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TEXT-S&P rates Danish Mortgage Bank BRFkredit ‘A-/A-2’; otlk stable

— BRFkredit is the fourth-largest mortgage bank in Denmark.— We believe BRFkredit benefits from a stable business model, sound funding position, adequate capitalization, and strong earnings quality.— BRFkredit ratings are constrained by concentration risks and low earnings diversification.— We are assigning our ‘A-/A-2’ long- and short-term ratings to BRFkredit A/S.— The stable outlook reflects our expectation that the bank will successfully execute its strategy to decrease real estate development exposure while maintaining current capital levels and improving earnings.Standard & Poor’s Ratings Services said today that it had assigned its ‘A-’ long-term and ‘A-2’ short-term counterparty credit ratings to BRFkredit A/S, a Danish mortgage bank headquartered in Copenhagen. The outlook is stable.The ratings reflect BRFkredit’s stable market position in the Danish mortgage market, its adequate capitalization, strong earnings quality, and sound funding profile based on the domestic covered bond market.The ratings are constrained by the company’s concentration on the Danish property market, which limits earnings diversification and increases risks to asset quality. In addition, the Danish mortgage market’s low margin characteristics offer only limited preprovision earnings to absorb outsize credit impairments, as could be seen by BRFkredit’s losses in 2008-2010.BRFkredit is Denmark’s fourth-largest mortgage bank and the fourth-largest financial services group by assets. It also has a small banking subsidiary, BRFkredit Bank A/S (not rated), which provides complimentary retail banking services. The stable outlook reflects our expectation that management will execute its revised strategy with increased focus on lower-risk segments within the Danish real estate market. Furthermore, the outlook incorporates the expectation that this can be accomplished in such a way that capitalization is not weakened and that retained earnings remain sufficient to capitalize additional loan growth. We expect capitalization to remain adequate at about 10% before adjustments based on Standard & Poor’s RAC framework.A downgrade could be triggered by a material weakening of the economic conditions in Denmark leading to higher unemployment and falling property prices, which in turn materially impacts earnings and risk cost for BRFkredit. A substantial fall in capitalization could also lead us to downgrade BRFkredit.An upgrade is unlikely at this stage, but would require material strengthening of the group’s business position without an increase in the risk position or a weakening of capitalization.RELATED CRITERIA AND RESEARCHAll articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.Related criteria— Bank Rating Analysis Methodology Profile, March 18, 2004— Criteria | Financial Institutions | Banks: Bank Capital Methodology And Assumptions, Dec. 6, 2010— Franchise Stability, Confidence Sensitivity, And The Treatment Of Hybrid Securities In A Downturn, Dec. 1, 2008 Related research— Growth, Normalized Interest Rates, And Receding Losses Drive Nordic Banks’ Return From The Crisis, Feb. 24, 2011