Today Nordic Credit Rating (NCR) affirmed its 'BBB+' long-term issuer rating and 'N-1+' short-term rating on Sparbanken Västra Mälardalen (SBVM). The outlook on the ratings remains stable. Our rating on SBVM reflects the bank's very strong capitalisation and local regional focus in and around Köping, Kungsör and Arboga in central Sweden. The bank has a cooperation arrangement with Swedbank AB (publ) ("Swedbank"), which we view as significant as it supports earnings, market position, the product offering, funding and liquidity.
"The bank has made progress on cost efficiency and risk governance, improving its core earnings metrics towards its Nordic savings bank peers over our two-year forecast," said Sean Cotten, primary analyst for SBVM. "We expect the bank to receive a 50% dividend from Swedbank in 2020 but note that there are downside risks associated with the dividend and economic growth in the bank's local market."
We have made two adjustments in our scoring of rating subfactors. First, our view of the bank's risk governance has been improved to 'bbb+' from 'bbb', reflecting improvements in the bank's risk governance area, in part due to its on-staff risk management and anti-money laundering personnel as well as to reflect lower risk appetite in the bank's fixed income investment portfolio. In addition, while the bank's core earnings metrics and cost efficiency are improving, our revised earnings assessment to 'bbb+' from 'a-' reflects uncertainty in dividend income from Swedbank as well as our view that SBVM's earnings metrics are somewhat weaker than those of its Nordic savings bank peers when adjusted for its dividend earnings and volatility from trading results.
Stable outlook
Our stable outlook for SBVM reflects expectations of population and economic growth in the region and the bank's modest risk appetite. We expect the bank to maintain a very strong balance sheet and prudent underwriting and retain its access to and relationship with Swedbank. We expect that the bank's ownership of Swedbank shares could reduce earnings but are unlikely to affect capitalisation.
Positive rating drivers
• Reduced downside risks in local economy.
• Improved core earnings performance.
• Reduced reliance on income from shareholdings and fixed income investments.
Negative rating drivers
• Material changes in the region, affecting economic activity and employment.
• Swedbank-related issues impacting SBVM's capitalisation or cooperation with Swedbank.
• Lower asset quality metrics and higher credit losses.
Our full analysis of Sparbanken Västra Mälardalen is available at:
https://nordiccreditrating.com/issuer/sparbanken-vastra-malardalen
Analyst contact details:
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology and Rating Principles, published on 16 Sept 2019. For the full regulatory disclaimer please see the rating report which can be downloaded at nordiccreditrating.com/ratings-research/research.
NCR - Sparbanken_Vastra_Malardalen - Rating Update 18 Dec 2019.pdf (460.55 KB) Sparbanken Västra Mälardalen BBB + Stable Financial N-1+ Off On