Nordic consumer banks' improved earnings and cost efficiency offsetting elevated loan-loss provisions in the second quarter, according to a report published by Nordic Credit Rating (NCR) today. Most banks reported stable margins and loan-loss provision ratios despite ongoing cost inflation and higher interest expenses for consumers and rising bankruptcy rates across the region.
There are signs of weakness ahead, however, as slower deposit growth across Europe is fuelling competition and increasing funding costs for Nordic consumer banks. In addition, a number of banks have indicated that changes in payment patterns and weakening economic conditions are likely to increase the need for future provisioning or hamper their growth strategies in certain segments.
"We maintain the view that higher living costs and interest rates are likely to keep loan-loss provisions at elevated levels through 2024," said NCR credit analyst Sean Cotten. "We also expect margins to come under pressure from increased competition in a stagnant deposit market. The combination is likely to lead to weaker results in the sector over the remainder of 2023."
In the report, NCR also comments on the Swedish government committee proposal to improve consumer protection in the domestic consumer finance market. Among other suggestions, the proposal includes the establishment of a new national debt registry and specific recommendations for interest rate and total cost limits.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com