The ratings are driven by Nordea’s long track record of strong operating profitability, with low levels of non-performing assets and credit losses. The ratings also reflect the Group’s geographic diversification, which partly cushions Nordea from localised macro downturns in the countries where it operates. At the same time, our forward-looking ratings acknowledge the challenges

Nordea faces in such a low-interest rate environment, as its net interest margin remains under pressure while inexpensive funding and competition continue to erode its return on assets. Results have been negatively affected by the front-loading of costs associated with Nordea’s digital transformation programme, which is expected to run into 2021, although the bank’s efficiency remains strong compared to many international peers. The asset management business is delivering strong results – which we expect to continue to support revenues.

We note that the reliance on wholesale funding, including in foreign currency, exposes the bank to sudden changes in the funding environment, which remains favourable at present. Partly mitigating these concerns, Nordea has a sizeable liquidity buffer to help manage short-term liquidity risk, and actively hedges its foreign currency exposures.

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