Announcements
Drinks
Scope affirms BN Bank ASA's issuer rating of A- with Stable Outlook
Rating action
Scope Ratings UK Limited (Scope) has today affirmed the ratings of BN Bank ASA: issuer rating of A-, preferred senior unsecured debt rating of A-, and non-preferred senior unsecured debt rating of BBB+. All credit ratings have a Stable Outlook.
Rating rationale
BN Bank is primarily a digital bank serving both retail and corporate customers in Norway. In the retail market, the bank focuses on residential mortgage lending in eastern Norway while in the corporate market, the bank is a specialised commercial real estate lender operating mainly in the Oslo region. Over the long-term, management 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.
Over the last few years, management has consistently executed on its strategy to grow mortgage lending volume, increase margins by targeting customers willing to pay for better service, and improve efficiency. Consequently, operating performance has become increasingly robust. For H1 2022, the reported return on equity was 11.4%, with the cost income ratio below 30%.
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 levels (a country specific feature) and material exposure to the commercial real estate sector are structural risks. Given the current economic uncertainty, management is maintaining elevated levels of provisions in comparison to its past credit loss experience. As of 30 June 2022, non-performing and other doubtful commitments accounted for 0.4% of gross loans.
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. The bank is actively embracing sustainability developments, including building capabilities to assess and manage ESG-related risks in the credit process as well as being a signatory to the UN’s Principles for Responsible Banking. The “developing” long-term sustainability assessment on BN Bank reflects Scope’s view that the progress made so far is in line with peers.
Supported by internal capital generation, the bank maintains comfortable buffers to regulatory solvency requirements. In its capital planning, management takes into consideration the expected return of the countercyclical capital buffer in Norway to 2.5% next year, from the current level of 1.5%. As of 30 June 2022, the bank’s CET1 capital ratio was 19.4%, against a requirement of 15.6%.
While the bank continues to actively attract customer 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 2008 global financial crisis, the bank is keenly aware of the need for sound liquidity management and maintains liquidity metrics (LCR, NSFR) comfortably above requirements.
One or more key drivers for the credit rating action are considered ESG factors.
Outlook and rating-change drivers
The Stable Outlook reflects Scope’s expectation that BN Bank’s operating performance will remain resilient even in a less benign business cycle.
What could move the rating up:
- Further strengthening of market position accompanied by sustained profitable growth, without an increase in the bank’s risk profile
What could move the rating down:
-
Loss of advantages from being affiliated with the SB1 Alliance
- A deterioration in operating conditions which materially impacts earnings and capitalisation
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-
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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 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, Deputy Head Financial Institutions Ratings
The issuer Credit Rating/Outlook was first released by Scope Ratings on 8 August 2019. The Credit Rating/Outlook was last updated on 7 September 2021.
The preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 8 August 2019. The Credit Rating/Outlook was last updated on 28 September 2021.
The non-preferred senior unsecured debt Credit Rating/Outlook 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 Fund Analysis GmbH, Scope Innovation Lab 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.