DBRS Assigns First-Time Ratings to Sandnes Sparebank (Norway) at A (low)/R-1 (low)

DBRS has today assigned first-time long- and short-term deposit ratings of A (low) and R-1 (low), with a Stable trend, to Sandnes Sparebank (SSB). The ratings are underpinned by the bank’s good and stable franchise in the wealthy region of Rogaland, in southwestern Norway, as well as its focused strategy and prudent risk management (including funding and liquidity). At their level, the ratings equally take account of the inherent challenges of the highly competitive market in which SSB – a bank of relatively small size – operates, and of its material revenue reliance on index-linked structured deposits.

SSB is Norway’s ninth-largest savings bank in terms of total assets. Despite its relatively small size and national client footprint, it has developed a stable and sustainable market position as the second-largest savings bank in the region of Rogaland, which is Norway’s centre of oil and gas activities. Although the amount of wealth in the region has translated into good business opportunities, it also makes Rogaland one of the most competitive markets in Norway, with all banks aiming to develop local activities. SSB’s strategy consists of providing customized and high-quality services in its home market to households and small- and medium-sized enterprises (SMEs).

“Innovation is at the core of management strategy to differentiate the bank from its competitors,” says Anne Caris, Senior Vice President, DBRS. As an example, Caris cites the offering of less traditional savings-related products, cautioning at the same time that these activities represent a material share of overall revenues for the bank. Inherent for a relatively small bank, SSB displays some concentration pockets in its loan portfolio, especially in the local real estate sector. DBRS, however, considers the bank’s risk management – including lending – as solid and well focused. In recent years SSB has managed to diversify its revenue base away from relatively thin net lending margins, benefiting from a larger fee and commission base.

SSB’s more recent growth has been supported to some extent by wholesale funds, with a focus on long-term resources. DBRS believes that, to the extent that money and capital markets again become more fluid, SSB will continue to diversify its market funding base. In this context, DBRS expects the bank to preserve a prudent funding and liquidity profile.

According to DBRS, SSB’s business and financial fundamentals underpin an Intrinsic Assessment equivalent of BBB (high). In addition, we consider SSB as systemically important, as Norway’s savings bank sector – to which it belongs – is a key component of the country’s financial infrastructure and a major retail and business finance provider. Although SSB is not a member of the Sparebank 1 Group – which comprises some of the country’s largest savings institutions – its extreme distress would nevertheless not be tolerated by Norway’s banks and timely support would be likely (there exists already an example in Norway a few years ago). Consequently, the SA2 Support Assessment lifts SSB’s long-term rating one notch, to A (low). That said, DBRS views the scenario of systemic support for SSB as very unlikely, given its adequate intrinsic credit fundamentals.

As future rating drivers, DBRS notes that any strategic choice resulting in higher risk appetite (for example a material international presence, or more aggressive domestic lending) could have negative rating connotations. Conversely, improving the granularity of its loan portfolio and further diversifying its revenue base (while avoiding higher risks) could be positive rating drivers.

Sandnes Sparebank is headquartered in Sandnes, Norway, and reported assets of NOK27.5 billion (EUR4.7 billion) as of 30 June 2007.