Scope Ratings today assigned first-time issuer ratings of BBB+ to Norwegian savings bank Sandnes Sparebank (Sandnes) and its wholly-owned subsidiary Sandnes Sparebank Boligkreditt AS (SSB). The agency also assigned first-time ratings of BBB to senior unsecured debt issued by Sandnes. All ratings have a Positive Outlook.

The ratings reflect Sandnes’ well-established market position in the city of Sandnes in south-west Norway. Prior to the start of the financial crisis in 2008, the bank had become focused on corporate lending and real estate development which led to loan losses and poor profitability. Management has since materially reduced the bank’s risk profile and returned the bank to its savings bank roots.

While the current management team has been in place only since 2017, the bank’s strategy focused on increasing customer value to generate profitable growth is showing encouraging signs of success. The bank is gaining new retail clients and both brand awareness and market share are increasing.

The bank’s financial profile is becoming increasingly sound, underpinned by solid profitability, lower loan losses, and reassuring prudential metrics. With the steps that have been taken to address legacy asset quality problems and to improve efficiency as well as the change in management’s risk appetite, Scope expects the bank to be more resilient in future downturns. While the Norwegian economy is recovering from the 2014-2015 decline in oil prices, Sandnes’ local market remains subject to more cyclicality as it is the centre of the country’s oil and gas industry.

As with other Norwegian and Nordic banks, Sandnes relies to a material degree on market funding. The use of covered bonds as well as maintaining a high-quality liquidity portfolio helps to mitigate this risk.

SSB is a wholly-owned, specialised credit institution, with the dedicated role of providing secured covered bond funding for its parent. Scope’s issuer rating on SSB is based on its full ownership by Sandnes and on its specific function.

The Positive Outlook reflects the expectation that the changes in strategy and culture being implemented will result in more consistent operating performance, improved asset quality, and earnings stability. Among potential negative rating change drivers, Scope highlights the following: (i) a decline in the operating environment with a material impact on profitability, (ii) losing the benefits of being a member of the Eika Alliance, and (iii) a change in strategic direction which increases the bank’s risk profile.

For the rating report, please click HERE.

Cash flow analysis & stress testing
No cash flow analysis was performed, no stress testing was performed.

Methodology
The methodology used for this ratings and rating outlooks is the Rating Methodology Bank Ratings and it is available under www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.

The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.

Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Pauline Lambert, Executive Director
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director
The ratings/outlooks were first released by Scope on 19.12.2018.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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