Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term and 'N-1+' short-term issuer credit ratings on Sweden-based Sparbanken Västra Mälardalen (Sparbanken VM). The outlook is stable.
The ratings reflect Sparbanken VM's very strong capitalisation and local regional focus. The bank has a cooperation arrangement with Swedbank AB which provides diversification of product offerings, shared IT costs and the opportunity to finance retail mortgages via Swedbank Hypotek AB. We view this cooperation as significant as it supports Sparbanken VM's earnings, market position, funding, and liquidity.
Sparbanken VM lends primarily to regional private customers and SMEs, leading to high concentration in the local market and high levels of real estate collateral. Earnings metrics are weaker than those of more efficient and profit-driven Swedish peers but are in line with those of similar savings banks. We expect somewhat higher losses in full-year 2020 and 2021 due to the effects of COVID-19, but note that asset quality has shown stronger than expected resilience so far due in part to low interest rates and government stimulus measures.
We have improved our view of other risks to reflect the bank's progress in reducing the risk in its fixed income portfolio which includes now over 75% investment grade exposures. In our view, the bank's strong capital position reduces the downside risk of the portfolio.
The stable outlook reflects our expectations of a flatter U-shaped recovery rather than the sharp V- or W-shaped rebound that we anticipated previously. In addition, property prices have remained resilient after an initial downturn in March and April of this year, supporting a large majority of Sparbanken VM's collateral. We expect the bank to maintain a very strong balance sheet and prudent underwriting, while retaining its access to and relationship with Swedbank. We could raise the rating if downside risks in the local economy are reduced and the bank is able to improve core earnings and reduce reliance on dividend and non-core income. We could lower the rating to reflect a long-term economic recession in the Västra Mälardalen region, reduced cooperation with Swedbank, or materially lower capitalisation and/or asset quality.
|Long-term issuer credit rating:||BBB+||BBB+|
|Short-term issuer credit rating:||N-1+||N-1+|
|Senior unsecured issue rating:||BBB+||BBB+|
All research for this issuer is available here.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, firstname.lastname@example.org
Geir Kristiansen, credit rating analyst, +4790784593, email@example.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.