Sparebank 1 SR Bank ASA
OSE:SRBNK
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Good afternoon and good morning, everybody, and welcome to this first quarter presentation of SR-Bank. My name is Inge Reinertsen. I'm Group CFO of SR-Bank.
Together with me, Mrs. Benedicte Schilbred Fasmer, CEO of SR-Bank. We will give you a brief introduction of the first quarter figures, first by Benedicte and then followed up by me, and then you will have the possibility to ask those questions afterwards.
So please, Benedicte, the floor is yours.
Thank you very much, Inge. And welcome to our first quarter presentation. I'll try to take you through the highlights. I hope you can see our presentation, and we also work on questions at the end. So, I'll make the presentation fairly brief.
If we look at the composition of the loan book of SR-Bank, about 40% of our loans are now outside the Rogaland region, which is where the bank originated from nearly 200 years ago. We service strategy, so we had to go to diversify outside the Rogaland region unless you see a lot of the growth, if you look at the last 12 months, we're growing with NOK 12.3 billion and 44% of that growth has come from Oslo and Viken, whilst Vestland represents 18% of the growth, and we have a fairly flat development in Rogaland.
And the reason for that is the fact that Rogaland is fairly exposed towards the oil and energy sector. We've maintained market growth and our market share in Rogaland, but we've had some decline following the market over the last years in the oil and offshore sector. So -- but this is the picture overall and it fits well with our vision to be a bank for Southern Norway, and we believe this is an interesting market area to grow. We have 3 of the 4 largest cities in Norway in this region, and we are well positioned to take our fair share of that market.
If we look at the results in the quarter, the group made a pretax profit of NOK 921 million in the first quarter, NOK 152 million down from fourth quarter of last year. This resulted in a return on equity after tax of 11.4% for the quarter, down from 14% in the fourth quarter in '21. The group net impairment and loans and financial liabilities amounted to NOK 15 million in the first quarter, and we had reversed this in the previous quarters. So the net change is NOK 39 million from quarter-to-quarter. And it's still at a very low level on the 0.03% of our loan book. And our gross loans amounted to NOK 233.6 billion at the end of the quarter. And as I mentioned, we grew by NOK 12.3 billion or 5.6%. And you see the split between the different customer segments on default in front view.
The Common Equity Tier 1 capital ratio was at 17.6% at the end of first quarter. And we had a dialogue with the Norwegian FSA last week. And they applied a new Pillar 2 premium of 1.6%, down from 1.7% and they also expected us to have a management buffer margin of 1.25%, up from 1% earlier on. And the FSA's decision will be valid from 30th of April this year. This has implied a new capital ratio target for us as a group, which was set by the Board yesterday at 16.85%, up from 16.7%.
And now I'll give you over to Inge, who will take you through a bit more of the details in the results for the quarter.
Thank you, Benedicte. If we look at the net interest income, we had an increase of NOK 4 million from last quarter. This quarter has 2 less interest days than compared to the fourth quarter, that is equal to NOK 22 million. So although it is challenging, and I will comment further on the margin side, on the lending and the deposit side. Although it is challenging with a rapidly increasing NIBOR, we have maintained to increase the net interest income.
Net commission and other income has been increased by approximately 7%, up from NOK 402 million first quarter '21, up to NOK 430 million. It's nevertheless, NOK 25 million less than the fourth quarter, but that was a quarter with a few positive one-offs, which has not been repeated this quarter. So, the underlying positioning for SR-Bank is very strong when it comes to net commission and other income.
If we look at net income on investment securities, it stands at NOK 192 million, which I regard as an average quarter, we have had quite a few quarters with a very strong contribution from net income on investment securities. This quarter is more of an average quarter with a less contribution from the SpareBank I Group, where the 65% ownership of the Fremtind non-life insurance company lies, but also with some other positive effects.
If we look at the operating expenses, they are down from NOK 755 million in the fourth quarter last year, down to 600 IT tax, just like on the net commission and other income, there was some one-offs in the fourth quarter, where we had a significant increase in the variable compensation due to the strong results for the last year, which has not been repeated this quarter. If we compare the NOK 695 million to the NOK 612 million the same quarter of last year, that is an increase which is mainly driven by the acquisition of a large accounting company, which stands for more than 50% of that increase.
And that, of course, is offset also by increased net commission and other income from the accounting company. So, it is kind of definitely a deliberate increase of our cost base. That gave us an operating profit before into NOK 936 million. And with low impairments, accounting for NOK 15 million, which is equal to 3 basis points. We had an operating profit before tax of NOK 921 million and then less taxes of NOK 168 million. We had a net profit after tax of NOK 753 million, which then is equal to 11.4% return on equity. If we go more into the lending and the deposit margins, it is challenging to maintain the margin on the retail lending due to the rapidly increasing NIBOR.
