SR-Bank to debut locally in covered soon in shift from SpaBol

SpareBank 1 SR-Bank is planning a debut, domestic covered bond through new 100% subsidiary SR-Boligkreditt later this month or early June ahead of potential international issuance, as it shifts away from SpareBank 1 Boligkreditt (SpaBol) to optimise funding and for regulatory reasons.

As previously reported, large exposures regulations could constrain Norwegian savings banks that have previously funded themselves jointly via SpaBol from doing so in future. SR-Bank is the largest shareholder in SpaBol, with a 20.4% stake as of 30 June 2014.

SR-Bank said in a presentation accompanying its first quarter results on 28 April that the purpose of the new covered bond company is to optimise its funding mix and eliminate possible limitations due to regulatory limits on large exposures.

According to Dag Hjelle, head of treasury at SpareBank 1 SR-Bank, the bank hopes to issue an inaugural covered bond in late May or at the beginning of June, with the debut issue being a domestic benchmark of some Nkr4bn (Eu476m). The bank plans to build a curve in Norwegian kroner, raising around Nkr8bn per year from this year to 2017. It will be open to private placements immediately, also in foreign currencies.

Hjelle said that since news of its new covered bond plans emerged in the autumn the topic has arisen at meetings it has held with investors on other matters.

“We have asked them if they would be interested,” he added, “and we have had very good interest, also from abroad.”

Regarding whether SR-Bank will continue to raise funding via SpaBol, Hjelle said: “We will probably use SR-Boligkreditt at the beginning to get it up and running and reach critical mass.”

Moody’s assigned a provisional Aaa rating to SR-Boligkreditt covered bonds on Monday. The issuer is unrated, while SR-Bank is rated A1/A- by Moody’s and Fitch, after having been upgraded from A2 by Moody’s amid several Norwegian bank rating actions that were also announced on Monday.

The rating actions came as Moody’s completed a review of 12 Norwegian banks’ ratings. Three banks benefitted from upgraded senior unsecured ratings alongside SR-Bank: SpareBank 1 SMN, SpareBank 1 Nord-Norge and Sparebanken Vest. The ratings are on stable outlook. The issuer ratings of SpareBank 1 SMN and SpareBank 1 SR-Bank were also upgraded from A2 to A1 on stable outlook.

Moody’s said each senior unsecured debt rating upgrade takes into account an Advanced Loss Given Failure analysis of the respective bank’s own volume of debt and deposits and securities subordinated to them. Each bank benefits from a large volume of deposits and substantial layers of subordination, resulting in very low loss given failure, it said.

This offsets Moody’s decision to decrease the banks’ government support assumptions from “high” to “moderate”, meaning the banks now have one notch of support uplift, compared with two notches previously. The lowering of support assumptions is based on the expected implementation of new bank resolution legislation in Norway.

The rating agency meanwhile assigned the 12 banks Counterparty Risk (CR) assessments, which it is introducing as part of a wider update to its bank rating methodology and which will act as the reference point for covered bond anchors.

Moody’s assigned a CR assessment of Aa3 to SpareBank 1 SMN, SpareBank 1 SR-Bank, SpareBank 1 Nord-Norge, Sparebanken Vest, Sparebanken Sør and Storebrand Bank. CR assessments of A2 were given to Sparebanken Øst, Fana Sparebank, Helgeland Sparebank, and of A1 to Sparebanken More, Sparebanken Hedmark, Sparebanken Sogn og Fjordane.

On Wednesday Moody’s upgraded from Aa1 to Aaa the rating of commercial mortgage-backed covered bonds issued by Sparebank 1 Naeringskreditt, which is jointly owned by 15 Norwegian savings banks, including SMN, SR-Bank, Nord-Norge and Hedmark.

The upgrade reflects the assignment of a CR assessment to Sparebank 1 Naeringskreditt, said Moody’s. The CR assessment has not been made public.