Nordic Credit Rating (NCR) said today that it had assigned a 'A-' long-term issuer rating to Sweden-based Sparbanken Skaraborg AB (publ). The outlook is stable. At the same time NCR assigned an 'N2' short-term rating and a 'A-' senior unsecured issue rating.
Rating rationale
The long-term issuer rating reflects Sparbanken Skaraborg's strong capital position, moderate risk appetite, solid local market position and 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 interest rates to continue to support the bank's relatively strong core earnings profile, complemented by dividend revenues from holdings of Swedbank shares.
The rating is constrained by the bank's relatively weak core markets, as well as significant exposure to regional commercial real-estate and agricultural exposures in its loan book. The rating is also constrained by our ongoing concerns about real-estate collateral values and its competitive position as it focuses growth on customers outside of its core markets.
Stable outlook
The outlook is stable, reflecting our expectation that Sparbanken Skaraborg will offset a moderate increase in loan losses and non-performing loans with robust earnings even as interest rates fall from peak levels. It also reflects our expectation that the regional economy will experience a moderate decline over the next year. We expect the bank to further improve its very strong capital ratios due to modest credit growth and prudent dividends to its owner foundation, and to maintain its relationship with Swedbank.
An upgrade is unlikely at this time, given earnings and capitalisation are already strong. 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 in response to a sustained decline in the common equity Tier 1 capital ratio to below 22% or to reflect an increased risk appetite in the loan or liquidity portfolios.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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.