Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden- based Sparbanken Rekarne AB (publ). The outlook is stable. The 'N2' short-term issuer rating was also affirmed, as were the 'A-' issue ratings on the bank's senior unsecured bonds and the 'BBB+' issue ratings on its Tier 2 bonds.
Rating rationale
The long-term issuer rating reflects Sparbanken Rekarne's strong loss history, modest risk appetite, and relationship-based funding profile. We view the bank's 50% ownership by Swedbank AB as positive. Cooperation with Swedbank enables material diversification of product offerings, shared IT costs, and the opportunity to finance retail and commercial mortgages.
The rating is constrained by the bank's concentrated exposure to the Södermanland region, which has historically experienced volatility as a key manufacturing region. We project increased credit losses over the next two years as the economy slows and see increasing risk associated with the bank's high levels of real-estate lending.
In our base-case assessment, we expect the bank to maintain higher capital buffers and make material improvements in its earnings, despite projections of higher credit losses. However, downside risk has increased due to uncertainty about the wider Swedish economy and the bank's local region of operation. We also expect an increase in credit risk due to the bank's high level of property exposure.
Stable outlook
The stable outlook reflects our expectation that Sparbanken Rekarne will maintain its strong capital buffers and benefit from improvements in earnings as interest rates rise. It also reflects projections of population and economic growth in the region, and the bank's modest risk appetite, despite our expectations of higher credit losses as the economy slows. The outlook also takes account the bank's continuing relationship with Swedbank and the potential for capital support from the larger bank, should the need arise.
An upgrade is unlikely at this time given the uncertain economic environment. We could lower the rating in the event of a sustained reduction in the common equity Tier 1 capital ratio to below 18%, combined with reduced ownership by Swedbank, a material deterioration in asset quality metrics or a long-term economic recession in the bank's operating region that negatively affects economic activity and employment.
| 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+ |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.