Nordic Credit Rating has revised the outlook on its 'BBB+' long-term issuer rating on Norway-based Trøndelag Sparebank to negative from stable. The long-term rating has been affirmed, as have the 'N2' short-term issuer rating, the 'BBB+' senior unsecured issue rating, the 'BBB' Tier 2 issue rating, and the 'BB+' Additional Tier 1 issue rating.
Rating rationale
The outlook revision reflects Trøndelag Sparebank's high level of non-performing loans and the risk that it might not be able to reduce such lending without increasing loan-loss provisions beyond our current projections. We forecast an average of 16bps in credit losses for 2025 and 2026, while taking into account the bank's solid collateral, likely lower interest rates, and a steady decline in non-performing loans through 2027. We have lowered our assessment of risk governance and other risks due to concerns about the bank's strong corporate loan growth. In addition, we have revised our view of the operating environment to capture increased risk to local industries in the bank's export-oriented region of operation in central Norway.
The long-term issuer rating continues to reflect Trøndelag Sparebank's low risk appetite, strong capital position, and ready access to funding. The bank has a cooperation agreement with the Eika Alliance banking association, which we view as positive. We believe that the bank is likely to maintain profitability through improved cost efficiency and loan growth despite pressure on net interest margins due to declining interest rates and growing competition.
The rating is constrained by Trøndelag Sparebank's concentrated exposure to real estate and agriculture in the region west of Trondheim. 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.
Negative outlook
The negative outlook reflects our uncertainty about the adequacy of Trøndelag Sparebank's current loan-loss provisions given the bank's strong growth and high level of non-performing loans. It also reflects shortcomings in the bank's risk management. In addition, it reflects the possibility that profitability is insufficient to finance the bank's growth ambitions of 10% annually. Such expansion would likely lead to weakened capitalisation and reduced loss absorbing capacity.
We could lower the rating to reflect increased loan losses and lack of improvement in asset quality, a Tier 1 ratio below 19% for a protracted period, or risk-adjusted earnings metrics below 2% of pre-provision income to risk exposure amount on a lasting basis.
We could revise the outlook to stable to reflect improved asset quality (as evidenced by reduced loan losses and/or non-performing loans), a Tier 1 ratio sustainably above 19%, pre-provision income to risk exposure amount sustainably above 2%, and cost-to-income below 60%.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Negative | 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 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.