As you can see, the margin on the retail market, which for all purposes is pure mortgages fell by 17 basis points. And then, 6 basis points within both the SME and agriculture division and also the large corporate market division. On the other hand, we have been able to offset this margin pressure on the deposit side, where we have a significant increase on the deposit margins within the retail sector and the SME sector.
Altogether, this gives us a fairly stable net interest margin and then, the contribution from the lending growth has made us able to even increase the net interest income, despite the pressure on the lending margin. If we look at the lending volume, I'm happy that we now have a steady growth with all 3 segments, 5.4% within the retail market at the time by housing prices within the Stavanger region where we have the largest share of portfolio, where now housing prices increased even more than average of Norway as such.
Also within the corporate market and the SME and agriculture. We have a good contribution from growth and that is both between the segments and between the different geographical areas. However, still the growth is largest outside the Rogaland county.
If we look at deposits, actually rather surprised that we have a double-digit increase of deposits within the retail sector. I believe that purely or truly shows that the house -- the Norwegian households, they are definitely liquid. We experienced a very low unemployment rate and still now, the spending is less than what we might expected after kind of going out from the COVID situation. But then the double-digit, the positive growth within retail market, 9.2% within the corporate market and also a 15.4% growth within the SME and agriculture has increased the deposit to rate -- deposits, excuse me to loan ratio for SR-Bank to approximately 60%. So the liquidity is undoubtedly very strong.
If we look at net commission and other income, I have commented on the commission from Fremtind's partner, which you can see has increased from 50% in the first quarter last year, up to NOK 104 million, and that is kind of underpinned or made possible due to the acquisition of Tveit Regnskap, which was a large accounting company.
Also, we have an increase now on the payments facilities, people travel more and they have more spending from their credit cards. And we have a strong contribution also from the other areas. Less transactions within the real-estate broker, EiendomsMegler 1. But if we take into consideration, however, increasing housing prices, we believe the environment should be quite benign for our real-estate growth for the upcoming year.
If you look on net income on investment securities as commented on. It is a quarter pretty average. We have outspread in the certificate and bond portfolio. However, we have a positive one-off due to our owner share of SpareBank 1 markets, the jointly owned markets company within the alliance that accounts for NOK 35 million in positive one-off.
Operating expenses down from last quarter and up from the same quarter of last year, but then mainly driven by the acquisition of Tveit. If we look at the wages in Norway now, we have an upward pressure. And as all other countries, we experienced kind of a pressure on the inflation. However, we are taking measures to improve efficiency within the entire SR-Bank Group to offset the pressure on expenses. And of course, growth has become even more important to leverage on the cost base we have. We just believe we have now a very good position for taking growth with strong distribution network and also an organization, which is kind of well positioned with the necessary competence to grow the SR-Bank even so.
If you look on the impairment side, NOK 15 million, this quarter, equal to 3 basis points and with a positive change within the gross loans and financial commitments defined as Stage 3, underpins a very benign environment in our market area with positive PMEs, low unemployment rate and a very strong quality looking at SR-Bank's lending.
Actually, we have increased the IFRS 9 provision by NOK 60 million this quarter. If we hadn't done that, which is kind of in addition to what the model says, we would have had a net reversal also within this quarter, but we believe it is prudent to increase commission impairments slightly due to the international situation, which still has some clarity when it comes to the outcome of the world between Russia and Ukraine.
If we look at the capital side, it's rock solid. We had, as commented on the new decision from the Norwegian FSA. We increased the capital target from 16.78% up to 16.85%. However, the capital -- Common Equity Tier 1 capital ratio stands at 17.6%, far beyond their capital environment, which [indiscernible]. So the capital position is very strong, and that means that we are well positioned for seeking growth and with a strong distribution network, we strongly believe that we should be able to grow the bank at average or beyond average of what will be the goal within the regional market.
Then I will hand off the word back to Benedicte to say elaborate a little more on sustainable activities.
Thank you, Inge. I think as a financial institution, we are very aware of our responsibility to facilitate and also push forward for the sustainable or through sustainable financing through our activities. And we've started to measure new financing of sustainable finance. In the last year, we have set a goal of financing NOK 50 billion by the end of 2030 composed by new loans to sustainable projects as well as new equity and the capital raising similarly on the true SR markets.
And as you see, we are -- we've come a bit down that line at 11.4% of our vision. But I think most importantly, we have now finalized our framework for sustainable financing, which is now the definition or setting out our definition of sustainable finance. It's also, which is very much in line with the EU taxonomy.
As a consequence of the war in Ukraine, which is certainly putting people in the terrible situation and a lot of suffering for many people. But if we look into our business, we have been through all corporate exposures over NOKs 25 million and which represents in total approximately 75% our corporate loan book. And this analysis confirms that SR-Bank is in a good shape when -- or the customers of SR-Bank are in a good shape.
