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Swedbank to Lift Capital Ratio as Sweden Approves IRB Approach

Swedbank AB is set to overtake Svenska Handelsbanken AB as Europe’s best capitalized major lender after getting approval to use an advanced internal ratings-based approach for corporate loans in Sweden.

The ruling by the Swedish financial regulator, which also applies to Swedbank’s corporate lending in Norway, will reduce the bank’s risk-exposure amount by almost 70 billion kronor ($10.5 billion), the Stockholm-based bank said in a statement today. The amount, which Swedbank said is “a bit more than previously estimated,” will lead to an increase in its common equity Tier 1 ratio of about 3.4 percentage points.

That would lift Swedbank’s common equity Tier 1 ratio to 21.7 percent from the 18.3 percent ratio reported at the end of March under Basel III rules. Handelsbanken, which previously had the highest ratio among major banks in Europe, reported a ratio of 19.5 percent at the end of the first quarter.

Shares in Swedbank advanced as much as 3.2 percent, their steepest intraday trade since Oct. 22. The stock rose 3.1 percent to 182.1 kronor as of 9:24 a.m. in Stockholm, with trading volume at 32 percent of the daily average in the past three months. The bank was the biggest gainer in the 43-member Bloomberg index of European financial stocks, which rose 0.2 percent.

When the Swedish Financial Supervisory Authority raised capital standards for banks earlier this year, Swedbank was alone among the country’s four biggest lenders to fall short of its 19.3 percent common equity Tier 1 requirement. After the regulator set the counter-cyclical buffer at 1 percent on May 21, rather than the 1.5 percent used in earlier buffer calculations, Swedbank’s requirement dropped to 19 percent.

The decision by the Swedish watchdog on Swedbank’s corporate loan book in Sweden and Norway follows an approval for Nordea Bank AB in January to use the same advanced internal ratings-based approach for its Nordic corporate exposures.

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