Our 'A-' issue and issue ratings on Varbergs Sparbank AB (publ) are unchanged following the publication of the bank's results for the third quarter of 2021.
Net fee and commission rising
The bank continued to experience pressure on interest margins, similar to those we have seen across the wider Swedish savings bank sector (see Swedbank dividends boost earnings for Swedish savings banks, published 30 Sep. 2021). This effect was further amplified as a greater proportion of liquidity positions became subject to interest costs. Margins decreased to 1.18% in the first nine months of 2021, down from 1.36% a year earlier. Net fee and commission income continued to increase, rising 12.4% in the quarter on a year-on-year basis.
Deposits were up 2% quarter on quarter and 4% since end-2020, which the bank attributed to a normalisation of tourism in the Varberg area following a decline in 2020.
Loan growth remains weak
Loans on the bank's own book rose slightly during the quarter (0.17%).Total loans, including transfers to Swedbank Hypotek, were up by 0.50% since end-2020. The bank has seen no pickup in corporate investment, and we see no evidence of an increase in investment-driven corporate lending even though COVID-19 appears to be receding.
The bank continued to make manual reversals of loan-loss provisions in the course of the third quarter, but opted to keep provisions of SEK 2.6m (5.6m as of 30 Jun. 2021) due to lingering uncertainty about the future direction of the pandemic. Loan-loss provisions were down 30% at 45bps of net loans compared with 64bps at end-2020.
Varbergs Sparbank's capital ratios remained strong in the third quarter at 27.8%, a level that exceeds our expectations for the full year.
(%) |
2017 |
2018 |
2019 |
2020 |
2021e |
LTM to Sep. 2021 |
Net interest margin |
1.32 |
1.25 |
1.37 |
1.38 |
1.22 |
1.18 |
Loan losses/net loans |
0.08 |
0.11 |
0.08 |
0.10 |
-0.16 |
-0.19 |
Pre-provision income/REA |
2.9 |
2.7 |
3.2 |
1.6 |
2.3 |
2.5 |
Return on ordinary equity |
6.9 |
6.4 |
8.5 |
3.7 |
5.7 |
6.5 |
Loan growth |
1.9 |
2.1 |
8.5 |
1.4 |
0.0 |
0.5 |
CET1 ratio |
21.5 |
22.2 |
23.7 |
24.6 |
26.5 |
27.8 |
e-estimate. REA-risk exposure amount.
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