Rating action

Scope Ratings UK Limited (Scope) has affirmed Landkreditt’s issuer rating of A-, preferred senior unsecured debt rating of A- and non-preferred senior unsecured debt rating of BBB+, all with a Stable Outlook.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business model assessment: Focused (High). The issuer rating is anchored by the Focused (High) business model assessment. Landkreditt 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. The group also offers asset management, insurance and real estate brokerage services to its clients through its wholly owned subsidiaries. The bank’s lending portfolio almost entirely revolves around retail customers and agricultural customers, where the bank is a leading player in the agricultural segment.

Operating environment assessment: Very Supportive (Low). Norway is a relatively small open economy with one of the highest levels of per capita income in the world and low unemployment. A very strong government fiscal position provides ample capacity to support the economy when needed. The regulatory framework is well established and rigorous, and the central bank has a good track record of providing refinancing facilities to banks in times of stress. While competition is high, there is also a long history of cooperation among domestic banks.

Scope arrives at an initial mapping of bbb based on a combined assessment of the issuer’s operating environment and business model.

Long-term sustainability assessment (ESG factor): Developing. The assessment reflects Scope’s view that the issuer is embracing changes to ensure the long-term sustainability of its business model. Progress made may be tangible but does not warrant further credit differentiation.

Landkreditt has been a digital bank since 2002. The group invests resources into ensuring that its technological capabilities remain competitive to support growth and efficiency. Environmental considerations play a key part in Landkreditt’s risk assessment and credit processes and sustainability remains one of the group’s key focus areas for its 2024-2026 strategy period. The group has a cooperative governance structure whereby the members collectively own and govern the cooperative. Representatives are elected from the group’s 8300 members who are responsible for electing the board of directors. In line with its cooperative business model, Landkreditt inherently focuses on social objectives and supporting the agricultural sector.

The long-term sustainability assessment leads to an adjusted rating anchor of bbb.

Earnings capacity and risk exposures assessment: Supportive (+1 notch). The assessment reflects Scope’s view that earnings capacity is stable through economic cycles and provides a strong buffer against losses. Risks are well managed and are highly unlikely to lead to losses capable of undermining the issuer’s viability.

Reflecting its cooperative business model and low risk culture, Landkreditt generates relatively stable but somewhat lower returns than domestic peers as management is focused on providing favourable and competitive financial services for cooperative members and customers. Earnings, nevertheless, are more than sufficient to absorb credit losses. For 2024Y the group reported a record net profit of NOK 352m after tax.

The asset quality of the bank has remained resilient over time. The loan portfolio is split between the retail segment (46% of lending) and agricultural segment (52%). The vast majority (90%) of the bank’s exposures is considered to be in the low and low to medium risk categories. Additionally, nearly all lending done by the bank is secured by either residential or agricultural property and land. At 2024Y the Stage 3 ratio stood at 0.5% down from 0.7% the year before.

Financial viability management assessment: Comfortable (+1 notch). The assessment reflects Scope’s view that the issuer’s maintains comfortable buffer to relevant regulatory requirements and Scope expects it to continue to do so. The issuer’s financial viability is largely resilient to tail-risk events.

The bank maintains a strong capital buffer above its minimum requirements. At 2024YE Landkreditt’s CET1 ratio stood at 23.8%, well above its requirement of 15.2%. Management also aims to maintain a 1% buffer above its requirement. The bank focuses on maintaining sufficient levels of capital to protect the group’s solidity, and cooperative members understand this need and do not ask for distributions.

Customers deposits remain the primary funding source of the bank. Like other Norwegian banks, Landkreditt relies on market funding to an extent and issues in the market, including covered bonds via its wholly owned Boligkreditt. Landkreditt targets a loan-to-deposit ratio of 70% or above, higher than many of its peers.

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

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that the risks to the current rating are balanced.

The upside scenario for the ratings and Outlooks is:

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

The downside scenarios for the ratings and Outlooks are (individually or collectively):

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

Subsidiaries and affiliates: ratings and Outlooks

Landkreditt Boligkreditt: A-/Stable. The issuer rating on Landkreditt Boligkreditt is aligned to the issuer rating of the parent, Landkreditt Bank, reflecting Scope’s view that the subsidiary would likely receive full support from its parent under exceptional circumstances. The Stable Outlook is aligned to the Outlook of the parent.

Through the issuance of covered bonds, Landkreditt Boligkreditt provides secured funding for its parent. The covered bonds issued by Landkreditt Boligkreditt are rated AAA/Stable.

Scope could review the rating in case of a change in the assumption of support from the parent or if the rating of the parent changes.

Debt ratings

Preferred senior unsecured debt: A-/Stable. The rating is aligned with the issuer rating and applies to senior unsecured debt ranking above other classes of senior unsecured debt.

Non-preferred senior unsecured debt: BBB+/Stable. The rating is one notch lower than the issuer rating, reflecting statutory subordination.

Environmental, social and governance (ESG) factors

Please refer to the ‘long-term sustainability assessment’ under the ‘key rating drivers’ section above for the ESG analysis.

All rating actions and rated entities

Landkreditt Bank

Issuer rating: A-/Stable, Affirmed

Preferred senior unsecured debt rating: A-/Stable, Affirmed

Non-preferred senior unsecured debt rating: BBB+/Stable, Affirmed

Landkreditt Boligkreditt

Issuer rating: A-/Stable, Affirmed

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, 10 January 2025), 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: Andre Hansen, Analyst
Person responsible for approval of the Credit Ratings: Marco Troiano, Managing 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 5 March 2024.
The preferred senior unsecured 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 5 March 2024.
The non-preferred senior unsecured 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 5 March 2024.

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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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