Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB' long-term issuer rating on Sweden-based Resurs Bank AB (publ). The outlook is negative. NCR also affirmed the 'N3' short-term rating. At the same time, NCR affirmed its 'BBB' issue ratings on Resurs Bank's senior unsecured bonds and its 'BB+' issue ratings on the bank's Tier 2 bonds. NCR does not rate debt issued by Resurs Holding AB.
Rating rationale
The affirmation of the long-term rating reflects our maintained view since our last rating action on 22 Jan. 2024 that, while we consider the risk of weakened performance to be elevated, we believe that Resurs Bank is likely to take measures to try and improve asset quality and capital generation.
Our long-term issuer credit rating on Resurs Bank continues to reflect the bank's strong risk-adjusted pre-provision earnings, sound liquidity position, demonstrated access to deposit and capital market financing, and the long track record within its consumer banking niche. We view Resurs Bank's combined focus on consumer loans, retail finance and credit cards as adding diversification to the overall credit risk in the portfolio and regard its position with merchant partners as a strength for the bank's position in a highly competitive market.
The rating is constrained by a higher-than-average risk appetite associated with consumer loans and short-term payment lending. We also view the consumer lending market as having high levels of competitive pressure and low customer loyalty. 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. While the recent proposal from the Swedish government on tax deductibility has the potential to be negative for Resurs Bank, this proposal is covered in our assessment of the bank's operating environment.
We have lowered our assessment of Resurs Bank's loss performance. This reflects the fact that the sharp increase in loan losses in late 2023 had a material negative impact on profits and capital generation, as well as our expectation of a similar level of losses and impact in 2024.
Negative outlook
The negative outlook reflects the risk that asset quality metrics will deteriorate beyond our expectations in 2024 or fail to improve from 2025 onward. While pre-provision earnings are stable, they are not sufficient to support capital generation, given expectations of higher loan losses. While Resurs Bank has tools to protect capital from significant further deterioration, we are uncertain about shareholders' willingness to accept a continuation of no or lower dividends, if needed. The outlook also reflects the risk of Resurs Holding not refinancing the additional Tier 1 instrument with a call date in December 2024.
We could lower the rating to reflect asset quality metrics failing to improve in 2025–2026 or weakening further in 2024, or to reflect a CET1 ratio below 13.5% or a Tier 1 ratio below 15% over a protracted period. We could also lower the rating to reflect a worsening operating environment caused by a deep economic downturn or a reassessment of the impact from proposed regulatory changes.
We could revise the outlook to stable to reflect an improvement in asset quality metrics in line with our expectations for 2025 and 2026, combined with the CET1 ratio remaining sustainably above 13.5% and the Tier 1 ratio being above 15%.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Negative | Negative |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB | BBB |
| Tier 2 issue rating: | BB+ | BB+ |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024, NCR's Financial Institutions Rating Methodology published on 14 Feb. 2024 and NCR's Rating Principles published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.