Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer rating to Norway-based Grue Sparebank. The outlook is stable. An 'N2' short-term rating was also assigned, together with a 'BBB+' senior unsecured issue rating, a 'BBB' Tier 2 issue rating, and a 'BB+' Additional Tier 1 issue rating.
Rating rationale
The long-term issuer rating reflects Grue Sparebank's low risk appetite and strong capital position. Despite total assets of only NOK 4.6bn, the bank has proven access to capital market financing and few concentrations in its mostly retail deposit base. The bank's ownership and cooperation with the Eika Alliance banking association ensures product diversity, shared development costs and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Eika Boligkreditt AS.
We expect Grue Sparebank to maintain some of its recently improved earnings over our forecast period through 2026, despite margin pressure as it pursues growth outside its historical core markets. We expect credit losses to remain modest, given the bank's high proportion of retail lending despite the continued effects of recent cost inflation and high interest rates.
The rating is constrained by geographic concentration of the loan book in the south-eastern municipalities of Innlandet county, and a high level of real-estate and agricultural collateral in the region. The bank has a strong market share in its core markets, but faces strong competition from regional and local peers as it targets growth in the southern Østerdal and Hedmark regions near Hamar and invests to expand its branch in Elverum.
Stable outlook
The stable outlook reflects our view that the bank's low risk appetite will limit credit losses and compensate for a weakened regional economy. Our forecast suggests Grue Sparebank's cost efficiency will weaken over the next few years as the bank invests in personnel to support its growth objectives. We expect to see improvements in capital ratios, partly due to the positive impact of implementing the EU's Capital Requirements Regulations III. This should enable higher loan growth, allowing the bank to meet its goal of doubling its currently modest level of corporate lending.
We could raise the rating to reflect pre-provision income to risk exposure amount sustainably above 3% and cost to income below 45%, increased scale and improved market position in growth markets without a material increase in risk appetite, or a consolidated Tier 1 capital ratio above 25% over a protracted period.
We could lower the rating to reflect a consolidated Tier 1 capital ratio below 18% over a protracted period, a material deterioration in the local operating environment or increased risk appetite, or risk-adjusted earnings metrics below 1.5% over a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | BBB+ |
| Tier 2 issue rating: | BBB |
| Additional Tier 1 issue rating: | BB+ |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.