Our 'BBB+' long-term issuer and issue ratings on Sparbanken Västra Mälardalen (Sparbanken VM) are unchanged following the publication of its results for the third quarter of 2021.
Core income improves but fails to match second-quarter performance
Sparbanken VM's core earnings (excluding dividends) improved by 4% quarter on quarter, mainly due to higher net fee and commission income. However they were down by 2.5% from the second quarter. Expenses decreased, improving the core cost/income ratio to 49.4% from 54.9% at 30 Jun. 2021. The bank's cost/income ratios are usually low in the third quarter.
Restoration of Swedbank dividends bolsters earnings metrics
The bank's earnings metrics improved in the year to date (YTD), with both return on equity and risk-adjusted income returning to around their 2019 levels, driven to a large extent by the reinstatement of Swedbank dividends earlier in the year. Excluding dividends, core pre-provision income/risk exposure amount (REA) improved slightly to 1.8% in the third quarter, exceeding our expectations of 1.6% for full-year 2021.
The earnings improvement raised the bank's common equity Tier 1 (CET1) ratio to 23.2%, or 23.7% including YTD net profits, which was above our expectations. Net loans continued to increase in the third quarter, as did loans transferred to Swedbank, with total loans up 8.7% quarter on quarter.
Figure 1. Sparbanken Västra Mälardalen key credit metrics, 2017-Sep. 2021
(%) |
2017 |
2018 |
2019 |
2020 |
YTD 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 |
2.7 |
Return on ordinary equity |
6.3 |
5.3 |
8.5 |
4.7 |
8.5 |
Loan growth |
9.2 |
4.4 |
9.3 |
5.9 |
7.7* |
CET1 ratio |
23.1 |
22.3 |
24.0 |
23.1 |
23.2 |
Based on company data. *12 months to June 2021. All metrics adjusted in line with NCR methodology. YTD metrics annualised where appropriate.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com