Our 'A' issuer and issue ratings on SpareBank 1 Østfold Akershus (SB1 Østfold Akershus) are unchanged following the publication of its results for the first quarter of 2021.
Competitive pressure on private loans
SB1 Østfold Akershus' net interest margin was down by 9bps from the previous quarter at 1.58%, due to competitive pressure (down by 10bps to 1.46% including transferred loans). Demand for private loans remained strong (+4.5% year on year, including transferred loans), while demand for corporate lending improved in the quarter (+22%). The bank sees lower growth in corporate lending for the remainder of 2021 due to the completion of real-estate development projects. Net commission income was down by 7% quarter on quarter due to a seasonal effect, and increased by 20% year on year, driven mainly by higher fees from transferred loans, which were positively affected by lower financing costs. The bank's cost-to-income ratio in the third quarter stood at 42.5%, while operating expenses decreased by 4% year on year due to lower other operating expenses.
Low loan losses
SB1 Østfold Akershus reported loan losses of NOK 4m in the fourth quarter. There are no indications of increased risk in the loan book and net Stage 3 non-performing loans as a percentage of on-balance-sheet lending stood at 0.25% vs 0.22% 12 months earlier. Accordingly, in the fourth quarter of 2020 the bank reversed NOK 13m of a NOK 23m COVID-19-related loan loss provision taken in the first quarter.
Strong capital ratio
The bank reported a 10.8% return on equity for the first quarter and 10.5% for 2020, which was above its 10% target level for the full year. SB1 Østfold Akershus' common equity Tier 1 ratio was 18.1% at consolidated level (the first quarter result is not included) vs 18.5% at year-end 2020 , and significantly above its 15% target.
This commentary does not constitute a rating action.
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