Nordic Credit Rating has assigned a 'BBB+' long-term issuer rating to Norway-based RørosBanken. 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 long-term issuer rating reflects RørosBanken's strong capital position, moderate risk appetite, diverse funding, and stable earnings. The savings bank has a cooperation agreement with the Eika banking alliance, which we view as positive, as it provides members with product diversity, shared development costs, and the opportunity to finance residential retail mortgages through mortgage company Eika Boligkreditt.
The rating is constrained by RørosBanken's lending profile and growth strategy. Despite its roots in the region surrounding Røros, a high share of the bank's loan exposure is in growth areas, primarily Oslo, Norway's capital, and Trondheim. Although providing diversification, lending outside of adjacent regions tests the boundaries of the local bank's credit risk management, in our view. We expect the bank will continue its strategy to expand in its non-core growth markets, despite capacity and oversight concerns associated with corporate exposures. This strategy also affects our view of the bank's competitive position given its weak market position in growth markets, despite its dominant competitive position in Røros.
Stable outlook
The stable outlook reflects the bank's strong capital and earnings ratios and high share of real-estate collateral. Under new leadership, RørosBanken has improved risk management over the last year, and we expect it will prioritize sustainable lending growth in coming years. We believe strong cost efficiency will support the bank's core earnings despite a likely decline in net interest margins over the next few years. We also expect robust pre-provision profit will offset elevated loan losses due to low activity in the overall economy. We forecast increased, but sustainable, loan growth through 2027, with capital ratios remaining high and boosted further by the implementation of the EU's Capital Requirements Regulations III (CRR3).
We could raise our rating on RørosBanken to reflect reduced risk appetite in lending, demonstrated improvement in loss performance and asset quality, and maintained profitability.
We could lower our rating to reflect a sustained reduction in the bank's Tier 1 capital ratio to below 20%, risk-adjusted earnings metrics below 2% of risk exposure amount over a protracted period, or a material deterioration in the local operating environment or weakened asset quality.
| 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:
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.