Our 'BBB' issuer and issue ratings on Resurs Bank AB (publ) are unchanged following the publication of its fourth-quarter 2021 results.
On 8 Feb. 2022, Resurs Bank announced that it had received notice from the Swedish financial supervisory authority that it might be non-compliant with Sweden's Consumer Credit Act and that the regulator is considering taking action against the bank. The bank has until 2 Mar. 2022 to respond and indicated that it does not agree with the findings and will consider an appeal if the regulator's preliminary assessment is upheld. NCR will monitor this situation and its implications, if any, for Resurs Bank.
Falling margins push down earnings metrics
Net interest margins declined materially in 2021 to 6.5% compared with our projections of a more modest decline to 7.4%. The decline was largely a result of falling volumes in Norway, higher-ticket loans in consumer lending, and mix effects in the Payment Solutions division, with large low-margin retailers accounting for an increasing proportion of income. The result was a fall in pre-provision income/risk exposure amount (REA) to 5.7%, compared with our earlier expectations of 6.7%. The fall in income also resulted in lower cost efficiency, with the cost-to-income ratio increasing to 41.3% from 40.1% a year earlier.
Loan losses fell to 2.0% of average loans against 2.7% in 2020, supporting a higher annual return on equity despite lower pre-provision earnings. In the fourth quarter, the bank marginally reduced its net Stage 3 non-performing loan ratio to 8.6%, just below the level of the previous three quarters, and down from 9.6% at end-2020.
Capital ratios slightly lower as volumes rebound
Resurs Bank's lending increased by 4.1% during the fourth quarter, resulting in an 8.1% increase since end-2020, compared with our earlier expectations of 10%. Late-year loan growth in Denmark and Norway supported increases in lending while holiday shopping drove volumes in the Payment Solutions division up 5.5% during the fourth quarter, accounting for most of the division's growth in 2021.
The bank reported a consolidated common equity Tier 1 (CET1) ratio of 14.8% compared with 15.1% at end-2020. This was well above our 14.1% estimate for end-2021 due to lower-than-expected loan growth.
Figure 1. Resurs Bank key credit metrics, 2017-2021
|
(%) |
2017 |
2018 |
2019 |
2020 |
2021 |
|
Net interest margin |
8.6 |
8.7 |
8.0 |
7.5 |
6.5 |
|
Loan losses/net loans |
1.8 |
2.1 |
2.3 |
2.7 |
2.0 |
|
Pre-provision income/REA |
7.2 |
7.3 |
7.1 |
6.6 |
5.7 |
|
Return on ordinary equity |
18.6 |
19.3 |
18.4 |
12.8 |
13.3 |
|
Loan growth |
13.5 |
16.2 |
12.1 |
-1.6 |
8.1 |
|
CET1 ratio |
13.6 |
13.4 |
13.6 |
15.1 |
14.8 |
|
|
|
|
|
|
|
Based on company data. All metrics adjusted in line with NCR methodology.
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