First Scope Nordic bank ratings in A+ to A- range

Rating agency Scope has published its first ratings of financial institutions in the Nordic region — covering Danske, DNB, Nordea and Swedbank — and noted strong prudential and credit metrics supported by stable funding — notably through covered bonds — but also overheating housing prices in Norway and Sweden.

Scope assigned its first bank ratings in April as part of a push into competing with the leading rating agencies. In October it hired former Standard & Poor’s senior covered bond analyst Karlo Fuchs to enter covered bond ratings.

Yesterday (Wednesday), Scope assigned Danske Bank an Issuer Credit Strength Rating (ISCR) and long term unsecured debt rating of A-, stable, DNB ratings of A+, stable, Nordea ratings of A+, stable, and Swedbank ratings of A-, stable.

“Scope’s credit assessment of the four Nordic banks takes into account their strong prudential and credit metrics, notably ample capital positions and good-to-excellent asset quality indicators,” it said. “As opposed to a majority of banking markets in Europe, for example, large banks in both Sweden and Norway have navigated relatively well the financial crisis years.

“On the other hand, the Danish banking sector has been more affected by the crisis, although recently the trend has been improving”

The rating agency said it sees an overheating of house prices in Norway and Sweden as challenges that could affect the large banks’ asset quality metrics, which it said are “excellent”. Scope said that these could also be reduced by asset risk weights being adjusted to be more in line with international standards.

Nordic banks’ “very high reliance” on covered bond funding is said by Scope to be a strength because it provides funding stability and predictability, which was demonstrated during the crisis when other market funding sources were impaired.

Scope said its ratings take into account the bail-in regime being implemented in the EU/EEA and that it considers state support for banks in distress to be highly unlikely, and noted that the ratings — including those of minority government-owned DNB — do not include any notching uplift for state support.

Danske is rated Baa1/A/A by Moody’s, S&P and Fitch, DNB A1/A+/AA by Moodys, S&P and DBRS, Nordea Aa3/AA-/AA by Moodys, S&P and DBRS, and Swedbank A1/A+/A+ by Moody’s, S&P and Fitch, according to the respective issuer websites.

Scope said that none of the ratings were solicited. All are based on public information and only Swedbank participated in Scope’s rating process.