Nordic Credit Rating has affirmed its 'A-' long-term issuer rating on Sweden-based savings bank Sörmlands Sparbank AB (publ). The outlook is stable. The 'N2' short-term issuer rating and the 'A-' senior unsecured issue ratings have also been affirmed.
Rating rationale
The affirmation reflects our view that the bank will continue to strengthen its capital position towards a 37% CET1 ratio by end-2028, supported by robust core earnings and projected dividend revenues from Swedbank shareholdings. We expect the bank to maintain a moderate risk appetite as it leverages its strong balance sheet to grow in core markets. Stable interest margins and improved cost efficiency are expected to support risk-adjusted core pre-provision income of approximately 2.8% per year, excluding dividends from Swedbank. We view the bank's cooperation with Swedbank positively, as it provides product diversification, shared IT costs, and access to retail mortgage financing.
The rating is constrained by the relative volatility of the bank's core markets and credit concentrations in one of Sweden's manufacturing regions. We expect credit losses to remain modest, projecting around 5bps over the next two years as the bank reduces non-performing loans related to a small number of cases.
Figure 1. Sörmlands Sparbank key credit metrics, 2022–2028e
% | 2022 | 2023 | 2024 | 2025 | 2026e | 2027e | 2028e |
Net interest margin | 1.8 | 2.1 | 2.2 | 2.0 | 1.9 | 1.9 | 1.9 |
Core pre-provision income/REA | 2.1 | 2.8 | 3.2 | 2.8 | 2.8 | 2.8 | 2.8 |
Core cost-to-income | 57.1 | 51.3 | 47.0 | 49.6 | 51.1 | 50.6 | 49.9 |
Return on ordinary equity | 7.7 | 7.4 | 8.4 | 7.8 | 7.9 | 7.6 | 7.4 |
Loan losses/net loans | 0.12 | 0.14 | 0.10 | 0.05 | 0.05 | 0.05 | 0.05 |
Net Stage 3/net loans | 1.14 | 1.15 | 1.45 | 1.41 | 1.20 | 1.00 | 0.84 |
CET1 ratio | 25.2 | 29.7 | 29.8 | 33.5 | 35.7 | 36.4 | 36.9 |
Source: company and NCR. All metrics adjusted in line with NCR methodology. Core represents net interest income and net fee & commission income.
Stable outlook
The outlook remains stable, reflecting our view that the bank's capital and earnings provide solid buffers for managing weaker-than-average economic performance in its core markets. We consider downside credit risks to be manageable in light of the bank's solid capital position. We believe that the bank is likely to use its excess capital resources to support increased growth on its own balance sheet.
An upgrade is unlikely at this time, given the bank's regional and sectoral concentration.
We could lower the rating to reflect a material deterioration in the regional operating environment, leading to weaker asset quality, core pre-provision earnings sustainably below 1.5% of the risk exposure amount or a sustained reduction in the CET1 ratio to below 22%.
| 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- |
Contacts:
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@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 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.