Rating action

Scope Ratings UK Limited (Scope) has today affirmed the ratings of Totens Sparebank with a Stable Outlook:

• Issuer rating of A-
   
• Senior unsecured debt rating of A-
   
• Senior unsecured (subordinated) debt rating of BBB+. This category includes debt statutorily issued as non-preferred senior.

Scope has also affirmed the A-/Stable issuer rating of the bank’s covered bond funding entity, Totens Sparebank Boligkreditt.

Rating rationale

The A- issuer rating on Totens Sparebank reflects the following credit considerations:

Totens Sparebank enjoys a strong market position within its home market in the Mjos region of Norway. The savings bank primarily focuses on retail mortgage lending in its local region, supplemented with some lending to smaller corporates. Totens’ competitive position is strengthened by its membership in the Eika Alliance, the fourth largest financial group in the country.

The bank’s operating performance continues to be resilient and asset quality remains sound. For Q1 2023, the bank reported a return on equity of 9.6%; a cost-to-income ratio of 39%; and problem loans amounted to 0.3% of gross loans. While a less benign business cycle characterised by inflation and higher interest rates is likely to lead to some deterioration in asset quality, Scope believes this can be readily absorbed by the bank’s solid earnings capabilities.

The ‘developing’ long-term sustainability assessment considers the bank’s ongoing investments and efforts in this area (ESG factor). Along with other banks in the Eika Alliance, Totens Sparebank recently upgraded its core banking system, enhancing its digital capabilities. The bank is actively working on assessing ESG risks, including climate risks in its corporate loan portfolio, and is preparing to make more detailed disclosures. Totens Sparebank received the Eco-Lighthouse certification in 2022, demonstrating its commitment to environmental efforts and social responsibility.

Totens Sparebank maintains sound buffers to capital requirements and is well positioned against the upcoming increase in the systemic risk buffer to 4.5% from 3% at end-2023. As of Q1 2023, the bank’s common equity tier 1 ratio was 18.4% (requirement of 13.3%) while the leverage ratio stood at 9% (requirement of 3%). Since end-March 2023, the bank has been subject to an updated Pillar 2 requirement of 1.5%, down from 1.6%. The Norwegian FSA also expects the bank to maintain a Pillar 2 buffer of 1%.

The bank primarily funds itself through customer deposits but also has a material reliance on market funding, including covered bonds. The bank accesses covered bond funding through its own covered bond issuing entity, Totens Sparebank Boligkreditt and through the covered bond issuing entity of the Eika Alliance. To mitigate risks associated with market funding, the bank maintains a high-quality liquidity portfolio.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s view that Totens Sparebank’s operating performance will remain resilient in a less benign business cycle.

What could move the rating up:

• Sustained profitable growth and increased geographic diversification, without a deterioration in the bank’s risk profile

What could move the rating down:

• A change in operating conditions that materially impairs the bank’s earnings capabilities
   
• Loss of benefits and economies of scale from being a member of an alliance

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-

Issuer rating on Totens Sparebank Boligkreditt

The issuer rating and Outlook on Totens Sparebank Boligkreditt is aligned with those of Totens Sparebank.

Totens Sparebank Boligkreditt is a wholly owned, specialised credit institution, with the dedicated role of providing covered bond funding for its parent. The alignment of the issuer rating to that of the parent reflects Scope’s view that Totens Sparebank Boligkreditt would likely benefit from full support in case of need given its strategic importance.

Totens Sparebank Boligkreditt’s rating could be upgraded in the case of an upgrade of the parent’s issuer rating. The rating could be downgraded if the strategic importance of Totens Sparebank Boligkreditt diminished, resulting in a lower likelihood of support, or in the case of a downgrade of the parent’s issuer rating.

The rating on covered bonds issued by Totens Sparebank Boligkreditt is currently AAA.

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, 7 February 2023), 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, 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 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 Totens Sparebank issuer Credit Rating/Outlook was first released by Scope Ratings on 30 October 2018. The Credit Rating/Outlook was last updated on 19 September 2022.
The Totens Sparebank preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 30 October 2018. The Credit Rating/Outlook was last updated on 19 September 2022.
The Totens Sparebank non-preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 28 September 2021. The Credit Rating/Outlook was last updated on 19 September 2022.
The Totens Sparebank Boligkreditt AS issuer Credit Rating/Outlook was first released by Scope Ratings on 30 October 2018. The Credit Rating/Outlook was last updated on 19 September 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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