Our 'BBB+' issuer and issue ratings on Sparbanken Västra Mälardalen are unchanged following the publication of its first-quarter 2022 results.
Investment portfolio valuation losses impact earnings
Earnings in the first quarter of 2022 were hit by large unrealised losses on financial instruments, related to rising interest rates affecting the bank's bond investments. Consequently, although the dividend pay-out from Swedbank AB was nearly twice as large as a year ago, pre-provision income declined by 21%. Core income (excluding dividends and other income) remained virtually unchanged, at around SEK 38m in net interest income and SEK 19m in net fee and commission income.
Credit losses in line with pre-pandemic levels
Core equity Tier 1 (CET1) capital decreased slightly from year-end 2021, even when including profit from the first quarter. The CET1 ratio, however, remained strong at 24.2%, or 24.9% including profit for the period. For the second quarter in a row, the bank increased its loan loss provisions, having reversed pandemic-related provisions in previous quarters, and credit losses were at 2bps of net loans at 31 Mar. 2022.
In addition, the first quarter saw the bank issue its first green bond, after publishing its green bond framework in October 2021.
Figure 1. Sparbanken Västra Mälardalen key credit metrics, 2018–Q1 2022
| (%) | 2018 | 2019 | 2020 | 2021 | 2022 Q1 YTD |
| Net interest margin | 1.4 | 1.5 | 1.5 | 1.4 | 1.4 |
| Loan losses/net loans | 0.18 | 0.02 | 0.14 | -0.04 | 0.02 |
| Pre-provision income/REA | 1.9 | 2.7 | 1.7 | 2.7 | 2.9 |
| Return on ordinary equity | 5.4 | 8.3 | 4.6 | 8.4 | 9.1 |
| Loan growth | 4.4 | 9.3 | 5.9 | 9.7 | 9.5* |
| CET1 ratio | 22.3 | 24.0 | 23.1 | 26.2 | 24.2 |
Based on company data. REA–risk exposure amount. All metrics adjusted in line with NCR methodology. *Last 12 months.
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