Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB' long-term issuer rating on Sweden-based Resurs Bank AB (publ) (Resurs Bank). The outlook is stable. At the same time NCR affirmed the 'N-1+' short-term rating. NCR also affirmed its 'BBB' issue ratings on Resurs Bank's senior unsecured bonds and affirmed its 'BB+' issue ratings to its tier 2 bonds.
Rationale
The long-term rating reflects Resurs Bank's strong risk-adjusted earnings and good access to funding, as well as strong creditor rights across the Nordic region. Resurs Bank has, in line with the wider Nordic banking sector, weathered the COVID-19 pandemic with marginal impact on asset quality, which supports our assessment of the operating environment. Strong creditor rights provide powerful incentives for borrowers to repay debt and result in higher collection rates than in other European regions. This has contributed to Resurs Bank's demonstrable control of its credit losses since it was founded in 1977.
The rating is constrained by higher-than-average risk appetite associated with consumer lending and tough competition, and relatively low customer loyalty within the bank's key operating divisions. 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.
We have improved our view of the bank's operating environment to reflect improved operating conditions for Nordic banks in general due to the reduced risk of COVID-related impacts.
Stable outlook
The stable outlook reflects our expectation that Resurs Bank will continue to expand its portfolio at a more moderate pace as the Norwegian consumer lending market emerges from a recent slump. We expect the bank to focus on profitable growth and believe earnings will stabilise as customers' payment patterns normalise when the COVID-19 pandemic subsides, as we project. We also believe that Resurs Bank's capitalisation and strong earnings make it resilient to any new economic downturn. We do not expect the Ukraine conflict to have a direct impact on the bank. However, any escalation of the conflict could reduce demand for consumer loans, travel and consumption. In addition, borrowers with already weak financial profiles are more likely to be affected by food and energy price inflation as a result of the hostilities which could affect their repayment capacity and increase credit losses.
We could raise the rating to reflect an improved operating environment for Nordic consumer lenders or materially higher capital ratios, with the Tier 1 ratio sustainably above 18%. We could lower the rating to reflect a material regional economic deterioration or regulatory changes that affect the bank's business model, margins and/or loan recovery prospects. We could also lower the rating to reflect a material deterioration in capital ratios or asset quality.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB | BBB |
| Tier 2 issue rating: | BB+ | BB+ |
Contacts:
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 Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.