S&P confirms Landshypotek Bank’s strong rating – but changes outlook to negative

Landshypotek has been in operation since 1836 and is today a low-risk bank with minimal credit losses over time, and secure lending with collateral in agricultural and forest properties.

In terms of financial performance, 2022 was the most successful year ever for the bank. Landshypotek grew both in lending and in deposits, thereby making the bank stronger and more secure, with more customers to distribute costs across, a broader funding mix and a more secure earnings engine.  

Landshypotek Bank’s secure business model and excellent performance is confirmed by the strong credit rating from S&P.

The rating agency also points out that changes in the bank’s capital planning in combination with the strong lending growth have led to a weakening of the capital buffer according to S&P’s model. Landshypotek’s growth in 2022 means that in the risk-adjusted capital model (RAC ratio), the bank has fallen below the 15% threshold set by S&P for a strong capital buffer.

In its assessment, S&P states that it is uncertain whether the bank will restore its very strong capitalisation, while concurrently stating that this challenge is one that the bank is expected to meet:

“Based on our projection that the pace of lending growth will ease and revenues will remain strong in 2023 and 2024, we expect Landshypotek’s capitalization will recover to over 15%. We consider this is a very strong capitalization for the bank.”

The institution’s assessment is that issuing an adequate amount of eligible debt, which must be completed prior to the introduction of the full requirements on 1 January 2024, may also prove challenging for the bank. These two factors have resulted in a change in the outlook in the S&P model from stable to negative.

Landshypotek Bank exceeds, by a good margin, the capital requirements from the supervisory authorities. Moreover, Landshypotek has received approval for new IRB models that are now being implemented and which have further positive implications for the bank’s capital adequacy. The lower lending growth that has characterised the market in 2023 also requires a lower level of capital growth.

Sweden’s resolution authority, the Swedish National Debt Office, has assessed the bank as one of Sweden’s systemically important banks and, accordingly, the bank is subject to the requirements of the Banking Recovery and Resolution Directive. This would require the bank to issue senior non-preferred debt that the Swedish National Debt Office can use for the purpose of recapitalising the bank in the event of the risk of insolvency. To meet this requirement, the current projection is that the bank will need to issue SEK 1.3 billion of this class of debt before the end of the year, which the bank assesses as fully feasible.

For more information, please contact:

Jonas Feinberg, Press Officer, Landshypotek Bank, +46 70 349 24 10

About Landshypotek Bank

Landshypotek was founded in 1836 and is currently one of the ten largest lending banks in Sweden. The bank is deemed systemically important for the farming and forestry industries. Historically, lending has focused on customers for farming and forestry, but now also includes homeowner mortgages and savings. Landshypotek Bank is owned by some 35,500 farming and forestry customers, who are organised as a cooperative association. The bank has almost 210 employees located at branches across Sweden.