C+ from B- and its
long-term senior debt and deposit ratings to Aa3 from Aa2.
The outlook on these ratings remains negative. The Prime-1
short-term rating was affirmed. The bank's subordinated
debt and preferred stock ratings were also downgraded by one notch in
line with the senior debt downgrade. The C+ BFSR now translates
to a baseline credit assessment of A2. See below for details of
Swedbank subsidiaries' ratings.
At the same time, Moody's has also downgraded the BFSR of AS Hansapank,
which is a wholly owned subsidiary of Swedbank, to C- from
C and the bank's long-term global local currency deposit and debt
ratings to A1 from Aa3. The foreign currency deposit and debt ratings
were affirmed at A1, which were previously constrained by the foreign
currency deposit ceiling of Estonia. The bank's subordinated
debt ratings were also downgraded by one notch in line with the senior
debt downgrade. The outlook on all of the bank's ratings
is now negative. The bank's Prime-1 short-term
ratings were affirmed.
Moody's downgrades of the above-mentioned Swedbank ratings
reflect the expected increasing pressure on the bank's financial
performance due to the rapid pace of the deterioration in economic conditions
in the Baltic states, where the bank has a significant exposure
through its subsidiary Hansapank. Although the Swedish market still
accounts for the bulk of Swedbank's revenues and lending,
the relative weight of the Baltic exposure has rapidly increased over
the past couple of years. Indeed, Baltic exposure now accounts
for around one third of total group revenues and 16% of lending.
In addition, Moody's believes that, under the current
challenging market conditions, Swedbank could potentially face higher
refinancing risks given that its group funding profile is relatively reliant
on market funding, around one third of which is short-term
in nature. Moody's understands, however, that
the bank's liquidity pools remain significant -- including
its access to secured funding.
"Swedbank's earnings-generation capacity and asset
quality are likely to experience significant pressure given the acute
economic downturn in the Baltic states, coupled with a slow softening
of the Swedish economy and higher funding costs," says Antonella
Pisani, Vice President -- Senior Analyst in Moody's Financial
Institutions Group. In Moody's opinion, Swedbank's
capitalisation is now merely adequate relative to similarly rated peers
given its higher risk profile, which is primarily due to its exposure
to the Baltic states.
On the positive side, Moody's notes that Swedbank continues
to display good profitability as well as strong asset quality and efficiency
levels. The bank also continues to maintain a leading position
in the Swedish retail banking market.
Swedbank's BFSR at the downgraded level of C+ now translates
to a baseline credit assessment (BCA) of A2. Moody's continues
to consider the probability of systemic support for Swedbank in the event
of financial distress as being very high, based on the bank's
importance to the Swedish payment system and its leading position in the
Swedish retail banking market. This results in a two-notch
uplift for the bank's long-term deposit and issuer ratings
from the BCA, taking them to their new level of Aa3.
As a result of the downgrade of Swedbank's ratings, the senior
and subordinated debt ratings of Swedbank Mortgage AB were downgraded
by one notch to Aa3 and A1, respectively, given that parental
support is factored into these ratings. At the same time,
Moody's has affirmed all ratings of Swedbank's two Ukrainian
subsidiaries, Swedbank OJSC and Swedbank Invest, based on
the large rating differential between Swedbank and these subsidiaries,
as well as the continued high probability of support from Swedbank.
Moody's decision to continue to apply a negative outlook to Swedbank's
BFSR rating reflects the prospect of a sustained period of difficult market
and economic conditions, which are likely to exert additional pressure
on profitability, asset quality levels and the bank's liquidity
profile in the Baltic countries and in Sweden.
Moody's previous rating action on Swedbank was implemented on 27
June 2008, when the BFSR and long-term ratings were downgraded
to B- and Aa2, respectively, with a negative outlook.
Swedbank AB is headquartered in Stockholm, Sweden and reported total
consolidated assets of SEK 1,671 billion (EUR 176 billion) at the
end of June 2008.
The downgrade of Hansapank's BFSR reflects Moody's continued concerns
about the bank's asset quality development in light of the rapidly weakening
macro-economic outlook of the Baltic economies. In terms
of asset quality, Moody's notes that economic growth in the
Baltics had already declined sharply prior to the recent worsening of
the global liquidity crisis. "Tight external liquidity and
a global economic slowdown are expected to deepen and prolong the period
of economic adjustment beyond Moody's earlier expectations,"
says Kimmo Rama, Vice President -- Senior Analyst in Moody's
Financial Institutions Group.
According to Moody's, the effects of the slower economy are
evident in the increase in Hansapank's overdue loans and defaults.
Loans overdue more than 60 days represented 1.15% of total
loans at the end of June 2008, up from 0.51% at year-end
2007 and 0.30% at the end of March 2007. Moody's
believes that the general economic slowdown may exert pressure on the
overall debt service ability of both companies and households, and
thus have a negative impact on the bank's asset quality going forward.
Moody's notes that Hansapank's funding has become increasingly
dependent on the parent bank. At the end of June 2008, interbank
and market funds accounted for nearly 50% of the bank's funding,
which originates almost exclusively from the parent bank.
Moody's decision to retain a negative outlook on Hansapank's BFSR
reflects the rating agency's concern that further downward rating
pressure could develop on the bank's asset quality in the event
of a continued weakening outlook of the three Baltic economies.
In particular, Moody's remains concerned about the bank's high exposure
to the real estate sector in the Baltic region. The rating agency
will therefore continue to closely monitor the evolution of asset quality
and real estate markets in each of the Baltic countries.
Moody's previous rating action on Hansapank was also implemented
on 27 June 2008, when the BFSR was downgraded to C with a negative
outlook and the long-term ratings were downgraded to Aa3 with a
AS Hansapank is headquartered in Tallinn, Estonia and reported total
consolidated assets of EUR 26 billion at the end of June 2008.
Reynold R. Leegerstee
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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