Nordic Credit Rating (NCR) has affirmed its 'BBB+' long-term issuer rating on Norway-based SpareBank 1 Lom og Skjåk. The outlook is stable. The short-term rating is lowered to 'N3' from 'N2'. The 'BBB+' senior unsecured issue rating has also been affirmed.
Rating rationale
The affirmation reflects the bank's robust capital position and strong earnings. The bank is part of the SpareBank 1 Alliance, which we view as supportive of business diversity, operating efficiency, and liquidity. SpareBank 1 Lom og Skjåk's pre-provision profitability is strong and its cost efficiency average in the context of its peer group. The bank is predominantly a provider of retail residential mortgage loans, but also has significant exposure to commercial real estate, agriculture and construction.
The rating is constrained by relatively low credit quality in the corporate loan book, particularly in real estate projects, tourist resorts and land banks. Additionally, the bank has a high level of corporate exposure in its core markets in Norway's Innlandet county, where the population is declining. A negative development in Stage 3 loans and a high level of recent and projected loan losses relative to its peer group have led us to lower our assessments of credit risk and loan losses. Strong competition in key growth markets outside the core region also constrains the rating.
SpareBank 1 Lom og Skjåk maintains lower liquidity buffers than peers, with projected liquid assets of 11-12% of customer deposits and an average liquidity coverage ratio of 177% over the past four quarters. As a result, we have lowered the short-term rating to 'N3' from 'N2'.
Stable outlook
The stable outlook reflects the bank's strong loss-absorbing capacity, supported by robust pre-provision income and capitalisation. We expect high collateralisation to help contain future loan losses. The bank is also expected to generate sufficient earnings to maintain stable capitalisation, despite anticipated strong loan growth. The stable outlook further reflects the bank's focus on expanding its mortgage loan portfolio.
We could raise the rating if asset quality metrics improve, with net Stage 3 loans below 1.5% of net loans over a sustained period, as well as cost-to-income below 45% and pre-provision income/risk exposure amount above 3% for an extended period. We could also raise the rating if the bank's market position strengthens in its growth markets.
We could lower the rating if the consolidated Tier 1 capital ratio remains below 18%, cash and liquid fixed income assets fall below 10% of customer deposits for an extended period, or there is a material deterioration in the operating environment or asset quality.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
| Tier 2 issue rating: | BBB | BBB |
| Additional Tier 1 issue rating: | BB+ | BB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 12 May 2025, 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.