Nordic Credit Rating said today that it had assigned a 'A-' long-term issuer rating to Norway-based Sparebanken Narvik. The outlook is stable. An 'N2' short-term issuer rating was also assigned, together with a 'A-' senior unsecured issue rating.
Rating rationale
The long-term issuer rating reflects Sparebanken Narvik's exceptional capital position, low risk appetite and strong earnings. The bank has a cooperation agreement with the Eika banking alliance, which we view as positive, as it provides product diversity, shared development costs, and the opportunity to finance residential retail mortgages through mortgage company Eika Boligkreditt. We expect strong cost efficiency to support the bank's core earnings despite a likely decline in net interest margins over the next few years. We also expect robust pre-provision profit to offset elevated loan losses due to a slowdown in the overall economy.
We expect Sparebanken Narvik to maintain strong earnings and robust cost efficiency over our forecast period through 2026. Together with moderate lending growth, significant gift contributions to the local community and customer dividend payments, we expect the bank's capital ratios to stabilise at relatively high levels from 2025 in comparison with those of its peers. In addition, we estimate elevated, but low, credit losses following a five-year period of zero losses on an accumulated basis.
The rating is constrained by the bank's concentrated exposure to real estate in the Narvik and Mid-Troms regions. It is also constrained by strong competition and a low market share in Mid-Troms.
Stable outlook
The stable outlook reflects our view that a weak economic climate and projected credit losses will be offset by strong capital and strong earnings metrics. We believe Sparebanken Narvik's low risk appetite, strong real-estate collateral, improved earnings, and strong cost position will enable resilience to a moderate slowdown in the economy. We forecast that the bank's cost efficiency and capital ratios will remain at levels better than those of its peers. We expect Sparebanken Narvik's capital ratios to be further boosted by the prospective positive impact of implementing the EU's Capital Requirements Regulations III.
An upgrade is unlikely at this time, given the bank's regional and sectoral concentrations.
We could lower the rating to reflect a material deterioration in the regional operating environment or increased risk appetite, a lasting reduction in the Tier 1 capital ratio to below 20%, or risk-adjusted earnings metrics below 2% of risk exposure amount or cost/income above 50% over a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.