Our 'BBB' issuer and issue ratings on Resurs Bank AB (publ) are unchanged following the publication of parent Resurs Holding's first-quarter 2021 results. Resurs Holding owns both Resurs Bank and insurance company Solid Försäkring AB.
Slow return to lending growth
In the first quarter, Resurs Bank's lending to the public rose by 1.4% year on year and 2.3% since end-2020, despite moderate negative currency effects. The increase was driven by a 4.3% year-on-year increase in lending by the bank's Consumer Lending division, mainly due to growth in the Swedish and Finnish markets. The Norwegian market also showed a slight improvement in the quarter, despite high churn rates, while the Danish market remained negatively impacted by the COVID-19 lockdown. Lending in the Payment Solutions division was down by 3% year on year due to lower activity levels in Denmark and Norway.
The bank's net interest margin declined to 8.3% (company's definition) in the first quarter compared with 8.7% in the fourth quarter of 2020 and 9.5% in the corresponding period of last year. The decline was largely a result of mix effect on the Payment Solutions division, with large low-margin retailers accounting for an increasing proportion of income. Other drivers included an increase in the size of individual consumer loans at lower margins. Net commissions were down by 42% to SEK 19m year on year, largely because of lower credit card commissions due to reduced travel because of COVID-19, but also due to lower loan commissions and factoring income.
Operating expenses were down 3% year on year, but the cost-income ratio in the banking operation was up to 42.4% from 38.5% due to lower income.
Credit losses stood at 2.5% of lending in the first quarter against 2.4% excluding and 3.4% including SEK 75m in extraordinary provisions announced in the first quarter of 2020. Given the COVID-19 pandemic and the lack of growth in the loan book, the bank maintained relatively stable credit losses during 2020. Net Stage 3 non-performing loans were 10.0% of net customer loans, up from 9.6% at end-2020.
Increasing capital requirement
Resurs Holding reported a common equity Tier 1 (CET1) ratio of 14.8% compared with 15.1% at end-2020. The CET1 requirement is currently only 7.8% after last year's reduction in the countercyclical capital buffer requirement, which impacted Resurs Holding's requirement by 1.6pp. We expect the Swedish Financial Supervisory Authority to implement Pillar 2 guidance in the second quarter of 2021 and anticipate that this will increase the CET1 requirement by 1-1.5pp. We also expect that Norway will implement a systemic risk buffer requirement, which is likely to increase the CET1 requirement by a further 0.5-1pp. We expect the countercyclical capital buffer to be increased when the COVID-19 pandemic subsides.
This commentary does not constitute a rating action.
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