Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer rating to Norway-based Trøndelag Sparebank. The outlook is stable. An 'N2' short-term issuer rating was also assigned. The bank's unsecured senior debt was rated 'BBB+', its outstanding Tier 2 instruments were rated 'BBB' and its additional Tier 1 instruments were rated 'BB+'.
Rating rationale
The long-term issuer rating reflects Trøndelag Sparebank's low risk appetite, strong capital position, and ready access to funding. The bank was created in 2023 through a merger between Hemne Sparebank and Åfjord Sparebank. It has a cooperation agreement with the Eika Alliance banking association, which we view as positive, as it provides product diversity, shared development costs, and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Eika Boligkreditt AS.
We expect Trøndelag Sparebank to report improved earnings in the 2024–2026 period, despite pressure on its net interest margins due to peaking interest rates and growing competition. We also expect improved cost efficiency to support the bank's earnings.
The rating is constrained by Trøndelag Sparebank's concentrated exposure to real estate and agriculture in the region west of Trondheim in central Norway. Although the bank has a strong market share in its core region, the rating is further constrained by its low, albeit growing, market share elsewhere in Trøndelag county.
Stable outlook
The stable outlook reflects our view that a weakening domestic economy will be offset by stronger earnings metrics, due to improved cost efficiency and volume growth despite moderately higher credit losses. We also believe that the bank will have continued access to risk capital if loan growth outpaces capital generation.
We could raise the rating to reflect a Tier 1 ratio sustainably above 22%, pre-provision income to risk exposure amount (REA) sustainably above 3% and cost-to-income below 45%, or a stronger market position in Trøndelag county.
We could lower the rating to reflect a reduced margin over the common equity Tier 1 capital requirement, a material deterioration in the local operating environment that negatively affects asset quality, or risk-adjusted earnings metrics below 1.5% of REA for a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | BBB+ |
| Tier 2 issue rating: | BBB |
| Additional Tier 1 issue rating: | 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 Group and Government Support Rating Methodology published on 14 Feb. 2024, NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024 and NCR's Rating Principles published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.