Our 'A-' issuer and issue ratings for Sparbanken Rekarne (SpR) are unchanged following the publication of its third-quarter results.
On balance sheet growth supports revenues
Lending growth slowed to 2.2% during the quarter but remains high at 10.4% YTD as SpR continues to increase on-balance-sheet lending to customers with loans previously transferred to Swedbank Mortgage. Including transferred loans, growth was only 0.1% during the quarter and 2.1% YTD. Growth in loan book has been primarily in residential mortgages and loans backed by housing cooperatives (bostadsrättsföreningar) and commercial real estate. The shift has contributed to an 18.9% improvement in net interest income YTD vs the first three quarters of 2018. Fewer transferred loans and changes in commission agreements with Folksam and Swedbank has contributed to a 15.2% decline in fee and commission income compared to the same period 2018. In total, core NII and fee revenues have increased 2.6% YTD.
Total Y-on-Y revenues increased 4.7%, including one-off gains on the sale of subsidiaries. During the quarter, SpR sold one-third of its shares in Portfolio Försäkring and now shares equal ownership with Bergslagens Sparbank and Sparbanken Västra Mälardalen.
Higher IT and consulting costs have led to a 10.2% increase in expenses YTD. SpR also wrote down intangible assets associated with its acquisition of its Strängnäs branch and internally developed software, in total SEK 10m. The total impact was a 10.6% decline in pre-provision earnings through three quarters. In total, SpR reported YTD profits of SEK 90.3m (SEK 93.9m in 2018) for an annualised 12.7% return on average equity.
Capital ratios decline, Asset quality remains high
The bank reported a CET1 ratio of 15.6% and a total capital ratio of 17.7% as of September 2019, including 70% of YTD net profit (16.3% and 18.7% at end 2018).
Credit losses remain low at 3bps of total lending and net non-performing (IFRS 9 stage 3) loans are very low at 14bps.
Analyst contact details:
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
This commentary does not reflect a rating action.
research Issuer comment Financial Sparbanken Mälardalen AB (publ) Financial Off