Our 'A-' issuer and issue ratings on Sparbanken Rekarne are unchanged following the publication of the bank's second-quarter results.
Stable core revenues, increased IT costs, and modest credit losses
Sparbanken Rekarne continued a slow reduction in its on-balance-sheet loans during the second quarter, lowering lending by 1.6% (about SEK 200m), while increasing loans transferred to Swedbank Mortgage by 1.8% (about SEK 130m). The bank recorded a high volume of new deposits during the second quarter (about SEK 900m), which, together with the reduction in lending, helped to reduce its loan-to-deposit ratio to 99% from 113% in the first quarter. Following first-quarter declines in the market value of customers' investment and insurance assets, total business volumes rebounded to SEK 45.6bn, a level slightly higher than that recorded at end-2019.
Core revenues improved quarter on quarter, despite lower financial and one-off items. Expenses increased due in large part to rising IT costs related to 50% owner Swedbank AB making investments to shared IT systems to cope with a higher proportion of employees working from home.
Credit losses remained low during the second quarter at 6bps of total lending, almost entirely driven by changes in macroeconomic assumptions. Net non-performing loans (IFRS 9 stage 3) were stable at SEK 12.5m (10bps of net loans), exceeding expectations given the impact of COVID-19 on the Swedish economy.
The bank maintained a strong 11.1% return on equity during the second quarter.
Capital ratios stable, 2019 dividend payment cancelled
Sparbanken Rekarne's capital ratios remained stable during the second quarter; the common equity Tier 1 ratio was 16.4% (compared with 15.6% at end-2019) and the total capital ratio was 18.5% (17.6%). Capital levels improved in the second quarter, offset by higher risk-weighted assets due to increased liquidity placements with Swedbank. Sparbanken Rekarne has decided to cancel its 2019 dividend to support its capital position.
This commentary does not constitute a rating action.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com