Our 'A' issuer and issue ratings on SpareBank 1 Østfold Akershus are unchanged following the publication of its results for the fourth quarter of 2021.
Boost to net interest margin
The bank reported a strong net interest margin for 2021 of 1.71%, compared with our expectation of 1.52%. The net interest margin was 1.84% in the fourth quarter, boosted by higher short-term market rates and a stronger increase in lending rates than deposit rates. This effect will be repeated in the first quarter of 2022. The modest on-balance loan growth was in line with our estimate. Including transferred loans, private lending rose by 5.1% and corporate lending by 14.6% in 2021, thus the bank is increasing its market share in corporate lending. Deposit growth has started to level out at 7%, but the loan-to-deposit ratio decreased to 117% from 122% in 2020.
Net commission and fee income increased by 13.5% compared with 2020, largely driven by an increase in commission income from transferred loans. Both quarterly and full-year results showed a strong contribution from the SpareBank 1 Group's insurance operations. Operating costs were up by 5% on the previous year, while cost to income fell to 41.0% from 43.7%.
Reversal of loan losses
The bank reported a net reversal of loan losses of NOK 7m for both the quarter and the full year, following the reversal of a NOK 10m pandemic-specific provision. The bank noted there were no indications of deterioration in its loan portfolio and only 0.03% of loans (including transferred loans) are at Stage 3, compared with 0.07% 12 months ago.
Return on equity and capital ratio above target
Return on equity was a strong 11.6% in in 2021, above the bank's long-term target of 10%, and up from 10.5% in 2020. The common equity Tier 1 (CET1) ratio was 18.0%, down from 18.5% for 2020. This is above the updated target CET1 ratio of 16.5%. The board has proposed a dividend of NOK 16.2 per share for 2021, corresponding to a 48% payout ratio.
Figure 1 SpareBank 1 Østfold Akershus key credit metrics, 2018–2021
|
(%) |
2018 |
2019 |
2020 |
2021e |
2021a |
|
Net interest margin |
1.8 |
1.8 |
1.7 |
1.5 |
1.7 |
|
Loan losses/net loans |
0.04 |
-0.02 |
0.10 |
-0.05 |
-0.02 |
|
Pre-provision income/REA |
3.4 |
3.1 |
2.5 |
2.7 |
2.8 |
|
Return on ordinary equity |
11.7 |
12.3 |
10.7 |
11.0 |
11.6 |
|
Loan growth (LTM) |
11.3 |
6.7 |
1.1 |
3.0 |
2.6 |
|
CET1 ratio |
16.4 |
16.8 |
18.5 |
18.7 |
18.0 |
|
|
|
|
|
|
|
Based on company data. REA–risk exposure amount. LTM–Last 12 months. All metrics adjusted in line with NCR methodology. e–estimate. a–actual.
This commentary does not constitute a rating action.
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com