Our 'A' issuer rating on SpareBank 1 Østfold Akershus is unchanged following the publication of its results for the second quarter of 2022.
Interest margins continue to improve
Rising interest rates in the second quarter continued to raise the bank's net interest margin, which increased to 1.99% from 1.84% in the first quarter. Including transferred loans, the net interest margin rose slightly less, to 1.62% from 1.54% in the previous quarter.
Net fee and commission income also increased in the second quarter, mainly due to payment processing and estate agency services. However, income from transferred loans decreased slightly, due to lag effects.
Operating costs increased by 10% from a year earlier. However, core cost-to-income (excluding net trading and other income) fell to 44.7% from 47.4% over the same period.
Economic uncertainty prompts loan-loss provisions
Net loans, excluding transferred loans, grew by 1.7% in the second quarter, or 2.1% including them. Over the past 12 months net loans, excluding transferred loans, grew by 4.8%, or 7.6% including them. Deposits were virtually unchanged from a year earlier, having grown by only 1.9% in the previous 12 months.
Increasing economic uncertainty driven by the war in Ukraine, combined with the lingering effects of COVID-related social restrictions, high inflation rates, and rapidly increasing interest rates prompted the bank to make NOK 10m in loan-loss provisions in the second quarter.
SME discount helps improve capital ratios
SB1 Østfold Akershus's capital ratios were boosted late in the second quarter by a so-called "SME discount", under which small and mid-size enterprises are assigned lower risk weights when borrowing from Norwegian banks. Without the regulatory discount, the bank's common equity Tier 1 (CET1) and Tier 1 capital ratios would have been virtually unchanged from end-2021. Further capital requirements by the Norwegian financial supervisory authority are possible by year-end.
SB1 Østfold Akershus established a green bond framework in the second quarter, receiving a "Medium Green" second opinion from domestic climate research agency CICERO. A NOK 300m bond was issued within the framework, in a period when the bank decreased its outstanding debt levels.
Figure 1 SpareBank 1 Østfold Akershus key credit metrics, 2018–H1 2022
(%) | 2018 | 2019 | 2020 | 2021 | H1 2022 |
Net interest margin | 1.8 | 1.9 | 1.8 | 1.7 | 2.0 |
Loan losses/net loans | 0.04 | -0.02 | 0.10 | -0.03 | 0.09 |
Pre-provision income/REA | 3.4 | 3.8 | 3.0 | 2.8 | 2.6 |
Return on ordinary equity | 11.7 | 12.3 | 10.6 | 11.8 | 9.7 |
Loan growth | 11.3 | 1.3 | 5.4 | 2.5 | 4.8* |
CET1 ratio | 16.4 | 16.8 | 18.5 | 18.0 | 18.5 |
Tier 1 ratio | 18.2 | 17.9 | 19.6 | 19.0 | 19.6 |
Based on company data. REA–risk exposure amount. *Last 12 months. All metrics adjusted in line with NCR methodology.
This commentary does not constitute a rating action.
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com