Our 'A-' issuer and issue ratings on Varbergs Sparbank AB (publ) are unchanged following the publication of its first-quarter 2022 results.
Strong earnings driven by larger-than-usual dividend payment
Earnings in the quarter were strong, driven mainly driven by a larger-than-usual SEK 92m dividend payment from Swedbank AB. Net interest income rose by 1% quarter-on-quarter, while net fee and commission income fell by 5% and core pre-provision income (less dividends and other income) decreased by 10%. Core risk-adjusted income stood at 1.4%, annualised.
Loan loss provisions increase after period of reversals
Transferred loans decreased in the quarter, but net loans on the bank's own book increased by 0.5% from the previous quarter, resulting in a 3% year-on-year increase. Loan loss provisions also increased, to 6bps of total net loans, due to rising economic uncertainty. While customers have no direct exposure to the war in Ukraine, the bank nonetheless expects an impact on the local economy in Halland County, where its operations are based.
Capital ratios remain strong
In the course of the first quarter, the Swedish Financial Supervisory Authority found the bank to be satisfactorily managing its risk exposure. The core equity tier 1 (CET1) ratio declined by 27bps from record levels at end-2021, but remained strong at 30.6%.
Figure 1. Varbergs Sparbank key credit metrics, 2018-Q1 2022
(%) |
2018 |
2019 |
2020 |
2021 |
Q1 2022 |
Net interest margin |
1.4 |
1.5 |
1.4 |
1.2 |
1.2 |
Loan losses/net loans |
0.0 |
0.0 |
0.0 |
-0.3 |
0.1 |
Pre-provision income/REA |
3.0 |
2.0 |
2.4 |
3.0 |
5.8 |
Return on ordinary equity |
13.4 |
11.6 |
10.3 |
7.6 |
12.1 |
Loan growth |
18.5 |
14.2 |
-4.7 |
1.6 |
2.9* |
CET1 ratio |
16.3 |
15.6 |
18.1 |
30.8 |
30.6 |
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|
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Based on company data. REA-risk exposure amount. All metrics adjusted in line with NCR methodology. *Last 12 months.
This commentary does not constitute a rating action.
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com