Only 15 of those clients are directly affected, and we consider the risk of increased individual loan loss provisions in the corporate portfolio to be low in the short-terms. In the retail market, our customers are more indirectly affected by rising prices. The forecast for the August month base rate has been adjusted up to around 2.5% at the end of 2023, which means that several interest rate hikes in the time ahead.
The quality of the retail market portfolio is considered to be very good with a low risk of losses and low defaults. And we also think, as Inge talked about a little bit earlier that our customers are prepared for these interest rate hikes and have said more than previously during the pandemic. And on an aggregate level, most clients will handle this and sustain this fairly well.
We have also heard intensified work complying with the sanctions introduced in Norway and in the international community. And we've also had higher cybersecurity preparedness in order to be ready if attacks should occur into our industry. But so far, we've handled also that very, very well.
If we look at the Norwegian economy, the situation is that we are at a higher level than before the pandemic. Unemployment is low and the sectors that experienced challenges during the pandemic have returned to normal. This also applies to the energy sector, which is important for Norway and particularly for SR-Bank's main market area, Rogaland. So in the short-term, the challenge is that many countries need to replace Russian gas.
And from a Norwegian perspective, it is important that we produce the energy Europe now needs. And again, that would imply higher activities in the oil service sectors in the near-term. It's our opinion that the war in Ukraine will actually accelerate the green shift because Europe will apply more pressure to realize its ambition in renewable energy.
As an energy nation, Norway will have expertise and opportunity to create a new industry and while also contributing to a secure energy supply and decarbonization of Europe, and being very well placed in this space, SR-Bank will contribute to ensure that businesses have funding for good projects in this transition period.
Having said that, I think also its worth unnecessary for me to note and make you -- make it clear that increased prices and delays in raw materials and goods are contributing to greater uncertainty ahead of us. And it's also very difficult to say exactly how this will pan out longer term, both in Norway and internationally.
So with those remarks, I'll open up for questions. Thank you. No questions there?
Please unmute and ask your questions.
[Operator Instructions].
[Foreign Language]
No hands raised and no unmuted delegates or attendees?
It doesn't appear so.
All right.
Could I have one question, Inge? This is a Vegard.
Yes.
Hello, Vegard.
A few days ago, you announced the cooperation with Aprila Bank. Could you talk to us a little about through the -- what's in it for you? And if this is a copy of the similar arrangement they have with DNB or if there's any differences?
Well, what we've done is we've entered into a cooperation where [Foreign Language] invoices of our SMB clients can be analyzed by Aprila and -- digitally, and they can also have loans based on that. In this phase or the agreement we've done with Aprila, now that those loans will be on Aprila's books, and we will receive a commission. We have the opportunity to change the way of cooperating with Aprila. If this turns out to be a success and if this turns out to be something that runs well with the corporate clients.
That would be interesting to come back to later. On the deposit side, you are getting quite a lot of deposits. Is that something that you are -- or would that allow you to re-price less on retail deposits going forward?
It's always kind of difficult with a forward-looking statement when it comes to pricing. And as shown, we have been able to re-price deposits significantly during the last few quarters. And of course, at all times on both sides of the balance, we are kind of making our efforts to increase margins and thereby maintain the total interest margin. Of course, the first few rate hikes are more kind of is more is more easy for me to or more easily to leave the interest rate unchanged and thereby increasing the interest margin. And I don't want to speculate too much on this going forward because of all -- at all time, it's dependent on the competition amongst the banks. So far, the growth within the consumer banks, I believe, have been very low and the liquidity within the households and corporate sector has been very strong and thereby, it has been possible to increase the margins. But of course, we don't have any guarantee on how that will kind of change or not change within the future.
And just finally then on the models that you have for approval with the FSA and the temporary 0.5 percentage points of requirements. Is it so that these models will be approved in -- as a package as a whole? I understood that you have some models that will increase the requirements and so that will reduce it. So, is there a potential for some more temporary effects here or with all the models that you have for approval be approved as a whole?
We don't expect any more temporary effects with kind of negative impact. However, we cannot fully kind of guarantee that the Norwegian FSA will have kind of the applications granted all at the same time. But as you mentioned, we have kind of applications that will offset fully or at least partly a large share of the 50 basis points. So, it's kind of the negative applications that are taken into consideration by the FSA and is the reason for the temporary 50 basis points increased capital requirement. And also, we are expecting the implementation of the SME discount in a few months. So, we feel very confident with respect to the capital situation altogether.
And can you just repeat the impact that you have estimated from the SME partnership?
It has been on kind of the preliminary calculations. We have taken into consideration in the area, plus minus 40 basis problems from the SME discount there.
Then it doesn't look as if we have any more unmuted microphones. So then I will thank you all for participating at this conference and wishing you all a good day. Thank you and goodbye.