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24 Mar 2011
First-time ratings
London, 24 March 2011 -- Moody's Investors Service has today assigned a C- bank financial
strength rating (BFSR) and A1 long-term and Prime-1 short-term
local and foreign currency deposit ratings to Sparebanken Hedmark,
a Norwegian savings bank. The outlook on all ratings is stable.
RATINGS RATIONALE
Sparebanken Hedmark' C- BFSR, which maps to a Baseline Credit
Assessment (BCA) of Baa1, reflects the bank's solid regional franchise,
sound capital levels and resilient retail business. However,
the rating is primarily constrained by the bank's limited geographic reach
and some borrower and industry concentration in its loan book.
Sparebanken Hedmark enjoys a sound market position in the county of Hedmark,
Eastern Norway, where it commands a market share of almost 40%
for lending and around 50% for deposits. In addition,
Sparebanken Hedmark benefits from its membership in the SpareBank 1 Alliance,
which consists of 17 savings banks across Norway, together constituting
the third largest banking group in Norway. In light of the bank's
regional importance and the bank's membership in the SpareBank 1
Alliance, Moody's assesses a high probability of support from the
government of Norway in a stress scenario. It also factors a low
probability of support from the other banks in the Alliance. As
a result, the bank's A1 long-term deposit rating incorporates
a three-notch uplift from the Baa1 BCA, under Moody's Joint
Default Analysis methodology.
The bank delivered good income levels throughout the financial crisis,
primarily on the back of moderate loan loss provisions and resilient core
banking earnings supported by positive loan growth and improving fee and
commission income. However, Moody's notes that the keen competition
in Norwegian banking market, especially in the retail sector,
could make it difficult for Sparebanken Hedmark to sustain the positive
trend in income.
Loans to retail customers (including loans transferred to SpareBank 1
Boligkreditt, the Alliance's covered bond company) account for almost
70% of the bank's loan book. The rest of the loan
portfolio is to corporate customers, which are mainly SMEs.
The rating agency notes that the loan portfolio exhibits high borrower
concentration, albeit somewhat lower than most of its rated Norwegian
peers. In addition, it comprises a sizeable exposure to property
management and construction (14%), which we assess as relatively
more volatile sectors.
At year-end 2010, the bank reported a Tier 1 ratio of 15.1%
(Basel II, standardised approach), which is one of the strongest
levels in the region. So far, the bank's asset quality
has remained good, though we observed an increasing trend in the
problem loans, which stood at around 2.5% of gross
loans at year-end 2010. Moody's cautions that future
developments in asset quality remain uncertain, especially in the
context of expected hikes in interest rates combined with a housing market
bubble possibly developing in Norway. Nevertheless, according
to the rating agency's estimations of potential credit losses,
Sparebanken Hedmark's current capital level allows it to absorb
anticipated deterioration in asset quality at its current BFSR level.
Sparebanken Hedmark's funding profile is underpinned by a large
deposit base, which covers around 70% of gross loans.
The bank is also reliant on market funding (one third of total external
funding), though to a lesser extent than most of its Nordic rated
peers, and is increasingly funding itself on the booming Norwegian
covered bond market through the SpareBank 1 alliance's jointly-owned
covered bond company, SpareBank 1 Boligkreditt.
Any upgrade of the BFSR would have to be accompanied by a sustained improvement
in core banking earnings and some reduction in the bank's credit risk
concentrations, combined with sustained capitalisation and liquidity
position. Conversely, the BFSR would be negatively affected
in the event of any increase in credit risk related to the bank's large
exposures or more volatile sectors or any other significant weakening
of asset quality. Moody's notes that deterioration in the bank's
capital or market positions could also have adverse rating implications.
The principal methodologies used in this rating were "Bank Financial Strength
Ratings: Global Methodology", published February 2007 and
"Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology", published in March 2007.
Headquartered in Hamar, Norway, Sparebanken Hedmark reported
total assets of almost NOK42 billion (EUR5.3 billion) at year-end
2010.
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Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
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London
Janne Thomsen
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Assigns A1/Prime 1 Deposit Ratings and C- Financial Strength Rating to Sparebanken Hedmark
No Related Data.
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