Moody's on May 16 upgraded Sydbank A/S's long-term bank deposit and senior unsecured debt ratings to A2 from A3 and Baa1, respectively, and maintained the positive outlook on the ratings.

The rating agency also upgraded the lender's short-term bank deposits rating to P-1 from P-2 and affirmed its "baa1" baseline and adjusted baseline credit assessments and A1(cr)/P-1(cr) long- and short-term counterparty risk assessments.

At the same time, Moody's affirmed Jyske Bank A/S's Baa1 senior unsecured debt rating and changed the outlook to positive from stable. The agency also affirmed the bank's A3/P-2 long- and short-term bank deposit ratings, "baa1" baseline and adjusted baseline credit assessments and A1(cr)/P-1(cr) long- and short-term counterparty risk assessments, with a stable outlook on the long-term bank deposit rating.

Moody's said the ratings actions reflect its expectation that the Danish banks will need to issue additional loss-absorbing instruments, mostly in the form of nonpreferred senior debt, in response to bank-specific minimum requirements for own funds and eligible liabilities, or MREL, set by the Danish Financial Supervisory Authority. Such issuances will potentially reduce loss severity for junior depositors and senior unsecured creditors, the agency noted.

The regulator set the MREL targets for Sydbank and Jyske Bank at 27.3% and 28.1% of their risk exposure amount, or 12.4% and 12.7% of their total liabilities and own funds, respectively.