Our 'A' issuer and issue ratings on SpareBank 1 Østfold Akershus are unchanged following the publication of its results for the second quarter of 2021.
Earnings improve as costs increase
Net interest income, excluding transferred loans, decreased by 1bp to 1.57% from the first quarter. Including transferred loans, the metric was stable at 1.46%. Net commission and fee income increased by 22.7% from the previous quarter, largely driven by an increase in commission income from transferred loans.
An extraordinary NOK 18m contribution from the SpareBank 1 group increased earnings in the second quarter. Excluding this, and other financial income, revenue increased by 10.7% quarter on quarter. Operational costs were also up, by 8.1%, but the cost-to-income ratio (excluding financial income) fell to 47.4% from 48.6%.
Loan losses remain low as lending growth decreases
The bank reported loan losses of 0.01% in the second quarter, compared with 0.02% in the second quarter of 2020, while the level of Stage 3 non-performing loans, including transferred loans, remained at 0.07%. Additional provisions of NOK 10m above regulatory requirements were retained in the face of continuing economic uncertainty. The bank noted there were no indications of deterioration in its loan portfolio.
Both private and corporate lending, including transferred loans, continued to increase in the second quarter, but to a lesser extent than in the first. Private lending rose by 5.7% compared with 6.4% previously, and corporate lending by 12.2% (15.4%). Deposits also continued to increase, rising 12.9% over the 12 months ended June 2021. They have now increased in each quarter since the beginning of 2020.
Return on equity and capital ratio well above target
Return on equity was a strong 14.5% in the second quarter, well above the bank's long-term target of 10%, and up from 10.8% in the first. This was partly a result of the extraordinary income recorded in the period. The common equity Tier 1 (CET1) ratio increased to 18.20% from 17.60% quarter on quarter. The bank has increased its target CET1 ratio for 2021 to 16.0% from 15.0%.
On 30 Mar. 2021 the board approved an additional dividend of NOK 3.50 per share for 2021.
Figure 1. SpareBank 1 Østfold Akershus key credit metrics, 2018-June 2021
|(%)||2018||2019||2020||YTD to 30 Jun. 2021|
|Net interest margin||1.8||1.9||1.8||1.6|
|Loan losses/net loans||0.04||-0.02||0.10||0.03|
|Return on ordinary equity||11.7||12.3||10.7||12.7|
|Loan growth (LTM)||11.3||1.3||5.4||2.1|
This commentary does not constitute a rating action.
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