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TEXT - Fitch affirms Landshypotek AB long-term issuer default rtg
January 29, 2013 / 3:02 PM / 5 years ago

TEXT - Fitch affirms Landshypotek AB long-term issuer default rtg

(The following statement was released by the rating agency)
    Jan 29 - Fitch Ratings has affirmed Landshypotek AB's Long-term Issuer
Default Rating (IDR) at 'A+', and Short-term IDR at 'F1'. The Outlook for the
Long-term IDR is Stable. A full list of rating actions is at the end of this
rating action commentary.


The affirmation of Landshypotek's IDRs and senior debt ratings, reflect its 
excellent asset quality, strong niche franchise, solid risk weighted capital 
ratios and acceptable leverage. These outweigh the negative considerations with 
respect to the bank's monoline business model, reliance on wholesale funding and
the relatively small absolute size of its capital.


The Stable Outlook reflects Fitch's expectation that Landshypotek will maintain 
its capital markets access and retain its excellent asset quality which drive 
its financial metrics. Downward pressure on the bank's ratings is most likely to
come from a prolonged dislocation in wholesale funding markets reducing access 
or materially increasing pricing, leading to a significant erosion of internal 
capital generation. Fitch sees such dislocation as highly unlikely. The ratings 
are also sensitive to any significant increase in lending outside its core first
lien mortgage product. Upward pressure is unlikely, given the relatively small 
size of capital for its rating level and its significant reliance on debt 
capital markets for structural funding.

Landshypotek's funding is almost entirely wholesale-based, and its loan book is 
largely funded by covered bonds. Landshypotek has had relatively uninterrupted 
access to capital markets during the crisis, and Fitch expects it to maintain 
access, in particular in its domestic market. While the long-term profile of the
wholesale funding mitigates refinancing risk to some extent, this funding 
structure requires efficient wholesale markets to sustain growth at manageable 
costs. Fitch also expects Landshypotek to maintain a high liquidity buffer to 
mitigate the risks.

Landshypotek's asset quality is exceptionally strong, and Fitch expects it to 
remain resilient. Lending consists exclusively of collateralised loans to the 
domestic agriculture and forestry sector. With its conservative underwriting 
policy and generally low loan to value ratio (average around 40% at 
end-September 2012), loan performance is solid. In light of its business model, 
Fitch expects operating profits to remain stable, although moderate, in 2013. 

Landshypotek's capital ratios compare well with its domestic and international 
peers, although they are boosted by the low risk weights on mortgages. However, 
the absolute amount of capital is small for its ratings, which may limit its 
resilience against fat tail risk events.


In affirming Landshypotek's senior unsecured EMTN programme ratings, and driven 
by the high usage of covered bonds, Fitch has stressed asset recoveries using 
its recovery methodology as a base. The agency has made three key assumptions; 
firstly that unneeded collateral in the covered bond pool will be made available
to unsecured creditors within a reasonable timeframe, secondly that the covered 
bonds market in Sweden would remain open, and thirdly that Landshypotek's 
largest asset group - mortgages - could be sold in the market, albeit at a 
discount in the 'A+' scenario. Fitch also takes into account Landshypotek's 
ability to re-price a significant proportion of its mortgages at short notice, 
enabling it to manage its mortgage portfolio should the need arise. The 
unsecured programme ratings are especially sensitive to any changes in Fitch's 
assessment of banks with high asset encumbrance and the structural subordination
of senior unsecured creditors. 


Landshypotek's Support Rating and Support Rating Floor reflect Fitch's 
expectation that there would be a moderate probability that support would be 
forthcoming from the Swedish authorities if required. This is driven by the 
importance of the covered bond market and the agricultural and forestry sectors 
in Sweden.

The Support Rating and Support Rating Floor are sensitive to any potential 
change in Fitch's assumptions about the propensity or ability of Swedish 
authorities to provide timely support to the bank, which would most likely be 
driven by a broader review of support considerations for banks in Sweden, Europe
or globally.

The rating actions are as follows: 


Long-term IDR: affirmed at 'A+'; Outlook Stable 
Short-term IDR: affirmed at 'F1'
Viability Rating: affirmed at 'a+'
Support Rating: affirmed at '3' 
Support Rating Floor: affirmed at 'BB+' 
Senior unsecured debt: affirmed at 'A+' / 'F1'

 (Caryn Trokie, New York Ratings Unit)

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