Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based Skue Sparebank. The outlook is stable. At the same time, the 'N2' short-term issuer rating was affirmed, as was the 'A-' issue rating on the bank's senior unsecured debt, the 'BBB+' issue rating on its Tier 2 instruments, and the 'BBB-' issue rating on its additional Tier 1 instruments.
Rating rationale
Our long-term issuer rating reflects Skue Sparebank's solid capital position, low risk appetite and strong profitability. The bank has a cooperation agreement with the Eika 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 believe that the bank will report relatively strong and stable earnings through 2026, which will enable it to bear elevated loan losses due to a slowdown in the overall economy. The recent merger with Hjartdal og Gransherad Sparebank (HjartdalBanken) will not, in our opinion, have a material impact on the bank's earnings metrics or credit risk but will enlarge its geographical footprint and improve the overall competitive position.
The rating is constrained by stiff competition and the bank's low market share in the more populous areas of Buskerud County in eastern Norway. Also constraining the rating is the bank's concentrated exposure to commercial real estate and retail mortgages in the region where it operates.
Stable outlook
The outlook is stable, reflecting our view that Skue Sparebank will report satisfactory earnings despite somewhat high loan losses. We expect the bank's already strong capital ratios to be further boosted by earnings, modest on-balance-sheet loan growth and the positive impact of implementing the EU's Capital Requirements Regulation III (CRR3). We also believe that the merger process will marginally improve profit and capital.
We could raise the rating on Skue Sparebank to reflect improved macroeconomic conditions, pushing up projected asset quality; and strengthened capital and earnings, with a Tier 1 capital ratio sustainably above 25%.
We could lower our rating to reflect a material deterioration in the local operating environment that hampers the bank's asset quality, a sustained decrease in the Tier 1 capital ratio to below 20%, or risk-adjusted earnings metrics sustainably below 2.0% of the risk exposure amount (REA).
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
| Tier 2 issue rating: | BBB+ | BBB+ |
| Additional Tier 1 issue rating: | BBB- | BBB- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@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.