Our 'A' issuer and issue ratings for SpareBank 1 Østfold Akershus are unchanged following the publication of its third-quarter results.
Core earnings improvement
Net interest income improved significantly Q-on-Q after increased lending rates took effect from May and early August. We expect further positive effect in the fourth quarter from the August hike and another increase in lending rates taking effect from November. Net commission income was up 4% up compared to Q3/18. YTD profit is supported by one-off gains from revaluations of real estate in SpareBank 1 Group, while the contribution from financial investments were moderate in the third quarter. In total, the bank reported 12.9% return on equity YTD and 9.6% for the quarter.
Improved, but still modest lending growth
Including loans transferred to SpareBank 1 Boligkreditt, volume growth in the private segment improved to 1.2% Q-on-Q from 0.9% in the previous quarter, while growth in corporate lending was stable at 1.5%. This is close to the national credit growth in Norway. Lending has grown 2.8% over the last 12 months, which is below our expectation from November 2018 of 7.5% for 2019. This is due to increased competition from Nordic banks for private customers. The bank revised earlier this year growth expectations for private loans to in-line with the national credit growth.
Net loan recoveries, but non-performing loans up YTD
The bank reported net reversals of NOK 1.4m during the quarter and NOK 4.6m YTD. Non-performing and doubtful loans, however, were marginally up to 0.51% of gross lending from 0.49% in the second quarter. This includes transferred loans and is an increase from 0.33% per year-end 2018.
Capital ratio
The bank's CET1 ratio was 16.1% (16.2% at Q2/19) at the consolidated level, including 50% of year-to-date net profit. Low lending growth and e.o gains have contributed to flat development in the CET1 ratio from year-end 2018. The merger of SpareBank 1 Forsikring and DNB Livforsikring will result in a gain of NOK 51.7m in Q1/20 for Østfold Akershus, and will boost the CET1 ratio by about 0.3pp.
This commentary does not reflect a rating action.
For more information, please contact:
Geir Kristiansen, Credit Rating Analyst, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, Lead Analyst, +46 735 600 337, sean.cotten@nordiccreditrating.com