DBRS: Handelsbanken Reports a Solid Quarter; Capital Remains Strong

Summary:
•Solid overall performance with revenues up both QoQ and on 2012.
•Operating profit boosted by growth of the non-Swedish businesses and capital remains strong despite proposed extraordinary dividend.
•DBRS rates Handelsbanken at AA (low) with a Stable trend for Senior Unsecured Debt & Deposits.

DBRS Ratings Limited (DBRS) views Svenska Handelsbanken AB’s (Handelsbanken or the Bank) Q413 results as solid. In the 4th quarter, income before provisions and taxes (IBPT) was down slightly on Q3, driven by the seasonal increase in operating expenses, however DBRS views positively the 5% increase in IBPT year-on-year.

DBRS also notes the increasing contribution of the Bank’s non-Swedish businesses with the proportion of IBPT coming from the branch operations in the other Nordic countries, the UK and the Netherlands increasing to 30% in Q413, from 27% in the same period of 2012. This reflects the continued expansion of these businesses, especially the UK, where the Bank now has 170 branches (including appointed branch managers). Across the Bank asset quality remained extremely good and the Bank’s capital position is strong.

The Group’s credit quality remained stable in Q413 with the impaired loans as a percentage of gross loans ratio at 0.41% compared to 0.40% at Q313.

At end-Q413 the Bank reported a Common Equity Tier 1 ratio (according to Basel 3) of 18.9%. Although the Swedish authorities intend to increase the risk weight floor for residential mortgages within the Pillar 2 calculation, to 25%, from the current 15%, DBRS notes that Handelsbanken would still maintain a strong Basel 3 Common Equity Tier 1 ratio. This strong capital position also incorporates the proposed extraordinary dividend further highlighting the strength of the Bank’s capital position and therefore DBRS views the Bank as well placed to manage the impact of the evolving regulatory environment.

DBRS rates Handelsbanken at AA (low) with a Stable trend for Senior Unsecured Debt & Deposits.

Notes:
All figures are in Swedish krona (SEK) unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]