Nordic Credit Rating has affirmed its 'BBB+' long-term issuer rating on Norway-based Tolga-Os Sparebank. The outlook is stable. The 'N2' short-term rating, 'BBB+' senior unsecured issue rating, 'BBB' Tier 2 issue rating, and 'BB+' Additional Tier 1 issue rating have also been affirmed, in accordance with NCR's revised financial institutions rating methodology. The ratings are no longer under criteria review.
Rating rationale
The long-term issuer rating reflects the bank's robust capital position, access to funding and strong earnings. We take a positive view of the bank's membership in the Lokalbank 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 Tolga-Os Sparebank to maintain strong earnings over our forecast period through 2027. However, we have revised our assessment of the bank's earnings to reflect margin pressure and a higher medium term cost base. We also expect credit losses to remain slightly elevated, given the continued effects of recent cost inflation and high interest rates. Nevertheless, we have increased our loss performance assessment due to the bank's low level of net stage 3 loans relative to peers.
The rating is constrained by geographic concentration in the relatively rural local economy of Østerdalen in eastern Norway and a high proportion of real-estate collateral in the bank's core markets. It is also constrained by stronger competition in the bank's new growth markets of Elverum and Hamar than in its historical core markets further north.
Stable outlook
The stable outlook reflects our view that Tolga-Os Sparebank's strong earnings will compensate for a potentially weaker domestic economy and slightly elevated credit provisions over the next few years. We forecast that the bank's cost efficiency will remain better than that of its peers and expect it to maintain robust capital ratios despite strong loan growth, following a recent improvement due to implementation of the EU's Capital Requirements Regulations III (CRR3).
We could raise the rating to reflect a consolidated Tier 1 ratio sustainably above 22%, pre-provision income to risk exposure amount (REA) sustainably above 3%, and improved scale and reduced concentration risk in the loan book.
We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects asset quality, a lasting reduction in the Tier 1 capital ratio to below 18%, and risk-adjusted earnings metrics below 2% of REA over a protracted period.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
| Tier 2 issue rating: | BBB | BBB |
| Additional Tier 1 issue rating: | BB+ | BB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@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 12 May 2025, 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.