Our 'BBB-' long-term issuer rating on Collector Bank AB (publ) (Collector Bank) is unchanged following the publication of parent Collector AB's (Collector's) results for the first quarter of 2022.
Strong quarterly performance driven by improved cost efficiency
The loan book grew 7% during the first quarter, reflecting strong growth in corporate lending (up SEK 1.2bn in the quarter) and real estate lending (up SEK 1.7bn) that outweighed moderate declines in consumer and payment loans. The growth was supported by a continuing trend of larger loans in the corporate and real estate segments, which increased single-name concentrations in the loan book.
The net interest margin remained strong at 5.8% in the quarter, in line with our full-year expectations. Pre-provision income over risk exposure amount (REA) also remained in line with our expectations at 5.2%, driven by continued improvements in cost efficiency, with the cost income ratio falling to 27%, compared with 33% in the first quarter of 2021.
Growth in corporate exposures improves asset quality metrics
Credit losses stood at 2.1% of lending in the first quarter, continuing a declining trend and contributing to a generally lower level of losses in the corporate and real estate portfolios compared with consumer and payment loans. Net Stage 3 non-performing loans (NPLs) continued to decline and stood at 7.4% of net loans at the end of the quarter. The falling NPL levels were a result of growth among corporate and real estate customers (0.2% of net NPLs) compared with private customers (19.7% of net NPLs).
Collector reported a common equity Tier 1 (CET1) ratio of 13.7%, in line with recent levels and not far from our expectation of 14% by the end of 2022. We expect the planned merger of Collector and Collector Bank in the second half of 2022 to improve the consolidated Tier 1 ratio by around 0.5 pp due to the full inclusion of hybrid instruments. We also expect the Swedish regulator's implementation of Pillar 2 guidance to increase Collector's CET1 requirement by at least 1.0 pp.
Figure 1. Collector Bank key credit metrics, 2018-2022Q1
(%) |
2018 |
2019 |
2020 |
2021 |
2022Q1 |
Net interest margin |
5.7 |
5.1 |
4.9 |
5.7 |
5.8* |
Loan losses/net loans |
1.3 |
4.3 |
2.8 |
2.6 |
2.1* |
Pre-provision income/REA |
4.0 |
3.2 |
3.7 |
5.0 |
5.2* |
Return on ordinary equity |
15.5 |
-6.7 |
7.7 |
14.2 |
18.3* |
Loan growth |
34.0 |
14.4 |
6.9 |
12.3 |
7.0 |
CET1 ratio |
11.9 |
10.3 |
13.7 |
13.9 |
13.7 |
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Based on company data. All metrics adjusted in line with NCR methodology. *Annualised Q1 2022 values are based on Collector AB figures. Collector Bank has yet to publish quarterly figures.
This commentary does not constitute a rating action.
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com