Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based Jæren Sparebank. The outlook is stable. At the same time NCR affirmed the 'N2' short-term rating. At the same time NCR affirmed its 'A-' issue ratings on Jæren Sparebank's senior unsecured bonds, affirmed its 'BBB+' issue ratings to its tier 2 bonds and affirmed its 'BBB-' issue ratings to its additional tier 1 bonds.
Rating rationale
The 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 development costs and the opportunity to finance residential retail mortgages through Eika Boligkreditt. We expect the bank's core earnings to improve for the full year 2023, due to higher interest rates leading to increased net interest margins, and believe improved cost efficiency will support earnings in the years ahead. We expect these improvements to offset an anticipated increase in loan losses due to a slowdown in the overall economy.
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.
We have raised our assessment of Jæren Sparebank's earnings due to stronger income generation and improved cost efficiency. We have also raised our assessment of loan performance due to lower expected losses through the cycle than earlier anticipated.
Stable outlook
The outlook is stable, reflecting our view that the weakening economic climate will be offset by improvements in capital and earnings metrics as interest rates have increased, 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 macroeconomic conditions with less uncertainty regarding credit risk, or to reflect improved capital and earnings, with a Tier 1 capital ratio sustainably above 25%.
We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects the bank's asset quality, a sustained reduction in the Tier 1 capital ratio to below 18%, or to reflect risk-adjusted earnings metrics sustainably below 2.0% of REA.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
| Tier 2 issue rating: | BBB+ | BBB+ |
| Additional Tier 1 issue rating: | BBB- | BBB- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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.