Our 'A' issuer and issue ratings for SpareBank 1 Østfold Akershus are unchanged following the publication of its fourth-quarter results.
Strong development in net interest income
Net interest income improved by 12% Q-on-Q after increased lending rates took effect from mid-November. We expect further positive effect in Q1/20 from the September hike. Net interest margin for 2019 was 1.78% (1.72%), 1 bps lower than our expectation. Net commission income was down by 10% compared to Q4/18 due to lower income from payments and real estate brokerage. In total, the bank reported 12.1% return on equity for 2019, marginally below our 12.3% forecast mainly due to lower contribution from associated companies (non-life insurance).
Improved, but still modest lending growth
Including loans transferred to SpareBank 1 Boligkreditt, Y-on-Y volume growth in the private segment was 4.1% (7.3%), while growth in corporate lending was 6.0% (7.3%). Particularly in the first half of 2019, the bank experienced increased competition from Nordic banks for private customers. The bank's growth expectations for private loans is in line with the national credit growth, which was 5.1% in 2019. Deposit growth in 2019 was 7.3%.
Net loan recoveries, but non-performing loans up Y-on-y
The bank reported net reversals of NOK 3.2m during the year and net loan losses of NOK 1.4m in the quarter. Non-performing loans were 0.56% of gross loans, down from 0.62% the previous quarter but up from 0.34% during 2018.
Capital ratio
The bank's CET1 ratio was 17.8% (16.1%) at the consolidated level, significantly above its 15% target, and boosted by the removal of the Basel I floor (+1.2pp) and implementation of the SME discount (+0.3pp).
This commentary does not reflect a rating action.
Analyst contact details:
Geir Kristiansen, +47 907 845 93, geir.kristiansen@nordiccreditrating.com
Sean Cotten, +46 735 600 337, sean.cotten@nordiccreditrating.com