Nordic Credit Rating (NCR) has republished its Financial Institutions Rating Methodology with amendments. The document has been updated throughout to improve clarity and conform with current regulations. In addition, several sections dealing with criteria have been revised to reflect regulatory changes, reduce the number of rating subfactors, and improve transparency into the assessment of the operating environment.
The agency has also amended its Covered Bond Rating Methodology. Because capital structure protection has been introduced into the Financial Institutions Rating Methodology, the possible steps from issuer ratings to covered bond ratings have been updated.
The revisions to the financial institutions methodology entail:
- revising the operating environment assessment, including changes to the determination and weighting of national, sectoral, regional, and cross-border assessments;
- changing the capital assessment guidelines to incorporate new regulations and improve transparency, as well as adding a rating cap option to reflect weak capitalisation;
- combining the risk governance and other risks subfactors into a single subfactor;
- combining the credit risk and market risk subfactors into a single subfactor;
- introducing capital structure protection adjustments into the long-term issuer rating, by considering uplift to reflect buffers in the form of senior non-preferred debt instruments. This change aligns the long-term issuer rating and senior unsecured issue ratings, while ratings on senior non-preferred instruments are notched down from the issuer rating. Currently, only one rated issuer is affected;
- adding an appendix to explain the impact of environmental, social, and governance factors; and
- updating text and guidelines throughout the methodology to remove outdated references, simplify text, and improve readability and transparency.
The revisions to the covered bond methodology entail:
- removing the step Senior Unsecured Rating from the potential notching steps, as well as changing references to the senior unsecured issue rating to the issuer rating; and,
- minor adjustments to the covered bond market importance guidelines in the National Covered Bond Regulations and Protections section.
Adjustments following request for comments
Following publication of an initial draft on 5 Mar. 2025, NCR has made minor adjustments to increase clarity. The adjustments do not change the original approach or the likely impact on existing ratings.
Market responses to a request for comments on the draft are available here.
Impact on published ratings
The revisions do not change NCR's view of underlying risk drivers. They will have no major impact on existing issuer ratings but a small number could be affected. All issuers with ratings based on the previous version of the methodology have been placed under criteria review. All ratings affected will be reviewed within six months.
A list of issuers affected can be seen at:
https://nordiccreditrating.com/ratings-research/issuers
NCR's methodologies are available at:
https://nordiccreditrating.com/governance/methodologies
This statement does not constitute a rating action.
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com