Vikings self diagnose, while Fitch sees banks ready for ‘storm’

Apr 29th, 2016

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”.
Nordic FlagsFitch this week held its annual Viking Tour, comprising events in Helsinki, Oslo, Copenhagen and Stockholm, with an aggregate of over 220 delegates attending the four events.
Those at each event were asked to vote on which of four risks they consider to be the most significant in 2016 and 2017 for banks in their home country.
In Helsinki, 65% of delegates identified “lower for longer” interest rates as the most significant risk for Finnish banks, while 30% cited slower Eurozone growth. In Copenhagen, 52% cited the interest rate issue and 33% slower Eurozone growth.
In Stockholm, 63% cited household sector indebtedness and house prices as the most significant risk to Swedish banks, 21% interest rates, and 14% Eurozone growth.
In Oslo, 61% identified oil prices, while interest rates and household sector indebtedness also emerged as comcerns.
However, Jens Hallén, senior director, financial institutions at Fitch, said Nordic banks are generally well positioned, due in part to having access to a mix of wholesale funding sources and having low operating cost to income ratios relative to other European jurisdictions.
“Talking about the Nordics generally, I think we are able to say a storm might be coming to the shores of the Nordic countries,” he said. “But it is important to put that into perspective.
“It might be the case, but if the house is strong enough maybe it doesn’t really matter.”
Hallén noted that all of the Nordic banks Fitch rates are rated between A and AA-
“This is one of the most highly rated bank portfolios that we have globally,” he said.
Delegates at the four events were also asked what they consider to be the main risk to European credit markets in the next 12 months.
Some 45% of the more than 220 delegates saw Eurozone problems as being the main risk, while 26% cited geopolitical risk, 19% recession, and 10% emerging market problems.
“Concerns over renewed problems for the Eurozone were at the forefront of delegates’ minds,” said Monica Insoll, managing director, credit market research, at Fitch. “While the economy is slowly recovering, negotiations between Greece and its creditors are again in the headlines.
“Political risk is also moving centre stage in Europe, with migration and security issues proving at least as challenging as the fiscal and economic difficulties that preceded them. Furthermore, in June, the UK referendum on EU membership will take place.”
When asked about their expectations for more positive or negative rating actions among European sovereigns in the next two years, 44% of delegates expect there to be a balance, with 39% expecting mostly negative rating actions and 17% positive.

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