A new assessment of the Bank of North Dakota’s financial strength should bolster its ability to help private banks with business loans, and government agencies that issue bonds to pay for public works projects, its president said.
The Standard Poor’s ratings agency has upgraded its ratings of the state-owned bank’s business, including assessments of its conservative management and the likelihood that the loans it makes will be repaid. In one category, the rating increased from A+ to AA-, the agency said.
North Dakota’s state treasury, fattened by oil tax collections, also has not had to rely on bank profits in recent years to help pay for education, human services and other state programs. That has allowed the bank to increase its financial reserves and strengthen its ability to make loans, the report said.
Bank President Eric Hardmeyer said the independent review is done each year at the bank’s request.
“I’m sure that they’re looking at North Dakota, looking at our economy, looking at how things are,” Hardmeyer said. “We’re in a stronger position than we’ve ever been.”
North Dakota’s private banks often ask the Bank of North Dakota to provide a slice of the cash they lend to farmers, ranchers and commercial customers. This allows the private banks to lessen their risk and take on larger economic development projects.
The bank provides favorable loan terms to farmers and ranchers who are getting started in the business, and money for building irrigation networks and diversifying farming operations.
It offers interest rate subsidies for business expansions, loans to medical providers for technology upgrades and disaster loans for North Dakotans whose homes have been damaged or destroyed by flooding.
North Dakota law guarantees the bank’s deposits, which are not insured by the federal government. Most of the deposits are funds the bank holds for state agencies.
Although North Dakota guarantees the deposits of the state-owned bank, it does not extend similar support to its loans, letters of credit and other bank transactions. That prompted the move for a separate review of the bank’s reserves, earnings and management, Hardmeyer said.
He said the improved Standard Poor’s rating would be useful for the bank’s letters of credit, which it offers to private banks and government agencies to guarantee that a loan or bond issue will be paid off.
In a government agency’s case, a Bank of North Dakota letter of credit, backed by the strong rating, will help lower the interest costs for building new streets, sewers, water lines and other public works, he said.
“When people look at those letters of credit and see the Bank of North Dakota is behind it, with at least an ‘A’ rating … that is what they are looking for,” Hardmeyer said. “The better your rating, the lower the interest rate is going to be on a bond issue that is being sold to the market with a letter of credit behind it.”
Rick Clayburgh, director of the North Dakota Bankers Association, and Donald Forsberg, director of the Independent Community Banks of North Dakota, said the improved rating was welcome.
“It’s positive news for the state and the taxpayers,” Clayburgh said.
Hardmeyer said the Standard Poor’s review looked separately at the safety of the Bank of North Dakota’s deposits and how the bank is managed.
“We rate as strong as some of the other regional banks, and national banks, for that matter,” he said of the report. “We’re pretty pleased with it.”
