Nordic Credit Rating has placed its 'BBB+' long-term issuer rating on Sweden-based savings bank Sparbanken Västra Mälardalen on watch positive following the announcement of a merger agreement with Sparbanken Rekarne AB (publ) ('A-' long-term issuer rating). The 'N3' short-term issuer rating and the 'BBB+' senior unsecured issue rating were also placed on watch positive.
Rating rationale
The watch placement follows the announcement on 24 Jan. 2025 that Sparbanken VM and Sparbanken Rekarne 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.
We expect the combined bank will have a significantly lower capital ratio than Sparbanken VM (32% as of year-end 2024). We note, however, that the banks have communicated their aim for a capital ratio above 24% post-merger. 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 'BBB+' long-term issuer rating on Sparbanken VM continues to reflect the bank's low risk appetite and relationship-based deposit profile, as well as its cooperation arrangement with Swedbank AB. The rating is 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.
Watch positive
The watch placement reflects our view that Sparbanken VM's merger with Sparbanken Rekarne, currently rated 'A-' by NCR, would create a stronger bank. The merged entity would gain a larger market with better growth prospects, an enhanced competitive position, and greater business diversity. Additionally, we anticipate the merger would diversify the bank's risk profile and exposures, thereby reducing geographic credit risk concentrations. We also recognise the advantage of adding a strong owner like Swedbank to the ownership group. We expect to resolve the watch placement upon notice of all necessary approvals, or if the merger agreement is terminated.
We could raise the rating to reflect approval of the merger from Sparkbanken VM's principal representatives and the relevant authorities and confirmation that the merger will take place.
We could affirm the rating and assign a stable outlook if the transaction is not approved as we expect, or it is otherwise terminated.
Related publications
i) Sparbanken Västra Mälardalen 'BBB+' long-term issuer rating affirmed; Outlook stable, 17 Dec. 2024.
ii) Sparbanken Rekarne AB (publ) 'A-' long-term issuer rating affirmed; Outlook stable, 13 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: | BBB+ | BBB+ |
| Outlook: | Stable | |
| Watch: | Watch Positive | |
| 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.