Rating action

Scope Ratings GmbH (Scope) has affirmed Pareto Bank ASA’s (Pareto Bank) issuer rating of BBB changed the Outlook to Positive from Stable.

The Positive Outlook reflects the potential for ratings to be upgraded should the bank maintain comfortable buffers to regulatory requirements and a strong liquidity profile. Pareto Bank’s buffer to its overall CET1 ratio requirement increased to 460 bp in Q2 2025 from 180 bp as of Q1 2025, largely owing to the implementation of CRR3 in Norway. In addition, the bank has significantly grown its portfolio of high-quality liquid assets over the past three years. The Positive Outlook reflects our expectation that the bank will maintain stable credit quality, and continue to deliver solid profitability, even if some downward pressure on current regulatory buffers is likely.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business model assessment: Focused (Low). The issuer rating is anchored by the Focused (Low) business model assessment. Pareto Bank ASA (Pareto Bank) is a commercial bank specialising in tailored solutions within residential and commercial real estate, corporate, and ship financing. While the bank’s overall market position is limited, it successfully targets medium-sized companies underserved by other banks. In addition, the bank offers deposit products to both retail and corporate customers. Activities are concentrated in Eastern Norway, including the Oslo region, but extend to cities in Western Norway. The bank continues to expand into real estate financing in Sweden, which now accounts for around 12% of overall credit exposure. Shipping and offshore financing represents a small share of the credit portfolio with around 6% as of Q2 2025. With total assets of NOK 27.6bn as of Q2 2025, the bank is small to medium sized in the Norwegian context. Pareto Bank has consistently delivered on its strategy to prioritize profitability and asset quality rather than growth and achieved steady net income growth, despite its significant concentrations towards highly cyclical sectors.

Operating environment assessment: Very supportive (Low). The assessment reflects Scope’s blended view of the different markets where Pareto Bank operates.

Norway (Very supportive low) is the bank’s main market, representing about 88% of credit exposures as of Q2 2025. Norway is a relatively small open economy with one of the highest levels of per capita income in the world and low unemployment. A very strong government fiscal position provides ample capacity to support the economy when needed. The regulatory framework is well established and rigorous, and the central bank has a good track record of providing refinancing facilities to banks in times of stress. Banking sector performance generally ranks among the best in Europe.

Sweden (Very supportive low) accounts for around 12% of credit exposures. Sweden is a small but wealthy and diversified economy, with a GDP per capita amongst the highest in the EU and well above the OECD average. The Swedish government maintains a robust fiscal capacity with low levels of public debt and prudent financial management. The Swedish central bank, Sveriges Riksbank, acts as lender of last resort. Banking sector performance generally ranks among the best in Europe.

Scope arrives at an initial mapping of bbb- based on a combined assessment of the issuer’s operating environment and business model.

Long-term sustainability assessment (ESG factor): Developing. The assessment reflects Scope’s view that the issuer is embracing changes to ensure the long-term sustainability of its business model. Progress made may be tangible but does not warrant further credit differentiation.

Pareto Bank continues to integrate ESG risk management in its risk management strategy and processes. This includes ESG scoring of credit customers and evaluation of the ESG risks of financed assets. Short maturities in the bank’s loan book help mitigate ESG risk to some extent, particularly when it comes to climate risks.

The bank is listed on Euronext Oslo Børs, with a diversified investor base. Through its branding, Pareto Bank is included in the Pareto Group umbrella, which also includes investment banking and asset management among its businesses. However, the holding company Pareto AS’s ownership in Pareto Bank is limited to 20%, and Pareto Bank does not grant credit or guarantees to any Pareto Group company.

The long-term sustainability assessment leads to an adjusted rating anchor of bbb-.

Earnings capacity and risk exposures assessment: Supportive. (+1 notch). The assessment reflects Scope’s view that earnings capacity is stable through economic cycles and provides a strong buffer against losses. Risks are well managed and are highly unlikely to lead to losses capable of undermining the issuer’s viability.

Pareto Bank consistently generates robust returns, underpinned by prudent underwriting criteria, high margins, and efficient operations. The bank’s cost-to-income ratio has exhibited a downward trend over the past decade, reaching 18.0% for 2024 before increasing marginally to 18.4% for H1 2025. Sources of operating income are less diversified than peers, as net interest income represents virtually all operating income. We expect the bank’s high margin model to be less sensitive to the interest rate cycle, compared with peers. The bank’s net interest margin has consistently been increasing for over a decade, even as the bank has seen a significant build-up of its low-yielding liquidity portfolio in recent years. Pareto Bank’s net interest margin has shown resilience and been largely uncorrelated with the interest rate cycle. Cost of risk increased to an historical high of 67 bp of average net loans in 2023 before softening to 65 bp in 2024 and 52 bp on an annualised basis in H1 2025. For H1 2025, the level of pre-provision income to credit impairments implies that, all else equal, earnings could absorb an increase in credit impairments from current historically high levels by a factor of about 10.

