Nordic Credit Rating has affirmed its 'BBB' long-term issuer rating on Sweden-based NOBA Bank Group AB (publ). The outlook is stable. The 'N3' short-term issuer rating has also been affirmed, as have the 'BBB' senior unsecured issue rating, the 'BB+' Tier 2 issue rating and the 'BB-' Additional Tier 1 issue rating.
Rating rationale
The affirmation reflects that the bank's scale, cost efficiency and slower growth should contribute to improved capital generation. NOBA has grown quickly in recent years, and with SEK 159bn in total assets is one the largest niche banks in the Nordic region.
The long-term issuer rating reflects the bank's strong and improving 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 strong capital generation will improve capital ratios as the bank's growth slows, while dividend payments should maintain capital ratios within the bank's internal targets. We view secured lending, in particular equity release mortgages for seniors and non-traditional mortgage lending, as a positive contributor to credit risk and diversification.
The rating is constrained by NOBA's higher-than-average risk appetite associated with consumer lending and the higher risk profile of credit cards, which drive credit losses and weaken asset quality metrics. The consumer lending industry is subject to tough competition and low customer loyalty in the Nordic region, despite the bank's considerable scale. In addition, consumer lending remains under intense regulatory scrutiny in all Nordic countries.
We have revised our view of NOBA's competitive position given that the bank's advantages over its Nordic niche peers have increased with larger scale, market share in relevant products and cost efficiency. We have also improved our view of the bank's loss performance and project lower credit provisions over our forecast period through end-2027. We also believe that the bank will be able to offload a larger share of its non-performing loans in the coming years as the non-performing loan market stabilises.
Stable outlook
The stable outlook reflects our expectation that NOBA's strong earnings and growth rates of 10-13% will provide improved capital flexibility. We project a reduction in loss provisions in our forecast, although years of low real wage growth continue to hamper the bank's customer base. Nevertheless, the bank's increasing economies of scale improve resilience and continued growth across its markets, and its products provide diversification. We do not expect an eventual change in ownership will affect our long-term rating on NOBA.
We could raise the ratings to reflect a combination of increased stability in the operating environment for consumer lenders, demonstrated improvements in NOBA's asset quality metrics and economies of scale, and a Tier 1 ratio sustainably above 15%, with improved capital flexibility.
We could lower the ratings to reflect a Tier 1 ratio sustainably below 15% or a common equity Tier 1 ratio margin to requirements sustainably below 3%. We could also lower the ratings due to weakened 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.