Large Nordic Banks’ CRE Exposure: Levels are High, but Asset Quality is Strong

The commentary analyses the commercial real estate (CRE) portfolios of the six large Nordic Banks rated by DBRS Morningstar as well as their risk profiles in the context of the current macroeconomic environment.

Summary highlights of the report include:

• For the Nordic Banks rated by DBRS Morningstar, on aggregate, the CRE sector amounted to 17% of total lending and 38% of total loans to corporate customers at end-9M 2021, higher than the European average.

• The CRE portfolios of the large Nordic banks rated by DBRS Morningstar reported an average NPL ratio of 0.6% at end-9M 2021, largely stable compared to end-2020 and end-2019.

• From a macroeconomic standpoint, the Nordic economies have proven fairly resilient to the COVID-19 impact. As of 2021-Q2, the Nordics had already recovered, or were close to reaching their pre-crisis activity levels.

“DBRS Morningstar notes that the risk profile of the large Nordic Banks’ CRE portfolios appears to be sound, supported by very strong asset quality metrics. This partially reflects the significant share of residential CRE which we typically consider less risky” said Mario De Cicco DBRS Morningstar’s Global Financial Institutions team. “The performance of the different sectors affecting non-residential CRE has been mixed in the Nordics. While the overall recovery has been stronger and faster than originally anticipated, the contact-intensive sectors more heavily affected by the pandemic-related restrictions continue to lag behind.” said Javier Rouillet from DBRS Morningstar’s Global Sovereign team.