Our 'BBB' issuer and issue ratings on Resurs Bank AB (publ) are unchanged following the publication of parent Resurs Holding's third-quarter 2021 results. Resurs Holding owns both Resurs Bank and insurance company Solid Försäkring AB, which is scheduled to be divested and listed by year-end.
Demand improves in all regions
In the third quarter, Resurs Bank's lending to the public was up by 3% year on year and 4% since end-2020. Lending was up by 5% after adjustments for onsold non-performing loans and currency effects. Demand was strong in both Sweden and Finland while lending volumes were down in Denmark and Norway. However, the bank was seeing stronger demand in all regions by the end of the third quarter. Lending in the Payment Solutions division was down 1% year on year due to lower borrower activity levels in Denmark and Norway, while consumer lending was up by 5%. Our 10% growth estimate for full-year 2021 will probably not be met even if growth increases in the current quarter.
The bank's net interest margin declined to 8.1% (by its own calculations) in the first nine months of 2021 compared with 9.2% in the corresponding period of last year. The decline was largely a result of mix effects in the Payment Solutions division, with large low-margin retailers accounting for an increasing proportion of income, along with higher-ticket loans in consumer lending. The combined effect of stable volumes and lower margins was a 10% year-on-year fall in banking income compared with the previous corresponding period, which was lower than we previously expected.
Cost to income in the banking operation in the year to date was 40.9% compared with 38.0% in the corresponding period of last year. Credit losses stood at 2.0% of total lending in the first nine months against 2.8% the previous corresponding period. Our full-year estimate is 2.5%. Extraordinary provisions of SEK 75m booked in the first quarter of 2020 were reversed in the third quarter due to strong underlying credit quality.
Company sets new financial targets
Resurs Holding has reduced its financial targets from six to four. These now include annual net profit growth of more than 10% (previously lending growth above 10%), a cost/income ratio of 35% (previously less than 40%), a dividend payout ratio of 50% (unchanged), and capital ratios 150-300bps above regulatory requirements (previously a common equity Tier 1 [CET1 ratio] of 11.5%).
Resurs Holding reported a CET1 ratio of 15.2% at the end of the third quarter compared with 15.1% at end-2020. Accordingly, our 14.1% estimate for end-2021 now looks conservative, mainly because loan growth has been lower than we expected. 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 the group's 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.
This commentary does not constitute a rating action.