Nordic Credit Rating has affirmed its 'A' long-term issuer rating on Sweden-based savings bank Varbergs Sparbank AB (publ). The outlook is stable. The 'N2' short-term issuer rating and the 'A' senior unsecured issue ratings have also been affirmed.
Rating rationale
The affirmation reflects our view that the bank’s core earnings metrics have stabilised following recent sharp interest rate fluctuations, and we expect them to remain flat through our forecast period. We expect increased demand in the bank’s core markets to support growth without significant additional margin pressure, with on-balance-sheet growth underpinned by the bank’s strategy of retaining retail mortgages rather than transferring them to Swedbank Hypotek.
Varbergs Sparbank continues to report very strong asset quality metrics. We do not anticipate material increases in Stage 3 loans, and our forecast for loan loss provisions reflects our view that the bank will maintain prudent provisioning as it grows its loan book. We have raised our assessment of the bank's loss performance, reflecting its relative strength despite some single-name concentrations that increase downside risk.
Figure 1. Varbergs Sparbank key credit metrics, 2022–2028e
% | 2022 | 2023 | 2024 | 2025 | 2026e | 2027e | 2028e |
Net interest margin | 1.5 | 2.4 | 2.2 | 1.8 | 1.7 | 1.7 | 1.7 |
Core pre-provision income/REA | 2.2 | 3.7 | 3.2 | 2.3 | 2.3 | 2.3 | 2.4 |
Core cost-to-income | 53.9 | 42.6 | 47.4 | 56.5 | 57.4 | 55.5 | 53.3 |
Return on ordinary equity | 5.7 | 8.2 | 7.7 | 6.5 | 6.2 | 4.8 | 5.2 |
Loan losses/net loans | 0.27 | -0.07 | -0.09 | -0.05 | 0.05 | 0.05 | 0.05 |
Net Stage 3/net loans | 0.78 | 0.25 | 0.28 | 0.10 | 0.10 | 0.10 | 0.10 |
CET1 ratio | 34.4 | 37.1 | 37.3 | 43.9 | 43.9 | 43.5 | 43.1 |
Source: company and NCR. All metrics adjusted in line with NCR methodology. Core represents net interest income and net fee & commission income.
Stable outlook
The stable outlook reflects our expectation that Varbergs Sparbank will begin to use its excess capital to support growth while maintaining its low to moderate risk appetite. However, given strong capital generation and a focus on retail mortgages with low risk weights, capital ratios are expected to remain well above requirements for the foreseeable future. The stable outlook also reflects our expectation that the regional economy will continue to perform in line with or better than the domestic average, but is not dependent on the success of individual investments in the bank's market.
An upgrade is unlikely at this time, given the bank's regional and sectoral concentration.
We could lower the rating to reflect a decline in core earnings (core cost-to-income above 60% and risk-adjusted earnings below 2%). We could also lower the rating to reflect a material deterioration in the regional operating environment or increased risk appetite, or a common equity Tier 1 ratio below 22% over a protracted period.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A | A |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A | A |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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.