‘Growth channel’ Gjensidige Bank and covered upped by S&P

Gjensidige Bank has become more strategically important to its parent, Norwegian insurance group Gjensidige, according to Standard & Poor’s, which upgraded the bank, subsidiary Gjensidige Bank Boligkreditt, and the latter’s covered bonds on Friday.

S&P raised its rating of Gjensidige Bank and its covered bond issuing subsidiary from BBB+ to A-, because it considers that the bank’s strategic position in the Gjensidige group has improved.

“In particular, we believe the bank is improving penetration with existing group customers,” said the rating agency last Friday (5 July). “Furthermore, we believe improving retail mortgage margins in Norway will continue to boost the bank’s profits from the group’s customer base.”

The bank is “moderately strategic” to the Gjensidige group, according to S&P.

Cross-selling opportunities in the mortgage and banking business are improving, it said, and will become more significant drivers of the bank’s profitability and its ability to fulfil group return requirements.

“We believe the mortgage and developing auto loan businesses provide clear links between the bank and the group’s existing mortgage and auto insurance customers.”

Although the bank continues to earn a large share of its profits via consumer lending, strategic synergies are becoming more important as customer penetration increases, added the rating agency.

Gjensidige group now views the bank as a “growth channel” for the group, said S&P, which believes that it has made a clear commitment to Gjensidige Bank’s growth strategy.

“Furthermore, we expect the group will support the expansive growth of the bank and will likely provide equity injections to help the bank comply with higher regulatory capital requirements and take advantage of growth opportunities,” it said. “We view this capital support as an additional sign of the bank’s increasing importance to the group.”

The rating agency upgraded Gjensidige Bank’s mortgage company and covered bond issuer, Gjensidige Bank Boligkreditt, because it considers the entity to be core to the bank’s operations. This led to an upgrade of the covered bonds issued by Gjensidige Bank Boligkreditt (GBB) from AA+ to AAA.

S&P considers GBB’s programme to have “low” asset-liability mismatch risk (ALMM) and to be in Category 2 under its methodology, meaning that the Norwegian bank’s covered bonds can be rated up to six notches higher than the issuer rating. The rating agency said that available overcollateralisation is sufficient for the highest amount of uplift to be achieved, hence the AAA rating following the upgrade.

The outlook on all aforementioned ratings is negative, ultimately reflecting increasing economic risks associated with rising “economic imbalances” in Norway, according to S&P, particularly relating to increasing household debt and recent house-price growth.

Gjensidige publishes its second quarter results next Thursday (18 July) and was unable to comment in the lead-up to the release of the results.

According to company reports, Gjensidige Bank had Nkr11.5bn (Eu1.46bn) of deposits at 31 March and gross lending of Nkr18.2bn, up 20.9% year-on-year. Gjensidige Bank Boligkreditt issued Nkr800m in the first quarter of the year.