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Scope Ratings has updated its rating report on
Svenska Handelsbanken, rated A+ with Stable Outlook.
The ratings of Svenska Handelsbanken reflect the Group’s
reassuring credit fundamentals, to some extent supported by a
positive macroeconomic backdrop, but also by factors specific to
the company, such as its well-tested risk culture and incentive
structure, with a focus on long-term profitability and
decision-making supported by local knowledge through the branch
network.
The ratings also reflect a concentrated exposure to the real
estate sector in Sweden, which after a bull market lasting over
two decades has been looking vulnerable to a potential
correction for some time, while household debt levels have been
rising. As highlighted by the Riksbank in its latest financial
stability report, Sweden’s banking system is sensitive to shocks
due to its significant reliance on wholesale funding.
Handelsbanken’s property-related lending has expanded more
rapidly in recent years than other segments of the loan book,
and made up 85% of all loans as of YE16. Of this amount, Swedish
exposures accounted for two-thirds, with residential mortgages,
which have a strong track record in Sweden, making up the
largest portion.
The benign credit environment in Sweden, supported by income
growth and negative interest rates, has helped to keep the cost
of risk remarkably low during this part of the cycle. Scope
believes this may not prove to be fully sustainable. Sweden’s
housing and mortgage markets are showing signs of a slowdown –
though not, as yet, a correction. Handelsbanken’s degree of
international diversification offers some additional protection
against possible domestic asset quality shocks. International
revenues have grown strongly in recent years, with the UK
driving the growth.
PDF-Download the updated rating report