Rating action

Scope Ratings UK Limited (Scope) has today affirmed Brage Finans AS’s issuer rating of A- and its senior unsecured debt rating of A-, both with Stable Outlook.

Rating rationale

Brage Finans’ (Brage) issuer rating of A- reflects a focused leasing and car financing business, solid credit fundamentals and the strategic relationship with its owner banks.

Brage serves as the finance company for its owners, primarily well-established and solid savings banks located in western and southern Norway. Combined, the owner banks have more than 100 local offices, forming an essential part of the company’s distribution network. With five of eight board members coming from the banks, the owners steer the strategic direction of the company. In addition, the owner banks have consistently provided capital and funding to support Brage’s growth and development.

The nature of Brage’s business entails greater asset risk than traditional banking focused on mortgage lending. Leasing offers higher margins, but counterparties are often small businesses in cyclical sectors like construction and manufacturing. Nevertheless, asset quality has remained resilient, with the Stage 3 ratio at 2.1% as of year-end 2021. Excluding commissions paid to the owner banks, the company reported a return on equity of 11.4% for 2021.

Brage integrates sustainability considerations into its business strategy and credit risk processes. Further, an independently assessed green bond framework has been established to enable the issuance of green bonds. The company also benefits from modern technology systems adapted for its business.

As a licensed finance company regulated and supervised by the Norwegian FSA, Brage is subject to most of the same requirements as banks, including in the areas of solvency and liquidity. Brage maintains prudential metrics above relatively stringent requirements with support from its owners as needed. As it is not authorised to collect deposits, Brage relies on wholesale funding and is a frequent issuer in the domestic debt market.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that Brage’s operating performance and prudential metrics will remain sound as the business continues to experience rapid growth.

What could move the rating up:

• Sustainable growth underpinned by increased business and geographic diversification
   
• Further diversification of funding profile

What could move the rating down:

• A change in the supportive nature of the relationship between Brage and its owners banks
   
• Material deterioration in the regional economies where Brage’s activities are concentrated, impacting earnings and/or asset quality

Overview of rating construct

Operating environment: Very supportive

Business model: Focused

Initial mapping refinement: High

Initial mapping: bbb/bbb+

Long-term sustainability (ESG-D): Advanced

Adjusted anchor: bbb+

Earnings capacity and risk exposures: Neutral

Financial viability management: Comfortable

Additional rating factors: Neutral factor

Standalone rating: a-

External support: Not applicable

Issuer rating: A-

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 Outlooks, Financial Institutions Rating Methodology, 28 January 2022, 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 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Ratings and Outlooks are EU-endorsed.
Lead analyst: Pauline Lambert, Executive Director.
Person responsible for approval of the Credit Ratings: Nicolas Hardy, Executive Director.
The Credit Ratings/Outlooks were first released by Scope Ratings on 28 January 2020. The Credit Ratings/Outlooks were last updated on 26 March 2021.

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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