Rating action

Scope Ratings UK Limited (“Scope Ratings”) has today affirmed the ratings of Landkreditt Bank AS: issuer rating of A-, preferred senior unsecured debt rating of A- and non-preferred senior unsecured debt rating of BBB+. The A- issuer rating of Landkreditt Boligkreditt AS, a wholly owned covered bond issuing entity of the bank, was also affirmed. All ratings have a Stable Outlook.

Rating rationale

The ratings of Landkreditt Bank are based on the credit fundamentals of the cooperative group, Landkreditt SA, a leading provider of financial services to Norway’s agricultural sector. The bank is the main operating company of the group. In recent years, management has pursued a growth strategy in the agricultural segment as well as with retail customers to achieve greater scale and to diversify the business. The aim is for a roughly equal balance between the two customer segments.

While a digital bank since its founding, management continues to make investments to further digitalise customer interactions and automate processes. In addition, the bank has started incorporating ESG considerations into its credit process and aims to support the sustainability efforts of farmers.

Reflecting its cooperative business model and low risk culture, Landkreditt generates relatively stable but somewhat lower returns than domestic peers. Earnings, nevertheless, are more than sufficient to absorb credit costs. Most lending is secured by residential property or agricultural property and land, with loan-to-values below 60%. Asset quality was little impacted by the Covid-19 pandemic and the Stage 3 ratio stood at 1.1% as of year-end 2021.

Landkreditt remains well positioned against current and future expected capital requirements. As of year-end 2021, the group’s CET1 capital ratio was 22%, well above the current requirement of 13.8%. At the end of the year, requirements are expected to rise due to announced increases in the systemic risk buffer and the countercyclical capital buffer. Like with other Norwegian banks, Landkreditt relies on market funding, including relatively stable covered bonds. The bank maintains comfortable liquidity buffers and regular access to the domestic debt market.

The A- issuer rating of Landkreditt Boligkreditt, a wholly owned subsidiary, is aligned with that of Landkreditt Bank. Through the issuance of covered bonds, Landkreditt Boligkreditt provides secured funding for its parent. Scope rates the covered bonds issued by Lankdreditt Boligkreditt at AAA.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that the bank’s business and operating performance will remain resilient.

What could move the rating up:

• Growing the business while maintaining risks under control and sustainably increasing returns

What could move the rating down:

• Deterioration in earnings which impedes the group’s business development and resilience
   
• Business expansion 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

Standalone assessment: 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/or Outlooks, (Financial Institutions Rating Methodology, 28 January 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/uk-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings 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 7824 5180. The Credit Rating/Outlooks are EU-endorsed.
Lead analyst: Pauline Lambert, Executive Director
Person responsible for approval of the Credit Ratings: Nicolas Hardy, Executive Director
The issuer Credit Ratings/Outlooks assigned to Landkreditt Bank AS and Landkreditt Boligkreditt AS were first released by Scope Ratings on 4 April 2018. The Credit Ratings/Outlooks was last updated on 22 March 2021.
The preferred senior unsecured debt Credit Rating/Outlook of Landkreditt Bank AS was first released by Scope Ratings on 4 April 2018. The Credit Rating/Outlook was last updated on 28 September 2021.
The non-preferred senior unsecured debt Credit Rating/Outlook of Landkreditt Bank AS was first released by Scope Ratings on 28 September 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
© 2022 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.