Limassol, February 12, 2019 -- Moody's Investors Service, ("Moody's") has today assigned a first
time A2 long-term issuer rating, long- and short-term
Counterparty Risk Assessment (CRA) of A1(cr) and Prime-1(cr) respectively,
as well as long- and short-term Counterparty Risk Ratings
(CRR) of A1 and Prime-1 respectively to SpareBank 1 Boligkreditt
AS, a specialized covered bond issuer owned by an Alliance of 14
Norwegian savings banks.
The assigned ratings reflect Moody's view of the weighted-average
credit profile of the larger individual banks forming the SpareBank 1
Alliance as reflected in the ratings assigned, as well as the agency's
assessment of the likelihood that these banks will support SpareBank 1
Boligkreditt in case of need. The assigned outlook on the issuer
rating is negative, in line with the rating outlook of four of the
largest owner banks reflecting potential downward rating pressure due
to the domestic implementation of EU's Bank Recovery and Resolution Directive
(BRRD) from 1 January 2019.
SpareBank 1 Boligkreditt's primary business purpose is to provide access
to the international covered bond markets to the 14 Norwegian savings
banks belonging to the SpareBank 1 Alliance, the second largest
banking group in Norway with around 21.2% combined market
share in residential mortgages as of June 2018. These banks have
a collective legally-binding agreement to provide liquidity and
capital support to SpareBank 1 Boligkreditt in case of need, the
rating agency said. Although individual members operate independently
from each other, Moody's takes into account in its assessment the
various benefits that the SpareBank 1 Alliance provides such as a shared
information technology infrastructure, marketing and common non-core
banking products/services through affiliate companies, which act
as incentives for member banks to remain members of the SpareBank 1 Alliance
and support SpareBank 1 Boligkreditt.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The key drivers for SpareBank 1 Boligkreditt's long-term issuer
rating of A2 are: 1) the relatively strong credit profiles of the
larger banks that form the Alliance, which is reflected in their
assigned issuer ratings and the high quality assets they transfer to SpareBank
1 Boligkreditt; and 2) Moody's assessment of the probability that
member banks would provide support to the covered bond entity, taking
into account the balance of their obligations and incentives to do so
under the SpareBank 1 structure.
- The anchor point for SpareBank 1 Boligkreditt reflects the larger
owner banks' issuer ratings
SpareBank 1 Boligkreditt's A2 long-term issuer rating is mainly
underpinned by the five largest member banks' issuer ratings (indicating
a weighted-average issuer rating of A1), which collectively
own 71.3% of SpareBank 1 Boligkreditt as of December 2018.
Similarly, the CRA and CRR assigned to SpareBank 1 Boligkreditt,
are also driven by the respective ratings assigned to the top five banks
of the Alliance, which are as follows including their shareholding
based on the assets they transferred to SpareBank 1 Boligkreditt:
-- SpareBank 1 Ostlandet (Issuer Rating of A1 negative,
CRA of Aa3(cr)/P-1(cr), CRR of Aa3/P-1, shareholding
of 21.6%)
-- SpareBank 1 SMN (Issuer Rating of A1 negative,
CRA of Aa3(cr)/P-1(cr), CRR of Aa3/P-1, shareholding
of 20.7%)
-- SpareBank 1 Nord-Norge (Issuer Rating of A1 negative,
CRA of Aa3(cr)/P-1(cr), CRR of Aa3/P-1, shareholding
of 17.8%)
-- SpareBank 1 BV (Issuer Rating of A2 stable, CRA
of A1(cr)/P-1(cr), CRR of A1/P-1, shareholding
of 6.4%)
-- SpareBank 1 SR-Bank ASA (Issuer Rating of A1 negative,
CRA of Aa3(cr)/P-1(cr), CRR of Aa3/P-1, shareholding
of 4.8%)
The credit profiles of the top five Alliance banks constitute the anchor
point that drives the ratings assigned to SpareBank 1 Boligkreditt.
These Alliance banks maintain relatively strong financial fundamentals,
with limited variations in overall credit quality amongst individual members.
While most of them focus on residential mortgages and commercial real-estate
lending in a relatively small geographic area, which typically translate
in high concentration levels, they also tend to feature similar
strengths, such as strong overall asset quality metrics and robust
capital buffers. Accordingly, all five banks have currently
a baseline credit assessment (BCA) of baa1, reflecting their relatively
solid financial position.
