Our 'A-' issuer rating on Sparbanken Rekarne AB (publ) (Sparbanken Rekarne) is unchanged following publication of the bank's results for the first quarter of 2021.
Loan growth due to refinancing of previously transferred loans
Sparbanken Rekarne's business volumes rose to SEK 47.4bn, an 8.5% increase year on year and a 1.4% rise since year-end 2020. The bank increased its on-balance-sheet lending by refinancing previously transferred loans during the quarter. The bank's own net loans increased by SEK 511m (4.2%) to SEK 12.7bn in the quarter, while mortgage loans transferred to Swedbank Hypotek fell by SEK 752m to SEK 7.3bn. The bank's total loan exposure consequently continued to decline and is 4.6% lower than a year ago. Customer savings rose during the quarter, as a decline in customer deposits was more than offset by increases in the value of transferred savings.
The bank's core pre-provision earnings (net interest income and net fee and commission income net of expenses) in the first quarter rose by 4.5% year on year, while core cost efficiency weakened to 60% compared with 57% in the first quarter of 2020. Net interest income declined by 5.3% year on year, reflecting lower net interest margins, lower STIBOR rates and lower average lending volumes in the quarter. Conversely, fee revenue improved by 22.1% compared with the first quarter of 2020, mostly due to increased customer trading.
Asset quality is a positive outlier
The bank made reversals of credit losses in the first quarter, marking the third consecutive quarter with net reversals. Net Stage 3 non-performing loans were stable at 9bps of net loans compared with 10bps a year ago. Both asset quality measures reflect the continued strong performance of the loan portfolio, despite the impact of COVID-19 on the regional economy of Södermanland county, the bank's main area of operation.
Capital ratios decline due to transfer of loans from Swedbank
Sparbanken Rekarne's capital ratios declined in the quarter, primarily reflecting higher risk exposure amounts associated with the bank's repatriated loans. The common equity Tier 1 ratio was 17.0% (17.4% including first quarter profit), compared to 18.1% at year-end 2020 and the total capital ratio was 19.0% (19.4% including first quarter profit), compared to 20.1% at year-end 2020.
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