Nordic Credit Rating (NCR) said today that Nordic consumer banks performed well during an eventful third quarter of 2021. First, Nordax Bank's acquisition of Bank Norwegian became a certainty following regulatory approvals from Sweden and Norway, creating the largest consumer bank in the Nordic region. Second, Komplett Bank announced that a review of its loan book had resulted in additional loan losses and a large negative impact on total income.
Adjusting for the one-off impact of Komplett's write-down, the third quarter saw an increasing pace of loan growth and a small decline in average loan loss provisions. The percentage of Stage 3 non-performing loans also declined, in large part due to sales of non-performing loan portfolios to external debt collection agencies. Another bit of good news for the sector is that the average net interest margin and risk-adjusted earnings in the sample have improved, adjusted for the one-off earnings impact from Komplett.
"We believe banks will maintain stable loss provision ratios and steadily reduce non-performing loans as they grow ," said NCR credit analyst Sean Cotten. "However, there is the potential for other banks to re-evaluate their loss models and provisions if Komplett's announcement reflects lower demand for and pricing of non-performing large-ticket consumer loans."
NCR expects growth ambitions to boost competition and weigh further on consumer loan margins. However, we expect banks to continue to diversify away from traditional consumer loans and increase credit card exposures, buy-now-pay-later loans and non-traditional mortgages to improve profits.