Our 'A' issuer and issue ratings on SpareBank 1 Østfold Akershus (SB1 Østfold Akershus) are unchanged following the publication of its second-quarter 2020 results.
Net interest income lower due to lower lending rates
SB1 Østfold Akershus' net interest income was down by 13% quarter on quarter at NOK 102m and its net interest margin was down 30bps at 1.64%. This is explained by lower lending rates and the lag effects of funding cost reductions (though this contributed only 8 bps). We expect no significant rebound in margins in the second half due to low interest rates. Lending growth in the last 12 months was 8.2%, or 5.9% excluding loans transferred to covered bond companies. Net commission income was up by 11% quarter on quarter and 3% year on year, driven mainly by higher fees from real estate brokerage. Operating expenses were down by 9% quarter on quarter and 2% year on year due to reduced business volumes. As with other Norwegian banks, net financials were boosted by reversal of losses incurred in the previous quarter. The bank reported a 9.9% return on equity for the first half, bringing it close to its 10% target level for the full year.
Loan losses also down
SB1 Østfold Akershus reported loan losses of NOK 6m in the second quarter compared with NOK 24m in the previous quarter. This represented 0.13% of annualized lending compared with 0.33% previously. No COVID-19 related provisions were made in the second quarter and the increase in provisions announced was due to a single loan. Loan loss charges in respect of Stage 1 and 3 loans (as defined by International Financial Reporting Standards) increased by NOK 4m and NOK 6m respectively while charges in respect of Stage 2 loans fell by NOK 4m. The bank has low or zero exposure to the oil industry and the hotel, restaurant and travel sectors, which have borne the brunt of COVID-19.
Capital ratio stable
SB1 Østfold Akershus' common equity Tier 1 ratio was stable at 17.6% at the consolidated level, significantly above its 15% target.
This commentary does not constitute 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