Norwegian credit institution Kredittforeningen for Sparebanker Assigned 'A-' Rating; Outlook Stable

On 13 February 2019, Nordic Credit Rating assigned its 'A-' long-term and 'N-1+' short-term issuer credit ratings to Kredittforeningen for Sparebanker, a Norwegian credit institution which provides medium- and long-term senior loans to savings banks. The outlook is stable. In addition, the company's senior unsecured debt was rated 'A-'.

Rating rationale
Our 'A-' long-term issuer rating on Kredittforeningen for Sparebanker (KfS) reflects the company's strong capitalisation and low risk appetite. KfS is a cooperative, non-profit credit institution serving its member Norwegian savings banks. The company funds only investment-grade savings banks, resulting in concentrated but high-quality credit exposure. NCR's weighted average credit assessment of KfS' loan portfolio is 'bbb+'. KfS has yet to experience credit losses and we believe that the company's own default risk is lower than the average of its customers given the benefits of diversification. KfS is funded by senior loans with approximately the same maturity as its individual loans and has minimal refinancing and interest rate risk.

The small size of the organisation affects our view of risk governance and operational risk factors. KfS has a simple business model and a relatively low transaction volume. We find that risk governance and internal risk reporting are adequate considering the company's risk profile, lack of complexity and cooperation with its member banks. Changes in regulation, such as the EU's upcoming bank capital and liquidity package (CRR II/CRD V), could affect KfS' business model by increasing capital charges on interbank exposures.

Outlook
The stable outlook reflects the strong operating environment for Norwegian banks and KfS' modest risk profile. We believe that possible challenges for the company's business model due to regulatory changes will not result in higher default risk given its high asset quality and low refinancing and liquidity risk.

Potential positive rating drivers

• Increased loan diversification and stronger market position.
• Improved credit quality of debtors (savings banks).
• Increased profitability improving resilience.

Potential negative rating drivers

• Lower credit quality of debtors either due to idiosyncratic or macroeconomic stress.
• Continuing fall in business volumes or increased concentration on lower credit quality.
• Lower capitalisation.

The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology and Rating Principles, published on 14 August, 2018. For the full regulatory disclaimer please see the rating report which can be downloaded at nordiccreditrating.com/ratings-research/research.

Contact details:
Geir Kristiansen, Credit Rating Analyst, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, Lead Analyst, +46 732 324 378, sean.cotten@nordiccreditrating.com

Nordic Credit Rating AS is a credit rating agency headquartered in Oslo with a branch in Stockholm. The company provides credit ratings to companies and financial institutions in the Nordic region, and bases its analysis on local insights. Nordic Credit Rating is registered with the European Securities and Markets Authority (ESMA).