Nordic Credit Rating (NCR) has revised the outlook on its 'A-' long-term issuer rating on Norway-based savings banks lender Kredittforeningen for Sparebanker (KfS) to negative from stable. The long-term rating, 'N2' short-term issuer rating and 'A-' senior unsecured issue rating have been affirmed in accordance with our revised financial institutions rating methodology. The ratings are no longer under criteria review.
Rating rationale
The outlook revision reflects the uncertainty surrounding KfS' recent decision to transition to a limited liability company (aksjeselskap). KfS announced its decision on 9 May 2025 following extensive discussions with the European Bank Authority and Norwegian Financial Supervisory Authority regarding its capital structure (see Related publications (i)). We note that member representatives will ultimately decide whether KfS can proceed with this plan, with a meeting scheduled for June.
KfS extends loans to Norwegian savings banks, financed through bond issuance. It serves as an important funding source for smaller banks and provides access to green financing. Mid-sized Norwegian savings banks also use KfS for funding diversification, although to a diminishing extent. The number of banks that borrow from KfS has decreased to 34 as of first-quarter 2025 from 65 in 2011. We believe this decline has changed the characteristics of KfS' loan book, with an increased share of loans to smaller, more geographically concentrated and relatively higher risk savings banks. While we view the Norwegian savings banks sector as robust, smaller banks are geographically concentrated and face rapidly increasing demands on IT, risk governance and risk resources, which has contributed to increasing consolidation in recent years. We have revised our assessment of KfS' credit and market risk to reflect this higher concentration in the loan book.
We believe KfS' transition to a limited liability company may accelerate its shift towards mostly serving smaller banks, since mid-sized banks with limited practical use for KfS funding are likely to opt out. Given KfS' not-for-profit structure, we expect the benefits of holding KfS shares to be limited, aside from providing access to funding. We understand that KfS aims to be owned only by banks that it has provided with loans, and that it may buy out other banks if needed. We also note that in the longer term, the banks that remain as owners may be acquired by larger banks, or merge to a size where utilising KfS is less relevant. We do however believe that, following a successful capital transition, KfS may be in a more stable position, albeit potentially with higher concentrations and a higher risk profile in the loan book.
The long-term issuer rating continues to reflect KfS' strong capitalisation and low risk appetite. It also reflects KfS' history of no loan losses and largely matched funding duration. Partly offsetting these strengths are KfS' historically low margins, which have improved somewhat due to higher interest rates in the past few years.
Negative outlook
The negative outlook reflects our belief that KfS' increasing loan concentration is likely to persist and could accelerate with the transition to a limited liability company. It also reflects uncertainty regarding KfS' future capitalisation. On the upside, we expect that both KfS' financial performance and the overall Norwegian savings bank sector will remain stable in the coming years.
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, or if the current total capital ratio or post-transition Tier 1 ratio falls below 20% over a sustained period.
We could revise the outlook to stable to reflect a post-transition Tier 1 ratio above 20%, along with sustained business volumes and lending concentrations, and maintained customer creditworthiness.
Related publications
i) Kredittforeningen for Sparebanker 'A-' long-term issuer rating affirmed; Outlook stable, 31 Jan. 2025
ii) Lower interest margin will lead to a drop in profitability for Norwegian savings banks, 20 Jan. 2025
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Negative | 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
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 12 May 2025, 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.