Industry Group: Financial Institutions

Sub-Industry: Banks & Trusts

 

 

DBRS has today assigned first-time long- and short-term debt and deposit ratings of A (high) and R-1 (middle), with a Stable trend, to SpareBank 1 SR-Bank (SR-Bank). The ratings are underpinned by the savings bank's solid and defensible franchise in southwestern Norway, by its prudent strategy and strict risk management and by very good financial fundamentals, including good and sustainable profitability. The ratings also take account of SR-Bank's membership in the SpareBank 1 Group - which includes some of Norway's largest savings banks - thus enabling it to benefit from key synergies.

 

SR-Bank is the fifth largest banking group and the second largest savings bank in Norway after DnB NOR. It is remarkably well positioned in the wealthy region of Rogaland, which is Norway's oil and gas activities' centre. The bank focuses mainly on retail and SME clients. Importantly, DBRS notes that SR-Bank has systematically positioned itself at the forefront of Norwegian savings banks' strategic initiatives. For example, it has been one of the first in the savings banks group to prioritize product cross-selling as a revenue growth source (away from excessive reliance on low lending margins) in the early 2000s - especially for insurance and savings-related products. With respect to franchise extension, DBRS notes that SR-Bank is prudently expanding into two neighbouring regions, Hordaland and Agder. In general, while there are no legal or regulatory constraints, SR-Bank will not expand to markets where other SpareBank 1 Group members carry out activities. Importantly, there are no strategic plans for international expansion either - an aspect viewed positively by DBRS.

 

Commenting on the SpareBank 1 Group membership, Anne Caris, Senior Vice President, says that "resulting synergies - both in terms of expenses and know-how - have allowed SR-Bank and other group members to be competitive while remaining independent, an element which is key to protect the local image of each savings bank." Group co-operation, however, remains selective, allowing for individual initiative and specific strengths to stand out. DBRS points to SR-Bank's forward looking and stable management team, well anchored in the local market while attentive to broader trends and opportunities.

 

SR-Bank has in place a solid and reliable risk management process. Earlier this year, its IRB models were approved by the Financial Authority of Norway and the bank already reports under Basel II. DBRS is confident that the bank will avoid aggressive lending - both in its region and beyond.

 

While protected well by a liquidity position which is rigorously managed on a proactive basis, SRBank, similar to most other financial institutions in recent years, has been relying increasingly on market funding to finance its loan growth. DBRS sees this as a challenge, especially given the current more difficult market environment, and expects that the main focus will remain on long-term and stable resources, avoiding excessive reliance on more volatile short-term funds.

 

All these aspects converge towards an "A" Intrinsic Assessment equivalent, boosted by one notch, to the A (high) long-term rating level, by an SA2 support assessment. DBRS says it considers SR-Bank to be systemically important, given its position as one of Norway's largest savings banks. In DBRS's view, the savings bank system is a fundamental component of Norway's financial system and a major provider of retail and SME financial services in the country. Therefore, timely support for SR-Bank is likely, although this scenario remains extremely remote, given the bank's solid intrinsic fundamentals.

 

As future rating drivers, DBRS notes that any strategic choice resulting in a higher risk appetite (for example a material international presence, more aggressive domestic lending, tighter liquidity or excessive market funding) could have negative rating connotations. Conversely, a material improvement in recurring earnings capacity could be a positive rating driver, although DBRS views the current ratings as well positioned for the long term.

 

SR-Bank is headquartered in Stavanger, Norway, and reported assets of NOK93.8 billion (EUR11.8 billion) as of 30 June 2007.

 

Note:

The Senior Unsecured Long-Term Debt and Deposit and Subordinated Notes ratings also apply to the EUR7.5 billion EMTN Programme.

 

The full report providing additional analytical detail is available by clicking on the link below or bycontacting us at info@dbrs.com.

 

Anne Caris

Senior Vice President - European Banking

+44 (0)20 7562 5623

 

Sam Theodore

Managing Director - European Financial Institutions - London

+44 (0)20 7562 5627

stheodore@dbrs.com