Nordic Credit Rating said today that it had assigned a 'AA-' long-term issuer rating to Sweden-based shipping finance provider Svenska Skeppshypotekskassan (Skeppshypotek). The outlook is stable. An 'N1' short-term issuer rating was also assigned.
Rating rationale
The long-term rating reflects Skeppshypotek's strong capital position, fully matched funding profile, and government-defined role in national shipping finance. It also reflects a strong track record of robust earnings and loss performance. Wholly owned by the Swedish government, Skeppshypotek was established in 1929 under the Act on Svenska Skeppshypotekskassan (1980:1097) (the Skeppshypotek law).
The rating is constrained by Skeppshypotek's high level of exposure to the shipping sector and specific customer groups. These concentrations are allowed only by regulatory exceptions to rules on large exposures set out in the EU's capital requirements directive. The rating is also constrained by the volatility of the shipping sector and the valuation of vessels used as loan collateral. Despite its concentrations, Skeppshypotek's risk appetite is minimised in other areas and clearly defined by the Skeppshypotek law.
We adjust our standalone credit assessment upward by one notch to reflect Skeppshypotek's unique role in supporting the Swedish shipping industry, which historically has enjoyed government-supported debt relief and guarantees for small ship owners. This adjustment also reflects a wider government guarantee and a legally defined mutual borrower commitment that improves recovery prospects for creditors in the event of liquidation. In addition, we add two notches to our standalone credit assessment to reflect the high likelihood of extraordinary support due to Skeppshypotek's controlling ownership by the Kingdom of Sweden and our view that it has an important, albeit replaceable, policy role as a provider of financing for Swedish-related shipping.
Stable outlook
The stable outlook reflects our view that Skeppshypotek's selective underwriting and low loan-to-value profile will prevent a material decline in credit quality despite the volatile nature of the shipping industry. In addition, we expect Skeppshypotek to maintain a strong capital position despite the likelihood of material growth in its loan book.
We could raise the rating to reflect an increased strategic policy role or a greater commitment of timely support from the Swedish government, or reduced single-name concentrations.
We could lower the rating to reflect a change in the government's ownership and/or a reduction in the remit to finance Swedish-related shipping. We could also lower the rating to reflect a lasting decline in the common equity Tier 1 ratio below 18% or a material deterioration in asset quality.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | AA- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N1 |
| Senior unsecured issue rating: | AA- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.