Nordic Credit Rating (NCR) said today that it had assigned an 'A-' long-term issuer rating to Norway-based savings bank Jæren Sparebank. The outlook is stable. At the same time, an 'N2' short-term rating was assigned. NCR has also assigned 'A-' issue ratings to the bank's senior unsecured bonds, 'BBB+' issue ratings to its Tier 2 bond and 'BBB-' issue ratings to its additional Tier 1 bond.
Rating rationale
The 'A-' long-term issuer rating on Jæren Sparebank reflects the bank's strong capital position, low risk appetite and the favourable position in its local operating market. The bank has a cooperation agreement with the Eika alliance, which we view as positive, as it provides product diversity, shared IT costs and the opportunity to finance residential retail mortgages through Eika Boligkreditt. We expect the bank's core earnings to improve over the next few years, due to higher interest rates leading to increased net interest margins. We also expect costs to be stable over the next few years, with lower costs associated with the new IT system offsetting inflation in other areas. This results in improved earnings metrics in our projections, despite higher projected credit losses.
The rating is constrained by the bank's concentrated exposure to real estate and agriculture in the region of South Jæren in the county of Rogaland, on the west coast of Norway. Rogaland's key role in Norway's oil and gas production makes the region's economy more volatile than the national average, but has also created a strong economy with low unemployment.
Stable outlook
The stable outlook reflects our view that the weakening economic climate will be offset by improvements in capital and earnings metrics as interest rates increase, despite higher projected credit losses. We believe the bank's low risk appetite, strong liquidity position, improved earnings and stable cost position provide resilience to a moderate slowdown in the economy.
We could raise the rating to reflect improved capital and earnings, with a common equity Tier 1 (CET1) capital ratio sustainably above 22% and pre-provision income sustainably above 3.0% of the consolidated risk exposure amount (REA). We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects the bank's asset quality; or to reflect a sustained reduction in the CET1 capital ratio to below 18% and risk-adjusted earnings metrics sustainably below 2.0% of REA.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
| Tier 2 issue rating: | BBB+ |
| Additional Tier 1 issue rating: | BBB- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@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.