Rating action

Scope Ratings UK Limited (Scope) has today affirmed the ratings of BN Bank ASA: issuer rating of A- and senior unsecured debt rating of BBB+. All credit ratings have a Stable Outlook.

Rating rationale

BN Bank is a digital bank serving both retail and corporate customers in Norway. In the retail market, the bank has a nationwide presence and focuses primarily on residential mortgage lending. In the corporate market, the bank is a specialised commercial real estate lender operating mainly in the Oslo region. The bank aims for a 70% retail / 30% corporate lending mix.

Since December 2008, BN Bank has been wholly owned by member banks of the SpareBank 1 Alliance (SB1 Alliance). Established in 1996, the alliance is comprised of regional and local banks who cooperate to achieve economies of scale and to provide a full range of competitive financial services and products. Collectively, the alliance is the second largest lender in the country with circa 20% share of the retail market and circa 15% of the corporate market.

BN Bank operates in a prudent manner, generating sustainable earnings and dividends for its owners. Management’s strategy to grow mortgage lending volume, increase margins by targeting customers willing to pay for better service, and improve efficiency are showing signs of success. For the first six months of 2021, the reported return on equity was 10.6% with the cost income ratio below 33%.

Strategic decisions such as ceasing unsecured consumer lending activities and restricting the geographic focus of the commercial real estate business support the bank’s sound asset quality profile. Nevertheless, high household debt and elevated property prices remain concerns, particularly in the bank’s primary market, the Oslo region. Throughout the economic disruption caused by the Covid-19 pandemic, the bank’s loan portfolio has remained resilient. As of 30 June 2021, non-performing and other doubtful commitments accounted for 0.46% of gross lending.

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 BN Bank. ESG-related risks are being integrated into the bank’s customer onboarding and credit granting processes. As well, management has defined a sustainability strategy incorporating the concerns of external stakeholders.

While the bank has actively grown deposits, the use of market funding remains material. BN Banks enjoys regular access to the domestic unsecured debt market as well as to secured funding through the covered bond issuing entities of the SB1 Alliance. Mindful of past experiences during the 2007-2008 global financial crisis, the bank is keenly aware of the need for sound liquidity management.

Outlook and rating-change drivers

The Stable Outlook reflects our expectation that BN Bank’s operating performance will continue to be resilient, with credit impairments remaining at levels which can be comfortably absorbed by earnings. 

Potential negative rating change drivers include: (a) losing benefits from being affiliated with the SB1 Alliance, and (b) a change in the operating environment which materially impacts earnings and capitalisation. Meanwhile, we would view favourably sustained profitable growth without an increase in the bank’s risk profile.

Overview of rating components

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

Methodology
The methodology used for these Credit Ratings and/or 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/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20-7340-6347. The Credit Ratings and/or 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 8 August 2019. The Credit Ratings/Outlooks were last updated on 16 November 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
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