Our 'BBB+' long-term rating on Norway-based Haugesund Sparebank and the stable outlook on it are unchanged following a statement by prospective merger partner Tysnes Sparebank announcing large credit loss provisions and a subsequent postponement of the merger date.
On 3 Sep. 2024, Tysnes Sparebank announced credit loss provisions of NOK 77m related to non-performing real estate development exposures (2.8% of net loans as of 30 Jun. 2024). The underlying loan volume is unknown, but the provisions suggest a low likelihood that the underlying collateral could fully cover any losses incurred in an event of default. Both banks confirmed that they plan to proceed with the merger, but that the transaction will be delayed by a renegotiation of terms, due to the negative impact on Tysnes Sparebank's financial position. We now expect the merger to take place in February 2025.
Our rating on Haugesund Sparebank, assigned on 28 Jun. 2024, is based on the current pre-merger legal entity, and takes into account only publicly available information on Tysnes Sparebank. Due to concerns about Tysnes Sparebank's reported asset quality metrics, our initial forecast took a conservative view of increasing credit losses at the standalone bank, though not at the level now reported. Our forecast for the pro-forma merged entity included loan loss provisions by Tysnes Sparebank of around NOK 30m in 2024. Nonetheless, our initial analysis took into account the risk of additional losses at Tysnes Sparebank, due to a lack of insight into the bank's loan book. As of the second quarter, Tysnes Sparebank had booked NOK 6.5m in loan loss provisions. Following the latest announcement, we have adjusted our full-year estimate to about NOK 100m. This results in an estimated pro-forma common equity Tier 1 ratio of 19.5% and a Tier 1 ratio of 20.8% for the merged entity at end-2024. Both figures are about 0.5pp below our previous estimates, but the Tier 1 ratio is still well above the 18% level at which we would consider lowering the rating.
Our rating on Haugesund Sparebank includes conservative expectations about the impact of the merger on the future entity. Consequently, the news of higher loss provisions does not materially impact our assessment, given the likely modest impact on the merged entity's capital position. In addition, we expect the decision by the banks to continue with the merger but delay the timing to have no significant impact on our assessment.
Related publications
i) Haugesund Sparebank assigned 'BBB+' long-term issuer rating; Outlook stable, 28 Jun. 2024
This commentary does not constitute a rating action.
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com