Nordic Credit Rating (NCR) said today that it had revised its outlook on Resurs Bank AB (publ) (Resurs Bank) to stable from negative. At the same time the agency affirmed its 'BBB-' long-term issuer rating and 'N-1+' short-term issuer rating on the bank.
Economic uncertainty reduced
NCR said today that it had revised its outlook on the wider Swedish banking sector to stable from negative, while affirming its 'bbb+' assessment of the industry. In our last review of the sector earlier this year, we revised our assessment score down by one notch to its current level (see NCR sees increased risks in the Swedish banking sector, published 3 Apr. 2020), mainly to reflect the initial impact of COVID-19. Any further downward revision of our assessment of the sector due to the pandemic is currently unlikely.
Resurs Bank outperformed our earlier expectations in the second quarter of 2020, due to lower-than-expected loan losses and an improved net interest margin. This is in line with the performance of the Swedish bank sector in general. While, Stage 3 loans increased to 16.5% at end-June from 15.1% at end-2019, the total provisioning level also increased. Resurs Bank benefits from strong creditor rights across the Nordic region. These provide strong incentives for borrowers to repay debt and result in higher collection rates than in other European regions. This has contributed to Resurs Bank's demonstrated control of its credit losses over its 43-year history.
Resurs Bank is mainly funded by deposits and the deposit-to-loan ratio has improved so far in 2020. We note that the bank's common equity Tier 1 ratio has improved to 14.3%, up 1.2pp from end-2019. Parent Resurs Holding has postponed a decision on a proposed SEK 420m dividend for 2019, adding material capital flexibility.
Stable outlook
The stable outlook reflects our expectations of a flatter U-shaped recovery rather than the sharp V- or, in the worst case, W-shaped rebound that we anticipated previously. There are remaining risk factors, including long-term shutdowns or low production levels under which furloughs could become layoffs and affect the asset quality of consumer loans. However, we believe that Resurs Bank's strong capitalisation and earnings make it resilient to a possible new economic downturn.
Potential positive rating drivers
- Stabilised economy and new growth leading to improved operating environment.
- Improved asset quality metrics.
Potential negative rating drivers
- Material economic deterioration in the Nordic region.
- Regulatory changes affecting interest rates and recovery prospects for consumer loans.
If you have any questions, please contact:
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.