Nordic consumer banks' loss provision levels remained elevated as persistent cost inflation and higher interest expenses pressured consumers, in line with developments that started late last year, according to a report published by Nordic Credit Rating (NCR) today. Breaking with a recent trend, however, non-performing loan (NPL) metrics increased slightly for most banks, indicating that much of the offloading of NPL portfolios due to the implementation of the NPL backstop regulation is complete.
Weighted average loan growth for the quarter fell to 3.4% from an average of 4.4% in the previous three quarters. Nonetheless, capital ratios declined for nearly all banks in the sample, signifying weaker capital generation and a decline in return on equity. Margins fell for most issuers, due in large part to increased competition for deposit funding, given higher spreads on capital market financing and concerns associated with high-profile bank runs in the US and Switzerland.
"We maintain the view that increasing political and cost-of-living risks are weighing on the consumer lending segment," said NCR credit analyst Sean Cotten. "We expect the combination of higher living costs and interest rates to continue to drive up loss provisions for the banks in our sample throughout 2023 and 2024. Consumer bank customers tend to have relatively weak financial profiles, making them more susceptible to inflationary pressures and higher interest expenses, which reduces demand for consumer loans."
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com