The bank’s Stage 3 ratio has seen a continuous increase to 5.5% as of Q2 2025 from 0.9% at year-end 2022, although Stage 3 loans in nominal terms decreased slightly during H1 2025. The historically high Stage 3 ratio, along with high impairments, since 2023 is mainly related to residential property development, which is the bank’s largest lending segment accounting for 45% of credit exposure as of Q2 2025. The sector has been struggling amid higher interest rates, a sharp increase in the cost of building materials, and weak demand for newbuilds in the high-rate environment. While Norges Bank announced its first policy rate cut of the cycle in June 2025, we do not expect Pareto Bank’s cost of risk to decrease in the very near term. Structurally, we expect the property development sector to recover, given a growing housing deficit from net new household formation outstripping dwelling completions over many years. Realised losses should remain contained as the bank’s lending is fully collateralised, asset values are stress-tested and the majority of exposures are in major cities and urban areas.

Financial viability management assessment: Adequate. The assessment reflects Scope’s view that financial viability management provides some buffer and, under a base case scenario, could not imminently push any metric close to minimum requirements or jeopardise the issuer’s financial viability.

As of Q2 2025, Pareto Bank had a buffer 460 bp to its overall CET1 ratio requirement, up from 180 bp at the end of Q1 2025. The implementation of CRR3 in Norway during Q2 2025 accounts for about half of the increase. Moreover, in June 2025, the European Banking Authority’s Guidelines on ADC exposures to residential property were finalised, removing uncertainty about risk-weighting of residential property exposures under CRR3 going forward. Pareto Bank’s leverage ratio stands at 17.0%, 1,400 bp above the requirement. The bank targets return on equity of at least 15% and a payout ratio of at least 50%. Over the past five years, the actual payout ratio has consistently been around 50%, while return on average equity has fluctuated between 13.0% (2020) and 14.6% (2022). Due to high risk-weights on the bank’s credit risk exposures, its risk-weighted capital ratios are particularly sensitive to high growth. A cautious growth strategy is, therefore, supportive of the financial viability assessment. Short maturities in the loan book, generally one to three years, provide the bank with potentially greater manoeuvrability than peers in managing its capital position by limiting the volume of new loans. Scope notes, however, that in severe stress scenarios this room for manoeuvrability could be constrained by high rates of default and forbearance.

Pareto Bank benefits from a large deposit base and established access to bond markets. A significant share of deposits has withdrawal restrictions. The bank’s liquidity portfolio, which consists of very low risk assets, has grown to represent 29% of the balance sheet as of Q2 2025. Accordingly, LCR stood at 833%, while NSFR was 175%. Virtually all securities held would qualify as eligible collateral with the central bank. Nonetheless, we would expect the funding and liquidity of Pareto Bank to be more vulnerable to investor sentiment compared to peers which have access to covered bonds funding and which, to a much greater degree, can maintain a retail deposit base without highly competitive pricing.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Positive Outlook reflects Scope’s view that the risks to the current rating are tilted to the upside.

The upside scenarios for the ratings and Outlooks are (individually or collectively):

1. Evidence that the bank will maintain comfortable buffers to capital requirements as well as a sound funding maturity profile and liquidity metrics could lead to a higher Financial Viability Management assessment.
    
2. Significantly greater business diversification combined with greater scale, resulting in an upgrade of the Business Model Assessment qualifier.

The downside scenarios for the ratings and Outlooks are (individually or collectively):

1. Pressure on asset quality and a deterioration in the bank’s performance, leading to a downgrade of the Earnings Capacity and Risk Exposures assessment.
    
2. A more aggressive management of the bank’s capital or liquidity profile, resulting in a lower assessment of Financial Viability Management.

Debt ratings

Preferred senior unsecured debt: BBB. The rating is aligned with the issuer rating and applies to senior unsecured debt ranking above other classes of senior unsecured debt.

Non-preferred senior unsecured debt: BBB-. The rating is one notch lower than the issuer rating, reflecting statutory subordination.

Environmental, social and governance (ESG) factors

Please refer to the ‘long-term sustainability assessment’ under the ‘key rating drivers’ section above for the ESG analysis.

All rated entities and rating actions

Pareto Bank ASA

Issuer rating: BBB/Positive, affirmation and Outlook change to Positive

Preferred senior unsecured debt rating: BBB/Positive, affirmation and Outlook change to Positive

Non-preferred senior unsecured debt rating: BBB-/Positive, affirmation and Outlook change to Positive

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Financial Institutions Rating Methodology, 10 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Magnus Rising, Senior Analyst
Person responsible for approval of the Credit Ratings: Karlo Fuchs, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 21 October 2022. The Credit Ratings/Outlooks were last updated on 18 September 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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