Rating action

Scope Ratings has affirmed the ratings of Totens Sparebank: Issuer Rating of A- and senior unsecured debt rating of BBB+. Further, the A- Issuer Rating of the bank’s covered bond funding entity, Totens Sparebank Boligkreditt, has been affirmed. All ratings have a Stable Outlook.

Rating rationale

Totens Sparebank’s performance has remained resilient despite the economic disruption caused by the Covid-19 pandemic. For the nine months ending 30 September 2020, the group reported a return on equity of 9.6%. While elevated compared to prior years, credit impairments remain at levels which can be comfortably absorbed by earnings. In the first nine months, NOK 28.5m in provisions have been made, of which NOK 13m has been for Stage 1 and Stage 2 exposures. For the fourth quarter, management does not foresee the need to take provisions beyond normal levels. As of 30 September 2020, problem loans accounted for 0.7% of total loans.

Further, the group’s solvency metrics remain sound. As of 30 September 2020, the leverage and CET1 capital (including the consolidation of stakes in Eika Boligkreditt and Eika Gruppen) ratios stood at 8.4% and 15.8%, respectively.

Totens Sparebank Boligkreditt (TSBB) 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 TSBB is based on its full ownership by Totens Sparebank and its specific purpose. The rating on covered bonds issued by TSBB is AAA.

Key rating drivers

• Savings bank with a strong market position in an economically sound local area of south-east Norway.
   
• Healthy profitability supported by good cost efficiency and low credit costs.
   
• Managed reliance on market funding.
   
• Solid solvency metrics underpinned by savings bank business model.

Rating-change drivers

Potential negative rating-change drivers include: (a) a deterioration in the operating environment which materially impairs the bank’s earnings capabilities, and (b) a loss of the advantages and economies of scale that the bank enjoys from being part of an alliance. Meanwhile sustainable and profitable growth would be viewed favorably.

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s), Bank Rating Methodology published on 4 May 2020 is available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
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 Scope internal sources.
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, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Pauline Lambert, Executive Director.
Person responsible for approval of the rating: Dierk Brandenburg, Managing Director.
The ratings/outlooks were first released by Scope on 30 October 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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