DBRS Initiates Ratings Coverage of Nordea Mortgage Bank Plc at AA (low) with a Stable trend

DBRS Ratings Limited (DBRS) has assigned a Long-Term Issuer Rating of AA (low), and a Short-Term Issuer Rating of R-1 (middle) to Nordea Mortgage Bank Plc (NMB or the Bank).

DBRS views the Finnish operations of Nordea Bank Abp (Nordea or the Parent) as a core component of Nordea’s Nordic franchise and, therefore, DBRS has assigned a support assessment of SA1 to NMB. The SA1 designation implies strong and predictable support from the Parent.

KEY RATING CONSIDERATIONS
NMB is a wholly owned subsidiary of Nordea Bank Abp, operating solely as an issuer of covered bonds and is conducting its activities in cooperation with branches and other customer service points of the Nordea Bank group in Finland. Bonds issued by NMB are covered by a pool of loans mostly consisting of Finnish household mortgages. The Bank does not act as the originator of housing loans but instead purchases loans from Nordea Bank Abp. In addition, DBRS notes that different units within Nordea handle on NMB’s behalf accounting and reporting, liquidity management, risk management, IT systems, as well as internal credit and quality control, while integroup funding accounts for 31% of the NMB’s funding structure. NMB started its operations on October 1, 2016 via a demerger from Nordea Bank Finland Plc, and as a result all the assets, liabilities and reserves relating to the covered bond funding business of Nordea Bank Finland Plc were transferred to Nordea Mortgage Bank Plc.

RATING DRIVERS
As a supported rating with an SA1 designation, Nordea Mortgage Bank Plc’s rating will generally move in tandem with Nordea’s Issuer Ratings.

The ratings could, however, come under downward pressure if, in DBRS’s opinion the likelihood of support was to decline.

RATING RATIONALE
The SA1 support assessment reflects NMB’s important role as a core component of Nordea’s Nordic franchise. The SA1 also reflects NMB’s position as a wholly-owned direct bank subsidiary of Nordea, which shares the group branding and name, along with DBRS’s expectation that the Parent has the resources and motivation to support the Bank, if needed.

Supporting this is Nordea’s well-established franchise in Finland, which has consistently generated positive annual earnings throughout recent years. Furthermore, Nordea has leading market shares in Finland with estimated markets shares in mortgage lending of 29.3% and in household deposits of 27.8%. The Long-Term Issuer Rating is equalised with Nordea’s ‘AA (low)’s Long-Term Issuer Rating in line with DBRS’ rating approach for core banking subsidiaries located in the same country as the parent.

DBRS’s Issuer Rating on Nordea Bank Abp (Nordea or the parent) is AA (low) with a Stable trend. Nordea’s ratings reflect the Bank’s diversified Nordic banking franchise, with strong positions across Sweden, Finland, Norway and Denmark, as well as the strong and resilient earnings generation ability. The ratings also incorporate Nordea’s low risk profile and sound capitalisation, along with its well-managed funding profile, despite the relatively high usage of wholesale funding.

DBRS rates the Republic of Finland at AA (high) with a Stable trend.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company disclosures. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating concerns a newly rated issuer. This is the first DBRS rating on this issuer.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

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 historical default rates published by the European Securities and Markets Authority (“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 and US regulations only.

Lead Analyst: Vitaline Yeterian, Vice President - Global FIG
Rating Committee Chair: Roger Lister
Initial Rating Date: N/A
Most Recent Rating Update: Not applicable as no last rating date.

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