Sparebanken Sør sees sustainable growth potential after green debut

Sparebanken Sør Boligkreditt sold its first green covered bond on 17 October, a €500m seven year trade that inaugurates the first green and sustainability bond framework from a Norwegian bank, which takes in social activity in emerging markets, and a new green mortgage highlighted by an official at the issuer.

The day after concluding a four day roadshow, Sparebanken Sør Boligkreditt leads Commerzbank, ING, Natixis, SEB and Swedbank went out with guidance of the mid-swaps plus 15bp area for the €500m no-grow seven year trade. Within an hour, they reported books over €600m, and after tightening the spread to 12bp+/-1bp, will price in range, on the back of books in excess of €1.1bn, the spread was ultimately fixed at 11bp with final books good at re-offer exceeding €1bn.

Sole green structurer ING said the transaction was successful in enabling the issuer to broaden its investor base and price with a “very low” new issue premium of around 1bp.

Jørgen Brøvig, sustainable bonds analyst, Sparebanken Sør, said the issuer is extremely pleased with the result of the transaction.

“It went very well on Thursday, we had a very good order book and a good price at the end,” he told Sustainabonds.

Brøvig said the inaugural green covered bond represents an integral part of Sparebanken Sør’s broader ESG policy and commitment to its founding principles.

“As a local savings bank, we’re founded on the principles of contributing to the local society in a sustainable and responsible manner,” he said, “and we also take responsibility for acting on climate change, so our green and sustainable bond framework reflects our holistic ESG policies.”

Sparebanken Sør has, for example, introduced a green mortgage offering customers a pricing incentive.

“By launching this product,” said Brøvig, “we are actively making customers more aware of and encouraging energy efficient homes.”

The use of proceeds of Sparebanken Sør’s green covered bonds are earmarked for refinancing green residential mortgages, in line with previous Norwegian green covered bond issuance.

Norwegian financial institutions have thus far restricted themselves to green bond issuance, but Sparebanken Sør also incorporates social aspects in its green and sustainability bond framework. Forthcoming sustainability bonds will be issued in senior format, with proceeds also earmarked for improving access to essential services, including healthcare, social care, education and vocational training.

“Quite a substantial part of our commercial lending base relates to social services,” said Brøvig.

As well as in Norway, the framework takes in projects in South America, Africa and Asia, where Sparebanken Sør works in conjunction with KNIF, a cooperative with which the Norwegian issuer has a banking service agreement. In Norway, the cooperative negotiates joint deals for service providers and counts among its members most Norwegian Christian organisations, who run, among other things, schools and hospitals.

Brøvig said Sør Boligkreditt is excited about future issuance.

“We aim to be a recurrent issuer in euro covered bonds, with a mix of conventional and green bonds,” he said, “and we’re working on growing our green mortgage portfolio, so hopefully this will lead to increased green bond issuance.”

The bank has not yet identified assets for sustainable senior bond issuance, according to Brøvig.

“We haven’t started the process of identifying such assets as of yet,” he added. “However, we do believe there’s good potential there, even if it’s not something that is immediately round the corner.”

Photo: Lindesnes lighthouse on Norway’s southernmost tip in Sparebanken Sør’s home region

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