Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based Sparbanken Västra Mälardalen (Sparbanken VM). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating and 'BBB+' senior unsecured issue rating.
Rationale
Sparbanken VM's issuer rating reflects the bank's very strong capital position, low risk appetite and relationship-based funding profile. We view the bank's cooperation arrangement with Swedbank AB as positive, as it provides material diversification of product offerings, shared IT costs and the opportunity to finance retail mortgages. In addition, Sparbanken VM benefits from dividend revenues through its holdings of Swedbank shares, which resumed in 2021.
The rating is constrained by the bank's concentrated exposure to the local economy, which has historically demonstrated volatility associated with being a key region for Sweden's manufacturing industry, and by its regional retail banking customers, SMEs and real-estate collateral. Despite the uncertain economic environment, we expect losses and non-performing loans to remain low, given low interest rates and economic improvements.
Our assessment of Sparbanken VM's national operating environment has improved, due to a lower risk of COVID-19-related loan losses as the economic recovery continues. We also take a more positive view of the bank's capital, earnings and loss performance, given sustainable improvements.
Stable outlook
The stable outlook on Sparbanken VM reflects our expectation that the bank will maintain strong capital buffers as it grows its loan book. It also reflects projections of below-average population and economic growth in the region and the bank's modest risk appetite. The outlook also takes account of the bank's maintenance of its relationship with Swedbank and expectations of normalised credit losses in our forecast. We could raise the rating if the bank shows sustainable improvements in core earnings metrics, with core pre-provision income to risk exposure above 2.5% and improved cost efficiency, or as a result of a material improvement in economic conditions and growth prospects in the bank's local market. We could lower the rating in the event of a sustained reduction in the common equity capital ratio to below 18%, a material deterioration in asset quality metrics or a long-term economic recession in the bank's operating region, affecting economic activity and employment.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
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 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.