Our 'BBB+' issuer and issue ratings on Sparbanken Västra Mälardalen (Sparbanken VM) are unchanged following the publication of its first-quarter results.
Core profits improve as restrictions on dividend income ease
Sparbanken VM's core pre-provision earnings (net interest income and net fee and commission income net of expenses) in the first quarter rose by 4.5% from a year earlier, while core cost efficiency remained flat at 54%. Net interest income improved by only 0.7% year on year compared with a 6% increase in lending over the past 12 months, reflecting lower net interest margins. Conversely, fee revenue improved by 13.7% compared with the first quarter of 2020, mostly due to increased customer trading.
Pre-provision earnings were also supported by renewed dividend payments from Swedbank AB, which amounted to SEK 17.4m. Restrictions on bank dividends will be reconsidered by the Swedish financial supervisory authority after 30 Sep. 2021, which could result in additional dividend income from Swedbank before year-end. Sparbanken VM's total pre-provision profits of SEK 54.4m in the first quarter were in stark contrast to the SEK 12.9m pre-provision loss recorded in the first quarter of 2020, when earnings were negatively affected by revaluations of interest rate swaps and fixed-income assets in the bank's investment portfolio.
Business volumes and lending grew by 3.8% and 1.6%, respectively, during the quarter, while customer deposits increased by 2.1%.
Loss reversals reflect improving economic expectations
Sparbanken VM reported net credit loss reversals of SEK 1m in the first quarter, due in large part to improved economic expectations. The level of Stage 3 net non-performing loans increased to 25 bps of net loans during the quarter from 19 bps at end-2020.
Capital remains strong
Sparbanken VM's common equity Tier 1 ratio improved to 23.3% (24.1% including net profit for the first quarter), compared with 23.1% at end-2020.
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