Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based savings bank Sparbanken Rekarne AB (publ). The outlook is stable. At the same time, the 'N2' short-term issuer rating the 'A-' senior unsecured issue rating and the 'BBB+' issue rating on Tier 2 bonds were affirmed.
Rating rationale
The affirmation reflects continued performance in line with our expectations. We expect earnings metrics will fall during our forecast period as interest rates decline, but that the bank will maintain stronger ratios than in recent years. The bank's change to the standardised approach for determining it risk exposure amount in early 2024 weakened its capital ratios by several percentage points, which we considered in our assessment. However, this follows several years of improvements in its capital ratios and reduced leverage. We also believe implementing the EU's Capital Requirements Regulations III (CRR3) in 2025 will benefit the bank's capitalisation, but that its owners will prioritise returns and dividends over further capital accumulation.
Our 'A-' long-term issuer rating on Sparbanken Rekarne continues to reflect the bank's history of strong asset quality metrics, modest risk appetite and its relationship-based funding profile. We view the bank's 50% ownership by Swedbank AB and the benefits of its Swedbank cooperation as positive. The rating is constrained by the bank's concentrated exposure to the Södermanland region, which has historically experienced volatility as a key manufacturing region.
Stable outlook
The stable outlook reflects our expectation that Sparbanken Rekarne will maintain its strong capital buffers and benefit from improvements in earnings due to interest rates stabilising well above zero. It also reflects projections of population and economic growth in the region, despite unemployment well above the Swedish average, as well as the bank's modest risk appetite. The outlook also takes account of the bank's continuing relationship with Swedbank and the potential for capital support from the larger bank, should the need arise.
We could raise the rating to reflect lasting improvements in capitalisation, with a common equity Tier 1 (CET1) ratio above 25% on a sustained basis, combined with maintained improvements in cost efficiency, with a cost-income ratio remaining below 50% and risk-adjusted above 3.5 for a prolonged period, as well as an improved regional operating environment.
We could lower the rating in the event of reduced ownership by Swedbank or a sustained reduction in the CET1 ratio to below 18%. We could also lower the rating to reflect a significant downturn in the operating environment, weaking asset quality, loan growth and/or funding access.
| 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:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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.