Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Sweden-based Collector Bank AB (publ) (Collector Bank). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. At the same time NCR affirmed its 'BBB-' issue ratings on Collector Bank's senior unsecured bonds, affirmed its 'BB' issue ratings to its tier 2 bonds and affirmed its 'B+' issue ratings to its additional tier 1 bonds.
Rating rationale
The long-term rating reflects Collector Bank's strong risk-adjusted earnings, good access to funding, and diverse loan portfolio. The bank is directly owned by and has joint management with Collector AB (Collector), which is listed on the Stockholm Stock Exchange. Following recent divestments, Collector's board of directors proposed merging the bank and the holding company. In our view, stronger loss reserves, together with a more balanced growth strategy, are positive for Collector Bank's risk governance and overall risk management. We note that the bank has improved the transparency of its segment reporting. The bank is largely deposit funded but in 2021 increased efforts to diversify its funding across currencies and debt classes.
We see lending to the commercial real estate sector as a particular risk factor in the event of a deep recession but expect low losses from such exposure over a normal cycle. The fiercely competitive climate in the consumer lending sector has led to a greater focus on corporate lending, in niches where competitive conditions are currently more benign. Moreover, we see an added risk factor in increased regulatory scrutiny on consumer lenders which could lead to lower market growth and less efficient credit assessment procedures.
We have improved our scoring of three subfactors: "National" factors to reflect a robust operating environment for banks through the COVID pandemic; "Capital" due to higher current and expected capital ratios; and "Earnings" due to improved margins and cost efficiency. We have reduced our scoring of "Risk governance" due to the bank's opportunistic approach to prospective new business.
Stable outlook
The stable outlook reflects our expectation of a continued economic recovery across Collector Bank's core markets following reduced COVID-related restrictions. It also reflects our expectation that the bank's earnings will be sufficient to generate enough capital to support its moderate growth objectives without significantly increasing its risk profile or requiring additional capital injections. We do not currently expect the Ukraine conflict to have a direct impact on the bank. However, any escalation of hostilities could reduce demand for real estate and consumer loans. In addition, borrowers with already weak financial profiles are more likely to be affected by food and energy price inflation as a result of the conflict which could affect their repayment capacity and increase credit losses.
We could raise the rating to reflect materially higher capitalisation ratios (Tier 1 ratio sustainably above 18%) or reduced risk appetite (reflected in both increased collateralisation and lower concentration risk). We could lower the rating to reflect increased risk appetite, reflected for example by increased single name concentration. We could also lower the rating to reflect materially lower capitalisation ratios (Tier 1 ratio below 12%) or regulatory changes affecting the bank's business model.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB- | BBB- |
| Tier 2 issue rating: | BB | BB |
| Additional Tier 1 issue rating: | B+ | B+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.