Interest Rate Update/Notice • May 8, 2020
Interest Rate Update/Notice
Open in ViewerOpens in native device viewer
07 Apr 2020 Comment
Fitch Ratings-Warsaw/London-07 April 2020: Fitch Ratings took rating action on nine Nordic banking groups last week to reflect the downside risks to their credit profiles resulting from the economic and financial-market implications of the coronavirus outbreak. The ultimate implications of the pandemic for banks' credit profiles are unclear, but Fitch considers the risks to be skewed to the downside, which has driven the following rating actions.
Long-Term Issuer Default Rating (IDR) affirmed; Outlooks Revised to Negative from Stable:
Long-Term IDRs placed on Rating Watch Negative (RWN):
The detailed description of rating actions listed above is outlined in our Rating Action Commentary published on 31 March 2020 ("Fitch Takes Actions on 9 Nordic Banking Groups On Coronavirus Uncertainties").
The banks for which we affirmed the Long-Term IDRs and revised the Outlooks to Negative have sufficient headroom to emerge from the crisis with their ratings intact. This mainly reflects their conservative risk appetites and sound financial metrics, which are comfortably within their current rating levels. The RWN indicates near-term pressure on the ratings as these banks enter the economic downturn with only moderate rating headroom.
The key triggers that could lead to a downgrade are a material deterioration we expect in asset quality, a sustained reduction of operating profitability driven by credit losses and subdued
earnings, or eroded capitalisation which would be difficult to restore in a relatively short period of time.
We have revised our Outlooks for the four Nordic operating environments to Negative. We expect a significant deterioration in eurozone GDP growth and this is highly likely to be the case in the four Nordic markets as well. We revised our baseline eurozone GDP growth expectation for 2020 to a contraction of 4.2% in our latest forecast published on 2 April 2020 ("Global Economic Outlook - COVID-19 Crisis Update April 2 2020"). However, the uncertainties surrounding these forecasts are extremely high and a plausible downside scenario, including a second wave of infection and a longer lockdown period, would see an even larger decline in output in 2020 and a weaker recovery in 2021.
The four Nordic countries have a strong social safety net and effective automatic stabilisers. The strength of their public finances and sovereign ratings allow the governments to launch significant relief measures to help soften the negative impact on their economies from the coronavirus outbreak.
In Denmark, the government is covering 75% of employee salaries (90% for hourly workers) to avoid layoffs. The Norwegian government offers full pay for 20 days for temporarily laid-off staff and additional benefits for the unemployed. In Sweden, companies receive allowances if they reduce working hours, which translates into only a modest reduction of employee salaries and lower costs for employers. In addition, all four governments have announced support for domestic corporates via the provision of state-guaranteed credit facilities. Governments have also announced a temporary reduction in value-added tax (Norway), tax deferrals (Sweden) and temporary support by covering parts of corporates' fixed costs (Norway and Denmark).
The counter-cyclical buffers have been lowered to 0% in Denmark and Sweden and to 1.0% (from 2.5%) in Norway. In Finland, the counter-cyclical capital buffer rate was already zero, but the ECB released banks from having to observe capital conservation (2.5%) and bank-specific Pillar 2 Guidance buffers, and the Finnish regulator further reduced the buffer requirements of all credit institutions by 1%. Norway's central bank decided to lower the policy rate from 1.5% to 0.25%, which will support borrowers' debt service capacity.
Debt-relief measures (such as payment holidays for private individuals and moderate debt restructuring for viable companies) should partly mitigate pressure on banks' asset-quality metrics. The regulators allow banks to be much more flexible in impairment recognition under IFRS 9 to avoid an excessive impact on pro-cyclical profitability. Nevertheless, we expect asset quality to weaken relative to our previous expectations and for earnings challenges to intensify due to reduced business volumes and rising loan-impairment charges. Higher wholesale funding costs represent an additional downside risk.
Nordic banks are well capitalised and their capital surpluses over regulatory limits give them a sufficient cushion to absorb losses and the inflation of risk-weighted assets. We do not expect immediate pressure on Nordic banks' funding profiles, given their ample liquidity and limited use of short-term debt. Nordic banks rely strongly on secured long-term wholesale funding and we expect the covered bond market to remain liquid even in the case of turbulence in global financial markets. We consider Nordic banks' liquidity sufficient to service even intensified drawdowns of committed credit facilities by companies. The banks' liquidity profiles are underpinned by available central banks' funding facilities.
Contact:
Michal Bryks, FCCA Director +48 22 338 6293 Fitch Polska SA Krolewska 16 00-103 Warsaw
Erik Rankeskog Senior Analyst +46 85510 9445
Francis Dallaire Director +46 85510 9444
Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email: [email protected]
Additional information is available on www.fitchratings.com Related Research Global Economic Outlook Datasheet - COVID-19 Crisis Update April 2 2020
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE
READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their
nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US\$1,000 to US\$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US\$10,000 to US\$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.
ENDORSEMENT POLICY - Fitch's approach to ratings endorsement so that ratings produced outside the EU may be used by regulated entities within the EU for regulatory purposes, pursuant to the terms of the EU Regulation with respect to credit rating agencies, can be found on the EU Regulatory Disclosures page. The endorsement status of all International ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for all structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.