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Scandinavian Credit Fund I AB (publ) reports a NAV rate for April of 100.86. That's an increase of 0.22 %.
The fund has had no new lending during April, however, a lift has been carried out on already granted credits corresponding to approximately SEK 5.8 million. The remaining part of the outstanding redemption is expected to be paid out during the month of May.
The fund is still closed for deposits and withdrawals due to large redemptions during November and December as previously communicated. When the fund opens for trading again, it will be communicated to the market through a separate press release.
Factors influencing the NAV for April are the value of the fund's listed shareholdings, which has decreased and the fund continues to see that the risks in the market are increasing. Reserves have increased as a result of increased risks, which is clearly visible within the SME market. The fund continues to receive many requests for loans at good returns and the asset class is in demand on the market.
The market and the economy
Global key interest rates continue to rise and inflation in the Eurozone rose in April to 7.0 from a previous 6.9 in March. Core inflation decreased by 0.1 but again proves to be sluggish, creating challenges for the ECB. Core inflation in the US continues to decline, but is still well above the target, despite the austerity in the banking sector most likely slowing down the economy.
The ED raised interest rates by 25 basis points this May which may be the peak but core inflation needs to decrease. The ECB is expected to raise at a lower rate of 25 basis points 2-3 times up to and including July. A core inflation that sticks and only marginally decreases justifies continued interest rate increases.
The rental property companies are starting to have problems with profitability as a result of higher financing and operating costs that cannot be offset due to low rent increases.
New car sales are reported to have fallen by more than half so far this year, which is a sharp drop that is mostly due to reduced private car sales. It is a bifurcated economy where the large companies have reported above expectations and demonstrated good resilience, while bankruptcies within small and medium-sized companies are increasing sharply and have been doing so for 9 months, which shows the greatly reduced demand in the Nordic economy.
The effect of higher interest rates has not yet been demonstrated in GDP, but there is still a high risk that Sweden will enter a recession in the autumn. Interest rates and inflation affect small and medium-sized companies hard and will continue to affect them in 2023, which increases the likelihood of further bankruptcies within the segment. The fund sees increased risks in several counterparties, above all counterparties that have sales to retail but also exposures to real estate. The market for refinancing and acquisitions has tightened and makes it difficult to both sell and refinance objects.
IFRS 9
The risks in the markets continue to increase and the fund has increased the reserves during the month. The fund especially sees pressure on companies that have sales to retail customers. A new counterparty is moved to category 2 as a result of increased risk and that three counterparties that had increased risk during Q1 had a continued negative development at the beginning of Q2, which increases the risk and also the reserves. The fund sees risks in the market and above all that bankruptcies continue to increase among SME companies, the financial situation puts pressure on some of the fund's holdings and will be evaluated on an ongoing basis.