Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Norway-based SpareBank 1 Østfold Akershus (SB1 Østfold Akershus). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. At the same time NCR affirmed its 'A' issue ratings on SB1 Østfold Akershus's senior unsecured bonds, affirmed its 'A-' issue ratings to its tier 2 bonds and affirmed its 'BBB' issue ratings to its additional tier 1 bonds.
Rationale
The rating reflects the bank's strong profitability and capitalisation, as well as its exposure to a growth region of Norway which has been less affected by the COVID-19 pandemic than most of the rest of the country. The bank is part of the SpareBank 1 Alliance, which we view as supportive of business diversity, operating efficiency, and liquidity. The bank has very strong pre-provision profitability, driven by higher net interest margins and a higher share of fee income in revenues than its peers, as well as strong cost efficiency. SB1 Østfold Akershus is predominantly a mortgage retail bank but also has exposure to commercial real estate lending. The rating is constrained by the competitive environment in the region and geographic concentration in the loan book.
Unlike most Norwegian savings banks, SB1 Østfold Akershus' equity belongs almost entirely to the owners of the bank's equity capital certificates. Consequently, the bank relies on the equity market to finance growth. Two foundations control about two-thirds of the certificates. We view the ownership structure as supportive of our standalone credit assessment, but do not notch explicitly to reflect any potential for support.
We have improved our assessment of SB1 Østfold Akershus's operating environment due to a lower risk of COVID-19 related loan losses. We have also revised our view of the bank's risk-adjusted earnings to consider the consolidated risk exposure amount.
Stable outlook
The stable outlook reflects our view that the ongoing pandemic will have only a modest impact on the Norwegian economy. It also reflects our view that SB1 Østfold Akershus is well positioned to benefit from likely future interest rate increases. We believe that the bank will prove resilient to risk factors, including a possible slowdown of the domestic housing market and margin pressure from price-competitive peers, thanks to strong capitalisation and earnings. An upgrade is unlikely at this time given the bank's already strong earnings and capitalisation and a benign loss environment. We could lower the rating to reflect an economic downturn leading to deteriorating credit quality, growth significantly outpacing capital generation, or increased competition leading to lower profitability.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A | A |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | A | A |
| Tier 2 issue rating: | A- | A- |
| Additional Tier 1 issue rating: | BBB | BBB |
Contacts:
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@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 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.