Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Norway-based savings bank SpareBank 1 Østfold Akershus. The outlook is stable. The 'N2' short-term issuer rating was also affirmed, as were the 'A' issue rating on the bank's senior unsecured debt, the 'A-' issue rating on its Tier 2 instruments, and the 'BBB' issue rating on its additional Tier 1 instruments.
Rating rationale
Our 'A' long-term issuer credit rating on SB1 Østfold Akershus continues to reflect the bank's strong profitability and modest risk appetite, as well as its exposure to a growth region of Norway. The bank is part of the SpareBank 1 Alliance, which we view as supportive of business diversity, operating efficiency, and liquidity. We expect the bank will maintain a strong earnings profile despite increasing pressure on interest rate margins as interest rates reduce, due to its diverse revenue sources. While we expect loss provisions and non-performing loans to remain at slightly elevated levels in 2025, we believe earnings will be sufficiently strong to mitigate a reduction in capital generation. We expect financial risk in the construction and property development sectors to continue at least throughout 2025, but consider the risk for realised loan losses to be low. Our view of the bank's risk governance has improved due to steady improvements in recent years and a reduction in its risk appetite for project development exposure.
The rating is constrained by the competitive environment in the bank's operating 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 (ECCs). Two foundations control about two-thirds of the ECCs. We view the ownership structure as supportive of our standalone credit assessment, but do not incorporate prospective support into the rating.
Stable outlook
The stable outlook reflects our view that SB1 Østfold Akershus is able to benefit from interest rate increases while maintaining solid loan growth. We believe that a continued weak economy will lead to non-performing loans and loan-loss provisions remaining elevated, but that this will not materially weaken the bank's stability or profitability. We expect SB1 Østfold Akershus' capital ratios will be further boosted by the prospective positive impact of implementing the EU's Capital Requirements Regulations III (CRR3).
An upgrade is unlikely at this time, given earnings and capitalisation are already strong.
We could lower the rating to reflect a material deterioration in the regional operating environment that negatively affects asset quality. We could also lower the rating to reflect growth significantly outpacing capital generation, resulting in a Tier 1 ratio below 18% over a protracted period, or in case of increased competition leading to lower profitability and a weaker market position.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A | A |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A | A |
| Tier 2 issue rating: | A- | A- |
| Additional Tier 1 issue rating: | BBB | BBB |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, 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 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.