Moody's Affirms Ziklo Bank's Ratings, Downgrades Outlook to Negative

Moody's Investors Service has affirmed all ratings and assessments of Ziklo Bank, a Swedish bank, despite changing the outlook on the long-term deposit and issuer ratings to negative from stable. This decision aligns with the negative outlook on part-owner Volvo Car AB, due to its challenging macroeconomic environment and potential impact on the bank's financing volumes, profitability, and ability to fund itself. The ratings action reflects the bank's strong asset quality, well-managed residual value risk, and conservative capital management policy.

Key Takeaways:

• Moody's has affirmed Ziklo Bank's A3/P-2 long- and short-term deposit and issuer ratings, baa2 Baseline Credit Assessment (BCA), and Adjusted BCA, A2/P-1 long- and short-term Counterparty Risk Ratings (CRR), and A2(cr)/P-1(cr) long- and short-term Counterparty Risk Assessments (CR Assessment).
• The change in outlook on the long-term deposit and issuer ratings to negative from stable is driven by Volvo Cars' negative outlook, which could lead to a spillover effect on Ziklo Bank's financing volumes, profitability, or ability to fund itself.
• Ziklo Bank's strong asset quality and well-managed residual value risk, supported by loan loss guarantees from Swedish Volvo dealers, contribute to its baa2 BCA and Adjusted BCA.
• The bank's conservative capital management policy, including modest dividends to its joint 50:50 owners, Volvo Cars and Swedish Volvo dealers, supports its strong capitalization, as demonstrated by a common equity tier 1 ratio of 24.5% as of March 2025.
• Ziklo Bank's reliance on market funding, primarily domestic senior unsecured funding, and its tightly managed liquidity are mitigated by its significant deposit franchise, primarily retail deposits covered under deposit guarantees.
• A deterioration in Volvo Cars' creditworthiness could lead to a downgrade of Ziklo Bank's ratings, particularly if it impacts the bank's financing volumes, the performance of Volvo dealers in Sweden, or its ability to fund itself in wholesale markets.

Statistics:

• Ziklo Bank's common equity tier 1 ratio: 24.5% as of March 2025
• Long- and short-term deposit and issuer ratings: A3/P-2
• Baseline Credit Assessment (BCA) and Adjusted BCA: baa2
• Long- and short-term Counterparty Risk Ratings (CRR): A2/P-1
• Long- and short-term Counterparty Risk Assessments (CR Assessment): A2(cr)/P-1(cr)
• Volvo Cars' rating: Ba1, negative

Sources:

• Moody's Investors Service: Moody's Affirms Ziklo Bank AB's Ratings, Downgrades Outlook to Negative
• Moody's Investors Service: Rating Methodologies, Banks, published in November 2024, available at https://ratings.moodys.com/rmc-documents/432741
• Volvo Car AB: Volvo Car AB, Ba1, negative rating (source not explicitly stated in the text)