Our 'A-' issuer and issue ratings for Kredittforeningen for Sparebanker (KfS) are unchanged following its mid-year 2019 results.
Loan growth is back
KfS grew lending by NOK 140m (2.9%) from Q1/19 although lending is down by NOK 230m (4.4%) year-to-date. NOK 315m in new loans were paid out in Q1/19, up from NOK225m in Q1/18. Redemptions are NOK 295m lower in the second half of 2019 than in the first half of the year and we believe that KfS will report some lending growth during the second half.
KfS' business model may come under increased pressure if the proposal of increasing the systemic risk buffer by 1.5% is implemented as proposed, since KfS, unlike the savings banks, will not be positively impacted by the SME discount. However, the bank has a self-imposed buffer (in the articles of association) to the regulatory requirement of 1.5%, which we believe could be offset against a higher buffer requirement, given consent from the bondholders.
Revenues are in line
Net interest margin is reported at 0.14% as we had expected and flat from Q1/19. Operating costs are increasing mainly due to increased provisions to the national resolution fund and these will increase also in Q3/19. However, this is reflected in our forecasts and our full-year profit expectations from our rating initiation 13 Feb. 2019 should be within reach.
Capital ratio
KfS' reported CET1 ratio was 16.7% per Q1/19 vs 16.9% as of end 2018 while its capital ratio was 21.5% (21.6%). Note that this does not include year-to-date profit. NCR places additional emphasis on KfS' total capital ratio since the additional capital above the CET1 consists of Equity Capital Certificates which have a higher priority than the member reserve, which is included in CET1 capital.
This commentary does not reflect a rating action.
For more information, please contact:
Geir Kristiansen, Credit Rating Analyst, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, Lead Analyst, +46 735 600 337, sean.cotten@nordiccreditrating.com