Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based Varbergs Sparbank AB (publ) (Varbergs Sparbank). The outlook is stable. At the same time, the 'A-' senior unsecured issue rating and the 'N-1+' short-term issuer rating was affirmed.
Rationale
Our long-term issuer rating on Varbergs Sparbank reflects the bank's very strong capitalisation and prudent credit portfolio management. The bank is currently reversing provisions made during 2020 and we project credit losses to be low. Like most Swedish savings banks, Varbergs Sparbank has a cooperation arrangement with Swedbank AB, which provides material diversification of its product offering, shared IT costs, and the opportunity to finance retail mortgages via the mortgage arm, Swedbank Hypotek AB. We view this cooperation as significant because it supports Varbergs Sparbank's earnings, market position, product offering, funding and liquidity.
Varbergs Sparbank's earnings metrics are weaker than those of its more efficient and profit-driven domestic peers, but are in line with those of similar savings banks. Varbergs Sparbank is based in Varberg Municipality, on Sweden's west coast. While the region has a diversified business sector, the bank's regional profile creates geographic risk concentrations.
We have improved our assessment of Varbergs Sparbank's operating environment due to a lower risk of COVID-19 related loan losses. We also improved our view of the bank's loss performance.
Stable outlook
Our stable outlook on Varbergs Sparbank reflects our expectations of population and economic growth in the Varberg region and the bank's modest risk appetite. We believe the operating environment for Swedish banks and in Varbergs Sparbank's primary market has improved and will remain stable. We expect the bank to maintain a very strong balance sheet and prudent underwriting, and to retain its access to and relationship with Swedbank. We could raise the rating if core earnings performance were to improve, for example with core cost/income of below 50%. We could lower the rating in the event of a deteriorating operating environment, lower asset quality metrics and higher credit losses, or if Swedbank-related issues were to impact capitalisation or the cooperation agreement.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | A- | A- |
If you have any questions, please contact:
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@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 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.