Our 'BBB' long-term issuer and issue ratings on Nordax Bank AB (publ) (Nordax) are unchanged following the publication of its fourth-quarter 2021 results.
Operations increase in scale and scope following merger
Nordax completed its acquisition of Bank Norwegian on 3 Nov. 2021, effectively creating the largest consumer bank in the Nordic region with a loan book of SEK 70.7bn at year-end. The acquisition added SEK 24.6bn in consumer loans and SEK 10bn in credit card debt to the combined loan book. In addition, the transaction expanded Nordax's footprint outside the Nordic region with the acquisition of Bank Norwegian's consumer loans and credit card debt located in Germany and Spain.
The acquisition resulted in one-off acquisition costs of SEK 563m, and additional loan losses of SEK 537m attributable to stage 1 and 2 reserve effects. Despite a reported loss for full year 2021, we expect Nordax risk-adjusted earnings and cost efficiency to improve following the acquisition. Including a one-off loan-loss adjustment, the bank reported losses equal to 2.7% of average quarterly net loans in 2021. Excluding the adjustment, the losses amounted to 1.3% of average net loans.
New issuance improves capitalisation and creates formidable regulatory buffers
As a result of the merger, Nordax reported a stronger-than-expected common equity Tier 1 (CET1) ratio of 16.2% at end-2021, which compares favourably with our earlier estimate of 15.7%. The bank issued additional Tier 1 and Tier 2 instruments to finance part of the transaction, raising its Tier 1 capital ratio to 18.8% and capital ratio to 20.8% and creating significant buffers to regulatory requirements. As a result of the merger, Nordax's consolidated capital requirements now include a 1.9pp systemic risk buffer under Norwegian regulatory requirements.
Figure 1. Nordax Bank key credit metrics, 2017-2021
|
(%) |
2017 |
2018 |
2019 |
2020 |
2021* |
|
Net interest margin |
7.5 |
7.5 |
6.2 |
5.7 |
5.2 |
|
Loan losses/net loans |
1.6 |
2.7 |
1.4 |
1.6 |
1.3** |
|
Pre-provision income/REA |
6.2 |
5.9 |
4.3 |
5.5 |
5.2** |
|
Return on ordinary equity |
19.4 |
13.8 |
13.5 |
17.9 |
-0.4 |
|
Loan growth |
5.4 |
12.2 |
66.9 |
9.4 |
155.6 |
|
CET1 ratio |
14.7 |
17.0 |
14.0 |
16.2 |
16.2 |
*Consolidated following the November acquisition of Bank Norwegian, reducing comparability. **Excluding non-recurring costs related to the acquisition. REA–risk exposure amounts.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com