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) full-year 2021 results.
Double-digit loan growth despite brake on consumer lending
Collector's lending to the public rose by 14% in 2021, 3pp higher than our initial estimate. The increase was driven by corporate and real estate lending (up respectively by 21% and 29% in the course of the year), while consumer lending was flat. The payments division's loan portfolio grew by 11% in 2021. We note, however, that corporate lending was down by 4% and consumer lending by 2% in the fourth quarter. This led to more modest 2% quarter-on-quarter growth in total lending. Collector continues to focus on the corporate and real estate segments, where both demand and risk-adjusted margins are higher than in consumer lending.
The net interest margin was 5.7% in 2021, compared with 4.9% in 2020. This was stronger than our expectations at the beginning of the year that margins would remain relatively flat. Margins were up in all segments, driven by higher yields and lower funding costs, though we note that funding costs increased in the fourth quarter. Reclassification of an additional Tier 1 instrument as equity from debt affected the net interest margin positively by 0.1pp.
Operating expenses were down 8% from 2020 while cost/income was 30% compared with 40% in full-year 2020, outperforming our forecast of 35.7% for the full year. The increased efficiency was mainly driven by scalability.
Credit losses stood at 2.6% of lending in 2021, vs 2.8% in 2020 and 2.3% in the fourth quarter. Net Stage 3 non-performing loans stood at 8.0% of all loans against 9.8% at end-2020. Collector sees continued signs of underlying improvement in credit quality.
Funding base broadens
Collector broadened its funding base by issuing senior bonds denominated in Swedish krona and Norwegian krone during 2021. The loan-to-deposit ratio rose to 116% in the course of the year from 103% previously. We see this increased diversity of funding as positive due to the relatively high interest rates that niche banks have to pay on deposits.
Collector reported a common equity Tier 1 (CET1) ratio of 13.9% for 2021 compared with 13.7% at end-2020. This was stronger than our previous expectations and was due to greater profitability. The bank's CET1 requirement is only 7.7% following Sweden's decision in 2020 to remove the regulatory countercyclical capital buffer. The buffer will be increased from zero to 1% as of 29 Sep. 2022. We are still waiting for the Swedish regulator to implement Pillar 2 guidance, which we anticipate will increase Collector's CET1 requirement by at least 1-1.5pp.
Figure 1. Collector Bank key credit metrics, 2017-2021
|
(%) |
2017 |
2018 |
2019 |
2020 |
2021* |
|
Net interest margin |
6.9 |
5.7 |
5.1 |
4.9 |
5.7 |
|
Loan losses/net loans |
1.1 |
1.3 |
4.3 |
2.8 |
2.6 |
|
Pre-provision income/REA |
5.1 |
4.0 |
3.2 |
3.7 |
5.0 |
|
Return on ordinary equity |
18.3 |
15.5 |
-6.7 |
7.7 |
13.6 |
|
Loan growth |
48.6 |
34.0 |
14.4 |
6.9 |
13.8 |
|
CET1 ratio |
14.3 |
11.9 |
10.3 |
13.7 |
13.9 |
|
|
|
|
|
|
|
Based on company data. All metrics adjusted in line with NCR methodology. *All 2021 values are based on Collector AB figures. Collector Bank has yet to publish end-year 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