Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB' long-term issuer rating on Sweden-based Nordax Bank AB (publ). The outlook is stable. At the same time, NCR affirmed the 'N3' short-term issuer rating, the 'BBB' issue ratings on Nordax's senior unsecured bonds, and the 'BB+' issue ratings on its tier 2 bonds.
Rating rationale
The long-term issuer rating reflects Nordax's strong risk-adjusted earnings and diversity relative to its peers following the acquisition of Bank Norwegian in November 2021. It also reflects strong creditor rights across the Nordic region. We project current capital levels will increase as the bank achieves synergies with Bank Norwegian and lending growth in high-margin segments recovers. We view increased secured lending, in particular non-traditional mortgage lending in Sweden and Norway, as a positive contributing factor to greater diversity, improved asset quality metrics, and a more diverse funding structure.
The rating is constrained by the higher-than-average risk appetite associated with consumer lending and tough competition, and relatively low customer loyalty within the bank's key markets. In addition, we believe that consumer lending is under intensified regulatory scrutiny in all Nordic countries, which could negatively affect the bank's business model and profitability over time.
We have raised our capital assessment by one notch to reflect our view that Nordax's capital generation will improve and that its Tier 1 ratio will approach 18%, even though we expect the bank to call additional Tier 1 instruments issued by Bank Norwegian. Our view of "other risks" has improved following the completion of the acquisition and given the bank's proven ability to reduce non-performing loans via sales to third-party collectors.
Stable outlook
The stable outlook reflects our view that the Bank Norwegian acquisition provides benefits in terms of scale and improved earnings capacity, although these are partly offset by the higher risk profile of the acquired loan book and high projected loan growth. We anticipate that the resulting added value will increase gradually as additional synergies and capital improvements are achieved. We believe Nordax will show resilience due to strong earnings as interest rates rise and the economic cycle changes.
We could raise the rating if the Tier 1 ratio remains sustainably above 18%, if the bank can demonstrate synergies, diversification, and improved asset quality, or if the operating environment improves. We could lower the rating if the Tier 1 ratio falls below 15%, regulatory changes adversely affect interest rates and/or loss recovery in consumer lending, or an economic downturn impairs loss performance.
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+ |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.