Standard & Poor’s has upgraded Swedbank and its covered bond issuing subsidiary Swedbank Mortgage, and SEB, following a review of its bank criteria.

The banks were upgraded from A to A+, on stable outlook, because of their “adequate business position, adequate capital and earnings, adequate risk position, average funding and adequate liquidity”.

“The Swedish banking sector banking sector benefits, in our view, from a favourable institutional framework, restrained risk appetite, and a high level of industry stability,” said S&P. “A relatively low degree of deposit funding and a relatively high degree of reliance on cross-border funding are mitigated by a deep domestic debt

SEB

capital market and the authorities’ capacity and propensity to provide support.”

The rating agency said that it views Swedbank’s and SEB’s funding as average. Swedbank relies heavily on the Swedish covered bond market, it added, and is expected to increase its share of covered bonds as it refinances more than Skr118bn (Eu13bn) in remaining state-guaranteed funding (a majority of which matures by March 2012).

S&P said that SEB is less reliant on wholesale funding than its larger Nordic peers, due in part to a smaller retail mortgage book and a high level of corporate deposits.

Swedbank and SEB have liquidity buffers of Skr467bn (Eu51.6bn) and Skr534bn (Eu59bn), respectively, as at September 2011, according to S&P, which considers the banks’ liquidity profile to be adequate.

It said that a positive rating action is currently unlikely, but noted that it could be triggered by higher capital ratios, combined with other changes.

Riksbank, Sweden’s central bank, together with the country’s financial supervisory authority, Finansinspektionen, and the Ministry of Finance on 25 November announced that Swedish banks will be required to hold more capital than the minimum levels stipulated in Basel III, although they said that the major Swedish banks are well capitalised and already close to meeting these requirements.