Nordic Credit Rating has assigned a 'BBB+' long-term issuer rating to Norway-based Pareto Bank ASA. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with an 'BBB+' senior unsecured issue rating, a 'BBB' Tier 2 issue rating and a 'BB+' Additional Tier 1 issue rating.
Rating rationale
Our 'BBB+' long-term issuer credit rating on Norway-based Pareto Bank is supported by the bank's strong profitability derived from its niche strategy, underpinned by higher net interest margins and stronger cost efficiency than for peers. The rating also reflects the bank's solid capitalisation and liquidity, as well as its diverse funding profile. In addition, we note the Pareto Bank's well-developed risk governance framework, which contributes to counteract the idiosyncratic risk factors related to the bank's niches. Moreover, the strong domestic economy and a well-regulated banking market are positive factors in our assessment.
We view Pareto Bank's small size relative to its main competitors as a constraining factor. The rating is also constrained by our view that Pareto Bank's real estate, corporate and shipping lending carry higher-than-average risk, which weighs on our view of its operating environment, credit risk and loss performance. Its focus on project financing also creates elevated credit risk compared with a typical universal bank.
Stable outlook
The outlook is stable, reflecting our expectation that Pareto Bank's strong earnings will compensate for elevated credit provisions over the next few years. Moreover, we believe that the bank will sustain strong profitability in a lower interest rate environment and that loan losses will abate over our forecast horizon. Pareto Bank's strong capitalisation, recently strengthened by the introduction of the EU's Capital Requirements Regulation 3 (CRR3) also provides resilience against a possible economic downturn.
We could raise our rating on Pareto Bank to reflect commitment to a Tier 1 ratio well above 22% and improved credit quality with net stage 3 loans below 1.5% of net loans, or significant improvement in size and market diversification.
We could lower our rating to reflect a Tier 1 ratio below 18% for a prolonged period, pre-provision income below 2% of risk exposure amount (REA) for a prolonged period, or deteriorating asset quality with significantly higher loan losses.
| 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 |
| Additional Tier 1 issue rating: | BB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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.