The fourth quarter of 2022 showed signs of tougher times ahead for Nordic consumer banks, according to report published by Nordic Credit Rating (NCR) today. Loss provision levels ticked up for all but one bank in NCR's sample as the rising cost of living and interest expenses put additional pressure on Nordic consumers. Despite increased loan loss provisions, many banks' non-performing loan (NPL) metrics continue to fall as they clear balance sheets to minimize the impact of NPL backstop regulation on capital ratios. Weighted average loan growth in the fourth quarter was 4.1%, but capital ratios improved slightly due to strong earnings.
"We have recently revised our view of the operating environment for consumer banks down to reflect the increasing political and cost-of-living risks. We expect the combination of higher living costs and interest rates to continue to drive higher loss provisions for the banks in our sample over the next two years," said NCR credit analyst Sean Cotten. "Consumer bank customers tend to have relatively weak financial profiles, making them more susceptible to inflationary pressures. In addition, housing price declines are affecting customer sentiment and household wealth. We believe these factors could impact consumption patterns and demand for consumer loans through to the end of 2023."
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com