Regulatory Filings • Jan 20, 2021
Regulatory Filings
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Stockholm, January 20, 2021 -- Moody's Investors Service ("Moody's") has upgraded Sparebanken More's long-term bank deposit and long-term issuer ratings to A1 from A2, respectively, both carrying a stable outlook. The rating upgrades are driven by an affirmation of the bank's baa1 Baseline Credit Assessment (BCA) and an update to our Advanced Loss Given Failure (LGF) analysis to take into account the bank's funding plans, which results in a three-notch rating uplift from the BCA.
Furthermore, Moody's has today assigned a local currency Baa1 rating to the upcoming issuance of up to NOK750 million senior non-preferred notes by Sparebanken More. The senior non-preferred (SNP) notes, which are classed as "junior senior" unsecured notes by Moody's are ranked junior to other senior unsecured obligations, including senior unsecured debt, and senior to subordinated debt issuances of the bank.
Moody's has also affirmed the P-1 short-term bank deposit ratings, as well its long-term Counterparty Risk Rating (CRR) of A1 and short-term Counterparty Risk Rating of P-1. The bank's Counterparty Risk Assessment (CRA) of A1(cr)/P-1(cr) have also been affirmed by the rating agency. The bank's long-term issuer and long-term bank deposit ratings carries a stable outlook.
The full set of the affected ratings can be found at the end of this press release.
The rating affirmation of Sparebanken More's BCA of baa1 takes into account its relatively strong underlying financial fundamentals, which in our view help the bank weather the impact of the Coronavirus pandemic and the fall in in oil prices during 2020. Furthermore, government fiscal measures will likely mitigate much of the negative impact on the banking system.
The bank's solid capital buffers (Tangible Common Equity ratio of 19.4%, as of September 2020) provide a sizable loss absorption buffer, while its sound asset-quality limits any material downside risks to its solvency, despite an increase in impairments on some oil industry related exposures during 2020. The BCA also takes into consideration Sparebanken More's track record of satisfactory recurring profitability, although the current challenging operating environment combined with limited earnings diversification, will likely continue to pressure the bank's income in 2021. The bank's sizeable reliance on market funding, albeit somewhat lower than the average for Norwegian savings banks, also weighs on its BCA.
UPGRADE OF DEPOSIT AND ISSUER RATINGS, AND ASSIGNMENT OF JUNIOR SENIOR NOTES RATING REFLECT GREATER EXPECTED VOLUMES OF MREL-ELIGBLE NOTES
The A1 long-term bank deposit and issuer ratings and Baa1 junior senior rating assigned to the bank's senior non-preferred notes reflect: (1) Sparebanken More's adjusted Baseline Credit Assessment (BCA) of baa1; (2) Moody's advanced forward-looking loss given failure (LGF) analysis of the bank's liability structure by the end of 2023 when the bank needs to fully meet its minimum requirement for own funds and eligible liabilities (MREL).
Sparebanken More is subject to the Norwegian operational resolution regime based on Norway's implementation of the Bank Recovery and Resolution Directive (BRRD). Under this regime on 14 December 2020 the bank was given an MREL of 31.4% of adjusted risk-weighted assets. MREL must be met from capital and other eligible liabilities, including the senior non-preferred class (SNP) of debt which has been introduced in Norway in facilitate loss-absorption and recapitalisation via a debt conversion or write-down of the junior senior notes in resolution. Assuming that the countercyclical buffer will remain at the current 1%, Sparebanken More will likely issue SNP debt of at least NOK5.0 billion in a linear manner by the end of 2023, including the NOK750 million it issued today.
The rating agency's analysis indicates that following the expected issuance of the larger volume of more subordinated liabilities the depositors and other senior creditors of Sparebanken More are likely to face a very low severity of loss in the event of the bank's failure leading to a one notch upgrade in their ratings to A1.
Furthermore, Moody's expects that junior senior instrument holders will likely face moderate loss severity in the event of the bank's failure, leading to a positioning at the same level as the bank's adjusted BCA. Moody's assumption of a low probability of government support, results in no additional rating uplift in any rated instruments.
