Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Sweden-based Collector Bank AB (publ). The outlook is stable. The outlook is stable. The 'N3' short-term rating was also affirmed. In addition, the 'BBB-' senior unsecured issue rating and the 'B+' additional tier 1 issue rating were also affirmed.
Rating rationale
The long-term rating reflects Collector Bank's strong risk-adjusted earnings, demonstrated access to diverse funding sources, and robust capital position, which is supported by a lack of dividend payments. Following a reverse merger between the bank and its former parent, Collector AB, the bank became the group's listed entity as of 15 Aug. 2022. Via strong growth in commercial real estate loans, the bank has changed its risk profile from that of a domestic Swedish consumer lender to that of mid-size regional real estate and SME lender over the past decade.
The rating is constrained by the bank's elevated risk appetite and risk governance challenges as it grows in new geographic areas and sectors. The fiercely competitive climate in the consumer lending sector has led to a greater focus on corporate lending in niches where strong demand has allowed both growth and higher margins. A heightened focus on commercial real estate and increasing single-name exposures represent a risk factor as the bank's core economies slow and we project elevated losses and non-performing loans over the next two years.
We have revised our assessment of the operating environment and the bank's credit risk downwards to reflect increasing risks in key operating segments and increasing single-name concentrations in commercial lending. We have also revised our view on funding and liquidity to reflect smaller liquidity buffers than those of other rated peers and continued capital market volatility increasing refinancing risk.
Stable outlook
The stable outlook reflects our expectation that, despite the impact of adverse economic conditions on its core operating segments, the bank will be able to manage higher credit provisions and maintain capital ratios due to lower growth and strong earnings. Our forecast assumes an increase in loss reserves due to deteriorating economic conditions as well as estimates for the impact of specific provisions in the commercial and retail loan books. In addition, we believe the bank is prepared to continue to retain earnings and adapt its loan growth to reflect higher capital requirements or worse market conditions than we currently expect, if necessary.
We could raise the rating to reflect materially higher capitalisation ratios (Tier 1 ratio sustainably above 18%), reduced risk appetite through increased collateralisation, and lower concentration risk or an improved operating environment in core markets and segments. We could lower the rating to reflect higher credit losses than we currently anticipate, increased risk appetite or regulatory change affecting the business model and/or recovery prospects for consumer loans. We could also lower the rating due to reduced access to deposit and/or capital market financing, or materially lower capitalisation ratios (Tier 1 ratio lower than 14%).
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB- | BBB- |
| Tier 2 issue rating: | BB | BB |
| Additional Tier 1 issue rating: | B+ | B+ |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.