Today Nordic Credit Rating (NCR) affirmed its 'BBB-' long-term issuer rating and 'N-1+' short-term rating on Resurs Bank AB (publ) (Resurs) after Resurs Holding announced that it is "investigating the possibility" of issuing between SEK 100-400m in additional tier 1 (AT1) instruments in the next few months. The outlook on the ratings remains stable.
"The new issuance will improve capital ratios and diversify the capital base. The use of the proceeds given the buffers to the bank's CET1 (common equity Tier 1) capital targets and the bank's SEK 130m share buyback program remains unclear," said Sean Cotten, NCR's primary analyst for Resurs. "Our expectation is that some of the proceeds would be used for growth, reducing their impact on consolidated capital over time and resulting in lower CET1 ratios."
Capital ratio improvements
NCR focuses its capital assessment on a bank's CET1 ratio with the potential to reflect additional capital flexibility from the going-concern loss absorption of AT1 capital instruments. At 30 Sep. 2019, the consolidated CET1 ratio was 13.6% for Resurs Holding (and Resurs Bank), including a 0.5% increase associated with a technical change in the calculation method for operational risk requirements. The additional capital would reflect an increase of 0.3%-1.3% in the consolidated Tier 1 capital levels.
Given uncertainty about the instrument, it remains to be seen whether the increased capital would be a permanent improvement in the group's capital structure. NCR notes that Resurs has not revised its capital targets from 11.5% CET1 or 14% total capital, which allows for considerable reductions in capital levels from current levels, with or without the issuance of the AT1 instrument.
While unlikely to affect the bank's capital levels, the current operating environment in Norway is affecting Resurs's growth opportunities, earnings and risk appetite. To compensate for currently flat growth in Norway the bank has adjusted pricing and reduced marketing expenditure in the country. In addition, Resurs has partly revised it strategy outside Norway by increasing its growth focus on higher ticket loans in Sweden, Finland and Denmark.
Our full analysis of Resurs Bank, published 15 May 2019, is available at:
https://nordiccreditrating.com/issuer/resurs-bank-ab-publ
Positive rating drivers
- Commitment to stronger capital buffers, in addition to strengthening of the bank's going-concern capital levels.
- Stabilisation or improvement of asset quality metrics.
- Tightening of overall risk appetite.
Negative rating drivers
- Material economic deterioration in the region.
- Regulatory changes affecting interest rates and recovery prospects for consumer loans.
- Excessive growth or increased risk appetite.
Analyst contact details:
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology and Rating Principles, published on 16 Sept 2019. For the full regulatory disclaimer please see the rating report which can be downloaded at nordiccreditrating.com/ratings-research/research.
NCR_-_Resurs_Bank_AB_publ_-_Rating_Update_1_Nov_2019.pdf (219.4 KB) Resurs Bank AB (publ) BBB - Stable Financial N-1+ Off Off