Fitch has upgraded Swedbank from A to A+ because the issuer can better absorb moderate shocks after strengthening its capitalisation and reducing its risk profile due to strong risk management.

The rating agency upgrade Swedbank’s long term issuer default rating (IDR) from A to A+ and its Viability Rating (VR) from a to a+.

Fitch said that the bank’s ability to absorb moderate shocks has improved, driven by strengthened capitalisation and a reduced risk profile resulting from strong risk management implemented by new management with a focus on risk-returns rather than volume growth.

“Swedbank’s ability to absorb moderate shocks is supported by its resilient revenue generation and normalising loan impairment charges since 2011,” said the rating agency, noting that a significant inflow of impaired loans since 2008, predominately from the bank’s Baltic portfolios, has reduced, and that the work-out of problem assets is well under way.

A stable outlook on the long term IDR reflects Fitch’s expectation that Swedbank will retain its focus on strong capital and liquidity, while not increasing risk in the business. The potential for an upgrade is limited given the bank’s already high ratings and reliance on wholesale investors for structural funding, it added.

The latter makes Swedbank sensitive to prolonged dislocations in funding markets, as was experienced at the height of the crisis, according to Fitch, adding that the bank has extended its funding maturity profile, large liquidity reserve, and its focus on liquidity stress testing.