Moody’s affirms Alandsbanken A3 deposit ratings, upgrades outlook to positive

Investing.com -- Moody’s Ratings has confirmed the long-term A3 deposit ratings and short-term P-2 deposit ratings for Alandsbanken Abp (Alandsbanken) on March 14, 2025, while adjusting the outlook for the long-term deposit ratings from stable to positive. The long-term and short-term Counterparty Risk Ratings (CRRs) of A2/P-1, Counterparty Risk (CR) Assessments of A2(cr)/P-1(cr), the Baseline Credit Assessment (BCA) of baa2, and the Adjusted BCA of baa2 have also been confirmed.

The change in the long-term deposit ratings outlook to positive from stable is a result of Alandsbanken’s increased solvency, due to its stronger capitalization and improved recurring profitability.

The baa2 BCA is a reflection of Alandsbanken’s strong solvency, which is supported by low losses, strong capitalization, and recurring profitability. This is further underpinned by its private banking business in Sweden and Finland, as well as full retail banking services on the Aland islands, and the selling of banking IT services across the Nordics.

Alandsbanken’s asset risk is low, mainly due to a prudent loan-to-value cap on mortgages of 75% in Aland and Finland, compared to the regulatory cap of 90%. This is also due to a greater focus on small and medium-sized enterprise (SME) lending in Sweden following the sale of its mortgage portfolio to Borgo Hypotek in 2023 and 2024.

Alandsbanken’s capitalization continued to strengthen in 2024, with a tangible common equity (TCE) to risk-weighted assets (RWAs) ratio of 18% at the end of 2024, up from 16.1% at the end of December 2023. This was largely due to strong internal capital generation.

The bank has diversified revenue streams due to its strategic diversification, both geographically and across product lines. This, coupled with higher interest rates, has supported strong profitability, with a net income to tangible assets ratio of 1.0% in 2024, up from 0.9% in 2023.

Alandsbanken also has a strong depositor base due to its focus on private banking, in addition to issuing covered bonds, which are a good source of alternative funding. The bank also has a prudent approach to asset liability management and has ample liquid resources to meet shifts in deposit flows.

The positive outlook on the long-term deposit ratings reflects Moody’s view that Alandsbanken will maintain its strong financial fundamentals over the next 12 to 18 months, with a very strong TCE/RWA ratio relative to peers, strong recurring profitability, and low levels of problem loans.

Alandsbanken’s ratings could be upgraded if solvency factors continue to remain strong, including a long-term TCE/RWA above 16%, and maintaining strong recurring profitability and efficiency. However, the ratings could be downgraded if credit quality significantly deteriorates, capitalization declines unexpectedly, recurring profitability weakens, or if the bank’s funding sources are materially affected, thus weakening its liquidity.

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