All four listed SpareBank 1 alliance banks screen as Buy on a two-stage Residual Income Model. The core question driving this analysis is how Norges Bank's rate cycle transmits to bank earnings and equity value — and how much shareholders actually capture after deposit repricing. With a deposit beta of 75% on hikes, only 12.5bps of the cumulative +50bps NIM effect reaches the bottom line. Real, but modest and temporary. SpareBank 1 Nord-Norge is the preferred exposure: highest ROE in the group (16.7% five-year average), structural NIM premium from limited regional competition, and the widest gap between current price and intrinsic value.
Valuation Summary
| Bank | Current price | Target price | Upside | Implied P/B | Current P/B | Rating |
|---|---|---|---|---|---|---|
| SpareBank 1 Sør-NorgeSB1NO | NOK 198.40 | NOK 231 | +16% | 1.68x | 1.34x | Buy |
| SpareBank 1 SMNMING | NOK 206.05 | NOK 228 | +11% | 1.71x | 1.49x | Buy |
| SpareBank 1 ØstlandetSPOLS | NOK 205.85 | NOK 226 | +10% | 1.63x | 1.49x | Buy |
| SpareBank 1 Nord-NorgeNONG | NOK 151.90 | NOK 190 | +25% | 2.12x | 1.72x | Buy ★ |
| Two-stage RIM · g = 0 · CoE 8.23% (Rf 4.42% + β 0.9 × ERP 4.23%) · Prices as of May 2026 | ||||||
The Model
Rather than asserting a target price, the purpose here is to show the reasoning. The model has two components: a Rate-ROE engine that translates Norges Bank's official rate path into bank-level ROE estimates via deposit beta, and a two-stage Residual Income Model that converts those ROE estimates into intrinsic equity value. Each assumption is explicit.
Step 1 — Norges Bank Rate Path (PPR 1/2026)
| Period | Rate | Change | Status |
|---|---|---|---|
| Q1 2025 | 4.50% | — | Actual |
| Q4 2025 | 4.00% | −50bps | Actual |
| Q1 2026 | 4.00% | — | Actual |
| May 2026 | 4.25% | +25bps | Implemented |
| Jun 2026 | 4.50% | +25bps | PPR path |
| Q4 2026 | 4.35% | −15bps | Forecast |
| Q4 2027 | 3.98% | −37bps | Forecast |
| Q4 2028 | 3.54% | −44bps | Forecast |
| Q4 2029 | 3.40% | −14bps | Forecast |
Source: Norges Bank Pengepolitisk rapport 1/2026
Step 2 — Deposit Beta & NIM Transmission
Empirically, Norwegian banks transmitted 88–95% of the 2022–23 hiking cycle to depositors. We use 75% for the current, milder cycle — acknowledging this involves judgment. Historical data provides the anchor; the adjustment reflects a less competitive deposit environment at current rate levels. The asymmetry (cuts at 90%) is a modest assumption that banks are marginally slower to pass hike benefits than to reduce rates on cuts.
The rate-ROE engine translates Norges Bank's quarterly rate path into bank-level ROE via deposit beta. Each year's ROE is the sum of two components: a structural baseline converging from 2025 actual toward terminal ROE, and a rate effect driven by NIM deviation against the prior quarter. Result: the +50bps hike adds only +0.09–0.10pp in 2026. The ROE story is overwhelmingly structural.
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
|---|---|---|---|---|---|---|
| Baseline ROE | 12.80% | 12.84% | 12.88% | 12.92% | 12.96% | 13.00% |
| Rate effect | — | +0.09% | −0.04% | −0.05% | −0.02% | 0.00% |
| Final ROE | 12.80% | 12.93% | 12.84% | 12.87% | 12.95% | 13.00% |
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
|---|---|---|---|---|---|---|
| Baseline ROE | 14.80% | 14.44% | 14.08% | 13.72% | 13.36% | 13.00% |
| Rate effect | — | +0.10% | −0.04% | −0.05% | −0.01% | 0.00% |
| Final ROE | 14.80% | 14.54% | 14.04% | 13.67% | 13.35% | 13.00% |
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
|---|---|---|---|---|---|---|
| Baseline ROE | 13.90% | 13.62% | 13.34% | 13.06% | 12.78% | 12.50% |
| Rate effect | — | +0.10% | −0.04% | −0.05% | −0.02% | 0.00% |
| Final ROE | 13.90% | 13.72% | 13.30% | 13.01% | 12.76% | 12.50% |
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
|---|---|---|---|---|---|---|
| Baseline ROE | 18.10% | 17.28% | 16.46% | 15.64% | 14.82% | 14.00% |
| Rate effect | — | +0.10% | −0.04% | −0.05% | −0.02% | 0.00% |
| Final ROE | 18.10% | 17.38% | 16.42% | 15.59% | 14.80% | 14.00% |
Step 3 — Two-Stage Residual Income Model
Intrinsic equity value = current book value + PV of future residual income. Residual income = earnings above cost of equity. If ROE > CoE, the bank creates value and should trade above book. Stage 1: explicit 2026–2030 ROE forecasts from the rate engine above. Stage 2: terminal perpetuity, g = 0.
