Our 'BBB+' issuer and issue ratings for Sparbanken Västra Mälardalen (SBVM) are unchanged following the publication of its mid-year results.
Continued growth in volumes and core earnings
SBVM's business volumes and lending have grown 4.9% and 5.7% year-to-date (YTD), respectively. Combined with Riksbanken's Dec. 2019 rate increase the volume growth improved net interest income by 12% YTD. Fee and commission income fell slightly due to changes in insurance commission agreements and lower transferred loans to Swedbank Mortgage. The decline was more than compensated by higher dividend payments YTD from Swedbank, Indecap and Portfolio Försäkra.
Net result of financial transactions fell during the quarter due to lower market values of interest rate swaps used for hedging as long-term interest rates fell, but remained a positive contributor to profits YTD due to increased valuation of investments.
In total, SBVM reported profits of SEK 79.1m during H1/19 (compared to SEK 79.7m for full year 2018), resulting in a 7.9% return on equity YTD (5.4% in H1/18).
Capital improved despite Swedbank share decline
SBVM maintained its CET 1 ratio at 22.3%, excluding YTD profits (23.7% including YTD profit). We note that the reduction in value of Swedbank shares has approached SEK 117m YTD, but was similarly offset in the calculation of CET1, making the impact neutral (see "Swedbank's controversy spills over to Swedish savings banks", 29 Mar. 2019 for how Swedbank's share price affects associated savings banks).
Looking forward, SBVM's more immediate risk is that Swedbank reduces its dividend policy further. Swedbank reduced its dividend policy from 75% to 50%, which should reduce the bank's 2020 dividend income by around SEK 10m compared to Swedbank's 2019's dividend which was paid out in Q1/19.
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Sean Cotten, Lead Analyst, +46 735 600 337, firstname.lastname@example.org
Geir Kristiansen, Credit Rating Analyst, +47 907 845 93, email@example.com