Swedbank upped with funding cited, Danske better on Ireland

Moody’s has upgraded Swedbank because it considers that the bank’s credit profile has strengthened, and Fitch revised the outlook on Danske Bank from negative to stable due to lower risk from its Ireland exposure.

Moody’s upgraded Swedbank and its subsidiary, Swedbank Mortgage, from A2 to A1 on Tuesday. The rating agency considers that Swedbank’s credit profile is stronger because of three main developments: a more geographically focussed and lower risk business profile; continued reduction of problem loans and stabilisation of revenues; and enhancement of capital levels and improvements in its funding profile.

Among improvements cited by the rating agency across these areas are a decrease in problem loans from 3.11% of gross loans at the end of 2009 to 0.9% as at the end of March 2013 and a turnaround of Swedbank’s Baltic operations.

In addition, the bank’s capitalisation has improved materially since the financial crisis, said Moody’s, for reasons including rights issues in 2008 and 2009 and a reduction in risk-weighted assets.

There has also been “considerable” improvement in Swedbank’s market funding access, said the rating agency. The average maturity of the bank’s market financing has lengthened from 14 months in 2008 to 33 months at the end of 2012. The overall improvement is despite increased reliance on covered bonds, up from 19% of total funding at the end of 2008 to almost 35% at the end of 2012, according to Moody’s.

Fitch affirmed Danske Bank’s rating at A on Wednesday and revised the outlook from negative to stable. The better outlook is due to Fitch considering that the risk from Danske’s exposure to Ireland has been reduced to “an easily manageable level” for the Danske group. It also reflects the rating agency’s view that Danske could withstand a further moderate deterioration in Denmark, although this is not Fitch’s base case.

The Irish real estate crisis “made a notable dent” in Danske’s loan portfolio, said Fitch, but the bank’s asset quality, particularly with respect to Irish exposure, has stabilised.