Nordic Credit Rating (NCR) said today that it had assigned a 'BBB+' long-term issuer rating to Sweden-based Sörmlands Sparbank. The outlook is stable.
"The rating reflects the bank's very strong capital position, low risk appetite, and relationship-based funding profile," said NCR credit analyst Sean Cotten.
Rationale
The rating is constrained by Sörmlands Sparbank's relatively weak core earnings metrics, which are somewhat weaker than those of similar Nordic savings banks. Like most Swedish savings banks, the bank has a cooperation arrangement with Swedbank AB, which provides material diversification of product offerings, shared IT costs, and the opportunity to finance retail mortgages. We view this cooperation as significant and note that Sörmlands Sparbank has historically benefited from dividend revenues through its holdings of Swedbank shares, despite dividend restrictions in effect for 2020.
Sörmlands Sparbank is based in Katrineholm in the eastern Swedish county of Södermanland. Other core markets include the city of Nyköping and other, smaller communities in southern Södermanland, which is important for Sweden's manufacturing industry. The bank focuses on regional private customers and SMEs, with a strong focus on property loans. With total assets of SEK 16.6bn (SEK 23bn including mortgage loans transferred to Swedbank) it is Sweden's sixth largest savings bank, measured by total business volumes. Despite the uncertain economic environment, our projections for losses and non-performing loans are only slightly above historic levels given our expectation that a small number of legacy credit losses will be resolved in the next two years.
Outlook
The stable outlook reflects our view that Sörmlands Sparbank will maintain its strong balance sheet despite higher credit losses and ongoing uncertainty related to COVID-19. We assume that the bank will reduce its cost base and retain its access to and relationship with Swedbank and that the ownership of Swedbank shares will not materially affect capitalisation. We could raise the rating to reflect an improvement in economic conditions in Sweden and the bank's local market, sustainable and material improvements in core earnings metrics, or improved asset quality metrics. We could lower the rating to reflect a long-term economic recession in the Södermanland region that affected economic activity and employment, a deterioration in asset quality metrics and credit losses that impacted capitalisation, or Swedbank-related issues that impacted capitalisation or cooperation with Swedbank.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-1+ |
| Senior unsecured issue rating: | BBB+ |
All research for this issuer is available here.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.