Landshypotek Bank changes its exposure classes
Landshypotek Bank has decided to change its exposure classes and intends to apply for a permission to use an internal ratings based (IRB) approach for exposures to corporates. This is to better reflect the market developments for lending to land and forestry customers, and new regulations. The change means that Landshypotek Bank’s regulatory capital requirement increases. Landshypotek Bank will turn to the capital market in order to further strengthen its capital base with Tier 2 capital. Landshypotek Bank has entered into a dialogue with its credit rating agencies.
Landshypotek Bank’s land and forestry mortgage customers are changing. As a result of structural developments some farmers now conduct their business in larger enterprises. The diversification between farmers living on the farm, local small enterprises and large enterprises which compete with products on the world market increases. These developments have occurred gradually and the bank believes that they will continue.
In light of the structural developments, regulatory changes and following a dialogue with the Swedish Financial Supervisory Authority, the bank has decided to change its customer classification. Swedish farmers conducting businesses as sole traders but with large enterprises will be reclassified and treated as corporates (rather than retail customers) from a regulatory capital perspective. This change means that Landshypotek Bank will be subject to an increased regulatory capital requirement. The bank’s preliminary evaluation of how the capital requirement will be affected is as follows: the total capital ratio (Basel 3) of 26.1 % as per 31 December 2015 before the reclassification would preliminarily have been 17.2 % after the reclassification, and the leverage ratio of 5.4 % as per 31 December 2015 would have been 5.0 % after the reclassification. The bank intends to apply for a permission to use an internal ratings based (IRB) approach for these corporate exposures. The bank already uses an IRB approach for retail exposures.
Landshypotek Bank will turn to the capital market to raise further Tier 2 capital, to supplement the bank’s very high share of Common Equity Tier 1 capital. The bank’s capital position is currently sound. However, in the bank’s capital planning the Board of Directors deems that further Tier 2 capital is required for a continued strong capital situation and to safeguard the bank’s continued strategic development.
Landshypotek Bank has entered into a dialogue with the bank’s credit rating agencies about whether the changes to the exposure classes can affect the bank’s rating.
The information provided in this press release is such that Landshypotek Bank AB (publ) is required to disclose pursuant to the Swedish Securities Markets Act (2007:528) and the Disclosure Rules and Transparency Rules of the UK Financial Conduct Authority. The information was submitted for publication on 29 March 2016 at 19:00 CET.