Nordic Credit Rating said today that it had assigned a 'A-' long-term issuer rating to Norway-based SpareBank 1 Hallingdal Valdres. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'A-' senior unsecured issue rating, a 'BBB+' Tier 2 issue rating and a 'BBB-' additional Tier 1 issue rating.
Rating rationale
The long-term issuer rating reflects SB1 Hallingdal Valdres' robust capitalisation and good access to funding. The bank is part of the SpareBank 1 Alliance, which we view as supportive of business diversity, operating efficiency, and liquidity. SB1 Hallingdal Valdres' pre-provision profitability and cost efficiency are in line with those of its peers, particularly in the banking operation. The bank is predominantly a retail lender of residential mortgage loans, but also has significant exposure to commercial real estate lending, agriculture and construction.
The rating is constrained by the highly competitive environment in the bank's new growth markets in Oslo and Bergen, recent above-market-average credit growth, and uncertainty about the commercial real estate sector.
Stable outlook
The stable outlook reflects our view that a weak economic climate and projected credit losses will be offset by improvements in capital and strong earnings metrics. We believe SB1 Hallingdal Valdres' low risk appetite, strong real estate collateral, and improved earnings will enable resilience to a moderate slowdown in the economy. Moreover, we expect moderate loan growth in the course of our forecast period through 2026. We expect the bank's capital ratios to be further boosted by the prospective positive impact of implementing the EU's Capital Requirements Regulations III (CRR3).
We could raise the rating to reflect a consolidated Tier 1 ratio sustainably above 25%, pre-provision income to risk exposure amount (REA) sustainably above 3%, reduced uncertainty about credit risk, and improved asset quality metrics.
We could lower the rating to reflect a lasting reduction in the consolidated Tier 1 capital ratio to below 20% (following CRR3), risk-adjusted earnings metrics below 2% of REA, cost/income above 60% over a protracted period, a material deterioration in the operating environment, or increased risk appetite that negatively affects asset quality.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
| Tier 2 issue rating: | BBB+ |
| Additional Tier 1 issue rating: | BBB- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@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.