Nordic Credit Rating (NCR) said today that it had assigned a 'BBB+' long-term issuer rating to Sweden-based Sparbanken Lidköping AB. The outlook is stable. At the same time, NCR assigned an 'N3' short-term issuer rating, as well as 'BBB+' issue ratings to Sparbanken Lidköping's senior unsecured bonds.
Rating rationale
The long-term issuer rating reflects Sparbanken Lidköping's exceptional capital position, moderate risk appetite, good market position in Lidköping in West Sweden, and its relationship-based funding profile. 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. We expect that interest rates will decline but remain above the low levels of the past decade going forward, implying continued support for the bank's strengthened core earnings profile, which is complemented by dividend revenues from holdings of Swedbank shares.
The rating is constrained by Sparbanken Lidköping's concentration in its core market and the related exposure to regional commercial and residential real estate and farming in its loan book. The rating is also constrained by our ongoing concerns about real-estate collateral values.
Stable outlook
The stable outlook reflects our expectation that Sparbanken Lidköping will offset a moderate increase in loan losses and non-performing loans from very low levels with robust earnings, even as interest rates fall from peak levels. It also takes account of our expectation that the regional economic performance will experience a moderate decline over the next year. We believe that the bank will maintain its modest risk appetite, with prudent dividends to its owner foundation and improved liquidity management, as well as its relationship with Swedbank.
We could raise the rating to reflect improved economic prospects in the bank's core market, sustainable core pre-provision income to risk exposure amount above 2.5% and core cost-to-income ratio below 45%, or reduced single-name concentration in the loan book.
We could lower the rating to reflect a deteriorating operating environment leading to reduced regional growth, asset quality and collateral values. We could also lower the rating to reflect a sustained decline in the common equity Tier 1 (CET1) capital ratio to below 22%, or an increased risk appetite in the loan or liquidity portfolios.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Senior unsecured issue rating: | BBB+ |
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.