Moody’s cuts SB1 Nord-Norge and Hedmark citing weaker Alliance

Moody’s downgraded the ratings of SpareBank 1 Nord-Norge and Sparebanken Hedmark from A1 to A2 on Monday, but confirmed the A2 ratings of SpareBank 1 SMN and SpareBank 1 SR-Bank, citing a weakening of the SpareBank 1 Alliance.

Moody’s said it considers the banks to benefit from mutual support deriving from their being part of the alliance, despite no legally binding guarantee or a common support fund being in place.

However, the rating agency said that following the lowering of three alliance members’ standalone credit profile in December the overall capacity within the alliance to provide support has diminished.

The rating agency believes that support is more likely to be deployed to alliance members that have a weaker intrinsic credit quality. As a result, Moody’s confirmed a one notch rating uplift over their standalone credit assessment for SpareBank 1 SMN and SpareBank1 SR-Bank, but removed this uplift from SpareBank 1 Nord-Norge and Sparebanken Hedmark, downgrading the banks to A2, as the latter are considered among the strongest members of the Alliance.

All the ratings were put on stable outlooks, except for Sparebanken Hedmark’s A2 rating, which was put on review for downgrade as a result of risks associated with an increased stake in Bank 1 Oslo Akershus, said Moody’s.

Sparebanken Hedmark announced on 18 January that it will increase its stake in Bank 1 Oslo Akershus from 12% to 40.5% by buying shares from SpareBank 1 SR-Bank, SpareBank 1 SMN and SpareBank 1 Nord-Norge, and become Bank 1 Oslo Akershus’s largest shareholder upon regulatory approval.

“Moody’s understands that the transaction is an opportunity for Sparebanken Hedmark to expand the scope of its operations to the Oslo and Akershus region, which borders the Hedmark county,” said the rating agency.

However, Moody’s added, the financial strength of the bank after the transaction may be undermined by the higher risk profile of Bank 1 Oslo Akershus, as the bank is experiencing rapid growth, competitive pressure in the Oslo-Akershus market, substantial exposure to real estate, and a lack of efficiency in its operations.

While the affected ratings of SpareBank 1 Nord-Norge, SpareBank 1 SMN and SpareBank 1 SR are long term senior and deposit ratings, Sparebanken Hedmark’s rating is only a deposit rating.