OREANDA-NEWS. December 14, 2015. Fitch Ratings says in a new report that the 2016 Rating Outlook for major Nordic banks is overall Positive, driven by two major Swedish banks, Skandinaviska Enskilda Banken and Swedbank. There could be some upgrades in 2016, but the timing will depend on the success of balancing sustainable long-term performances and conservative credit risk profiles.

We maintain a stable outlook for the banking sector, underpinned by our expectation that Nordic banks will maintain their regional focus and continue to ensure strong buffers against risks combined with solid risk management. The resilient operating environment should support strong asset quality and the banks' ability to generate capital via retained earnings.
The Nordic banks' risk-weighted capitalisation is among the highest in the world, benefitting from significant volumes of low risk-weighted assets, such as mortgage loans.

Leverage ratios are sound for the banks, although less outstanding than risk-weighted capital ratios, and we expect that focus will increasingly be on leverage in 2016. The implementation of bail-in legislation, expected early 2016 in Sweden and effective from 1 January 2016 in Denmark and Finland, will affect the choice of instruments issued by the banks. We expect further issuance of additional Tier 1 securities and greater clarity on some form of subordinated instruments for loss absorption before senior unsecured.

We maintain the view that indebted households are sensitive to the eventual rise in interest rates, and that a significant house price correction could reduce consumption. Swedish house prices have more than doubled since 2005, while household indebtedness has increased to almost 180% of disposable income from less than 140%. Both of these changes are significant and are high compared with many other countries. A fall-out from a significant house price correction, although unexpected, could affect the sector outlook, particularly in Sweden. We believe the banks could withstand a material correction without large retail loan losses. However, their operating environment would probably deteriorate, primarily from lower consumption.