Nordic Credit Rating has revised the outlook on its 'BBB+' long-term issuer rating on Hegra Sparebank to positive from stable. The long-term rating, 'N2' short-term issuer rating, 'BBB+' senior unsecured issue rating, 'BBB' Tier 2 issue rating, and 'BB+' Additional Tier 1 issue rating have been affirmed.
Rating rationale
The outlook revision reflects our expectations that the planned merger with Selbu Sparebank, expected to complete in the second quarter of 2027, will improve Hegra Sparebank's scale and competitive position in Trøndelag. Moreover, we anticipate the merger to improve long-term cost efficiency, although merger-related costs are likely to weaken earnings in the near term. While the merged entity will have somewhat lower capital ratios, projected Tier 1 remains strong and above 24% through 2028, providing substantial loss-absorbing capacity.
We see Hegra Sparebank entering the merger process from a position of solid capitalisation, low risk appetite and strong earnings. The bank has demonstrated access to capital market funding and has limited single-name concentrations in both lending and deposits. Its substantial accounting firm contributes to greater business and revenue diversification compared to similarly sized savings banks. Membership in the Eika Alliance supports product diversity, shared development costs, and the ability to finance residential retail mortgage loans through the jointly owned covered-bond company Eika Boligkreditt AS. We expect the merged bank to remain in the Eika Alliance.
The rating is constrained by the standalone bank’s geographic concentration east of Trondheim and its high proportion of real estate collateral in core markets. It is also constrained by its current size and limited market share in a competitive operating region. We expect the merger to proceed without material complications, although note our limited visibility into Selbu Sparebank's loan book at this stage.
Positive outlook
The positive outlook reflects our expectation that the merger with Selbu Sparebank will be completed in the second quarter of 2027 and strengthen the bank's geographic footprint and market share in Trøndelag County. We expect asset quality and risk appetite to remain broadly unchanged. Despite near-term integration costs, we expect increased scale to support long-term efficiency improvements. While the merger is expected to reduce capital ratios somewhat, we expect these ratios to remain strong compared to peers and continue to provide substantial loss-absorbing capacity.
We could raise the rating to reflect a successful completion of the merger process without significant complications, and with asset quality metrics improving in line with forecast.
We could revise the outlook to stable to reflect a material weakening in asset quality metrics, with share of net Stage 3 loans materially above peers, or increased risk appetite, resulting in a consolidated Tier 1 ratio below 22%. We could also revise the outlook to reflect weakened long-term earnings expectations, with pre-provision income to risk exposure amount below 2.5%.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Positive | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
| Tier 2 issue rating: | BBB | BBB |
| Additional Tier 1 issue rating: | BB+ | BB+ |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@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 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.