Moody's: Largest lenders to Nordic local governments face limited credit risks

The four Nordic specialist lenders KommuneKredit (Aaa), Kommuninvest i Sverige Aktiebolag (Aaa), Kommunalbanken AS (Aaa), and Municipality Finance Plc (Aa1) benefit from strong ties to their sovereigns and low credit risk, says Moody's Investors Service in a report published today.

The four institutions rank as the largest lenders to regional and local governments (RLGs) and related entities in their respective countries. Their dominant position reflects their not-for-profit status, which allows them to lend more cheaply than commercial banks.

The report, "KommuneKredit, Municipality Finance Plc, Kommunalbanken AS, Kommuninvest FAQ: Nordic specialist lenders' sovereign ties and low credit risk support their credit profile," is now available on www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"All four of the lenders are large and frequent issuers in the debt capital markets, and play an important role on ensuring the well-functioning of the local RLG sector which provides a wide array of public services" said Effie Tsotsani, an AVP and Analyst at Moody's.

The lenders are well capitalised and benefit from stable, albeit low, profitability due to their not-for-profit mandate and low risk business activities. Consequently, they have exceptional asset quality metrics with zero problem loans.

Their RLG borrowers pose limited risk, as they engage in low risk activities, are closely supervised by their central governments, and would likely receive central government support if they experienced financial difficulties.

Moody's report answers frequently-asked questions, including on the role and business model of these specialist lenders, their ownership structure and the relationship that exists between them and their central governments.

"The debt issued by most of the lenders is explicitly guaranteed by the RLGs they lend to" said Ms Tsotsani, "Ultimately, we would also expect central governments to support the RLG lenders if required, even though their commitment to do so is less explicit and direct than their commitment to support the RLGs."

While there is no explicit commitment from the Nordic central governments to support their specialist lenders in the case of stress, the lenders do benefit indirectly from the Nordic central governments' strong links with their RLG lenders.