Our 'BBB-' issuer and issue ratings for Resurs Bank AB are unchanged following its 2019 results.
Strong earnings and Improved capital metrics
Resurs' financial metrics exceeded NCR expectations for the 2019. The bank's 12% annual growth in net loans can be compared to the 6.1% increase in risk exposure amount (REA), 5.9% increase in net interest income (NII) and 1.9% increase in pre-tax profit in 2019. Pre-provision earnings to risk-weighted assets (PPI/REA) remained strong at 7.1% (7.3% in 2018) and the cost income ratio fell below the Resurs Holding target of 40% to 38.7%.
Resurs Bank reported a CET1 ratio of 13.9% vs 12.9% in 2018. The owner, Resurs Holding, issued SEK 300m in additional Tier 1 capital in December, of which SEK 200m was credited in as equity in Resurs Bank. This increased the bank's CET1 ratio by 0.65%. However, we note that the proposed dividend from the bank is SEK 375m and, as such, the increase in CET1 ratio is mainly explained by lower growth in REA, due in part to revised calculations of operational risk during the year (+0.50% impact on the CET1 ratio). The total capital base has been propped up during the year with an increase in Tier 2 capital instruments, resulting in a 16.0% capital ratio.
The above measures are somewhat better than NCR projections for 2019 of 6.9% PPI/REA and 13.2% CET1 ratio (see NCR's May 2019 report on Resurs here).
Consumer loans continue to drive growth despite a slowdown in Norway
The Consumer Loans segment continues to drive lending growth (14%) compared to Payment Services (9%). Resurs attributes most of the growth volume to the Swedish market, with the highest growth rate coming in Finland. In Norway, Resurs and its peers continue to adapt to regulatory changes, and the increased transparency of the national debt register, which are affecting both margins and growth prospects. Resurs implemented a cost freeze in Norway and raised interest rates in an effort to preserve profitability in the market.
One-off charges related to norwegian consumer lending
Resurs Bank reported loan losses of SEK 670m in annual loan losses, of which SEK 35m were related to higher expected losses after the implementation of the Norwegian debt registers. Our forecast in the May 2019 report was SEK 643m. Loan losses were 2.2% of net lending, which a level we also expect for 2020. The Norwegian debt registers have highlighted that some lenders have higher unsecured lending than expected and will find it harder to refinance existing consumer loans. As a result, Resurs expects higher credit losses in Norway.
This commentary does not reflect a rating action.
Analyst contact details:
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com