Moody's assessment of the member banks' credit risk profiles also incorporates
an analysis of individual banks' liability waterfalls in line with the
rating agency's Loss Given Failure (LGF) analysis. The results
of the banks' respective LGF analysis are similar, indicating two
notches uplift for banks' issuer ratings from their BCA, driven
by the relatively high volume of senior debt and deposits that could absorb
losses in a potential resolution scenario.
Moody's also notes that four of the larger banks' credit profiles,
with the exception of SpareBank 1 BV, also benefit from one notch
of rating uplift due to government support, reflecting the agency's
assumption of a moderate likelihood of support from the government in
case of need. However, the implementation of the BRRD resolution
framework in Norway from 1 January 2019 will likely induce Moody's to
revise downwards its government support assumptions for these banks,
as indicated by the negative outlook attached to their issuer ratings.
- Moody's view of the likelihood owner banks will support SpareBank
1 Boligkreditt in case of need
The ratings assigned to SpareBank 1 Boligkreditt incorporate Moody's view
of the likelihood that the owner banks will support SpareBank 1 Boligkreditt
and its creditors, which translates into a long-term Issuer
rating of A2 and a long-term CRA of A1(cr) and CRR of A1.
While there is no explicit commitment/guarantee from the banks to directly
support SpareBank 1 Boligkreditt's obligations vis-à-vis
its bondholders, the agency notes that legal and publicly-available
agreements currently in place between the Alliance banks and SpareBank
1 Boligkreditt safeguard its own access to adequate liquidity and capital.
Specifically, the owner banks have agreed to maintain SpareBank
1 Boligkreditt's common equity Tier 1 (CET1) capital ratio (13.1%
as of December 2018) above its regulatory requirement (currently at 12.8%),
and to subscribe to any new covered bond issues in case there is a disruption
in the covered bond market. Moreover, in case one or more
of owner banks are not able to provide their share of capital or liquidity,
the remaining banks may be required by SpareBank 1 Boligkreditt to increase
their contribution up to a maximum of twice their initial allocation.
Additionally, the agency's view also reflects other factors that
contribute in its assessment such as the absence of any provision to avoid
payment under the agreement, SpareBank 1 Boligkreditt's strategic
fit and strong operational integration with the Alliance banks,
as well as the reputational and operational risks associated to the sharing
of a common brand and a common technology platform.
OUTLOOK
The negative outlook assigned to SpareBank 1 Boligkreditt's issuer rating
is in line with the negative outlook of four of the larger banks'
issuer ratings, and reflects Moody's expectation that it will revise
downwards its government support assumptions for these banks, which
will likely exert negative rating pressure to both the owner banks and
SpareBank 1 Boligkreditt.
WHAT WOULD MOVE THE RATINGS UP/DOWN
Positive pressure would develop on the ratings following improvements
in the risk profile of a significant proportion of the owner banks,
as evidenced by improving asset quality and profitability metrics and
reduced concentration levels. A full guarantee of SpareBank 1 Boligkreditt's
obligations by the owner banks would also result in an upgrade.
The ratings would be downgraded if the credit profile of a significant
portion of the banks weakens significantly, as evidenced by worsening
financial fundamentals or a reduced likelihood of the banks supporting
SpareBank 1 Boligkreditt, as indicated by a loosening in the support
agreements between SpareBank 1 Boligkreditt and the banks that are currently
in place. SpareBank 1 Boligkreditt's ratings will also be
downgraded in case the owner banks' ratings are downgraded due to
the revision of our government support assumptions.
LIST OF AFFECTED RATINGS
Issuer: SpareBank 1 Boligkreditt AS
Assignments:
....LT Issuer Rating, Assigned A2,
Outlook assigned Negative
....LT Counterparty Risk Assessment,
Assigned A1(cr)
....ST Counterparty Risk Assessment,
Assigned P-1(cr)
....LT Counterparty Risk Ratings, Assigned
A1
....ST Counterparty Risk Ratings, Assigned
P-1
Outlook
...Outlook assigned Negative
SpareBank 1 Boligkreditt AS is based in Stavanger, Norway and had
total assets of NOK245.5 billion as of December 2018 (€24.6
billion).
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. 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.
Nondas Nicolaides
VP - Senior Credit Officer
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
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
