Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based savings bank Sparbanken Västra Mälardalen. The outlook is stable. At the same time, NCR affirmed its 'N3' short-term issuer rating and 'BBB+' senior unsecured issue rating.
Rating rationale
The affirmation reflects Sparbanken VM's continued performance in line with our expectations. We expect that earnings metrics will fall in our forecast period through 2026 as interest rates decline, but that the bank will maintain stronger ratios than in recent years while achieving moderate loan growth. Together, we believe these factors will prompt further strengthening of the bank's capital ratios, to above 35% in our forecast, including the likely impact of the upcoming implementation of the EU's Capital Requirements Regulation III.
The long-term rating continues to reflect Sparbanken VM's low risk appetite and relationship-based deposit profile, as well as its cooperation arrangement with Swedbank AB. Given the bank's stable loss performance through recent turbulent years, and our expectations of modest Stage 3 non-performing loans and loan losses, we have revised our assessment of the bank's loss performance. The rating continues to be constrained by the bank's concentrated exposure to the Västra Mälardalen region, which has historically demonstrated volatility associated with its key role as a manufacturing centre.
Stable outlook
The stable outlook reflects our expectation that Sparbanken VM will maintain stronger earnings metrics than historically even as they decline from their peak. It also reflects our expectations of stable asset quality metrics and continued strengthening of capital ratios. In addition, it factors in likely negative population growth and muted economic growth in the bank's core markets and the bank's modest risk appetite. Lastly, the outlook incorporates Sparbanken VM's continuing relationship with Swedbank and expected increased credit losses in our forecast.
We could raise our rating on the bank if we observe a material improvement in local economic conditions and growth prospects in the bank's market, with core risk-adjusted earnings maintained above 2.5% and core cost-income below 50%.
We could lower our rating on Sparbanken VM if we see a more significant downturn in its operating environment than we currently expect, negatively affecting asset quality, loan growth, and/or funding access. We could also lower the rating to reflect a material deterioration in asset quality metrics or a decrease in the common equity capital ratio to below 22%.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured 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.