Analyst Note| Niklas Kammer, CFA |
Svenska Handelsbanken passed the 2021 European Central Bank stress test with flying colors. Our thesis on Handelsbanken has long been that the bank is a superior underwriter following a bottom-up credit risk approach, which has kept credit losses well below peers' over the past decades. Additionally, Handelsbanken is very well capitalized. It therefore comes as no surprise to us that Handelsbanken performed well in this exercise. In the adverse scenario, its common equity Tier 1 ratio fell to 16.2% at its lowest point over a three-year stress horizon from a starting point of 20.3% at the end of 2020. This is well ahead of its minimum requirement including buffers of 11.1%. This 5.1% spread above requirements would have even covered any additional countercyclical buffer (around 2%), which was not considered during this stress test. Risk-weighted assets inflated 8.7% during the stress, while 13% of Handelsbanken’s capital base was consumed by credit losses and lower net interest income. We maintain our fair value estimate of SEK 108 per share and narrow moat rating.