Fana eyes covered bond rating to counter price discrimination
Feb 21st, 2013
Norway’s Fana Sparebank obtained its first issuer rating on Wednesday, Baa2 from Moody’s, as its seeks to obtain a rating of covered bonds issued by its Boligkreditt subsidiary in a bid to improve domestic capital market access and funding costs, according to the bank’s CFO.
Moody’s assigned Baa2 long term and Prime-2 short term local and foreign currency deposit ratings to Bergen-based Fana, in addition to a standalone D+ bank financial strength rating (BFSR), with all ratings on stable outlook.
Kim Lingjærde, chief financial officer at Fana Sparebank, said that the bank’s end goal is to obtain a rating of the covered bond programme of Fana Sparebank Boligkreditt to counter the “very clear pricing discrimination” between rated and non-rated issuance in the Norwegian krone market and bolster its capital market access.
“Obtaining a parent bank rating puts us in a position to continue working to have our covered bond company rated,” he said. “In the Norwegian market we are the smallest bank unit with an official rating and we took this step because of the changing regulatory environment.
“Our experience has been that being a non-rated entity issuing covered bonds in Norway has its limitations due to the rating requirements for beneficial treatment under Solvency II and the Basel III LCR.”
Moody’s said that Fana’s funding profile is underpinned by a substantial deposit base, which accounted for almost 60% of total funding at the end of 2012, but that its reliance on capital markets, in particular covered bonds, has gradually increased.
Lingjærde said that covered bonds account for more than half of the savings bank’s market-based funding. Having the parent bank rated could help open up interest for domestic senior unsecured issuance from foreign investors, he said, although the bank’s main focus is on being able to issue rated covered bonds.
Fana set up the Boligkreditt subsidiary in 2009 to enable the bank to participate in the Norwegian central bank’s covered bond swap scheme, although it has issued in the domestic public market. The bank has no intention of raising funding in foreign markets at present, said Lingjærde.
