Moody’s turns Aktia outlook negative on changes

Feb 14th, 2013

Moody’s affirmed Aktia Bank at A3 yesterday (Wednesday), but revised the outlook from stable to negative, a move that an Aktia official said was to be expected given that the bank will no longer be the central credit institution for the POP and savings banks in Finland.

AktiaAktia in September said it will no longer issue covered bonds through subsidiary Aktia Real Estate Mortgage Bank but instead issue off its own balance sheet, and on 29 January it said it will terminate its role as the central credit institution for the Finnish Savings Banks Group (Säästöpankki) and Pop Pankki (POP) co-operative banks due to concerns about profitability and liquidity implications of Basel III regulations.

Moody’s yesterday said that it changed the outlook from stable to negative on Aktia Bank’s long term debt rating because a weakening of its relationship with the POP and savings banks will potentially reduce the bank’s systemic importance and likelihood of receiving systemic support.

Aktia has a C- bank financial strength rating (BFSR) from Moody’s, which translates to a standalone credit assessment of baa2, two notches below the A3 long term issuer rating.

The rating agency did not change the outlook on Aktia’s BFSR, however, because it considers that the weakening of the relationship with the POP and savings banks is unlikely to significantly reduce bank’s standalone credit strength, and noted that the cessation of Aktia’s central credit institution role could lead to a reduction in the liquidity portfolio the bank is required to hold, which may in turn increase efficiency in conjunction with a new IT system the bank intends to implement.

Moody’s also noted that to its knowledge a large number of smaller agreements between Aktia and the POP and savings banks still exist.

Timo Ruotsalainen, Aktia REMB managing director, told Nordic FIs & Covered that Moody’s revision of the outlook to negative was to be expected given the way in which Aktia’s relationship with the POP and savings banks is changing, and that it is clear from Moody’s statement that this, and not any operational changes, is the rationale for the rating action.

“From Aktia’s perspective these changes will lighten liquidity requirements and are intended to improve profitability and the balance sheet structure,” he said, “so that we would expect the ratings to be protected.”

Regarding Aktia’s plans to issue covered bonds as a universal bank, the application for a licence from the Finnish financial supervisory authority has been progressing smoothly, he said, and the issuer is working on adapting programme documentation.

“The prospects are that we should be up and running in the second quarter,” he said.

A previously announced plan to merge Aktia Bank with parent Aktia plc was approved by the board of directors of the institutions today (Thursday). The move is aimed at simplifying the group’s structure.

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