Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer credit rating to Norway-based Lillesands Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'BBB+' senior unsecured issue rating.
Rating rationale
The long-term issuer rating reflects the bank's moderate risk appetite, stable earnings and improving capital position. The bank has proven access to capital market financing and few single-name deposit concentrations. We take a positive view of the bank's membership in the Lokalbanksamarbeidet banking cooperative, which enables product diversity, shared development costs and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Verd Boligkreditt AS. The bank has a strong market position in its traditional core market of Lillesand.
We expect Lillesands Sparebank to maintain stable earnings over our forecast period throughout 2026. We also expect credit losses will remain slightly elevated given the continued effects of recent cost inflation and high interest rates, although we believe they will remain below the average of peers.
The rating is constrained by geographic and single name concentrations in Lillesand and a high proportion of real-estate collateral in the bank's core market. The rating is also constrained by a weak market position outside Lillesand municipality and relatively weaker earnings metrics compared to peers.
Stable outlook
The stable outlook reflects our view that a weak economic climate and projected credit losses will be offset by improvements in capital and stable earnings metrics. We believe the bank's moderate risk appetite, strong real-estate collateral and stable cost position will enable resilience to a moderate slowdown in the economy. We expect Lillesands Sparebank's capital ratios will be further boosted by the prospective positive impact of implementing the EU's Capital Requirements Regulations III (CRR3).
An upgrade is unlikely at this time, given the bank's restricted competitive position with regional and sectoral concentrations.
We could lower the rating to reflect a deterioration in the local operating environment or weaker asset quality, increased reliance on bond market financing. We could also lower the rating to reflect pre-provision income to risk exposure amount below 1.5% or cost/income above 60% for a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | 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.