Nordic Credit Rating said today that it had assigned a 'A-' long-term issuer rating to Norway-based JBF Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, as were a 'A-' senior unsecured issue rating, a 'BBB+' Tier 2 issue rating, and a 'BBB-' additional Tier 1 issue rating.
Rating rationale
The long-term issuer rating reflects JBF Sparebank's low risk appetite, strong capital position, good access to funding, and low-risk loan portfolio. The bank has a cooperation agreement with the Eika Alliance banking association, which we view as positive, as it provides product diversity, shared development costs and the opportunity to finance residential retail mortgages through jointly owned covered-bond company Eika Boligkreditt AS. We view the bank's cooperation with Eika Boligkreditt as critical, as about half of all retail lending is transferred.
We expect JBF Sparebank to report strong earnings in the 2024–2026 period, despite pressure on net interest margins and commission income from Eika Boligkreditt due to peaking interest rates and increasing competition. We also expect improved cost efficiency to support earnings. Strong pre-provision profit should help to offset any increase in late-cycle loan losses.
The rating is constrained by strong competition and low market share in all operating regions. It is also constrained by JBF Sparebank's concentrated exposure to real estate and lack of scale, which affects the bank's ability to shoulder an increasing regulatory burden.
Stable outlook
The stable outlook reflects our view that Norway's weakening economic climate will not result in a material increase in loan losses for the bank. It also reflects strong capital and earnings metrics due to high interest rates and cost efficiency improvements. We believe the bank's low risk appetite, strong liquidity position, improved earnings, and stable cost position will prove resilient to a moderate slowdown in the economy.
We could raise the rating to reflect improved capital and earnings (Tier 1 capital sustainably above 22%), improved earnings (pre-provision earnings sustainably above 2.5% and cost to income sustainably below 45%), and an improved market position.
We could lower the rating to reflect a material deterioration in the Norwegian housing market that negatively affects asset quality, a lasting reduction in the Tier 1 capital ratio to below 18%, or risk-adjusted earnings metrics sustainably below 1.5% of risk exposure amount.
| 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:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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 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.