Swedbank Credit Rating Cut at Moody's on Debt Reliance, Baltics

By Tasneem Brogger

Oct. 11 (Bloomberg) -- Swedbank AB, the largest bank in the Baltic region, had its credit ratings cut by Moody's Investors Service because of the bank's reliance on market funding and its focus on the Baltic markets as these enter recession.

Moody's lowered Swedbank's bank financial strength rating to C+ from B- and its long-term senior debt and deposit ratings to Aa3 from Aa2, the agency said in a statement late yesterday. The outlook on the ratings remains negative, Moody's said.

The downgrades are because of ``expected increasing pressure on the bank's financial performance due to the rapid pace of the deterioration in economic conditions in the Baltic states, where the bank has a significant exposure through its subsidiary Hansapank,'' Moody's said.

Swedbank gets about a third of its earnings from the Baltic countries, the European Union's fastest-growing region in 2006, and has about 15 percent of its lending portfolio there. The Estonian economy shrank 1.1 percent in the second quarter from a year earlier. The $16.4 billion economy contracted 0.8 percent from the previous quarter, entering a recession after shrinking a quarterly 0.9 percent in the first three months.

``Under the current challenging market conditions, Swedbank could potentially face higher refinancing risks given that its group funding profile is relatively reliant on market funding,'' Moody's said.

About one third of Swedbank's market funding is short-term, according to Moody's. ``However, the bank's liquidity pools remain significant, including its access to secured funding,'' the agency said.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;