Our 'BBB+' issuer and issue ratings on Sparbanken Västra Mälardalen (Sparbanken VM) are unchanged following the publication of its second-quarter results.
Core earnings stable; recovering markets support financial valuations
Sparbanken VM recovered from a first-quarter loss of SEK 12.7m to earn SEK 28.3m in the second quarter due primarily to a swing to positive financial gains of SEK 11m from a SEK 38m net financial loss in the first quarter. While market values recovered during the quarter, a decline in long-term interest rates negatively affected the valuation of interest rate swaps used for hedging.
A steady improvement in core preprovision earnings (net interest income and net fee and commission income net of expenses) continued during the second quarter with a rise of 15% from the second quarter of 2019 and year-to-date levels 9% higher than a year earlier. This is primarily due to rising net interest income as the balance sheet grows.
Business volumes also rebounded in the second quarter as the value of customers' investment and insurance assets increased. In total, business volumes were up 1.9% year on year, supported by increases in loans (3.0%) and deposits (9.2%) despite the market turbulence and negative impact of measures to slow the spread of COVID-19. The growth in deposits during the second quarter, in particular, reduced the bank's loan-to-deposit ratio to 104% (compared with 110% at end-2019).
Credit losses increased to SEK 6.4m (27 bps of net loans) affected the second quarter result, but volumes of Stage 3 net non-performing loans (as defined by International Financial Reporting Standards) remained in line with previous quarters at 26 bps of net loans.
Capital remains a strength despite falling ratios
Sparbanken VM's common equity Tier 1 ratio fell in the second quarter due to higher risk-weighted assets, but remains strong at 21.66% (23.47% including 2020 net profit), compared with 23.95% at end-2019.
This commentary does not constitute a rating action.
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