Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Norway-based SpareBank 1 (SB1) Østfold Akershus. The outlook is stable. At the same time, the 'N2' short-term issuer rating was affirmed. Furthermore, the 'A' senior unsecured issue rating, 'A-' Tier 2 instrument rating and 'BBB' additional Tier 1 instrument rating were also affirmed.
Rating rationale
The affirmation reflects continued performance in line with our expectations and the bank's strong position in the face of a weaker economic climate.
The 'A' long-term issuer rating on SB1 Østfold Akershus reflects the bank's strong profitability and capitalisation, 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. 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 retail bank providing residential mortgages, but also has exposure to commercial real-estate lending. The rating is constrained by the competitive environment in the bank's operating region and geographic concentration in the loan book.
We have lowered our assessment of SB1 Østfold Akershus' credit risk to reflect the increased risk in the commercial real-estate sector, in particular for development projects. Although the bank generally has high securitisation on these exposures, and has decreased its exposure to development as projects are completed, the sector is facing significant uncertainty, with expectations of falling property values and rising costs.
Stable outlook
The outlook is stable, reflecting our view that SB1 Østfold Akershus has been able to benefit from interest rate increases and that the weakening economic climate will therefore not have a material impact on the bank's stability or profitability. We believe the bank will prove resilient to risk factors, including the slowdown of the domestic housing market and margin pressure from price-competitive peers, thanks to strong capitalisation and earnings.
We believe an upgrade is unlikely at this time, given that earnings and capitalisation are already strong. We could lower the rating to reflect a material deterioration in the regional operating environment that negatively affects the bank's asset quality. We could also lower the rating to reflect growth significantly outpacing capital generation, resulting in a CET1 ratio below 18% over a protracted period, or 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:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.