Nordic Credit Rating (NCR) said today that it had assigned a 'BBB' long-term issuer rating to Sweden-based consumer lender Nordax Bank AB (publ) (Nordax). The outlook is stable. At the same time an 'N-1+' short-term issuer rating was assigned. NCR also assigned 'BBB' issue ratings to Nordax's senior unsecured bonds and 'BB+' issue ratings to the bank's Tier 2 debt instruments.
Rating rationale
Our long-term issuer rating on Nordax reflects the bank's strong risk-adjusted earnings, high level of unsecured loans, and strong recent and projected credit growth relative to its Nordic markets. We project current capital levels will decline as the bank resumes lending growth across all of its business areas, in particular non-traditional mortgage lending in Sweden and Norway. We view increased secured lending as a positive contributing factor to greater diversification, improved asset quality metrics, and a more diverse funding structure.
The rating takes into account our view of the risks related to the consumer lending industry due to the COVID-19 pandemic and increased regulatory scrutiny. Nordax and its Nordic peers benefit from strong creditor rights, which provide strong incentives for borrowers to repay debt. We expect the bank to reverse most of its COVID-19 related loss reserves during 2021, supporting capital levels despite high growth expectations.
Stable outlook
The stable outlook reflects our expectation of an economic recovery across the bank's core markets. We believe that Nordax's improved capitalisation, strong earnings and increased focus on secured lending support the current rating, despite strong growth expectations. We also believe these factors make the bank resilient to potential increases in credit losses that could result from reduced government support as the pandemic recedes. The stable outlook also reflects Nordax's ongoing attempt to acquire 90% (could be revised to two-thirds) of the shares in Norwegian Finans Holding ASA (Norwegian Finans), the parent of Bank Norwegian. The prospective transaction would create the most diverse niche bank in the Nordic market and expand the combined entity's geographic and product footprint. However, completion of the acquisition, ownership details and capital projections are uncertain and a recent deterioration in Bank Norwegian's asset quality metrics could offset improvements in product and geographic diversification for the combined bank.
We could raise the issuer rating due to a successful acquisition of Norwegian Finans if the synergies and diversification benefits are supported by a common equity tier 1 (CET1) ratio over 18% and stable asset quality. We could also raise the rating to reflect an improvement in regional economies and the operating environment for consumer lenders. We could lower the rating to reflect a decline in the bank's CET1 ratio below 14% driven by unsecured lending growth in excess of capital generation, or regulatory changes affecting interest rates and recovery prospects for consumer loans.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-1+ |
| Senior unsecured issue rating: | BBB |
| Tier 2 issue rating: | BB+ |
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.