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Scandinavian Credit Fund I AB (publ) reports a NAV price for April of 100.86. This is an increase of 0.22 %.
The fund has not had any new lending during April, however, a boost has been implemented 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 remains closed for deposits and withdrawals due to large redemptions during November and December as previously communicated. When the fund reopens for trading, it will be communicated to the market via a separate press release.
NAV-influencing factors for April are the value of the fund's listed shareholdings, which has decreased, and the fund continues to see that risks in the market are increasing. Provisions have increased as a result of increased risks, which is clearly visible in the SME market. The fund continues to receive many inquiries for loans at good returns and the asset class is in demand in the market.
The market and the economy
Global policy rates continue to rise and inflation in the euro area rose in April to 7.0 from 6.9 in March. Core inflation fell by 0.1 but is again proving to be sluggish, creating challenges for the ECB. Core inflation in the US continues to decline but remains well above target, although the tightening in the banking sector is most likely to slow down the economy.
The Fed raised rates by 25 basis points in May, which could be the peak, but core inflation needs to decline. The ECB is expected to raise rates by a lower rate of 25 basis points 2–3 times through July. Core inflation that is stuck and only marginally decreasing justifies continued rate hikes.
Rental property companies are starting to experience profitability problems due to higher financing and operating costs that cannot be offset by low rent increases.
New car sales are reported to have fallen by more than half so far this year, a sharp drop mostly due to lower private car sales. It is a divided economy where large companies have reported above expectations and demonstrated good resilience, while bankruptcies in SMEs are increasing sharply and have done so for 9 months, indicating the sharply 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 during 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 its provisions during the month. The fund sees particular pressure on companies that have sales to retail customers. A new counterparty is moved to category 2 due to increased risk and that three counterparties that have had increased risk during Q1 have had a continued negative development at the beginning of Q2, which increases the risk and also the provisions. The fund sees risks in the market and above all that bankruptcies continue to increase among SME companies, the financial situation is putting pressure on some of the fund's holdings and will be evaluated continuously.