Nordic Credit Rating (NCR) said today that it had assigned an 'A-' long-term issuer rating and 'N-1+' short-term issuer rating to Sweden-based Varbergs Sparbank AB (publ) (Varbergs Sparbank). The outlook on the long-term rating is stable.
"The ratings reflect the bank's very strong capitalisation and local focus," said NCR credit analyst Geir Kristiansen. "Our current loss expectations are moderate given that the COVID-19 pandemic appears to be having a limited impact in the Varberg region," said Mr. Kristiansen.
Varbergs Sparbank is based in Varberg municipality on Sweden's west coast and has a diverse business structure. The bank focuses on private customers and SMEs operating in its core market. It is among Sweden's larger savings banks. 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. Like most Swedish savings banks, Varbergs Sparbank has a cooperation arrangement with Swedbank AB, which provides material diversification of product offering, shared IT costs, and the opportunity to finance retail mortgages via its 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.
The stable outlook reflects our expectations of population and economic growth in the Varberg region and the bank's modest risk appetite. We expect the bank to maintain a very strong balance sheet and prudent underwriting and retain its access to and relationship with Swedbank. In our view, continuing volatility in Swedbank's share price is unlikely to have a major effect on Varbergs Sparbank's capitalisation.
Potential positive rating drivers
- Reduced downside risk for the wider Swedish and local economy.
- Improved core earnings performance.
- Reduced reliance on income from shareholdings.
Potential negative rating drivers
- Worsening of the COVID-19 pandemic, affecting economic activity.
- Lower asset quality metrics and higher credit losses.
- Swedbank-related issues impacting capitalisation or cooperation agreement.
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.