Moody's on Dec. 7 downgraded Sweden-based Sparbanken Syd's baseline credit assessment and adjusted BCA to "baa3" from "baa2," following SBAB Bank AB (publ)'s decision to terminate an asset purchase program it had established with Sparbanken Syd to fund the bank's mortgages.
The agency said the termination of the funding arrangement is negative for Sparbanken Syd as it has been a central part of the bank's funding profile. Through the agreement, Sparbanken Syd was able to mediate its mortgages to SBAB for a commission, thereby moving them off balance sheet, bringing down funding needs and reducing credit risk and capital requirements. Under the terms of the termination, Sparbanken Syd has two years to formulate a different strategy and decide whether to buy back outstanding mortgages it has placed through SBAB.
Moody's also downgraded the bank's long- and short-term counterparty risk assessments to A3(cr)/P-2(cr) from A2(cr)/P-1(cr), and assigned it a long-term bank deposit rating of Baa1, with a negative outlook, and a short-term bank deposit rating of P-2.
The agency also affirmed Sparbanken Syd's long- and short-term issuer ratings at Baa1/P-2, with the outlook on the long-term issuer rating revised to negative from stable.
Moody's said the affirmation balances the bank's weakened funding profile and the increased cushion of liabilities protecting its debt holders following its recent senior unsecured debt issuance.