Nordic Credit Rating (NCR) has raised its long-term issuer rating on Norway-based Flekkefjord Sparebank to 'A-' from 'BBB+'. The outlook is stable. The 'N2' short-term issuer rating has also been raised to 'N2' from 'N3'. The senior unsecured issue rating has been raised to 'A-', the Tier 2 instrument rating has been raised to 'BBB+' and the additional Tier 1 instrument rating has been raised to 'BBB-'.
Rating rationale
The rating action reflects Flekkefjord Sparebank's improved asset quality, diversified funding, solid risk governance, and expanding operating markets. Asset quality strengthened over the past year, leading us to revise our assessment of loss performance. Net Stage 3 loans declined to 0.5% as of 30 Jun. 2026, from 1.1% a year earlier. Supported by a predominantly residential mortgage portfolio and strong underwriting standards, we expect non-performing loans to remain below 1% and annual loan losses to average around 9bps through 2028. We have also revised our assessment of funding and liquidity to reflect solid deposit growth and strengthened liquidity buffers, which accounted for 22% of deposits as of 30 Jun. 2026. We expect the loan-to-deposit ratio to remain around 120% through 2028.
Moreover, we have revised our assessment of the bank's risk governance to reflect that its solid risk governance framework and credit practices outweigh our previous concerns associated with rapid asset growth. The bank has also expanded into markets with stronger economic growth prospects, including Kristiansand, leading us to revise our assessment of regional factors. However, although earnings remain solid, we have revised our assessment to reflect lower projected cost efficiency and risk-adjusted earnings.
The 'A-' long-term issuer rating reflects the bank's strong position in its traditional markets and the benefits of its membership in Lokalbanksamarbeidet. The cooperation broadens the bank's product offering, shares development and risk management costs, and provides access to residential mortgage financing through Verd Boligkreditt. The rating also reflects solid capital ratios despite pressure from strong loan growth. The consolidated Tier 1 ratio was 19.4% (excluding year-to-date profits) as of 30 Jun. 2026, only marginally above its regulatory target of 19.1% (including management buffer). We expect loan growth to moderate from 2027, and the bank retains flexibility to raise regulatory capital through the issuance of capital instruments. We expect this to help maintain capital buffers above regulatory requirements.
The rating is constrained by geographic concentration in the relatively rural local economy of south-west Norway and a high proportion of real estate collateral in the bank's core markets. It is also limited by the bank's strong growth since 2023, although we expect this to moderate gradually.
Stable outlook
The stable outlook reflects Flekkefjord Sparebank's recent strengthening of resources and improved risk governance processes, as well as projections of reduced lending growth. It also reflects improved asset quality metrics over the past year, which are expected to remain strong. The outlook further incorporates our projections that Flekkefjord Sparebank will maintain some buffers above regulatory capital targets through 2028. We expect the bank to sustain solid earnings metrics despite weaker margins, supported by lending growth, strong performance in other income streams, and limited need for additional staff resources.
An upgrade is unlikely at this time, given the bank's moderate risk appetite and already strong market position in its current operating environment.
We could lower the rating to reflect growth materially outpacing capital generation, resulting in a Tier 1 ratio below 19% over a protracted period, increased competition that weakens profitability and the bank's market position, or a deterioration in the local operating environment or negative development in the bank's asset quality.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | BBB+ |
| Outlook: | Stable | Positive |
| Short-term issuer credit rating: | N2 | N3 |
| Senior unsecured issue rating: | A- | BBB+ |
| Tier 2 issue rating: | BBB+ | BBB |
| Additional Tier 1 issue rating: | BBB- | BB+ |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 12 May 2025, 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.