Nordic Credit Rating (NCR) said today that the Nordic consumer banking sector remains in robust good health, with the key regional players reporting strong results and increased activity in the fourth quarter of 2021. Adjusting for one-off expenses in the final quarter, loan losses decreased and pre-provision earnings remained strong despite margin pressure in consumer lending, which we expect to continue. Alternative areas of lending such as non-traditional mortgages, credit cards, payment loans, SME lending and factoring, and commercial real estate loans continued to drive growth in the final quarter.
The Swedish Financial Supervisory Authority has announced plans to investigate consumer lenders more extensively in the course of the year and some niche lenders have already received preliminary assessments that they are not compliant with the Swedish Consumer Credit Act. In addition, Nordic consumer banks face possible revisions in the EU's Consumer Credit Directive of 2008, which could increase underwriting requirements, dampen growth in small-ticket payment loans, and increase costs and processing times.
"In our view, increased regulatory and media scrutiny could have a greater impact on consumer lenders relative to providers of non-traditional mortgages due to more comprehensive underwriting processes and lower interest rates," said NCR credit analyst Gustav Nilsson. "We continue to expect banks with greater product and geographic diversity to be less impacted by the ongoing regulatory initiatives from domestic and EU regulators in the sector, which could, in our opinion, constrain growth opportunities and push niche lenders further into non-traditional segments in search of profitability."
The intensification of regulatory oversight comes amid seismic changes in the competitive landscape. In November 2021, Sweden's Nordax Bank AB (publ) acquired Bank Norwegian to emerge as the clear leader of the Nordic consumer lending sector with a broad product offering and an extended geographic footprint.