Our 'BBB-' long-term issuer and issue ratings on Collector Bank AB (publ) (Collector Bank) are unchanged following the publication of parent Collector AB's (Collector's) third-quarter 2021 results.
Stable capitalisation despite double-digit growth
In the third quarter, Collector's lending to the public rose by 18% year on year and 12% from end-2020 levels. While this level of growth was strong, our full-year 2021 forecast is 20% higher than the bank's reported net lending as of the end of the third quarter. The increase was driven by corporate and real estate lending (up respectively by 42% and 32% in the past 12 months), while consumer lending was flat. The payments loan portfolio was up by 15% in the past 12 months. Collector continues to focus on the corporate and real estate segments, where both demand and risk-adjusted margins are higher than in consumer lending.
Collector reported a net interest margin of 6.6% in the first three quarters, compared with 5.9% in full-year 2020. This was stronger than our expectations that margins would remain flat and could explain the fact that loan growth in the period was more subdued than we previously expected. Margins were up in all segments, driven by higher yields and lower funding costs.
Operating expenses were down 8.5% year on year in the third quarter and 8.4% in the year to date while cost/income was 31.2% vs. 40.9% in full-year 2020. The increased efficiency is mainly driven by scalability. Collector has already outperformed our forecast cost/income ratio of 35.7% for full-year 2021.
Credit losses stood at 2.6% of lending in the third quarter of 2021 against 2.7% in the previous quarter. Our full-year estimate of 2.3% implies 23% lower loan losses in the fourth quarter. Net Stage 3 non-performing loans stood at 8.2% of all loans against 9.8% at end-2020.
Regulatory capital requirement set to increase
Collector reported a common equity Tier 1 (CET1) ratio of 13.8% compared with 13.7% at end-2020. This is stronger than our previous expectations both due to stronger profitability and lower loan growth. The company's CET1 requirement is only 7.7% following last year's reduction in the regulatory countercyclical capital buffer. The buffer will be increased from zero to 1% as of 29 Sep. 2022 and we expect it to increase further beyond that. We are still waiting for the Swedish regulator to implement Pillar 2 guidance, which we anticipate will increase Collector's CET1 requirement by 1-1.5pp.
This commentary does not constitute a rating action.