Rating action

Scope Ratings UK Limited (“Scope Ratings”) has today affirmed the ratings of Sandnes Sparebank: 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 Sandnes Sparebank Boligkreditt AS (SSB Boligkreditt), a wholly owned covered bond issuing entity of the bank, was also affirmed. All ratings have a Stable Outlook.

Rating rationale

Sandnes Sparebank is a well-established local savings bank operating in south-west Norway. Membership in the Eika Alliance brings significant benefits and supports the bank’s competitive position. At the same time, a focus on retail clients and mortgage lending contributes to earnings stability.

As with other Norwegian banks, Sandnes Sparebank is actively embracing developments in the area of sustainability. This includes increasing capabilities to evaluate potential ESG risks in the loan portfolio and upgrading the bank’s digital infrastructure. Sustainability is also a key component of the bank’s 2021-2024 strategic plan.

Following de-risking efforts and a focus on rebuilding the business franchise in recent years, Sandnes Sparebank’s operating performance continues to be solid. For 2021, the bank reported a return on equity of 9.7% while absorbing NOK 29m in IT conversion costs. Asset quality remains sound with the Stage 3 ratio at 0.9%. While operating in a region more exposed to the country’s oil and gas industry, the bank’s direct exposure is immaterial.

Scope expects the bank to maintain prudent buffers above minimum regulatory requirements. Minimum solvency requirements for Norwegian banks are comparatively high and are set to rise following announced increases in the countercyclical buffer rate and the systemic risk buffer for banks using standardized models such as Sandnes Sparebank. At year-end 2021, the bank’s CET1 capital and leverage ratios were 16.6% (proportional consolidation basis) and 9.2%, respectively.

The A- issuer rating of SSB Boligkreditt AS, a wholly owned subsidiary, is aligned with that of Sandnes Sparebank. Scope considers SSB Boligkreditt to be a fully integrated and strategic subsidiary. Through the issuance of covered bonds, SSB Boligkreditt provides secured funding for its parent. Scope rates the covered bonds of SSB 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:

• Sustained strengthening of market position accompanied by consistent earnings generation and sound prudential metrics

What could move the rating down:

• A deterioration in the operating environment which materially impacts earnings
   
• An inability to balance developing the business further with maintaining sufficient buffers above regulatory capital requirements

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 Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
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 these 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 Ratings and/or 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 Rating/Outlook assigned to Sandnes Sparebank was first released by Scope Ratings on 19 December 2018. The Credit Rating/Outlook was last updated on 5 May 2021.
The preferred senior unsecured debt Credit Rating/Outlook assigned to Sandnes Sparebank was first released by Scope Ratings on 19 December 2018. The Credit Rating/Outlook was last updated on 28 September 2021.
The non-preferred senior unsecured debt Credit Rating/Outlook assigned to Sandnes Sparebank was first released by Scope Ratings on 28 September 2021.
The issuer Credit Rating/Outlook assigned to Sandnes Sparebank Boligkreditt was first released by Scope Ratings on 19 December 2018. The Credit Rating/Outlook was last updated on 5 May 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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