Our 'A-' issue and issue ratings on Varbergs Sparbank AB (publ) are unchanged following the publication of the bank's results for the fourth quarter of 2021.
Decline in core revenues offset by large dividends from Swedbank
The bank continued to experience pressure on interest margins, with full-year net interest margins decreasing to 1.15% from 1.38% a year earlier, as the proportion of liquid assets has increased. Quarterly net interest income fell by 10.9% compared with the fourth quarter of 2020, due in part to an increase in deposit guarantee fund fees in the fourth quarter. The bank saw a similar decline in net fee and commission income, which fell by 10.8% compared with the fourth quarter of 2020. We note that revisions in the commission agreement with Swedbank led to improved commission in the second half of 2021 and should result in commission income improving going forward. For the full year, the bank's core revenues declined by 3.5% from 2020 and the core cost income ratio increased to 59% in 2021 from 54% in 2020.
However, these declines in core revenues were more than offset by an additional SEK 59.5m in dividend payments from Swedbank in the fourth quarter, totalling SEK 119m for the full year. Swedbank's recently announced dividend for 2021 will result in SEK 90m in dividend income for the bank in 2022.
Loan growth rebounds
Loans on the bank's own books increased by 2.5% in the quarter, resulting in a 1.6% improvement in 2021. Total loans, including transfers to Swedbank Hypotek, rose by 0.8% for the quarter and 1.2% for the year. Customer deposit growth tailed off towards the end of 2021, following strong growth since the onset of the pandemic. For 2021, deposits increased by 4.7%, with only marginal growth in the fourth quarter.
The bank continued to make reversals of loan loss provisions in the fourth quarter, making it seven consecutive quarters of reversals following a large loss reserve in the first quarter of 2020. The reversals have been reflected in a decline in net Stage 3 non-performing loans, which ended the year at 37bps of net loans, compared with 66bps at the end of 2020.
Varbergs Sparbank's Common Equity Tier 1 (CET1) ratios improved further in the fourth quarter to 30.8% as a result of Swedbank's dividend payment, a level that exceeds our expectations for the full year.
Figure 1. Varbergs Sparbank key credit metrics, 2017–2021
|
(%) |
2017 |
2018 |
2019 |
2020 |
2021 |
|
Net interest margin |
1.3 |
1.3 |
1.4 |
1.4 |
1.2 |
|
Loan losses/net loans |
0.1 |
0.1 |
0.1 |
0.1 |
-1. 6 |
|
Pre-provision income/REA |
2.9 |
2.7 |
3.2 |
1.6 |
3.0 |
|
Return on ordinary equity |
6.9 |
6.4 |
8.5 |
3.7 |
7.7 |
|
Loan growth |
1.9 |
2.1 |
8.5 |
1.4 |
1.6 |
|
CET1 ratio |
21.5 |
22.2 |
23.7 |
24.6 |
30.8 |
|
|
|
|
|
|
|
Based on company data. REA-risk exposure amount. All metrics adjusted in line with NCR methodology.
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