Nordic Credit Rating said today that it had assigned an 'A-' long-term issuer rating to Norway-based Romerike Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with an 'A-' senior unsecured issue rating, a 'BBB+' Tier 2 issue rating and a 'BBB-' additional Tier 1 issue rating.
Rating rationale
Our long-term issuer rating reflects Romerike Sparebank's robust capitalisation, diverse funding access and strong growth in its core region. The bank has a cooperation agreement with the Eika banking alliance, which we view as positive, as it provides product diversity, shared development costs, and the opportunity to finance residential retail mortgages through mortgage company Eika Boligkreditt. We expect firm cost efficiency to support the bank's core earnings despite a likely contraction in net interest margins over the next few years. We also expect robust pre-provision profit to offset elevated loan losses due to a slowdown in the national economy.
The rating is constrained by the bank's high exposure to real estate in the Romerike region. Additional negative rating factors include stiff competition in the greater Oslo region and the bank's low market shares.
Stable outlook
The outlook is stable, reflecting our view that a weak economic climate and Romerike Sparebank's projected credit losses in our forecast through 2026 will be offset by improved capital and solid earnings. We believe the bank's moderate risk appetite, strong real-estate collateral, improved earnings, and stable cost position will enable resilience to a modest economic slowdown. We expect the prospective positive impact of implementing the EU's Capital Requirements Regulation III (CRR3) will further improve the bank's capital ratios.
We could raise the rating on Romerike Sparebank to reflect a consolidated Tier 1 capital ratio sustainably above 25%, pre-provision income to risk exposure amount (REA) sustainably above 3%, and lessening uncertainty about credit risk and improved asset quality metrics.
We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects the bank's asset quality, a lasting reduction in the consolidated Tier 1 capital ratio to below 18%, pre-provision income to REA below 2%, or cost/income above 50% over a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
| Tier 2 issue rating: | BBB+ |
| Additional Tier 1 issue rating: | BBB- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.