Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer credit rating to Norway-based Odal Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'BBB+' senior unsecured issue rating and a 'BBB' Tier 2 issue rating.
Rating rationale
The long-term issuer rating reflects Odal Sparebank's low risk appetite, and strong earnings and capital position. Despite total assets of only NOK 7bn, the bank has proven access to capital market financing and few concentrations in its mostly retail deposit base. The bank's ownership and cooperation with the Eika Alliance banking association ensures product diversity, shared development costs and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Eika Boligkreditt.
We expect Odal Sparebank to maintain strong earnings over our forecast period through 2026, despite margin pressure as it pursues growth in the Kongsvinger and Romerike regions. We expect credit losses to remain modest but elevated, given the continued effects of recent cost inflation and higher interest rates.
The rating is constrained by geographical concentration in Odal Sparebank's loan book and a high share of real-estate and agriculture collateral in the bank's core markets. Although the bank has a very strong market share in the Odal region of south-east Norway, it faces stiffer competition in its other core markets.
Stable outlook
The stable outlook reflects our view that the bank's strong earnings will compensate for a weakened domestic economy and somewhat elevated credit provisions. Our forecast sees Odal Sparebank's cost efficiency remaining weaker than peers' due to investments in personnel in growth areas, risk governance and compliance. We expect the bank to maintain stable capital ratios, even excluding the potential positive impacts of implementing Capital Requirements Regulations III (CRR3), as it grows its corporate loan book in Kongsvinger and Romerike.
We could raise the rating to reflect pre-provision income to risk exposure amount (REA) sustainably above 3% and cost to income below 45%, a material reduction in Stage 3 non-performing loans, or an improved market position in the growth markets of Kongsvinger and Romerike.
We could lower the rating to reflect a consolidated Tier 1 capital ratio below 18% over a protracted period, a material deterioration in the local operating environment that negatively affects asset quality, or risk-adjusted earnings metrics below 1.5% for REA over 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+ |
| Tier 2 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.