IMPLEMENTATION OF BRRD2 IN NORWAY UNLIKELY TO MATERIALLY CHANGE THE VOLUME OF JUNIOR SENIOR ISSUANCE BY THE BANK
Moody's believes that there is a low likelihood that the implementation of revisions to the Bank Recovery and Resolution Directive (BRRD2) in Norway will result in a significantly lower level of junior senior issuance by the bank. In particular the agency does not expect the application of the directive's subordination cap (equivalent to 27% of risk weighted assets) to significantly reduce the level of subordination for Norwegian banks currently in receipt of a recapitalisation requirement. This is because the framework includes a number of potential exceptions to the cap, particularly in the case of larger banks, or for those banks where there is an assumption that use of resolution funding would be required to facilitate resolution.
Accordingly, the rating agency expects that Norwegian banks' funding plans will most likely remain substantially unchanged and continue to be driven by the initial implementation of the BRRD rules. However, the ability of authorities to apply such exceptions to a broad range of banks remains untested and clarity depends on the incorporation of BRRD2 in the EEA agreement, implementation in Norwegian law and finally the setting of individual requirements by the Norwegian FSA (the resolution authority). Should the final implementation of BRRD2 result in lower subordination requirements for Sparebanken More, and therefore lower volumes of junior senior debt, this could lead to a negative rating action.
Please see the report "Banks - Nordic Countries: FAQ: Nordic banks' new non-preferred senior debt instruments" (https://www.moodys.com/research/--PBC\_1122335 ) for additional details on the junior senior notes and the risks they pose to creditors.
STABLE OUTLOOK ON LONG-TERM DEPOSIT AND ISSUER RATINGS DRIVEN BY THE BANK'S RESILIENT CORE EARNINGS PERFORMANCE AND HIGH CAPITALISATION
The bank's deposit and issuer ratings carry a stable outlook reflecting Sparebanken More's robust positioning, when compared to local and international peers. The stable outlook also reflects the bank's solid capitalization, resilient core earnings, and asset quality through the cycle balanced by challenges induced by the coronavirus and reduced oil prices on the back of its oil-related exposures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Sparebanken More's ratings could be upgraded or downgraded in response to an upgrade or downgrade of its BCA.
Over time, upward pressure on the BCA could develop if the bank demonstrates (1) improved asset-quality metrics and contains sector and single-name concentration levels in its loan book (2) a stronger earnings generation, without a material deterioration in its risk profile; and (3) continued good access to capital markets and further issuance of covered bonds eligible as liquidity assets in the liquidity coverage ratio (LCR), which will further improve its liquidity metrics.
Future downward BCA pressure would emerge if (1) Sparebanken More's risk profile weakens materially as a result of the operating environment deteriorating more than currently expected; (2) should its recurring profitability weaken significantly from the current levels; or (3) financing conditions become more difficult.
Sparebanken More's ratings could also be downgraded in case the bank issues a significantly lower volume than expected of junior senior securities.
LIST OF AFFECTED RATINGS
..Issuer: Sparebanken More
Upgrades:
....Long-term Issuer Rating, Upgraded to A1 from A2, Outlook Remains Stable
....Long-term Bank Deposit Ratings, Upgraded to A1 from A2, Outlook Remains Stable
Assignment:
....Junior Senior Unsecured Regular Bond/Debenture, Assigned Baa1
Affirmations:
Outlook Action:
....Outlook, Remains Stable
The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC\_1147865 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC\_1243406 .
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Mattias Eric Frithiof AVP-Analyst/Manager Financial Institutions Group Moody's Investors Service (Nordics) AB Norrlandsgatan 20 Stockholm 111 43 Sweden JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
Sean Marion MD - Financial Institutions Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
Releasing Office: Moody's Investors Service (Nordics) AB Norrlandsgatan 20 Stockholm 111 43 Sweden JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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