DBRS Removes Rating Floors in Four Nordic Countries

DBRS Rating Limited (DBRS) has today removed the A (high) rating floor that was in place for critically important banking organisations (CIBs) in Denmark, Finland, Norway and Sweden. This action follows the July 8, 2013 announcement that DBRS is assessing the applicability of its floor ratings (“DBRS Assesses Applicability of Rating Floors for Critically Important Banks in 9 Countries”). In DBRS’s view, the reduction in the willingness of these countries to support their CIBs at the level of the floor combined with the lessening of stress in financial markets that reduces the need to provide such support means that the rating floors are no longer appropriate. The removal of the floors has no impact on current bank ratings in Finland, Norway and Sweden. A separate announcement will be made on the ratings of Danske Bank A/S, whose ratings are potentially affected by the removal of the rating floor.

DBRS assigned an A (high) rating floor to CIBs in these countries in August 2009. CIBs are those banks whose ability to perform as a long-term counterparty is critically important for the robustness of the domestic financial system as a whole. The application of the rating floor reflected DBRS’s expectation that the government’s in these countries would provide support, if necessary, to prevent any CIB from weakening below this rating level during a period of heightened stress in the banking system. The floor, which was assigned at the time DBRS put in place floors in a number of other countries, was underpinned by the significant support and support programmes that were put in place by the respective authorities in these countries at the height of the crisis.

Given that the period of heightened stress for financial institutions has receded and the Nordic banks are generally in a solid financial position, DBRS considers it no longer necessary to maintain the rating floor. Moreover, as in a number of other countries, the provision of support to the banking sector has become more of a political and regulatory concern in the Nordic region, and DBRS expects all four countries (including Norway as a member of the EEA) to introduce the EU resolution framework when this is implemented. Therefore, DBRS expects that there is less predictability surrounding the level of any future support for banks, and no longer considers it appropriate to underpin the ratings by a rating floor.

Nevertheless, due to the challenges that would face the authorities in the resolution of the largest banks, DBRS is maintaining the one notch of uplift incorporated into the ratings of the Finnish, Norwegian, and Swedish institutions that it considers to be systemically important. These are DNB Bank ASA, Nordea Bank AB, Skandinaviska Enskilda Banken AB (SEB), Svenska Handelsbanken AB and Swedbank AB. A separate announcement will be made on the ratings of Danske Bank A/S, which is the only Nordic bank whose ratings are potentially affected by the removal of the rating floor.

Notes:
All figures are in local currency unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organizations. Other applicable methodologies include the DBRS Criteria – Intrinsic and Support Assessments, DBRS Criteria: Bank and Bank Holding Company Trust Preferred Securities, DBRS Criteria: Rating Bank Subordinated Debt & Hybrid Instruments with Discretionary Payments and DBRS Criteria: Rating Bank Preferred Shares & Equivalent Hybrids. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on January 15, 2015 to reflect actual methodologies used.]

The sources of information used for this rating include company documents, SNL Financial, National Ministries of Finance, National FSAs, National Central Banks and the Swedish National Debt Office. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst for banks in the Kingdom of Norway, in the Kingdom of Sweden and in the Republic of Finland: Ross Abercromby
Lead Analyst for banks in the Kingdom of Denmark: Peter Burbank
Rating Committee Chair: Alan G. Reid

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For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.