Our 'BBB' long-term issuer and issue ratings on Nordax Bank AB (publ) are unchanged following the publication of its first-quarter 2022 results.
Strong growth in all segments
In its first full quarter following the acquisition of Bank Norwegian, Nordax demonstrated the bank's growth potential in personal loans and credit cards (6.0% growth in the first quarter), non-traditional mortgage loans (9.8%) and equity release mortgages (3.9%). Net interest income and operating income improved, but comparability is affected by the acquisition occurring in the middle of the previous quarter. The cost-to-income ratio of 43.7% in the first quarter was also impacted by integration costs and is expected to improve in future quarters and materially increase risk-adjusted earnings (pre-provision income to risk exposure amount (REA)) and return on equity.
Capital ratios fall below expectations
Stronger than anticipated lending growth and sluggish earnings in the first quarter resulted in a decline in the common equity Tier 1 (CET1) ratio, to 15.3% from 16.2% at year-end 2021. This is somewhat below our expectations of capital ratios improving over the next few years. From May 2022, the regulatory CET1 requirement for the bank will be 11.82% (12.96% as of 31 Mar. 2022), including about 68% CET1 coverage of the Pillar 2 requirement from the Norwegian regulator for Bank Norwegian. The 19.85% total capital ratio is firmly above the required 16.7%.
Figure 1. Nordax Bank key credit metrics, 2018–Q1 2022
| (%) | 2018 | 2019 | 2020 | 2021* | Q1 2022 |
| Net interest margin | 7.5 | 6.2 | 5.7 | 5.2 | 6.4*** |
| Loan losses/net loans | 2.7 | 1.4 | 1.6 | 1.3** | 3.4*** |
| Pre-provision income/REA | 5.9 | 4.3 | 5.5 | 5.2** | 5.7*** |
| Return on ordinary equity | 13.8 | 13.5 | 17.9 | -0.4 | 4.9*** |
| Loan growth | 12.2 | 66.9 | 9.4 | 155.6 | 6.2 |
| CET1 ratio | 17.0 | 14.0 | 16.2 | 16.2 | 15.3 |
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com