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S&P Global Ratings has raised its long-term issuer credit rating on Saxo Bank A/S (Saxo) to 'A-' from 'BBB'. Saxo Bank received a BBB rating with a positive outlook from S&P Global Ratings, the bank’s first-ever rating report, in April 2023. The outlook is stable. S&P also assigned its 'A' long-term resolution counterparty rating to the bank.
According to S&P, "Saxo Bank A/S (Saxo) has started to expand its subordinated debt buffers materially to meet its minimum requirement for own funds and eligible liabilities (MREL) as a systemically important Danish bank. Combined with a supportive preferred resolution strategy, we expect the bank will build a substantial additional loss-absorbing capacity (ALAC) buffer that will provide default protection for senior preferred liabilities."
The rating agency also noted, "The stable outlook reflects our view that Saxo will continue to maintain solid operating profitability, robust capitalization, and an effective risk management."
S&P believes that Saxo's resolution strategy aligns with its position as a systemically important bank in Denmark. The Danish Financial Supervisory Authority's (FSA's) resolution plan indicates that Saxo would be subject to an open bank bail-in process in the unlikely event of failure.
The substantial buffer of bail-in-able debt instruments is expected to provide extra default protection to senior preferred creditors. Saxo faces a linear phase-in of its MREL, set at 21.1% of regulatory risk-weighted assets (RWA) for year-end 2024, increasing to 28.8% by year-end 2028.
S&P highlighted Saxo's continued strong performance and robust capitalization, with an estimated risk-adjusted capital (RAC) ratio of 19.3% at year-end 2023. The rating agency assumes modest income growth and an increase in RWAs in its base case.
The bank is currently addressing some risk management deficiencies identified by the Danish FSA's recent anti-money laundering investigation. S&P will monitor Saxo's remediation efforts and its broader risk management appetite and framework.
S&P assigned its 'A' long-term resolution counterparty ratings to Saxo, one notch above the issuer credit rating, due to Denmark's resolution regime that protects a subset of liabilities from default through statutory exclusion from bail-in.
The stable outlook reflects S&P's expectation that Saxo will continue to expand its platform sustainably, maintain a RAC ratio above 15%, and keep its ALAC ratio well above 8% of S&P Global Ratings' RWAs.
In June 2023, Saxo Bank announced its official designation as a Systemically Important Financial Institution (SIFI) by the Danish Financial Supervisory Authority (FSA)
