Our 'BBB-' issuer and issue ratings on Collector Bank AB (publ) (Collector Bank) are unchanged following the publication of parent Collector AB's (Collector's) first-quarter 2021 results.
Strong growth in corporate lending continues
In the first quarter, Collector Bank's lending to the public rose by 14% year on year and 5% from end-2020 levels. The increase was driven by factoring and corporate and real estate lending (both up 9% since end-2020), while consumer lending was flat. The payments loan portfolio was up by 3% in the quarter. Collector Bank continues to focus on the corporate segment, which is currently more profitable. However, it warns that the level of amortisation in real estate lending is higher so far in the second quarter.
The bank's net interest margin was flat quarter on quarter at 6.3% (company's definition), up from 5.6% in the corresponding quarter of last year. However, this includes a one-off effect of SEK 9m (0.1pp). Margins were strong despite an increased focus on secured lending. We note that other operating income was impacted by a SEK 12m gain on the sale of investment vehicle Collector Ventures.
Operating expenses were down 2% year-on-year after adjustment for non-recurring items in 2020, while the adjusted cost-income ratio in the banking operation was down to 34.9% from 45.7%.
Credit losses stood at 2.8% of lending in the first quarter of 2021 against 2.7% in the previous quarter. Net Stage 3 non-performing loans stood at 9.0% of net loans against 9.8% at end-2020 and 12.8% in the corresponding quarter of last year, excluding purchased non-performing loans.
Increasing capital requirement
Collector reported a common equity Tier 1 (CET1) ratio of 13.6% compared with 13.7% at end-2020. The company's CET1 requirement is only 7.7% after last year's reduction in the countercyclical capital buffer. We expect the Swedish Financial Supervisory Authority to implement Pillar 2 guidance in the second quarter of 2021 and anticipate that this will increase the CET1 requirement by 1-1.5pp. We also expect that Norway will implement a systemic risk buffer requirement, but that this will have a relatively small effect on Collector. We expect the countercyclical capital buffer to be increased when the COVID-19 pandemic subsides.
This commentary does not constitute a rating action.
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