Mixed Moody’s review outcome with SpareBank 1 support under scrutiny

Dec 7th, 2012

Moody’s concluded a review of five Norwegian regional banks today (Thursday) by downgrading the long term issuer ratings of three savings banks and affirming two, while keeping on review for downgrade the rated members of the SpareBank 1 alliance and cutting SpareBank 1 Gruppen.

The review was initiated in March. Moody’s said that its rating actions were primarily due to concerns about the banks’ ability to maintain sound asset quality, with issuer-specific factors also playing a role.

High borrower concentrations and exposures to cyclical sectors, such as commercial real estate and shipping, could lead to a deterioration in asset quality metrics, it said, and elevated house prices and household indebtedness in Norway pose longer term risks for the banks’ residential mortgage books. Reliance on market funding was also behind the negative rating actions on some banks.

On the long term senior debt side, the rating agency downgraded SpareBank 1 SMN and SpareBank 1 SR-Bank from A1 to A2, and Sparebanken Møre from A2 to A3. It maintained at A1 the ratings of SpareBank 1 Nord-Norge and Sparebanken Hedmark.

Moody’s also kept on review for downgrade the long term senior debt and deposit ratings of the four largest members of the SpareBank 1 alliance — SpareBank 1 SMN, SpareBank SR-Bank, SpareBank 1 Nord-Norge and Sparebanken Hedmark — and some of the banks’ other ratings, because the rating agency believes the creditworthiness of the member banks providing support to each other has weakened.

“During the review period, Moody’s will assess the impact of alliance members’ reduced credit strengths on their ability to provide support to each other,” it said. “Currently the ratings agency expects that the affected banks’ debt ratings may be lowered by up to one notch.”

The long term issuer rating of SpareBank 1 Gruppen AS, the financial holding company owned by the SpareBank 1 banks, was also downgraded, from Baa1 to Baa2 with a stable outlook, as a result of the rating actions on its largest owners’ standalone credit assessments.

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