Moody’s ups six Nordics as new criteria reflect strengths

Moody’s upgraded six Nordic issuers yesterday (Wednesday) – Danske, DNB, Handelsbanken, Nykredit Realkredit, SEB and Swedbank – citing strong macro profiles, healthy and strengthened core financial ratios and benefits of the introduction of bail-in regimes across the region.The upgrades came as Moody’s concluded reviews of six Nordic banking groups (those listed above with the addition of Nordea but excluding Nykredit) and also Danish institutions in relation to the application of the rating agency’s updated methodology for banks, which also takes into account its lower expectations of government support.

“The revised methodology includes a number of elements that Moody’s has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution,” it said. “These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.”

Macro Profiles introduced for banks as part of the rating agency’s methodology came in at “very strong” for operations in Norway and Sweden, and “strong” for Denmark and Finland, which Moody’s said reflects high economic, institutional and government financial strength.

The rating agency also highlighted the core financial metrics of the six banking groups reviewed, including aggregate problem loan ratios that for the Norwegian and Swedes are among the lowest in Europe, while the metrics of Danish banks are improving. Baseline Credit Assessments of a2 to baa3 also reflect strong capital buffers and stable profitability metrics, with a strong focus on cost management, said Moody’s.

It noted that the four Nordic countries are all expected to introduce operating resolution regimes and under its Advanced Loss Given Failure (LGF) analysis it assigns one or two notches of uplift from the banks’ adjusted BCAs.

“This analysis represents a range of ‘very-low’ to ‘low’ loss given failure for long-term deposits and senior debt, taking into account the protection offered by the banks’ sizeable volumes of deposits and the amount of debt subordinated to both senior debt and deposits,” said Moody’s.

It said the introduction of the Bank Recovery & Resolution Directive (BRRD) in the EU has led to a lowering of its government support assumptions for banks, but added that this had in most cases been moderated and in some cases wholly or more than offset by the Advanced LFG analysis impact. The six banking groups and their subsidiaries each retained one notch of government support uplift to reflect high systemic importance.

The senior unsecured ratings of Sweden’s SEB and Swedbank were upgraded from A1 to Aa3, while that of Svenska Handelsbanken was raised from Aa3 to Aa2. Nordea Bank’s senior unsecured rating was confirmed at Aa3.

DNB Bank’s senior unsecured rating was upgraded from A1 to Aa3. Moody’s noted that DNB enjoys two notches of support uplift, taking into account the government’s 34% ownership of the bank.

“While Moody’s expects Norway to introduce bank resolution legislation in the coming years,” it said, “the rating agency believes that Norway, as a non-EU European Economic Area member with substantial government wealth, will have more flexibility in dealing with bank resolutions compared with EU states.”

Following the introduction of BRRD into Danish law on 26 March, Moody’s revised its systemic support assumptions for Danish banks. However, Danske Bank and Nykredit Realkredit retained one notch of uplift and based on the overall reviews conducted by the rating agency Danske’s senior unsecured debt was upgraded from A3 to A2 and Nykredit Realkredit’s long term issuer rating was lifted from Baa2 to Baa1.

The rating agency cited as a factor in its positive rating actions on Nykredit Realkredit a recent increase in the maturities of its covered bond issuance and the designation of covered bonds as Level 1B assets in EU LCR rules.

However, the rating agency downgraded the long term deposit and senior unsecured debt ratings of Nykredit Bank from Baa2 to Baa3, citing weak asset quality and profitability challenge.

Sydbank’s long term deposit rating was raised from Baa1 to A3 and Ringkjøbing Landbobank’s from Baa1 to A1. Jyske Bank’s Baa1 senior unsecured rating was affirmed.