Nordic Credit Rating (NCR) said today that it had assigned an 'A-' long-term issuer rating to Norway-based savings bank Skudenes & Aakra 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 Skudenes & Aakra Sparebank's low risk appetite, solid capital position, strong earnings, and diverse access to funding. The bank is in the process of switching from the Lokalbanksamarbeidet banking cooperative to the Eika Alliance. Through its current membership in Lokalbanksamarbeidet, the bank benefits from diversification of business and cost advantages that it will maintain after transitioning to the Eika Alliance. These include the opportunity to transfer mortgages to jointly owned covered bond companies.
We expect the bank to maintain strong earnings metrics and cost efficiency advantages even as Norwegian policy interest rates decline. We also expect loan losses to remain moderate despite the current economic slowdown in Norway. Together with modest lending growth and significant gift contributions to the local community, we project capital adequacy metrics will remain solid.
The rating is constrained by the bank's concentrated exposure to real-estate collateral in the municipality of Karmøy and the Haugalandet region on the west coast of Norway. It is also constrained by barriers to growth and stiff competition beyond Karmøy and its core markets.
Stable outlook
The stable outlook reflects our view that a weak economic climate and likely credit losses will be offset by Skudenes & Aakra Sparebank's solid earnings and capital position. We believe the bank's low risk appetite, strong real-estate collateral, improved earnings, and solid cost efficiency will enable resilience to a modest economic slowdown. We expect the positive impact of implementing the EU's Capital Requirements Regulation III (CRR3) will further improve the bank's capital ratios.
We are unlikely to upgrade Skudenes & Aakra Sparebank at this time, given its already strong capital position and earnings, as well as its regional concentrations.
We could lower our rating on the bank if its loan growth exceeds our expectations, resulting in a Tier 1 capital ratio below 20%; or pre-provision income to the risk exposure amount moves below 2% or cost-to-income increases to above 50% over a protracted period. We could also downgrade Skudenes & Aakra Sparebank if we observe a material deterioration in the local operating environment that negatively affects asset quality.
| 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:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@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.