Swedish niche financial institutions, many of which are primarily funded by retail deposits, are bracing for new regulatory guidelines announced by the Swedish Financial Supervisory Authority (SFSA) on 30 Sep. 2024, according to a report published by Nordic Credit Rating (NCR) today. The report discusses NCR's view on the implications of the altered regulatory guidelines on these institutions' funding and liquidity metrics. Aside from reducing these institutions' leeway under regulatory requirements, the change does not affect our view of their funding and liquidity management.
"Swedish niche lenders rely heavily on retail deposits, often sourced from deposit distributors," said NCR credit analyst Ylva Forsberg. "Although we consider these deposits to be less stable than those of traditional banks, we believe these institutions are largely able to influence in- and outflows through pricing, barring significant financial stress."
Under the new guidelines, Swedish financial institutions will be required to change weights and factors, respectively, in calculations of funding and liquidity metrics for deposits sourced from distribution platforms such as Sweden's Avanza, Europe's Raisin or Germany-based WeltSparen. We believe that net stable funding ratios (NSFRs), in particular, will likely weaken at institutions with large shares of this type of deposits.
Norion Bank announced in its third-quarter 2024 results, published 18 Oct. 2024, that its NSFR would have been 103% under the SFSA's new guidelines (vs. 141% under the guidelines still currently in effect), with a liquidity coverage ratio (LCR) of 204% (397%), if the regulatory change would had been implemented immediately. However, the new guideline does not become effective until the next reporting dates: 31 Oct. 2024 for the LCR and 31 Dec. 2024 for the NSFR. We understand that Norion Bank and its peers are making progress in reducing the impact on their funding and liquidity metrics in the run-up to the implementation of the regulatory change.
NCR rates three Swedish niche lenders, Resurs Bank AB, Norion Bank AB and NOBA Bank Group AB. This commentary does not constitute a rating action on any of the entities.
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com