Our 'A-' issuer and issue ratings on Sparbanken Rekarne AB (publ) are unchanged following the publication of the bank's third-quarter results.
Core revenue improvement driven by lower costs
Sparbanken Rekarne's core pre-provision income was SEK 92.9m in the first nine months of 2020, a 33.7% improvement from the corresponding period in 2019, driven by higher net interest income and lower expenses. However, in the third quarter, net interest income slowed quarter on quarter as margins fell due to declines in the Stockholm interbank offered rate, strong deposit growth, and stagnant loan volumes. Expenses declined by 8% in the first nine months, reducing core cost-to-income levels to 63.4% from 71.5% a year earlier.
Including one-off sales and revaluations of subsidiaries and other non-core revenues, the bank's total pre-provision income increased by only 2.3% in the first nine months.
Reversals of credit losses in the third quarter as forward-looking economic assumptions improved lowered year-to-date loss provisions to 3bps of net lending. Net non-performing loans (Stage 3 loans as defined by International Financial Reporting Standards) were virtually unchanged at SEK 12.7m (10bps of net loans), reflecting the strong performance of the loan portfolio despite the impact of COVID-19 on the Swedish economy.
The bank's business volumes increased to SEK 46.3bn in the third quarter as customer deposits increased and market values supported customers' investment assets. The savings growth offset declines in total lending. So far in 2020, the bank's on-balance-sheet loans have fallen (about SEK 300m) and loans transferred to Swedbank Mortgage are also marginally lower.
Capital ratios stable, 2019 dividend payment cancelled
Sparbanken Rekarne's capital ratios improved slightly during the third quarter; the common equity Tier 1 ratio was 16.6% at end-September (compared with 15.6% at end-2019) and the total capital ratio was 18.6% (17.6%). The bank has decided to cancel its 2019 dividend to support its capital position.
This commentary does not constitute a rating action.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com