Nordic Credit Rating (NCR) has affirmed its 'A-' long-term issuer rating on Norway-based Kredittforeningen for Sparebanker (KfS). The outlook is stable. The 'N2' short-term issuer rating and 'A-' senior unsecured issue rating were also affirmed.
Rating rationale
The long-term issuer rating reflects KfS' strong capitalisation and low risk appetite. KfS is a non-profit credit institution serving Norwegian savings banks. It lends only to the relatively low-risk sector of Norwegian savings banks and has not experienced loan losses. The company is funded by senior bonds, largely matched in duration to its lending. It has no obligation to refinance these loans, and refinancing and pricing risk are consequently minimal.
Partially offsetting these strengths are KfS' historically low margins, which have, however, been boosted somewhat by interest rate increases in the past few years. KfS' loan concentrations are high and increasing, as its lending volumes have declined over the past decade. The high number of mergers among Norway's savings banks have also dampened KfS' competitive position during the same period. Since 2021, KfS has helped small domestic savings banks to access green funding, an initiative that has likely helped somewhat to mitigate the downtrend in lending volumes.
KfS continues to face regulatory uncertainty owing to the EU's capital requirements regulation (CRR3) and the European Banking Authority's views on Norwegian Equity Capital Certificates (ECCs) and KfS' membership contributions. The Norwegian Financial Supervisory Authority consequently notified KfS in 2024 that its current capital structure is not compliant with CRR3. KfS has suggested changing its capital structure to ensure compliancy with CRR3 and is also evaluating the relative benefits of restructuring to become a limited liability company. Under KfS' current structure, higher risk weights on its loans under CRR3 would require a larger share of membership contributions on loans. We believe that KfS will likely be able to adapt to the new regulations and protect its place in the Norwegian market, provided enough of the banks using its services continue to value it as a funding source.
Stable outlook
The stable outlook reflects the resilience and strong credit quality of the Norwegian savings bank sector and KfS' modest risk profile, which partially offsets the increased concentration in the loan book. We do not necessarily consider a change in capital or organisational structure to imply a change in risk profile. In our base case, we assume that most of the banks that actively lend through KfS will continue to value the resulting funding diversification and ability to access capital markets even in periods of strained market liquidity.
We could raise our rating on KfS to reflect a combination of two or more drivers, such as an improved market position, stronger capitalisation and/or higher earnings.
We could lower the rating to reflect increased lending concentration or a continued fall in business volumes. We could also lower the rating to reflect a lower credit quality of debtors, either due to idiosyncratic or economic stress, or a total capital ratio below 18%.
Related publications
i) Lower interest margin will lead to a drop in profitability for Norwegian savings banks, publ. 20 Jan. 2025
ii) Kredittforeningen for Sparebanker 'A-' long-term issuer rating affirmed; Outlook stable, publ. 8 Feb. 2024
| 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- |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@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.