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Moody's Investors Service Inc.

Moody's Affirms SpareBank 1 Sogn og Fjordane's Long-Term Issuer Ratings Amid Negative Outlook

Strategic Insights

— 1 min read

SpareBank 1 Sogn og Fjordane (SSF) and its wholly-owned mortgage covered bond subsidiary, Bustadkreditt Sogn og Fjordane AS (BSF), have had their long-term issuer ratings affirmed by Moody's Investors Service. However, the outlook on SSF's long-term deposit and issuer ratings, and BSF's long-term issuer ratings, has been changed to negative from stable. This development reflects Moody's expectations of a gradual decline in the volume of loss-absorbing securities, which could lead to higher potential loss rates for senior unsecured bondholders and junior depositors under their forward-looking Loss Given Failure (LGF) analysis.

Key Takeaways:

  • Moody's has affirmed SSF's and BSF's long-term issuer ratings at A1, while changing the outlook to negative from stable.
  • The affirmation of SSF's ratings reflects its strong solvency metrics, including a resilient lending portfolio and very high core capital levels.
  • However, the bank's high level of capital markets funding and credit concentrations towards the bank's home region in Western Norway and sectoral concentration to primary industries and real-estate remain concerns.
  • The change in outlook to negative reflects Moody's expectation of gradually declining volume of loss-absorbing securities, specifically senior unsecured and junior senior unsecured (senior non-preferred) debt.
  • SSF's combined issuance of senior unsecured and junior senior debt has fallen from 11.1% of tangible banking assets as of year-end 2021 to 8.4% as of March 2025.
  • The bank's implementation of CRR3 in Norway on 1 April 2025 is expected to reduce the bank's average risk weights, thereby lowering its risk-weighted Minimum Requirements for Own Funds and Eligible Liabilities (MREL).
  • Moody's also noted that the bank's dependence on wholesale funding constrains its Baseline Credit Assessment (BCA).

Statistics:

  • SSF's share of problem loans is 1.0% as of March 2025.
  • The bank's core capital levels are 17.3% as of March 2025.
  • SSF's combined issuance of senior unsecured and junior senior debt fell from 11.1% of tangible banking assets in 2021 to 8.4% as of March 2025.
  • The bank's risk-weighted Minimum Requirements for Own Funds and Eligible Liabilities (MREL) are expected to be lowered following the implementation of CRR3 in Norway.

Sources:

  • Moody's Ratings (Moody's) news release
  • Moody's Banks methodology published in November 2024, available at https://ratings.moodys.com/rmc-documents/432741.

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