Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based Resurs Bank AB (publ) to negative from stable. At the same time, the 'BBB' long-term issuer rating was affirmed. In addition, NCR affirmed the 'N3' short-term rating, the 'BBB' issue ratings on Resurs Bank's senior unsecured bonds and the 'BB+' issue ratings on its tier 2 bonds. NCR does not rate debt issued by Resurs Holding AB.
Rating rationale
The outlook revision reflects our expectation that Resurs' asset quality metrics will deteriorate further and remain worse for longer, compared with earlier assessments. On 16 Jan. 2024, Resurs issued a profit warning for the full year 2023 and cancelled the dividend expected to be paid in the first half of 2024. While our estimates for the full year 2023, based on the information provided in the profit warning, are roughly in line with the forecast in our last rating review in early 2023, we are now more concerned about developments in 2024.
At the start of 2023, we believed that loan losses and non-performing loans would peak in 2023, but the Swedish economy, including households' debt-servicing capacity, performed better than expected for most of the year. Assuming constant net loans from the third quarter of 2023, adjusted for the securitisation effect that came into effect in the fourth quarter of 2023, loan loss provisions amounted to 108bps (excluding non-recurring provisions) in the fourth quarter of 2023. This is a rapid acceleration on 68bps in the third quarter of 2023 and 65bps in the fourth quarter of 2022. We believe this acceleration is indicative of a higher risk that asset quality metrics will deteriorate further in 2024.
We also note that our common equity Tier 1 (CET1) ratio estimate is only slightly below our 2023 forecast, and the Tier 1 ratio is maintained above our rating driver (below 15%). Capital ratios are supported by the cancelled dividend as well as by the new additional Tier 1 capital issued in December 2023. This flexibility is already taken into account in our assessment of capital management, and we are now more cautious about Resurs' capital position and flexibility. The bank could, however, protect its capital by slowing loan growth, even if this puts profit under pressure in 2024. The securitisation transaction announced in November 2023 will start to support capital ratios in the first quarter of 2024, but the full effect will occur over the coming years until mid-2026.
Negative outlook
The negative outlook reflects the risk, but not certainty, that asset quality metrics will deteriorate in 2024 as households' debt-servicing capacity remains under pressure, as well as reflecting the bank's weakened capital flexibility. However, we believe that Resurs will continue to protect capital from declining further.
We could lower the rating to reflect a stronger likelihood of weaker asset quality metrics than previously expected. We could also lower the rating in response to increased concern over the bank's funding and liquidity position, or to reflect a Tier 1 ratio below 15% over a protracted period.
We could revise the outlook to stable to reflect a significant and durable improvement in asset quality metrics compared with the fourth quarter of 2023, combined with a Tier 1 ratio sustained above 15% over a protracted period.
Related publications
i) NCR comments: Resurs Bank offsets impact of non-performing loan backstop, publ. 1 Dec. 2023.
ii) Resurs Bank AB (publ) 'BBB' long-term issuer rating affirmed; Outlook stable, publ. 23 Mar. 2023.
iii) Nordic consumer banks increase credit losses, publ. 29 Nov. 2023.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB | BBB |
Outlook: | Negative | Stable |
Short-term issuer credit rating: | N3 | N3 |
Senior unsecured issue rating: | BBB | BBB |
Tier 2 issue rating: | BB+ | BB+ |
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 Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report. NCR - Resurs_Bank_AB_publ - Rating Action Report 22 Jan. 2024.pdf (152.75 KB) Resurs Bank AB (publ) BBB Negative Financial N3 Off Off Off