| NOK unless stated | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Terminal |
|---|---|---|---|---|---|---|---|
| Beginning common equity | 51,496 | 53,672 | 55,924 | 58,276 | 60,741 | 63,322 | |
| Return on equity | 12.80% | 12.93% | 12.84% | 12.87% | 12.95% | 13.00% | 13.00% |
| Net income to shareholders | 6,659 | 6,892 | 7,200 | 7,544 | 7,896 | 8,232 | |
| Dividends | 4,483 | 4,640 | 4,847 | 5,079 | 5,316 | 5,542 | |
| Ending common equity | 51,496 | 53,672 | 55,924 | 58,276 | 60,741 | 63,322 | 66,012 |
| Equity charge | 4,237 | 4,416 | 4,601 | 4,794 | 4,997 | 5,209 | |
| Residual income | 2,422 | 2,477 | 2,599 | 2,750 | 2,899 | 3,022 | |
| Terminal value | 36,737 | ||||||
| Discount factor | 0.92 | 0.85 | 0.79 | 0.73 | 0.67 | 0.67 | |
| PV residual income | 2,238 | 2,114 | 2,050 | 2,004 | 1,953 | 24,741 | |
| NOK unless stated | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Terminal |
|---|---|---|---|---|---|---|---|
| Beginning common equity | 28,713 | 29,934 | 31,163 | 32,409 | 33,674 | 34,954 | |
| Return on equity | 14.80% | 14.54% | 14.04% | 13.67% | 13.35% | 13.00% | 13.00% |
| Net income to shareholders | 4,175 | 4,203 | 4,261 | 4,325 | 4,378 | 4,544 | |
| Dividends | 2,954 | 2,974 | 3,015 | 3,060 | 3,097 | 3,215 | |
| Ending common equity | 28,713 | 29,934 | 31,163 | 32,409 | 33,674 | 34,954 | 36,283 |
| Equity charge | 2,362 | 2,463 | 2,564 | 2,666 | 2,770 | 2,876 | |
| Residual income | 1,812 | 1,740 | 1,697 | 1,659 | 1,607 | 1,668 | |
| Terminal value | 20,279 | ||||||
| Discount factor | 0.92 | 0.85 | 0.79 | 0.73 | 0.67 | 0.67 | |
| PV residual income | 1,675 | 1,485 | 1,339 | 1,209 | 1,082 | 13,658 | |
| NOK unless stated | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Terminal |
|---|---|---|---|---|---|---|---|
| Beginning common equity | 25,672 | 26,735 | 27,808 | 28,900 | 30,013 | 31,146 | |
| Return on equity | 13.90% | 13.72% | 13.30% | 13.01% | 12.76% | 12.50% | 12.50% |
| Net income to shareholders | 3,523 | 3,555 | 3,618 | 3,689 | 3,752 | 3,893 | |
| Dividends | 2,460 | 2,482 | 2,526 | 2,575 | 2,619 | 2,718 | |
| Ending common equity | 25,672 | 26,735 | 27,808 | 28,900 | 30,013 | 31,146 | 32,321 |
| Equity charge | 2,112 | 2,200 | 2,288 | 2,378 | 2,469 | 2,562 | |
| Residual income | 1,411 | 1,355 | 1,330 | 1,311 | 1,282 | 1,331 | |
| Terminal value | 16,177 | ||||||
| Discount factor | 0.92 | 0.85 | 0.79 | 0.73 | 0.67 | 0.67 | |
| PV residual income | 1,304 | 1,157 | 1,049 | 956 | 864 | 10,895 | |
| NOK unless stated | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | Terminal |
|---|---|---|---|---|---|---|---|
| Beginning common equity | 19,359 | 20,853 | 22,373 | 23,922 | 25,495 | 27,080 | |
| Return on equity | 18.10% | 17.38% | 16.42% | 15.59% | 14.80% | 14.00% | 14.00% |
| Net income to shareholders | 3,365 | 3,423 | 3,488 | 3,541 | 3,569 | 3,791 | |
| Dividends | 1,870 | 1,903 | 1,939 | 1,969 | 1,984 | 2,108 | |
| Ending common equity | 19,359 | 20,853 | 22,373 | 23,922 | 25,495 | 27,080 | 28,763 |
| Equity charge | 1,511 | 1,627 | 1,746 | 1,867 | 1,990 | 2,113 | |
| Residual income | 1,854 | 1,796 | 1,741 | 1,674 | 1,580 | 1,678 | |
| Terminal value | 21,500 | ||||||
| Discount factor | 0.93 | 0.86 | 0.80 | 0.74 | 0.69 | 0.69 | |
| PV residual income | 1,720 | 1,545 | 1,390 | 1,240 | 1,085 | 14,766 | |
The Nord-Norge Case
