Nordic Credit Rating said today that it had assigned a 'BBB+' long-term issuer rating to Norway-based Voss Veksel- og Landmandsbank ASA (Vekselbanken). The outlook is stable. An 'N2' short-term rating was also assigned, together with a 'BBB+' senior unsecured issue rating, 'BBB' Tier 2 issue rating and a 'BB+' Tier 1 issue rating.
Rating rationale
The long-term issuer rating reflects Vekselbanken's strong earnings and capital position, and low risk appetite. The bank has proven access to capital market financing and few single-name concentrations. Vekselbanken has an ownership and cooperation arrangement with the Eika Alliance banking association which enables product diversity, shared development costs, and the opportunity to finance residential retail mortgage loans through jointly owned covered-bond company Eika Boligkreditt AS.
We expect Vekselbanken to maintain strong earnings over our forecast period through 2026. We also expect credit losses to remain slightly elevated, given the continued effects of recent cost inflation and high interest rates.
The rating is constrained by geographic concentration in the relatively rural local economy of the Voss region and a high proportion of real-estate collateral in the bank's core markets. The rating is also constrained by strong competition from the bank's main owner, Voss Sparebank, and the two banks' largely shared customer base.
Stable outlook
The stable outlook reflects our view that Vekselbanken's strong earnings will compensate for a weakened domestic economy and the bank's slightly elevated credit provisions. We forecast that the bank's cost efficiency will remain stronger than that of its peers and we expect it to maintain strong capital ratios, further boosted by the prospective positive impact of the EU's Capital Requirements Regulations III (CRR3). However, we remain uncertain about the bank's long-term capital strategy.
We could raise the rating to reflect commitment to a consolidated Tier 1 ratio above 22% (6pp above requirements), a lower commuting time between Bergen and Voss leading to stronger regional economic growth, or an improved economic outlook and asset quality.
We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects asset quality, a consolidated Tier 1 ratio below 18% over a protracted period, or pre-provision income/consolidated risk exposure amount below 2% for a protracted period.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB+ |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | BBB+ |
| Tier 2 issue rating: | BBB |
| Additional Tier 1 issue rating: | BB+ |
Contacts:
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Geir Kristiansen, 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 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.