Our 'BBB+' issuer and issue ratings on Sparbanken Västra Mälardalen (Sparbanken VM) are unchanged following publication of the bank's results for the second quarter of 2021.
Steady increase in business volumes and profitability
Sparbanken VM's business volumes rose to SEK 28.7bn, a 3.6% increase in the quarter and a 7.5% rise since end-2020. In the second quarter, the bank's own net loans increased by SEK 310m (3.8%) to SEK 8.5bn, mortgage loans transferred to Swedbank Hypotek rose by SEK 64m to SEK 2.5bn, and customer deposits increased by SEK 245m (3.1%) to SEK 8.1bn.
Excluding dividends and other income, the bank's core pre-provision earnings rose by 3.6% year on year. Net interest income rose due to the increase in loans combined with steady interest margins. Fee and commission income benefited from increased customer fund trading fees as well as higher commission payments due to a larger volume of transferred loans. Year-to-date core cost efficiency weakened to 54.5% compared with 53.3% a year earlier, due to higher personnel and IT expenses.
Further recovery of loss provisions
Sparbanken VM reported a reversal of credit provisions of SEK 1.6m in the second quarter (minus 1.8bps of net loans). The bank said better economic conditions were a key factor, and cited an improving outlook due to containment of the COVID-19 pandemic. However, net Stage 3 non-performing loans rose slightly to 27bps of net loans compared with 26bps a year earlier.
Strengthened capital position
Sparbanken VM's common equity Tier 1 (CET1) ratio was 23.3% at the end of the second quarter (24.6% including year-to-date net profit), compared with 23.1% at year-end 2020.
Figure 1. Sparbanken Västra Mälardalen key credit metrics, 2017-June 2021
(%) |
2017 |
2018 |
2019 |
2020 |
H1 2021 |
Net interest margin |
1.5 |
1.4 |
1.5 |
1.5 |
1.4 |
Loan losses/net loans |
-0.1 |
0.2 |
0.0 |
0.1 |
0.0 |
Pre-provision income/REA |
2.1 |
1.9 |
2.7 |
1.7 |
3.0 |
Return on ordinary equity |
6.3 |
5.3 |
8.5 |
4.7 |
9.7 |
Loan growth |
9.2 |
4.4 |
9.3 |
5.9 |
8.4* |
CET1 ratio |
23.1 |
22.3 |
24.0 |
23.1 |
23.3 |
REA–risk exposure amount. *12 months to June 2021. Based on company data. All metrics adjusted in line with NCR methodology.
This commentary does not constitute a rating action.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com