Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Sweden-based Danske Hypotek AB (publ) (Danske Hypotek). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. At the same time NCR affirmed its 'AAA' issue ratings on Danske Hypotek's covered bond bonds and its 'A+' senior unsecured issue rating.
Rationale
Our 'A' long-term issuer rating on Danske Hypotek AB (publ) reflects the operating environment for Swedish mortgage lenders, as well as Danske Hypotek's strong risk-adjusted earnings, very low historical and projected loss performance, and low credit risk profile. It also reflects Danske Hypotek's importance to Danske Bank's long-term strategy in its core Swedish market. Danske Hypotek has improved its common equity Tier 1 ratio to 17.5% at end 2020 and is expected to continue to improve capital ratios given its strong capital generation, expectations of retaining earnings on its own balance sheet and our expectations for loan growth over the coming years.
Given the stable outlook on the issuer rating on Danske Hypotek, we do not anticipate a multiple-notch downgrade of the company and expect the covered bond ratings to be stable. This reflects our view that Danske Hypotek and Danske Bank will maintain their status as systemically important financial institutions with a very high likelihood of resolution, which would be expected to exclude the bail-in of covered bonds. We do not anticipate that proposed changes to the Swedish Covered Bond Issuance Act, which are required to adapt to the EU's updated covered bond directive, will impact the ratings on Danske Hypotek's covered bonds.
Stable outlook
The stable outlook reflects our credit assessment of Danske Bank and the overall Swedish mortgage market. Upside to Danske Hypotek's issuer rating remains constrained by our 'a' credit assessment of Danske Bank. Danske Bank's 2020 net profit exceeded its previous guidance of DKK 4–4.5bn, in part due to lower than anticipated credit loss provisioning, despite conservative loss provisions. Danske Bank maintains a robust capital position with a fully phased-in CET1 ratio of 18.0%, well above the regulatory minimum requirement of 13.2%. We could revise our rating on Danske Hypotek due to changes in our view of Danske Bank, which we currently see as unlikely. In addition, we could revise our rating downwards due to long-term economic recession in Sweden, lower capitalisation or significant margin compression for domestic residential mortgages.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A | A |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Covered bond issue rating: | AAA | AAA |
| Senior unsecured issue rating: | A+ | A+ |
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.