Moody's Investors Service has placed on review for possible downgrade the bank financial strength ratings (BFSRs) and/or the long-term debt and deposit, subordinated and hybrid ratings of six Norwegian banks and four Swedish banks.
The Norwegian financial institutions are DnB NOR Bank ASA, Nordea Bank Norge ASA, SpareBank 1 SMN, SpareBank 1 SR-Bank, Sparebanken Vest and Sparebanken Oest.
At the same time, the ratings have been affirmed of Storebrand Bank ASA and SpareBank 1 Gruppen AS and changed the outlook on SpareBank 1 Nord-Norge's long-term ratings to negative.
Although Moody's expects the Norwegian banks' BFSRs to come under increasing pressure, it believes that banks in highly rated countries are likely to receive support depending on their level of systemic importance.
The rating actions on the BFSRs were prompted by Moody's expectation that Norwegian banks will experience increasing deterioration in asset quality over the coming quarters. This is likely to lead to higher credit-related write-downs than previously anticipated, exerting adverse pressure on profitability and capitalisation. The anticipated deterioration in asset quality reflects the weaker outlook for the Norwegian corporate sector in the ongoing economic downturn — the commercial real estate, shipping and retail trade sectors are expected to be affected in particular.
So far, the Norwegian economy has been more resilient to the global slowdown than the other Nordic countries, but continued low global demand is depressing exports and a turnaround for manufacturing and industry in general is highly dependent on the economic recovery of Norway's trading partners. In addition, the household debt burden remains high. Moody's expects GDP to contract by around 1% in 2009 and unemployment is rising, albeit from a low base.
The banks that are most likely to have their BFSRs downgraded are those with lower capital adequacy levels compared with their exposures to asset classes embedding the highest expected losses. These asset classes include for example exposures to construction, shipping and real estate.
Swedish banks
Moody's has also placed on review for possible downgrade the BFSRs and long-term debt and deposit ratings of Sweden’s Nordea Bank AB, Svenska Handelsbanken AB, Landshypotek AB and Volvofinans Bank AB, as well as Nordea's banking subsidiaries in Denmark, Norway and Finland. In addition, the short-term deposit ratings of Landshypotek AB and Volvofinans Bank AB were placed on review for possible downgrade.
All the ratings of Swedbank AB, its Swedish subsidiary Swedbank Mortgage and its Baltic subsidiary Swedbank AS (Estonia) remain on review for possible downgrade.
At the same time, the rating agency affirmed the BFSRs and long-term ratings of Skandinaviska Enskilda Banken AB (SEB) and its fully owned German subsidiary SEB AG, Lansforsakringar Bank AB and The Swedish Housing Finance Corporation, SBAB.
The rating actions on the BFSRs were prompted by Moody's expectation that Swedish banks will experience increasing deterioration in asset quality over the coming quarters. This is likely to lead to higher credit-related write-downs than previously anticipated in the ratings, exerting adverse pressure on profitability and capitalisation.
The anticipated deterioration in asset quality reflects the increasing weakness of Sweden's highly export-driven economy. Swedish GDP is forecast to contract by around 4% in 2009 and is likely to stagnate in 2010, coupled with an increase in unemployment levels.
The banks that are most likely to have their BFSRs downgraded are those with lower capital adequacy levels compared with their exposures to asset classes embedding the highest expected losses. These asset classes include, for example, exposures to construction, shipping and real estate.
To date, thanks to robust and stable domestic franchises and historically good financial fundamentals, the financial performance of Swedish banks has been only moderately affected by the ongoing global financial and economic crisis. Therefore, rating actions since 2007 have been mostly limited to those banks that are particularly exposed to the rapidly and severely deteriorating economies of the Baltic countries.
Volvofinans Bank AB's C- BFSR review for possible downgrade will focus on the impact of potential losses in the bank's auto consumer, leasing and credit card lending portfolio; of particular concern to Moody's is the difficult operating environment, notably the rapid decline in new car and truck sales in Sweden and the consequent expected adverse effects on Volvofinans Bank's profitability.
In addition, Moody's also notes that Volvo dealers' financial profiles are likely to be impacted by the negative car market conditions, which could in turn affect the bank given that the dealers guarantee the credit risk of the majority of Volvofinans Bank's lending portfolio.
