Morningstar DBRS Confirms Nordea Bank Abp's Long-Term Issuer Rating at AA (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on Nordea Bank Abp (Nordea or the Bank), including the Long-Term Issuer Rating at AA (low) and the Short-Term Issuer Rating at R-1 (middle). The trends on all credit ratings remain Stable. Morningstar DBRS also confirmed the Bank's Intrinsic Assessment at AA (low) and Support Assessment at SA3. The credit ratings for Nordea Bank Abp (Denmark Branch), Nordea Bank Abp (Norway Branch), and Nordea Bank Abp (Sweden Branch) were discontinued for business reasons. See the full list of ratings at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
Morningstar DBRS' confirmation of Nordea's credit ratings reflects the Bank's well-established franchise in the Nordic countries as well as its sound profitability and operating efficiency. The credit ratings also consider Nordea's strong asset quality metrics that have remained resilient despite the challenging global and domestic economic environment. The credit rating confirmations also reflect the Bank's solid capital position and capital generation capacity as well as good access to capital markets. This is somewhat offset by Nordea's high reliance on wholesale funding compared with its international and most Nordic peers, which is reflected in its very high net loan-to-deposit ratio (LTD). However, Morningstar DBRS notes that wholesale funding largely consists of covered bonds issued in the Nordic covered bond markets, which Morningstar DBRS views as a resilient and stable source of funding.

The Stable trends reflect Morningstar DBRS' view that Nordea will sustain some pressure on profitability, albeit at high levels. The Bank's net interest income (NII) is expected to decline further as policy rate cuts continue, though hedges help reduce the overall impact. Given the potential impact of U.S. tariffs on the European economy, credit costs could increase somewhat going forward but Morningstar DBRS considers the Nordic economies less exposed with better momentum in their domestic economies than the European average.

The Bank's Intrinsic Assessment of AA (low) has been assigned at the midpoint of the Intrinsic Assessment Range, as Morningstar DBRS views Nordea's credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
Over the longer term, an upgrade of Nordea's credit rating would require lower reliance on wholesale funding and sustained improvement in profitability while maintaining robust asset quality and capitalisation.

A downgrade of the credit ratings would be driven by a substantial deterioration in the Bank's asset quality and profitability, materially weakening its capital position.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Very Strong/Strong
Nordea is the largest bank in the Nordic region with total assets of EUR 641 billion at the end of Q1 2025. The Bank has a diverse franchise across Finland, Sweden, Norway, and Denmark, where it holds leading market shares across a wide range of financial services for households, small- and medium-sized corporate customers, large corporates, and asset and wealth management. The Bank operates through a network of approximately 300 branches in the Nordic countries. The Bank's strategy is to further build out its presence in these markets as demonstrated by its acquisition of Danish life insurer, Topdanmark, Denmark's fifth-largest commercial life insurance company. In 2024, the Bank acquired Danske Bank's Norwegian personal customer and private banking business. This increased Nordea's market share in mortgages in Norway to 15% from 11%. In addition, Nordea expects to cross-sell other products to its new customers. Nordea's most recent 2025 financial targets include a return on equity (ROE) above 15%, supported by a cost-to-income ratio of 44% to 46%, a normalised cost of risk of 10 basis points (bps), a dividend payout ratio of 60% to 70%, and a management buffer of 150 bps above the regulatory CET1 requirement.

Earnings Combined Building Block Assessment: Strong/Good
Morningstar DBRS views Nordea's profitability as strong, supported by good cost control and low cost of risk. Revenues are diversified geographically and by product, albeit not to the same extent as its global peers. Nordea's 2024 net profit was EUR 5,059 million, up 3% year over year (YOY), as the NII increased by 2% and fee income by 5%. The Bank's ROE ratio was up slightly at 16.7% in 2024. In Q1 2025, Nordea's net profit decreased by 9% YOY to EUR 1,234 million, as the operating income decreased by 4% YOY and expenses increased. The revenue decline was driven by lower NII as the margin declined because of lower rates. Going forward, Morningstar DBRS expects the pressure on NII to persist until policy rates bottom out later this year.

Risk Combined Building Block Assessment: Strong
Nordea's risk profile is strong, supported by a low level of loan losses and a highly diversified lending portfolio both by industry and geography in Europe's wealthy Northern regions. Asset quality metrics remain robust, with the Stage 3 loan ratio at 1%, driven by limited corporate exposures. The Stage 3 coverage ratio declined to 34% in Q1 2025 from 44% a year earlier because of lower provision needs and the exit of highly provisioned cases. Nordea has a significant exposure to CRE lending, however credit metrics in this portfolio have remained strong. Going forward, the possibility of U.S. tariffs and potential countermeasures could lead to a weaker-than-expected macroeconomic environment. Morningstar DBRS notes, however, that Nordea's home markets should outperform the European average in terms of GDP growth. Morningstar DBRS also notes that the Nordic countries' exposure to exports of manufactured goods to the U.S., especially Norway's, is lower than the European Union's average exposure.

Funding and Liquidity Combined Building Block Assessment: Good
Morningstar DBRS views Nordea's funding and liquidity profile as good, underpinned by diversified customer deposits, good access to capital markets, and ample available liquidity. However, the Bank's reliance on wholesale funding is very high compared with most of its European peers and is higher than most of its Nordic peers. Nevertheless, the main source of long-term wholesale funding for Nordea is covered bonds, which has historically been a very stable funding source in the Nordic countries. Nordea's LTD ratio (excluding repos, as calculated by Morningstar DBRS) was 152% at the end of Q1 2025, down slightly from 153% at YE2024 and 157% at YE2023. The liquidity coverage ratio was strong at 166% at the end of Q1 2025 and the net stable funding ratio was 125%.

Capitalisation Combined Building Block Assessment: Strong
Morningstar DBRS considers Nordea's capitalisation to be sound, reflecting solid capital cushions and a strong earnings generation capacity. Nordea's CET1 ratio declined to 15.7% at the end of Q1 2025 from 17.2% at the end of Q1 2024 and 15.8% at YE2024 because of the introduction of new capital models for retail exposures, which led to temporary capital add-ons. The Bank also returned capital to shareholders. The impact from final Basel 3 rules was minor. Regulatory requirements increased during 2024 by another 150 bps due to the increase in systematic risk buffers (SyRB) in Finland and Norway and a sector-specific SyRB in Denmark. This resulted in a reduction of Nordea's capital cushion over the minimum CET1 ratio requirement to 200 bps from 510 bps at the end of Q1 2024, which is still in line with the Bank's longer-term ambition of at least 150 bps. Morningstar DBRS does not expect any near-term impact from final Basel 3 rules. Over the medium term the impact is expected to be positive.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/454010.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social and Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024), https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include Nordea Annual and Sustainability Report 2024, Nordea Investor Presentation Q4 2024 and Q1 2025, Nordea Factbook Q4 2024 and Q1 2025, Nordea Year-End-Report 2024, Nordea Pillar 3 Annual Report 2024, and Nordea Capital and Risk Management Report 2024. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/454009.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Forster, Senior Vice President - European Financial Institution Ratings
Rating Committee Chair: Nicola De Caro, Senior Vice President, Sector Lead - European Financial Institution Ratings
Initial Rating Date: 10 October 2018
Last Rating Date: 17 May 2024

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For more information on this credit or on this industry, visit https://dbrs.morningstar.com.