Rating action

Scope Ratings UK Limited (Scope) has today affirmed Sandnes Sparebank’s issuer rating of A- and its senior unsecured debt rating of BBB+. The A- Issuer Rating of SSB Boligkreditt AS, a wholly owned covered bond issuing entity of the bank, was also affirmed. All ratings have a Stable Outlook.

Rating rationale

The affirmation of ratings with a Stable Outlook reflects Scope’s view that the credit profile of Sandnes Sparebank has remained resilient throughout the pandemic. Sandnes Sparebank is a well-established local savings bank operating in south-west Norway. A focus on retail clients and mortgage lending supports earnings stability and membership in the Eika Alliance brings significant efficiency and technology benefits.

Under Scope’s bank rating methodology, the “long-term sustainability” assessment (ESG factor) captures how relevant environmental, social and governance (ESG) factors as well as an issuer’s preparedness for digital transition (D), may impact creditworthiness and the ability to repay debt. As part of the first-time implementation of this methodology, Scope has assigned an assessment of “developing” to Sandnes Sparebank. The group is actively embracing developments in ESG-D and sustainability is a key part of the 2021-2024 strategic plan. This includes expanding capabilities to evaluate potential ESG risks in the loan portfolio and upgrading the group’s digital infrastructure.

Following successful efforts to de-risk and strengthen the bank’s franchise in recent years, Sandnes Sparebank’s operating performance in 2020 was solid. Despite the cut in the policy rate to zero and an increase in credit costs, the group reported a return on equity of 9%. In a challenging operating environment, asset quality remained sound, with the Stage 3 ratio at 1.2%. While operating in a region more exposed to the country’s oil and gas industry, the group’s direct exposure is immaterial.

The group continues to maintain reassuring solvency metrics comfortably above requirements. At year-end 2020, the CET1 capital ratio was 17.8% (proportional consolidation basis) and the leverage ratio was 9.5%. Subject to regulatory approval and market conditions in 4Q 2021, management intends to distribute 2020 earnings to ECC holders, customers, and the Gift Fund in line with its 50-75% dividend policy.

The A- Issuer Rating of SSB Boligkreditt AS, a wholly owned subsidiary, is aligned with that of Sandnes Sparebank. Through the issuance of covered bonds, SSB Boligkreditt provides secured funding for its parent. Scope rates the covered bonds issued by SSB Boligkreditt at AAA.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s view that Sandnes Sparebank will continue to perform resiliently. While the full impact of the pandemic remains uncertain, we expect the group’s earnings to be more than sufficient to absorb potential credit losses.

Potential positive rating change drivers include material strengthening of the group’s market position and increased geographical diversification accompanied by consistent earnings generation and sound prudential metrics. Meanwhile, potential negative rating change drivers include larger than expected credit losses stemming from the pandemic and a change in strategic direction which increases the group’s risk profile.

Overview of rating construct

Operating environment: Very supportive

Business model: Focused

Initial mapping refinement: High

Initial mapping: bbb/bbb+

Long-term sustainability (ESG-D): Developing

Adjusted anchor: bbb

Earnings capacity and risk exposures: Supportive

Financial viability management: Comfortable

Additional rating factors: Neutral factor

External support: Not applicable

Issuer Rating: A-

One or more key drivers for the credit rating action are considered ESG factors.

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

Methodology
The methodology used for these Credit Ratings and Outlooks, (Bank Rating Methodology, 26 January 2021), is available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions - Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#!governance-and-policies/regulatory-UK. A comprehensive clarification of Scope Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings UK Limited at 111 Buckingham Palace Road, London, United Kingdom, SW1W 0SR, Tel +44020-7340-6347. The Credit Ratings and Outlooks are EU-endorsed. 
Lead analyst: Pauline Lambert, Executive Director.
Person responsible for approval of the Credit Ratings: Dierk Brandenburg, Managing Director.
The Credit Ratings/Outlooks were first released by Scope Ratings on 19 December 2018. The Credit Ratings/Outlooks were last updated on 11 June 2020. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/UK Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions 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. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.