Norwegian Savings Bank SpareBank 1 Østfold Akershus Assigned 'A' Rating; Outlook Stable

On 28 November 2018, Nordic Credit Rating assigned its 'A' long-term and 'N-1+' short-term issuer credit ratings to SpareBank 1 Østfold Akershus, a Norwegian regional savings bank. The outlook is stable. In addition, the bank's senior unsecured debt was rated 'A', its Tier 2 capital instruments 'A-' and its Tier 1 instruments 'BBB'.

The full rating report can be downloaded here.

Rating rationale
Our 'A' long-term issuer rating on SpareBank 1 Østfold Akershus reflects the bank's strong profitability and capitalisation, as well as its exposure to a growth region in south-eastern Norway. The bank is part of the SpareBank 1 Alliance, which we view as supportive for business diversity, operating efficiency and liquidity. The bank has very strong pre-provision profitability, driven by higher net interest margins and a higher share of fee income in revenues than peers, as well as strong cost efficiency. Loan losses are also currently at low levels and are expected to remain low over the next few years. SpareBank 1 Østfold Akershus is predominantly a mortgage retail bank but has also exposure to commercial real-estate lending. There are, however, no signs of a pricing bubble or overinvestment in commercial real estate in the region.

Unlike most Norwegian savings banks, SpareBank 1 Østfold Akershus' equity belongs almost entirely to the owners of the bank's equity capital certificates (ECCs) and the bank is utilising the equity market to finance growth. Two foundations control approximately two-thirds of the ECCs. We view the ownership structure as supportive for our standalone credit assessment, but do not notch explicitly to reflect the potential support.

Outlook
The stable outlook reflects the benign domestic and regional operating environment and SpareBank 1 Østfold Akershus' low to moderate risk appetite. We expect the bank to deliver stable growth slightly above the market average, and stable underlying profitability over the next three years. We do not expect the bank to make any major acquisitions or enter new geographical markets during our forecast period.

Potential positive rating drivers

• An upgrade is unlikely at this time, given already very strong earnings and capitalisation and a benign loss environment.

Potential negative rating drivers

• Growth significantly outpacing capital generation.
• Increased competition leading to lower profitability.
• An economic downturn leading to deteriorating credit quality

The methodology used for this rating was NCR's Financial Institutions Rating Methodology, published in August 2018.

If you have any questions, please contact:
Geir Kristiansen, Analyst, +47 90 78 45 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, Lead analyst, +46 732 32 43 78, 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).