Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB' long-term issuer rating on Sweden-based NOBA Bank Group AB (publ). The outlook is stable. At the same time NCR affirmed the 'N3' short-term rating. At the same time NCR affirmed its 'BBB' issue ratings on NOBA's senior unsecured bonds, its 'BB+' issue ratings to its Tier 2 instruments and its 'BB-' issue ratings to its additional Tier 1 instruments.
Rating rationale
The long-term issuer rating reflects NOBA's strong risk-adjusted earnings and cost efficiency, increasing economies of scale and diverse funding relative to its peers. It also reflects robust creditor rights across the Nordic region. We expect capital ratios to improve materially due to strong capital generation and supported by the implementation of the Capital Requirements Regulation 3 (CRR3) in 2025, even as the bank pursues significant growth. We view increased secured lending, in particular equity release mortgages for seniors and non-traditional mortgage lending in Sweden and Norway, as a positive contributor to greater diversity.
The rating is constrained by the higher-than-average risk appetite associated with consumer lending, and the relatively higher risk profile of credit cards. The consumer lending industry is subject to tough competition for loans and low customer loyalty within the bank's key markets, with a funding model driven by price-sensitive deposits. In addition, consumer lending is under intensified regulatory scrutiny in all Nordic countries, which could negatively affect the bank's business model and profitability over time.
Stable outlook
The stable outlook reflects our expectations of stronger earnings, further synergies from the merger with Bank Norwegian, and the implementation of CRR3 will support capitalisation as the bank expands. These anticipated improvements are partly offset by the high risk profile of the loan book, elevated credit provisions and high loan growth. We project a material increase in loss provisions in 2024 and 2025 as borrowers continue to be affected by cost inflation and declining real wage growth. Nevertheless, the bank's increasing economies of scale improves resilience.
We could raise the ratings to reflect a combination of the Tier 1 ratio being sustainably above 20%, improvement in the bank's competitive advantage and increased stability in the operating environment for consumer lenders leading to improved asset quality metrics.
We could lower the ratings to reflect the Tier 1 ratio being sustainably below 15% or a common equity Tier 1 ratio margin to regulatory requirements sustainably below 4%. We could also lower the rating due to weaker loss performance or increased credit risk appetite or if regulatory changes adversely affect consumer lending operations.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB | BBB |
| Tier 2 issue rating: | BB+ | BB+ |
| Additional Tier 1 issue rating: | BB- | BB- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.