Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer credit rating to Norway-based Haugesund Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'BBB+' senior unsecured issue rating, 'BBB' Tier 2 issue rating and a 'BB+' Tier 1 issue rating.
Rating rationale
The long-term rating reflects Haugesund Sparebank's modest risk appetite, strong capitalisation and earnings, and ready access to funding. The bank is in the process of switching from the DSS Alliance to the Eika Alliance, publicly listing its shares and merging with the smaller savings bank Tysnes Sparebank. We consider these events as both positive and as elevating uncertainty in the near to medium term. The bank benefits from diversification of business through its current cooperation with the DSS Alliance, which we believe it will maintain after switching to the Eika Alliance. This includes the opportunity to transfer mortgages to jointly owned covered-bond companies.
The rating is constrained by the bank's history of elevated loan losses and non-performing loans compared with Norwegian savings banks peers, and its concentrated exposure to real estate and the relatively rural local economy, both factors that also apply to Tysnes Sparebank. Both banks have a strong market position in their core markets, but Haugesund Sparebank faces competition in its larger markets with stronger growth prospects.
Our rating on Haugesund Sparebank is based on the current legal entity, prior to the merger with Tysnes Sparebank, and considers only public information on Tysnes Sparebank. The rating reflects what we consider the most likely scenario, which is that the legal merger will be approved by the Norwegian FSA and be completed by the end of 2024.
Stable outlook
The outlook reflects our expectation that the merger with Tysnes Sparebank will go through without any complications. It also reflects our view that a weakened domestic economy will be offset by strong earnings. While loan losses are expected to remain higher than those of peers, we do not expect a significant impact on capital generation.
We could raise the rating to reflect improved asset quality metrics, with net Stage 3 loans as a share of net loans at around 1% over a sustained period; a cost-to-income ratio below 45% and pre-provision income/risk exposure amount above 2.5% for a protracted period; or in response to a strengthened market position in the merged bank's markets.
We could lower the rating to reflect significant increases in loan losses or non-performing loans beyond our expectations; a Tier 1 ratio below 18% over a protracted period; or in response to a material deterioration in the local operating environment that negatively affects the bank's growth or profitability.
| 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
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 Group and Government Support Rating Methodology published on 14 Feb. 2024, NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024 and NCR's Rating Principles published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.