Our 'A' issuer and issue ratings for SpareBank 1 Østfold Akershus are unchanged following the publication of its first-quarter results.
Lower net interest income, but no worry
Net interest income was down QoQ due to accrual of income from fixed income funds which affected Q4/19 positively. YoY, net interest income is up by 23% and net interest margin is up by 31 bps to 1.94%. Average interest spread was down by 7 bps to 2.02%. However, we expect margin pressure going forward due to the low interest rate environment. Net commission income was up by 13% YoY driven mainly by higher fees from transferred loans and real estate brokerage. Operating expenses were up by 8% due to higher costs related to real estate brokerage. Other income was positively affected by one-off income from the Fremtind merger (NOK 52m) and negatively affected by losses on securities and on ownership interests. In total, the bank reported 7.1% return on equity for the quarter and we note that the bank no longer expects to reach its 10% return target in 2020.
Strong corporate lending growth
Including loans transferred to SpareBank 1 Boligkreditt, Y-on-Y volume growth in the private segment was 7.0% (6.3%), while growth in corporate lending was 11.0% (1.9%). Competition in the private segment has increased recently and we expect lower growth for the rest of the year.
COVID-19 related loan loss charges
The bank reported loan losses of NOK 24m in the quarter, 0.33% of lending annualized. Modelled loan loss charges in IFRS9 stage 1 and 2 increased by respectively NOK 16m and NOK 13m based on higher probabilities of default in all macro scenarios. Non-performing loans were 0.42% of gross loans, down from 0.44% the previous quarter. The bank has very low exposure to at-risk industries like oil, hotels, restaurants and travel.
Capital ratio
The bank's CET1 ratio was 17.6% (17.8%) at the consolidated level, significantly above its 15% target.
This commentary does not reflect a rating action.
If you have any questions, please contact:
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com