Our 'BBB+' long-term issuer and issue ratings on Sparbanken Västra Mälardalen (Sparbanken VM) are unchanged following the publication of its results for the fourth quarter of 2021.
Improved earnings due to additional dividend payment
Quarterly pre-provision earnings rose by 20.3% year on year, largely driven by the second Swedbank dividend paid out in the autumn, following its cancellation in 2020. The increase in revenue was offset by higher costs, and core cost to income rose to 75.5% (55.6% in Q4/20) as core revenue, excluding dividend payments, rose by only 1% compared with a 37.4% increase in costs, primarily associated with payments to the bank's employee profit-sharing scheme.
Moderate loan losses after a period of COVID-19 provision reversals
Following the reversal of loan loss provisions throughout 2021, most pandemic-related provisions had been reversed by the fourth quarter and Sparbanken VM reported net negative credit losses for the quarter. This is in line with our expectations of normalised, but moderate, loan losses going forward. Net Stage 3 non-performing loans remain modest at 24 bps. Common Equity Tier 1 capital (CET1) rose, as the risk exposure amount (REA) decreased, leading to a CET1 ratio of 26.2%, which exceeds our previous expectation of 24.7%.
Figure 1. Sparbanken Västra Mälardalen key credit metrics, 2017–2021
(%) |
2017 |
2018 |
2019 |
2020 |
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 |
8.4 |
Loan growth |
9.2 |
4.4 |
9.3 |
5.9 |
9.7 |
CET1 ratio |
23.1 |
22.3 |
24.0 |
23.1 |
26.2 |
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Based on company data. All metrics adjusted in line with NCR methodology.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +468806742, ylva.forsberg@nordiccreditrating.com