Limassol, November 04, 2016 -- Moody's Investors Service has today affirmed Sparebanken Sor's A1
long-term local- and foreign-currency deposit and
issuer ratings, and changed the outlook to stable from negative.
The bank's Prime-1 short term deposit ratings, baa1
Baseline Credit Assessment (BCA) and Aa3(cr) Counterparty Credit Assessment
were also affirmed.
The affirmation of Sparebanken Sor's BCA reflects the bank's
resilient asset quality profile despite a difficult environment,
its strengthened capital as well as its mixed funding profile.
The affirmation of the bank's A1 long-term deposit and issuer
ratings also reflect the application of Moody's Loss Given Failure
analysis and the rating agency's view of a "Moderate"
likelihood of government support in case of need.
The change in outlook to stable from negative reflects Moody's view that
Sparebanken Sor's financial performance will remain resilient over
the next 12-18 months, maintaining the steady performance
it has delivered in the first nine months of 2016 despite the softening
of the operating environment in Norway.
A full list of the ratings affirmed is provided at the end of this press
release.
RATINGS RATIONALE
AFFIRMATION OF THE RATINGS
A key driver for the affirmation of Sparebanken Sor's ratings is
the soundness of its asset quality profile, supported by the strength
of its mortgage book. The bank's ratio of NPLs improved to
1.13% as of September 2016, from 1.48%
at December 2015. The solid performance of Sor's loan book
is supported by the bank's mortgage book (accounting for around 59%
of total loans as of September 2016), which is well buffered,
with around 80% of loans having a loan-to value ratio below
75%, and provides a stable core of earnings. This
strength is balanced against the bank's concentrated exposure to
the construction and real estate sector, which accounts for around
23% of gross loans.
The ratings affirmation also reflects Sparebanken Sor's recently
increased capitalisation, which positions the bank well relative
to the regulatory minimum ahead of the 1 January 2017 implementation update.
Sparebanken Sor's Common Equity Tier 1 (CET 1) capital ratio increased
to 13.6% at the end of September 2016 from 12.7%
in December 2015. In addition, the bank's reported a leverage
ratio of 7.7% as of September 2016, which compares
favorably with similarly-rated local peers.
Although Sparebanken Sor's funding is predominantly made of deposits
(accounting for around 54% of non-equity funding as of September
2016), the bank's ratings also capture its high exposure to
confidence sensitive market funding at around 27% of total liabilities
as of September 2016.
The ratings affirmation also captures the bank's resilient profitability
in the first nine months of 2016 despite the softening in the operating
environment. Sparebanken Sor's credit costs declined to 0.04%
of gross loans in the first nine months of 2016, supporting a 51%
annual increase in profit despite flat core income. The bank's
bottom line also benefitted from strong growth in profit from financial
assets as well as by one-off gains relating to the sale of Visa
Europe to Visa Inc in the second quarter of 2016 and the sale of the payment
service provider NETS in 2014.
Sparebanken Sor's long-term deposit and issuer ratings of A1 continue
to benefit from a very low probability of default, as per Moody's
assessment of the bank's liability structure under the rating agency's
loss given failure (LGF) analysis, resulting in a two-notch
uplift from its BCA. The rating agency's expectation of a moderate
probability of government support also continues to result in one additional
notch of rating uplift, also contributing to the affirmation of
the bank's deposit and issuer ratings.
THE CHANGE IN THE OUTLOOK TO STABLE FROM NEGATIVE
The change in outlook to stable from negative reflects Moody's view that
Sparebanken Sor's financial performance will remain resilient over
the next 12-18 months, maintaining the steady performance
it has delivered in the first nine months of 2016 despite the softening
of the operating environment in Norway.
WHAT COULD CHANGE THE RATING UP/DOWN
Over time, upward pressure could develop if the bank demonstrates
a combination of: (1) reduced exposure to more volatile sectors
such as construction and real estate sectors; (2) sustained strong
asset quality and (3) a strengthening in core earnings generation.
Downward rating pressure would develop on Sparebanken Sor's ratings if:
(1) the bank's NPLs were to be expected to increase substantially;
(2) its profitability were to deteriorate materially from its current
level and/or (3) the macroeconomic environment weakens meaningfully.
Also, any change in the liability structure of the bank that would
cause a reduction in the rating uplift under Moody's LGF analysis
or, similarly, a revision of the government support assumptions,
could lead to downward rating pressure.
LIST OF AFFECTED RATINGS
Issuer: Sparebanken Sor
Affirmations:
....LT Issuer Rating (Local & Foreign
Currency), Affirmed A1, Outlook Changed To Stable From Negative
....LT Bank Deposits (Local & Foreign
Currency), Affirmed A1, Outlook Changed To Stable From Negative
....ST Bank Deposits (Local & Foreign
Currency), Affirmed P-1
....Senior Unsecured MTN (Local & Foreign
Currency), Affirmed (P)A1
....Adjusted Baseline Credit Assessment,
Affirmed baa1
....Baseline Credit Assessment, Affirmed
baa1
....LT Counterparty Risk Assessment,
Affirmed Aa3(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
Outlook Actions:
....Outlook, Changed To Stable From
Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Melina Skouridou, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
