Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based savings bank Sparbanken Alingsås AB. The outlook is stable. At the same time, NCR affirmed the 'N2' short-term issuer rating and the 'A-' senior unsecured issue rating.
Rating rationale
The affirmation reflects Sparbanken Alingsås' continued performance in line with our expectations. The bank has maintained strong earnings despite lower policy interest rates this year which together with moderate loan growth has strengthened capital ratios. We have raised our assessment of the bank's capitalisation to better reflect its strength compared with requirements. In February 2024, it issued its first senior unsecured bond, followed by a second one in September. We expect the bank to continue increase its share of capital market funding, improving funding diversification and lowering its reliance on a relatively concentrated deposit base.
We have also raised our assessments of the bank's earnings and loss performance, reflecting our belief that it will maintain most of its improvements to earnings in recent years, while preserving moderate Stage 3 loans and loan losses in our forecast period through 2026.
Our long-term issuer rating continues to reflect Sparbanken Alingsås' moderate risk appetite, solid competitive position and relationship-based funding. The bank has a cooperation arrangement with Swedbank AB, which we view as positive, as it provides material diversity of product offerings, shared IT costs and the opportunity to finance retail mortgage loans.
The rating is constrained by the bank's higher single-name concentration and significant exposure to non-mortgage segments in its loan book compared with levels at savings bank peers. It is also constrained by the increased risk to real-estate values, in view of the bank's significant real-estate collateral through retail and commercial customers.
Stable outlook
The stable outlook reflects our expectation that Sparbanken Alingsås will counter the risk of higher loan losses and non-performing loans through higher earnings on the back of improved net interest margins. It also incorporates our expectation that the bank will maintain its solid competitive position and that the regional economy, which has strong links to Gothenburg, will perform in line with or better than the national economy, with healthy population growth and low unemployment. We expect Sparbanken Alingsås to protect its strong capital ratios through prudent dividends to its owner foundation and to maintain its relationship with Swedbank.
We could raise our rating on the bank to reflect lower concentration in the loan book, combined with less uncertainty in the real-estate sector, and if we observed improved funding diversification that would lower concentrations in and dependency on deposits. We could also upgrade Sparbanken Alingsås if it maintains earnings metrics with core risk-adjusted earnings above 3% and core cost efficiency below 45% on a sustainable basis.
We could lower our rating on Sparbanken Alingsås to reflect a deteriorating operating environment that would reduce regional growth, asset quality and collateral values, increased risk in the loan or liquidity portfolios, or a sustained decline in the common equity Tier 1 capital ratio to below 20%.
| 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:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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.