Nordic Credit Rating (NCR) said today that it had assigned a 'BBB' long-term and 'N3' short-term issuer rating to Norway-based mortgage company Eiendomskreditt AS. The outlook is stable. At the same time we assigned a 'AAA' issue rating to the company's covered bonds and a 'BBB' issue rating to its senior unsecured debt instruments. We also assigned 'BB+' issue ratings to its Tier 2 capital instruments and 'BB-' issue ratings to its additional Tier 1 capital instruments.
Rating Rationale
The issuer rating reflects the operating environment for Norwegian commercial real estate, as well as Eiendomskreditt's robust capitalisation and earnings, and very low historical and projected credit losses. It also reflects weaknesses due to the concentration of the company's loan portfolio, its modest market position, and its concentrated funding profile.
The covered bond rating is based on the issuer rating and the company's role as a commercial real estate lender and partner for small and mid-sized Norwegian banks. It is further supported by our view that the underlying cover pool would provide 'AAA' level support for bondholders in the unlikely event that the pool became a standalone entity.
Stable outlook
The stable outlook on the issuer rating reflects our view that Eiendomskreditt's selective underwriting and low loan-to-value profile will prevent a material decline in credit quality. We expect loan-to-value levels to rise in the next few years and that non-performing loans and credit losses are likely to increase due to rising yields in the commercial real estate market. We also believe that Eiendomskreditt's continued access to capital market financing will allow it to continue to support its partner banks' demand for commercial real estate financing.
We could raise the rating to reflect improved capital and earnings (common equity Tier 1 sustainably above 22% and pre-provision income sustainably above 3.0% of risk exposure amount), combined with increased size and diversification of the loan book.
We could lower the rating to reflect a material deterioration in the operating environment that negatively affects the company's asset quality, a sustained reduction in common equity Tier 1 to below 15%, or pre-provision income sustainably below 1.5% of risk exposure amount.
Given the stable outlook on the issuer rating, we also expect the covered bond rating to remain stable.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Covered bond issue rating: | AAA |
| Senior unsecured issue rating: | BBB |
| Tier 2 issue rating: | BB+ |
| Additional Tier 1 issue rating: | BB- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.
NCR - Eiendomskreditt_AS - Full Rating Report 23 Feb. 2023.pdf (678.58 KB) NCR - Eiendomskreditt_AS - Rating Action Report 23 Feb. 2023.pdf (141.43 KB) Eiendomskreditt AS BBB Stable Financial N3 Off On Off