Nordic Credit Rating has affirmed its 'A-' long-term issuer rating on Norway-based savings bank JBF Sparebank. The outlook is stable. The 'N2' short-term issuer rating, 'A-' senior unsecured issue rating, 'BBB+' Tier 2 issue rating, and 'BBB-' Additional Tier 1 issue rating have also been affirmed.
Rating rationale
The affirmation reflects JBF Sparebank's low risk appetite, strong capital position, good access to funding, and high share of residential mortgage loans. The bank's cooperation agreement with the Eika Alliance banking association is beneficial, offering product diversity, shared development costs, and the opportunity to finance residential retail mortgages through the jointly owned covered-bond company Eika Boligkreditt. In our view, JBF Sparebank's cooperation with Eika Boligkreditt is critical, as the bank transfers about half of its retail lending to the company.
The bank benefits significantly from the implementation of the EU's Capital Requirements Regulations III (CRR3), given its portfolio of low loan-to-value residential mortgage loans. With modest growth expectations, we believe the Tier 1 ratio will remain above 25% through 2027, enhancing our view of capital. We have revised our earnings assessment due to improved net interest income and a long-term reduction in operating expenses following the implementation of a new IT platform. We expect JBF Sparebank to report robust earnings in the 2025–2027 period, despite pressure on net interest margins and commission income from Eika Boligkreditt due to peaking interest rates and increasing competition.
The rating is constrained by stiff competition and the bank's low market share. An additional constraint is JBF Sparebank's lack of scale, which curbs its ability to shoulder an increasing regulatory burden.
Stable outlook
The stable outlook reflects JBF Sparebank's strong capital and likely low credit losses due to a high share of residential real-estate collateral. It also factors in the bank's robust earnings and cost efficiency improvements in recent years, offset by a likely decline in net interest margins over the next few years. We forecast sustainable loan growth through 2027, with capital ratios improving and boosted further by the implementation of CRR3.
We could raise the rating to reflect the bank's strengthened market position and increased scale, combined with pre-provision earnings sustainably above 2.5% and a cost-to-income ratio sustainably below 45%.
We could lower the rating to reflect a material deterioration in the Norwegian housing market or weakened asset quality, a lasting reduction in the bank's Tier 1 capital ratio to below 18%, or risk-adjusted earnings metrics sustainably below 1.5% of the risk exposure amount.
| 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:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, chief rating officer, +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 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.