Our 'BBB' issuer and issue ratings on Resurs Bank AB (publ) are unchanged following the publication of parent Resurs Holding AB (publ)'s results for the first quarter of 2022.
Slower-than-anticipated business mix transition weighs on margins
Lending increased by 2.5% during the first quarter, which puts the bank on track to exceed our 8% growth expectation for the full year. The rise was driven by a rebound in Norwegian consumer lending combined with stable growth in Sweden. Lending in the Payment Solutions division was flat in the quarter, in part due to increased regulatory demands for disposable income calculations for smaller loans in Denmark and Sweden.
The bank's net interest margin (NIM) declined further in the quarter to 6.3% due to a slower-than-expected transition in the business mix. We forecast that NIM will stabilise in 2022 at 6.5%, unchanged from 2021. Our forecast anticipates that growth in payment loans will shift the business mix towards shorter, higher-margin loans as the COVID pandemic subsides. We still expect this transition to continue, even though the process was slowed in the first quarter by high COVID infection rates and revisions in the underwriting of payment loans in Denmark. Pre-provision income/risk exposure amount (REA) declined further to 5.3% due to the slow business mix transition and margin effects as well as an increase in the cost/income ratio to 43% from 41.3% in 2021 (at end-2021).
Capital ratios and loss performance in line with expectations
Loan losses amounted to 2.1% of average loans in the first quarter, broadly stable in comparison with the 2.0% recorded in 2021 and in line with our 2022 expectations of a modest increase. In the first quarter, the bank reduced its net Stage 3 non-performing loan ratio to 8.4%, continuing a steady decline over the past six quarters.
The consolidated common equity Tier 1 (CET1) ratio fell to 14.5% compared with 14.8% at end-2021. This is in line with our expectations of a moderate decline in the CET1 ratio in 2022 as the portfolio grows.
Figure 1. Resurs Bank key credit metrics, 2018-Q1 2022
(%) |
2018 |
2019 |
2020 |
2021 |
Q1 2022 |
Net interest margin |
8.7 |
8.0 |
7.5 |
6.5 |
6.3* |
Loan losses/net loans |
2.1 |
2.3 |
2.7 |
2.0 |
2.1* |
Pre-provision income/REA |
7.3 |
7.1 |
6.6 |
5.7 |
5.3* |
Return on ordinary equity |
19.6 |
18.9 |
13.0 |
13.3 |
11.6* |
Loan growth |
16.2 |
12.1 |
-1.6 |
8.1 |
2.5 |
CET1 ratio |
13.4 |
13.6 |
15.1 |
14.8 |
14.5 |
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Based on company data. All metrics adjusted in line with NCR methodology. *Annualised 2022Q1 values are based on Resurs Holding AB figures. Resurs Bank has yet to publish quarterly figures.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com