Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based Varbergs Sparbank AB (publ). The outlook is stable. The 'N2' short-term issuer rating was also affirmed. At the same time NCR affirmed the 'A-' senior unsecured issue rating.
Rating rationale
The long-term rating reflects Varbergs Sparbank's exceptionally strong capitalisation and prudent loan portfolio management. The bank has a high proportion of secured lending and a history of strong asset quality. Varbergs Sparbank has a cooperation agreement with Swedbank AB, which provides material diversification of its product offering, shared IT costs, and the opportunity to finance retail mortgages via 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 Swedish peers, but in line with those of its Nordic savings bank peers. We expect the bank's margins to improve over the near term due to higher interest rates. Varbergs Sparbank is based in Varberg Municipality, on Sweden's west coast. While the Varberg region has a diverse business sector, the bank has notable risk concentrations in the local real estate market.
Stable outlook
The stable outlook reflects our expectations of population and economic growth in the Varberg region. It also reflects the bank's modest risk appetite. We believe that Swedish savings banks will prove resilient to an economic slowdown, supported by strong capital and improving margins. We expect the bank's primary market to remain relatively stable with low unemployment. We also expect the bank's capital ratios and asset quality to remain strong, and that its access to and relationship with Swedbank will continue. We could raise the rating to reflect improved core earnings performance, for example core cost/income below 50% or core pre-provision earnings sustainably above 2.5%. We could lower the rating to reflect a deteriorating operating environment leading to reduced regional growth, asset quality and collateral values. We could also lower the rating to reflect weaker asset quality metrics and higher loan losses or Swedbank-related issues that negatively 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: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.