Rating action

Scope Ratings UK Limited (Scope) has today affirmed the ratings of Landkreditt Bank AS with a Stable Outlook:

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

Scope has also affirmed the A- issuer rating on Landkreditt Boligkreditt with a Stable Outlook.

Rating rationale

Landkreditt Bank’s A- issuer rating reflects the following assessments:

• Business model assessment: Focused (High). Lankdreditt Bank is the main operating company of Landkreditt SA, a cooperative owned by Norwegian farmers. The group is a leading provider of financial services to Norway’s agricultural sector with a market share of 20%. Management continues to pursue a growth strategy in the agricultural sector as well as with personal customers to achieve greater scale and to diversify the business. Ongoing efforts to develop the group’s insurance, asset management and real estate brokerage businesses enables the group to meet the broad financial needs of its customers.
   
• Operating environment assessment: Very supportive (Low). Norway’s operating environment remains very supportive for financial services activities. The country is a relatively small open economy with one of the world’s highest per capita income levels and low unemployment. A very robust government fiscal position provides ample capacity to support the economy when needed. The regulatory environment is well-established and rigorous, and the central bank has a strong record of providing refinancing facilities to banks in times of stress.
   
• Initial mapping of bbb: The initial mapping results from the combination of our business model and operating environment assessments.
   
• Long term sustainability assessment (ESG factor): Developing. Building upon its origins as a digital bank, Landkreditt continues to invest in technology to support business growth and increase efficiency. Work is ongoing to incorporate ESG considerations into the credit process and to develop capabilities to meet evolving sustainability disclosure requirements. The group has material exposure to the agricultural sector, an industry which is more sensitive to environmental factors. Landkreditt aims to encourage the sustainability efforts of Norwegian farmers as they target a reduction in CO2 emissions of five million tons by 2030.
   
• Earnings and risk exposures assessment: Supportive. 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. Asset quality remains sound despite elevated interest rates and a more uncertain economic backdrop. Most lending is secured by residential property or agricultural property and land. Norwegian farmers also continue to receive material government support. The Stage 3 ratio stood at 0.7% as of YE 2023, down from 1% as of YE 2022.
   
• Financial viability management assessment: Comfortable. Landkreditt maintains robust solvency metrics underpinned by retained earnings. Cooperative members understand the need to safeguard the group’s solidity and do not ask for distributions. As of YE 2023, the group’s CET1 capital ratio was 23.7%, well above the requirement of 15.2%.
  
  Like with other Norwegian banks, Landkreditt relies to some extent on market funding, including covered bonds. Deposits, however, remain the primary funding source. Management targets a deposit-to-loan ratio of at least 70%, a level which is higher than for many peers.

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

Outlook and rating-change drivers

The Stable Outlook reflects our view that the group’s business and operating performance will remain resilient over the next 12 to 18 months.

What could move the rating up:

• Further diversification of the business while controlling risks and maintaining satisfactory returns

What could move the rating down:

• A deterioration in earnings which impedes the group’s business development and resilience
   
• Business expansion which materially increases the group’s risk profile

Overview of rating construct

Operating environment: Very Supportive (Low)

Business model: Focused (High)

Initial mapping: 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

Stand-alone assessment: a-

External support: Not applicable

Issuer rating: A-

The A- issuer rating on Lankdreditt Boligkreditt reflects the following assessment:

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 expects it to benefit from full support from its parent in case of need.

Landkreditt Boligkreditt’s Outlook is aligned with that of Landkreditt Bank. If there were a change in the rating and/or Outlook of Landkreditt Bank, this would be reflected in the rating and/or Outlook of Landkreditt Boligkreditt. In addition, if Scope’s expectation of full support by Landkreditt Bank were to change, this could also lead to a downward revision of the rating.

The covered bonds issued by Landkreditt Boligkreditt are rated AAA/Stable.

Rationale for Lankdreditt Bank’s debt ratings

Senior unsecured debt is rated at the same level as the issuer rating.

Senior unsecured (subordinated) debt is rated one notch below the issuer rating.

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, 6 February 2024), 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 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 and Outlooks 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 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 were last updated on 9 March 2023.
The 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 9 March 2023.
The senior unsecured debt (subordinated) Credit Rating/Outlook of Landkreditt Bank AS was first released by Scope Ratings on 28 September 2021. The Credit Rating/Outlook was last updated on 9 March 2023.

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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