DBRS Comments on Handelsbanken’s 1Q10 Results – Senior Unaffected at AA (low), Trend Stable
Banking OrganizationsDBRS has today commented that the ratings for Svenska Handelsbanken AB (SHB or the Bank), including SHB’s AA (low) Senior Unsecured Debt & Deposits ratings, are unaffected by the Bank’s 1Q10 results. The trend on all ratings remains Stable.
This comment follows SHB’s announcement of a SEK 2.9 billion net profit for 1Q10, up 13% from the prior quarter and 3% above the year-ago quarter. The quarterly profit was the highest since 4Q08. The result benefited from the 20% linked-quarter decline in net loan losses, to a low SEK 551 million or 0.14% of lending (annualised) in 1Q10.
Total income declined 4% year-on-year, but was almost unchanged from the prior quarter. The year-on-year decrease was mainly caused by lower gains on financial items at fair value which had been bolstered by unusually favourable market conditions in the year-ago quarter. As such, removing this negative impact and also excluding smaller positive one-off items in 1Q10, underlying total income was stable compared to the year-ago quarter. DBRS views the result as demonstrating the strength and resilience of SHB’s franchise. Importantly, net interest income was in line with previous levels, as muted corporate loan demand and negative exchange rate effects were largely offset by higher lending margins and growing contributions from U.K. and Nordic branches outside Sweden. Deposit margins in the core Swedish business stabilised in 1Q10 after falling for five consecutive quarters.
Asset quality measures improved as gross impaired loans decreased by 8.5% during 1Q10 to SEK 7.9 billion, or a low 0.5% of total loans to the public at 31 March 2010. Loan losses in Swedish branch operations amounted to a minimal 0.05% of lending, while loan losses at 0.35% of loans still remain moderate in branch operations outside Sweden. DBRS views SHB’s solid credit performance in 1Q10 and throughout the current cycle as demonstrating its conservative underwriting and risk culture, which underpins the ratings. SHB’s funding profile remains well-managed, as the Bank financed two-thirds of 2010 long-term debt maturities by 31 March 2010. SHB raised SEK 57 billion in senior unsecured bonds and SEK 49 billion in covered bonds during 1Q10. Capital is viewed as solid, with a Tier 1 ratio of 14.6% and a total capital ratio of 19.6% at 31 March 2010.
DBRS sees SHB as well placed to further expand and strengthen its franchise, while navigating the still uncertain environment. Nonetheless, the Bank continues to face risks inherent in the fragile economic recovery across Northern Europe, the potential for renewed market turmoil given heightened concerns about sovereign risks, as well as uncertainty about the ultimate form and impact of new regulation.
Notes:
All figures are in SEK unless otherwise noted.
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.
This is a Corporate (Financial Institutions) rating.