Mortgage Society of Finland (The)

The stable outlook reflects our view that Hypo's creditworthiness will remain resilient over the next two years, supported by the bank's conservative underwriting standards, high and stable asset quality, and very strong capitalization. It also reflects our view that noteworthy changes to the bank's capital management are unlikely over the next two years. We could lower the rating on Hypo in the next 12-24 months if it unexpectedly changes its current conservative lending policies or it fails to maintain its very strong capital, for example via more ambitious business growth without corresponding earnings improvements. We could raise the rating if the bank's funding profile improves, demonstrated by a more diversified funding mix and funding metrics in line with domestic peers.

...We expect The Mortgage Society of Finland (Hypo) will continue to demonstrate superior asset quality and an exceptional loan-loss track record despite a muted macroeconomic landscape. Hypo continues to show robust asset quality in its solely residential real estate loan portfolio, with a nonperforming loan (NPL) ratio of 0.14% and marginal credit losses of 1 basis point as of June 30, 2023. This is thanks to Hypo's conservative and selective underwriting standards and sole focus on residential mortgage lending in growing urban regions in Finland. We do not expect the company to compromise its prudential approach, nor do we foresee NPLs materially increasing in the next two years. Hypo has a solid capital position, but we remain aware of its modest earnings capacity. Its capital position is such that it could withstand potential shocks, with projected RAC of 18%-19% through 2024 and a RAC ratio of 18.1% as of June 30, 2023. After muted growth--stemming from its decision to focus resources...

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