Nordic Credit Rating (NCR) has assigned an 'A-' long-term issuer rating to Norway-based Sparebank 68° Nord. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with an 'A-' senior unsecured issue rating and a 'BBB+' Tier 2 issue rating. The bank currently has no outstanding Additional Tier 1 instruments, but we would rate such instruments three notches below the issuer rating at 'BBB-'.
Rating rationale
The long-term issuer rating reflects the bank's low risk appetite, solid capital position, diverse access to funding and strong earnings. We take a positive view of the bank's membership in the Lokalbanksamarbeidet banking cooperative, which enables product diversity, shared development costs and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Verd Boligkreditt AS.
We expect strong cost efficiency will support Sparebank 68° Nord's core earnings, despite increased pressure on margins due to interest rate cuts. We also expect robust pre-provision profit will offset moderate loan losses. Together with moderate lending growth, we expect the bank's capital ratios will increase within our forecast period through 2026.
The rating is constrained by the bank's concentrated exposure to real-estate collateral located along the 68th parallel north in northern Norway, which includes the regions of Lofoten, Ofoten, Vesterålen and Harstad. It is also constrained by strong competition from larger banks.
Stable outlook
The stable outlook reflects Sparebank 68° Nord's low risk appetite, strong real-estate collateral, improved earnings and strong cost efficiency, which we believe will enable resilience during a modest economic slowdown. We forecast moderate loan growth in 2025 and 2026 and expect capital ratios will remain robust. Moreover, we anticipate a boost in capital ratios resulting from the implementation of the EU's Capital Requirements Regulations III (CRR3).
We view an upgrade as unlikely at this time, given the bank's regional and sectoral concentrations.
We could lower our rating on the bank to reflect a cost-to-income ratio above 50% over a protracted period, a sustained reduction in the Tier 1 capital ratio to below 20%, or a material deterioration in the local operating environment or weakening 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:
Christian Yssen, analyst, +4740019900, christian.yssen@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.