Swedish Savings Bank Sparbanken Västra Mälardalen Assigned 'BBB+' Rating; Outlook Stable
On 9 January 2019, Nordic Credit Rating assigned its 'BBB+' long-term and 'N-1+' short-term issuer credit ratings to Sparbanken Västra Mälardalen, a Swedish regional savings bank. The outlook is stable. In addition, the bank's senior unsecured debt was rated 'BBB+'.
Our 'BBB+' long-term issuer rating on Sweden-based Sparbanken Västra Mälardalen (SBVM) reflects the bank's very strong capitalisation and regional focus. As a savings bank, SBVM's operations are focused on a specific geographical region and it is operated without an owner or a focus on profit maximisation. Instead, at least 95% of the bank's earnings are retained to secure depositors' funds. Like most Swedish savings banks, the bank has a cooperation arrangement with Swedbank AB, which provides material diversification of product offerings, shared IT costs and the opportunity to finance retail mortgages via Swedbank Hypotek. We view the Swedbank cooperation as significant as it supports earnings, market position, the product offering, funding and liquidity. SBVM is based in Köping, and its other core markets are Kungsör and Arboga in the Västra Mälardalen region of Sweden, with its strong manufacturing industry. The bank focuses on regional private customers and small and medium-sized enterprises (SMEs) operating primarily in its three core markets. However, with total assets of SEK 9.4bn (SEK 12.7bn including transferred loans) it is overshadowed by Sweden's larger banks in the region's larger cities. Earnings metrics are weaker than more efficient and profit-driven Swedish peers but are in line with similar savings banks, and our current loss expectations are low given low interest rates and anticipated economic growth in the region.
Our stable outlook for SBVM reflects expectations of population and economic growth in the region and the bank's modest risk appetite. We expect the bank to maintain a very strong balance sheet, prudent underwriting and retain its access to and relationship with Swedbank.
Potential positive rating drivers
- Improved core earnings performance resulting in higher capital generation.
- Reduced reliance on income from shareholdings and fixed income investments.
Potential negative rating drivers
- Material economic changes in the region, such as factory closures, leading to reduced economic activity and employment.
- Reduced cooperation with Swedbank.
- Material changes in underwriting leading to increased credit risk concentration.
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.
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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).