Low rates are the most significant risk to Danish and Finnish banks in the next two years, according to delegates surveyed by Fitch this week, with household indebtedness considered the biggest risk for Swedish banks and oil prices for Norwegians, but the rating agency said Nordic banks are well positioned for the oncoming “storm”.
Fitch sees potential for upgrades of major Nordic banks in 2016, it said yesterday (Thursday), with SEB and Swedbank leading the positive outlook, although the timing of such rating actions would depend on how successfully sustainable long term performance and conservative credit risk profiles are balanced.
Systemic risks in Sweden’s mortgage market are increasing, Fitch said on Wednesday, adding that any disruptions could hit the wider banking sector, although it noted that banks are mitigating the risks while households have good debt servicing capabilities and rated banks are strongly capitalised.
A clear majority of delegates at a Fitch Rating Viking Tour 2015 expect the European Central Bank’s quantitative easing programme to be the driver of European credit market performance this year, the rating agency found.
A new Norwegian Act on Financial Institutions being considered by parliament will amend the country’s covered bond framework so that covered bond issuers are treated the same as banks in the event of insolvency, and will also repeal Norway’s securitisation law.
A Danish bill on conditional mortgage bond maturity extensions will help reduce liquidity risk, but does not on its own reduce refinancing risk in the country’s mortgage system, said Fitch, urging the industry to continue its efforts to tackle this risk by other means.
A Danish government plan under which bonds refinancing Danish ARMs would automatically extend in certain stressed scenarios would greatly reduce associated refinancing risks, according to Fitch, but the rating agency on Wednesday also said that there are questions regarding details of its implementation.
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.
Fitch cut Capital Centre T covered bonds issued by Realkredit Danmark from AAA to AA+ on Tuesday, with an official at the issuer noting that the rating action was fully anticipated in light of rating methodology changes, and that it expects to eventually be able to regain a triple-A rating.
Nordic banks’ strong credit stories have been a key factor in enabling their position alongside Dutch banks at the head of a wave of lower Tier 2 issues hitting the market since last week, Fitch said on Tuesday.