SpareBank 1 Nord-Norge's five-year average ROE of 16.7% — more than 300bps above the group — is not a cyclical accident. It reflects a structural advantage: the bank operates in a geography with limited competition from national players. Fewer alternatives for borrowers and depositors allows Nord-Norge to sustain a NIM roughly 70bps above peers. We set terminal ROE at 14.0% — above peers but conservatively below the five-year average — acknowledging that some premium compression is likely over a decade. Even at 14.0%, the bank creates significant residual income against a 7.80% cost of equity.
The 410bps ROE compression modelled over Stage 1 (18.1% → 14.0%) is intentionally conservative. It reflects three forces: gradual normalisation of the 2024–2025 high-rate environment, expected increase in competitive pressure as digital banking reduces geographic barriers, and regulatory scrutiny of differential pricing in low-competition markets. The assumption is not that Nord-Norge's moat disappears — it is that a decade of structural change erodes roughly a quarter of the current ROE premium. If the moat proves more durable, intrinsic value is higher.
The discount at which NONG trades (1.72x P/B vs. implied 2.12x) suggests the market is not fully pricing this structural edge. A key risk is regulatory scrutiny: Finanstilsynet has flagged differential pricing in less competitive regional markets. The current market price appears to overprice this risk relative to the bank's demonstrated earnings quality.
Key Risks
Deposit beta uncertainty
The 75% hike beta involves judgment. Historical beta was 88–95% in 2022–23. If deposit competition proves fiercer, the 12.5bps NIM uplift would shrink further and Stage 1 ROE estimates would fall across all four banks.
Credit cycle normalisation
NPL ratios remain benign but have risen at Østlandet. A slowdown in the Norwegian housing market or corporate sector could drive provision charges above the normalised levels embedded in ROE assumptions.
Regulatory pricing scrutiny
Finanstilsynet has flagged differential pricing in less competitive markets. Any cap on retail lending spreads would disproportionately affect Nord-Norge's structural NIM premium and its 14.0% terminal ROE assumption.
Capital requirements
CET1 constraint is modelled but does not bind under 3% RWA growth. Accelerating credit growth, higher regulatory buffers, or Basel IV implementation could reduce distributable earnings and effective payout ratios.
Methodology. Two-stage Residual Income Model. Stage 1 (2026–2030): explicit ROE forecasts driven by a quarterly rate-ROE engine linked to Norges Bank PPR 1/2026, with asymmetric deposit beta (75% hike, 90% cut). Baseline ROE converges linearly from 2025 actual toward terminal ROE. Stage 2: perpetuity terminal value with g = 0. Common equity excludes hybrid capital and minority interests. EKB banks adjusted for eierbrøk (ownership fraction). CoE = Rf 4.42% (Norway 10Y, April 2026, Trading Economics) + β × ERP 4.23% (Damodaran, Norway implied, January 2026). Beta is set at 0.9 for SR-Bank, SMN and Østlandet (CoE 8.23%), and 0.8 for Nord-Norge (CoE 7.80%), reflecting Nord-Norge's lower observed market volatility relative to the Oslo Børs index, consistent with a regionally insulated business model with limited exposure to cyclical corporate sectors. CET1 constraint modelled as MIN(payout × NI, NI − ΔCET1); does not bind under base case. Payout ratios from 2025 annual reports. NIM transmission is modelled on retail deposit repricing; banks also fund partially via covered bonds and senior unsecured debt, which reprice closer to NIBOR and may transmit rate changes more rapidly — this is a simplification that could marginally overstate NIM uplift in a hiking cycle.
This analysis is produced independently for research purposes. It does not constitute investment advice.