Stockholm, June 16, 2020 -- Moody's Investors Service, ("Moody's") today
upgraded Bluestep Bank AB (publ)'s (Bluestep Bank) long-term
deposit ratings to A3 from Baa1. The short-term deposit
ratings were affirmed at P-2. The bank's other ratings
and assessments were affirmed, including the Counterparty Risk Ratings
(CRR) at A2/P-1, the Baseline Credit Assessment (BCA) and
adjusted BCA at baa2. The outlook on the long-term deposit
ratings changed to stable from positive.
The upgrade of the long-term deposit ratings is due to the larger
cushion of loss absorbing obligations providing protection to depositors
in case of failure following issuances of senior unsecured debt in total
of SEK 2 billion.
The affirmation of the BCA of baa2 reflects Moody's expectation
that the bank's capital will remain strong despite a moderate deterioration
in asset quality and profitability resulting from the contraction in the
Swedish and Norwegian economies during 2020. While losses from
the bank's legacy unsecured loan portfolio could increase during
2020, Moody's expects coronavirus related losses from the
bank's residential mortgage portfolio to be low, given the
government support measures to help households continue repaying their
mortgages, and large amounts of over-collateralisation,
reflecting low loan to values at origination.
The stable outlook on the long-term deposit ratings reflects Moody's
expectations that the bank's strong level of capital will remain
unaffected by the degree of deterioration in asset risk and profitability
over the next 18 months.
The full list of the affected ratings and rating inputs can be found at
the end of this press release.
RATINGS RATIONALE
The driver for upgrading the long-term deposit rating to A3,
is the increased volumes of loss absorbing obligations protecting depositors
in case of failure, in line with the 2 notches of uplift above the
adjusted BCA of baa2, as indicated by Moody's advanced Loss
Given Failure analysis. The rating agency also expects that the
share of loss absorbing obligations to total banking assets will remain
supportive of the current notching, even as the balance sheet grows.
Furthermore, Moody's expects the changing structure of the
bank's funding profile, including a greater proportion of
total market funds being in the form of senior unsecured debt will support
the current two notch uplift above the adjusted BCA.
The affirmation of the BCA at baa2 reflects Moody's view that capitalisation
will remain strong despite challenges in the operating environment affecting
asset risk and profitability. The spread of the coronavirus has
led to a deterioration in Swedish and Norwegian economies with higher
unemployment figures, which will affect the performance of Bluestep
Bank's portfolio of mortgages to mostly non-prime customers.
However, the bank's focus on originating first lien mortgages
with full recourse to borrowers and low loan to values in countries with
generous unemployment benefits reduces the risk of large losses with Moody's
projecting an increase up to 3% from 1.94% at end
of 2019. The bank's unsecured portfolio, equivalent
to 6% of total loans, is protected by a forward flow contract,
meaning loans are sold before they are considered impaired, although
at a loss. Consequently, Moody's expects the bank to
remain profitable despite the impact of moderately higher loan loss provisions.
The affirmation of the BCA also reflects the strengthening of the bank's
funding profile as it issues more senior unsecured debt and covered bonds,
which have deeper domestic investor bases, and makes less use of
RMBS and warehouse facilities. In particular, Bluestep Bank
has issued SEK 1,7 billion in covered bonds during 2020 and is expected
to continue expanding the share of covered bonds in its funding profile.
Moody's considers covered bonds to be a more stable source of funding,
especially during times of market volatility, and this shift reduces
the refinancing risks for the bank.
OUTLOOK
The stable outlook on the deposit ratings reflects Moody's expectations
that Bluestep's capitalisation will remain strong despite the deteriorating
operating environment. The bank will continue generating internal
capital due to its strong core earnings, offsetting increases in
risk weighted assets due to asset risk deterioration.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The BCA could be upgraded should a higher proportion of the bank's
lending be focussed on prime customers, alongside a sustained reduction
in the level of non-performing loans. An upgrade in the
BCA would result in the deposit ratings being upgraded
The deposit ratings could be downgraded in case of a lower BCA or lower
volumes of loss absorbing liabilities protecting depositors in case of
failure. The BCA could be downgraded if: (i) the bank experienced
a significant deterioration in asset risk, including the proportion
of problem loans to gross loans rising above 4%, or the volume
of Stage 2 loans increasing rapidly; and (ii) tangible common equity
declining to below 16% of risk weighted assets; or (iii) a
failure to reduce the proportion of funding raised from RMBS and warehouse
facilities.
LIST OF AFFECTED RATINGS
..Issuer: Bluestep Bank AB (publ)
Upgrades:
....Long-term Bank Deposits,
Upgraded to A3 from Baa1, Outlook changed to Stable from Positive
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 Rating,
Affirmed A2
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Short-term Bank Deposits,
Affirmed P-2
Outlook Actions:
....Outlook, Changed To Stable From
Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
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_1133569.
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
Sean Marion
MD - Financial Institutions
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
