Nordic Credit Rating said today that it had assigned a 'A-' long-term issuer credit rating to Norway-based Askim & Spydeberg Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'A-' senior unsecured issue rating, a 'BBB+' Tier 2 issue rating, and a 'BBB-' additional Tier 1 issue rating.
Rating rationale
The long-term rating reflects Askim & Spydeberg Sparebank's strong capital position and profitability, low risk appetite, and ready access to funding. The bank has a cooperation agreement with the Lokalbank Alliance banking association, which we view as positive, as it provides product diversity, shared development costs, and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Verd Boligkreditt AS.
We expect Askim & Spydeberg Sparebank to maintain strong earnings over our forecast period through 2026, despite pressure on its net interest margins due to peaking interest rates and growing competition. We further believe that strong earnings will keep the bank's cost/income ratio well below 50%. We expect loss performance to improve in the course of the forecast period to levels similar to those of the bank's regional peers after extraordinary losses in recent years, thereby providing a more accurate representation of the loan book.
The rating is constrained by Askim & Spydeberg Sparebank's concentrated exposure to residential and commercial real estate and the construction sector in northern Østfold county and the district of Follo. Although the bank has a strong market share in its core operating region, the rating is further constrained by the presence of a number of strong competitors.
Stable outlook
The stable outlook reflects our view that core earnings will remain robust due to high interest rates and strong cost efficiency, offsetting moderate credit losses. We believe the bank's strong capital position and diverse funding profile will prove resilient to low economic activity. The outlook also reflects our expectation that the bank will continue to invest in risk governance, resulting in risk governance standards in line with those of its domestic savings bank peers.
We could raise the rating to reflect a consolidated Tier 1 ratio sustainably above 25%, pre-provision income to risk exposure amount (REA) sustainably above 3%, and a stronger market position in the district of Follo and northern Østfold county.
We could lower the rating to reflect a consolidated Tier 1 capital ratio below 20% over a protracted period, a material deterioration in the local operating environment that negatively affects asset quality, or risk-adjusted earnings metrics below 2% of REA for a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
| Tier 2 issue rating: | BBB+ |
| Additional Tier 1 issue rating: | BBB- |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.