Nordic Credit Rating has affirmed its 'A-' long-term issuer rating on Norway-based Melhus Sparebank (Melhusbanken). The outlook is stable. The 'N2' short-term rating, 'A-' senior unsecured issue rating, 'BBB+' Tier 2 issue rating, and 'BBB-' Tier 1 issue rating have also been affirmed, in accordance with NCR's revised financial institutions rating methodology. The ratings are no longer under criteria review.
Rating rationale
The long-term issuer rating reflects Melhusbanken's robust capital position, low risk appetite, and strong earnings. The bank has a cooperation agreement with the Eika banking alliance, which we view as positive, as it provides product diversity, shared development costs, and the opportunity to finance residential retail mortgages through mortgage company Eika Boligkreditt. We expect strong cost efficiency to support the bank's core earnings despite a likely decline in net interest margins and somewhat elevated loan losses over the next few years.
The rating is constrained by the bank's concentrated exposure to real estate in the municipalities of Melhus and Trondheim in central Norway. We have revised our assessment of risk governance to reflect the bank’s higher level of high-risk loans than peers. Additional constraints include strong competition in its core market and a low market share in the larger municipality of Trondheim.
Stable outlook
The outlook is stable, reflecting our view that the bank's strong earnings metrics and solid capitalisation will offset elevated late-cycle credit losses. We also believe the bank's low risk appetite and robust real estate collateral to support its resilience to a moderate economic slowdown. In addition, we expect that the real estate market in the bank's core area will benefit from lower interest rates.
We could raise the rating to reflect a consolidated Tier 1 ratio sustainably above 25%, pre-provision income to risk exposure amount sustainably above 3%, and reduced uncertainty about credit risk together with improved asset quality metrics.
We could lower the rating to reflect a lack of improvement in credit quality, a lasting reduction in the Tier 1 capital ratio to below 20%, or risk-adjusted earnings metrics below 2% of risk exposure amount or cost/income above 50% over a protracted period.
| 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:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.