Our 'A-' issuer and issue ratings for Sparbanken Rekarne are unchanged following the publication of its 2018 results. The bank reported 18.5% year on year loan growth which combined with regulatory changes to reduce the common equity Tier 1 (CET1) ratio to 16.3% (18.6%) at end 2018. Higher loan volumes led to steady increases in net interest income (NII), which should see further improvement when Riksbanken's December 2018 25bps repo rate increase begin to impact margins in early 2019.
Lending growth and capital
The bank's on-balance sheet growth was offset in part by a material reduction in lending volumes transferred to Swedbank Hypotek. Including transferred loans, lending increased by 7.1% during 2018 (still above market levels) and was concentrated on residential and commercial mortgage loans. However, the strong growth in the first three quarters slowed down in the fourth quarter (2% on balance sheet and 0.5% including transferred loans).
The CET1 ratio was reduced by 2% in the fourth quarter due to the regulatory decision to move 25% risk weight floors for residential mortgage loans to Pillar 1 from Pillar 2, thus affecting reported ratios. By using adjusted capital ratios NCR had already considered this in our ratings for the bank. Looking ahead, slower lending growth and improved margins should stabilize capital ratios.
Earnings trends and one-off items
NII grew by 10.7% and the one-off gain from the partial sale of Portfolio Försäkring at the beginning of 2018 supported year on year revenue growth. However, fee income was affected by volatile markets in the fourth quarter as well as a slower housing market throughout the year. Increased IT expenses as well as temporary costs associated with the remodelling of its primary offices affected fourth quarter results. Annual credit losses were SEK 0.5m (0bps) and loss reserves decreased to 15bps (18bps) of gross lending as the bank grew lending volumes.
This commentary does not reflect a rating action.
research Issuer comment Nordic Credit Rating - Sparbanken Rekarne 2018Q4 results Feb. 18 2019.pdf (86.24 KB) Financial Sparbanken Mälardalen AB (publ) Financial