Today Nordic Credit Rating (NCR) lowered its assessment of the Swedish banking sector to 'bbb+' from 'a-' due to the economic effects of the COVID-19 pandemic. This assessment can affect up to 20% of an overall issuer credit rating on a financial institution. We have revised down our scores and expectations for output growth, unemployment and the international cycle as shown below. We have considered the impact of Sweden's government support for individuals, banks and corporations in our overall assessment.
We note that many companies have elected to furlough employees using a government-supported programme which reduces costs for employers and maintains at least 92.5% of employees' wages. However, there was a significant rise in unemployment and bankruptcy filings during the last weeks of March and we believe there will be long-term challenges for many sectors given varying degrees of economic shut down for Sweden's neighbours and global trading partners.
NCR views the outlook for the domestic operating environment as negative given the abrupt reduction in activity and the uncertain prospects and timeline of an economic recovery. Initially, the government's efforts to counter the severe macroeconomic disruption could be effective, however, we believe that maintaining stability, especially in terms of bank earnings and credit losses, will become increasingly difficult the longer economic activity remains subdued.
Analyst contact details:
Sean Cotten, +46 732 324 378, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com