Our 'A-' issuer rating on Sparbanken Rekarne AB (publ) is unchanged following publication of the bank's results for the fourth quarter of 2021.
High risk-adjusted income driven by items
Pre-provision income (PPI) over risk exposure amount (REA) remained high in the last quarter of 2021 at 3.4%, down slightly from 3.7% in Q3/21. Most of the increase from 2020 levels was due to non-recurring income items, primarily a major property divestment in the third quarter. Core PPI (including only net interest and commission income) came in at 2.3%, a more moderate 8% increase on 2020.
Improved earnings despite continued interest margin pressure
We had expected net interest margins to stabilise at 1.4% by year-end 2021, but a combination of lower net interest income (compensated for in core revenue by higher commission income) and an increase in financial assets resulted in a net interest margin of 1.3% for the full-year 2021. We continue to foresee a slightly higher margin in 2022, given broad expectations of rising interest rates.
The Common Equity Tier 1 (CET1) ratio rose sharply in 2021 and, while it declined from the third to the fourth quarter, the final ratio of 21.2% exceeded our expectations for 2021 by 30bps. The year also saw loan loss provisions end on a net positive, driven mainly by continued reversals of pandemic-related provisions through the fourth quarter.
Figure 1. Sparbanken Rekarne key credit metrics, 2017–2021
|
(%) |
2017 |
2018 |
2019 |
2020 |
2021 |
|
Net interest margin |
1.4 |
1.4 |
1.5 |
1.4 |
1.3 |
|
Loan losses/net loans |
0.0 |
0.0 |
0.0 |
0.0 |
-0.3 |
|
Pre-provision income/REA |
3.2 |
3.0 |
2.0 |
2.4 |
3.4 |
|
Return on ordinary equity |
11.7 |
13.4 |
11.6 |
10.3 |
17.2 |
|
Loan growth |
6.0 |
18.5 |
14.2 |
-4.7 |
5.5 |
|
CET1 ratio |
18.6 |
16.3 |
15.6 |
18.1 |
21.2 |
|
|
|
|
|
|
|
Based on company data. All metrics adjusted in line with NCR methodology.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com