Nordic Credit Rating (NCR) has affirmed its 'A-' long-term issuer rating on Sweden-based savings bank Sparbanken Rekarne AB (publ) following the announcement of a merger agreement with Sparbanken Västra Mälardalen ('BBB+' long-term issuer rating). 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 follows the announcement on 24 Jan. 2025 that Sparbanken Rekarne and Sparbanken VM have entered into a conditional merger agreement. The boards of both banks, as well as the owners of Sparbanken Rekarne (Sparbanksstiftelsen Rekarne and Swedbank AB) have all indicated support for the merger. The transaction should be completed by Q4 2025 and must receive formal approval from Sparbanken VM's principal representatives. Approval from the Swedish Financial Supervisory Authority (Finansinspektionen) and competition authority (Konkurrensverket) is also required, which we consider likely given recent approvals of similar mergers between Swedish savings banks.
Technically, Sparbanken VM will be merged into Sparbanken Rekarne. Sparbanksstiftelsen Rekarne (30%), a newly formed Sparbanken VM ownership foundation (40%), and Swedbank (30%) will own the combined bank. Given that Swedbank is an owner in the merged bank, Sparbanken VM will have to divest its 3.1 million Swedbank shares.
The announced link-up of the two banks would enhance their competitive position and provide diversification by expanding the bank's core market. The combined bank's market would serve approximately 180,000 people across five municipalities, covered by six offices. It would rank among Sweden's four largest savings banks. As of Q3 2024, the merged bank would have a total balance sheet of SEK 30bn, with an additional SEK 10bn in transferred mortgages. Joint business volumes would total around SEK 85bn, placing it second among savings banks. We believe the merging banks expect the transaction to improve growth opportunities.
The banks have communicated a desired level of a total capital ratio above 24%, in line with our forecast for 2025 for Sparbanken Rekarne. While merger-related costs might initially hamper efficiency, we anticipate the merged bank will maintain strong earnings in the long run.
On a stand-alone basis, 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 ownership by Swedbank AB 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 that we are unlikely to change our rating on Sparbanken Rekarne as an immediate consequence of the announced merger, despite our belief that it will be positive for the bank. The merged bank would benefit from a larger market, an improved overall competitive position and broadened business diversity, in our view. We also expect the merged bank to see diversification benefits in its risk profile and exposures. We do not, however, view these positive effects alone as sufficient to immediately result in a higher rating. We consider that there are weaknesses in the local economies of both banks, as well as strategic uncertainty regarding the combined bank's capitalisation and anticipated loan growth.
On a stand-alone basis, we could raise the rating to reflect lasting improvements in Sparbanken Rekarne's 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 on Sparbanken Rekarne to reflect a sustained reduction in the CET1 ratio to below 18%. We could also lower our rating if we observed a significant downturn in the operating environment, weakening asset quality, loan growth and/or funding access.
Related publications
i) Sparbanken Rekarne AB (publ) 'A-' long-term issuer rating affirmed; Outlook stable, 13 Dec. 2024.
ii) Sparbanken Västra Mälardalen 'BBB+' long-term issuer rating affirmed; Outlook stable, 17 Dec. 2024.
iii) NCR Comments: Ratings for Swedish savings banks unchanged after Swedbank's revised dividend policy, 23 Jan 2025.
| 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.