The SpareBank 1 BV Group had a net profit from ordinary operations before losses of NOK 526.5 million (633.1 million). Earnings after tax were NOK 426.2 million (511.5 million), which represents 1.50% (1.94%) of average total assets. The Group’s annualised return on equity was 12.1% (15.8%).
The Group’s annualised return on equity as at 30.09.2019 was heavily affected by gains from the insurance merger (Fremtind) of NOK 71.9 million, while the corresponding period last year was affected by the sale of own commercial buildings for NOK 90.7 million and a one-time effect from winding up defined-benefit pension schemes of NOK 92.2 million. Without these items, the Group’s annualised return on equity was10.0% (10.9%).
Earnings per equity certificate in the parent bank were NOK 3.46 (4,24).
Result Group
Net interest income amounted to NOK 469.2 million (437.0 million). Net interest income as a percentage of average total assets was 1.65% (1.65%).
At the end of the quarter, the Bank had transferred mortgages worth NOK 12,009 million (11,742 million) to SpareBank 1 Boligkreditt AS, and NOK 549 million (98 million) to SpareBank 1 Næringskreditt AS. Earnings from these loan portfolios are shown under net commission income and amounted to NOK 74.3 million (70.9 million).
Lending rates increased by up to 0.25 percentage points in the third quarter. The interest rate change took full effect from September. Compared to the second quarter of 2019, net interest income (excluding mortgage companies) increased by NOK 20.4 million (+0.15% of average total assets).
Based on the continued increase in money market rates, and the rise in the key interest rate from Norges Bank on 19 September, the bank has decided to increase deposit and lending rates by up to 0.25 percentage points from 14 November.
Net commission and other income totalled NOK 322.5 million (403.4 million).
Net commission income amounted to NOK 207.3 million (197.3 million), while other operating income amounted to NOK 115.2 million (206.0 million). Last year’s figure included gains of NOK 90.7 million from the sale of own commercial buildings.
Net income from financial assets amounted to NOK 156.0 million (109.6 million). The key items in 2019 are made up of dividends received totalling NOK 18.7 million (32.0 million) and net income from ownership interests of NOK 121.9 million (38.7 million). The last item includes gains from the Insurance merger (Fremtind) of NOK 71.9 million, and approx. NOK 18 million related to our share of extraordinary revaluation of properties in the SpareBank 1 Group’s life companies. Net income from other financial assets also amounted to NOK 15.5 million (38.9 million). The Bank implemented a write-down totalling NOK 9.6 million during Q3 on a financial investment.
Total operating costs were NOK 421.2 million (316.9 million). Operating costs as a percentage of total operating income for the Group came to 44.4% (33.4%). The corresponding cost ratio for the parent bank was 39.3% (27.1%).
Personnel costs amounted to NOK 243.5 million (149.2 million). The previous year includes a one-time effect from winding up defined-benefit pension schemes of NOK 92.2 million. Corrected for the positive oneoff effect in 2018, the Group’s personnel costs have increased by NOK 2.1 million or approx. 1% compared with the same period last year. Other operating costs amounted to NOK 177.6 million (167.7 million). The increase from last year is mainly related to innovation projects, as well as development/IT costs in the SpareBank 1 Alliance.
Net losses on loans and guarantees amounted to NOK 5.8 million (10.0 million) as at 30 September. Net losses as a percentage of average gross lending amounted to 0.02% (0.04%).
Balance sheet Group
The Group’s total assets amounted to NOK 38,724 million. This represents an increase of NOK 2,240 million over the last 12 months. The group’s business capital (total assets including loans transferred to SpareBank1 Boligkreditt AS and SpareBank 1 Næringskreditt AS) amounted to NOK 51,283 million (48,324 million).
Gross lending (including volume transferred to SpareBank 1 Boligkreditt AS/SpareBank 1 Næringskreditt AS) amounted to NOK 43,373 million. In the last 12 months there has been an increase of NOK 1,782, equivalent to 4.3%. The growth was made up of NOK 1,692 million, or 5.0%, in the retail market and NOK 90 million, or 1.1%, in the corporate market. The retail market share of lending (including SpareBank 1 Boligkreditt AS) at the end of the quarter was 82% (81%).
At the end of the quarter, the Group had a deposit volume of NOK 24,481 million (21,793 million) with deposit growth of 12.3% in the last 12 months. The growth was made up of NOK 2,404 million, or 18.6%, in the retail market and NOK 284 million, or 3.2%,in the corporate market. The Group had deposit coverage of 79.4%, compared with 73.2% at the same time last year. Including the volume transferred to SpareBank1 Boligkreditt AS/SpareBank 1 Næringskreditt AS, deposit coverage amounts to 56.4% (52.4%). The retail market share of deposits at the end of the quarter was 63% (59%).
Capital adequacy
SpareBank 1 BV uses the standard method for calculating credit risk and the basic method for operational risk.
At the end of the third quarter, the regulatory requirement for common equity tier 1 capital is a minimum of 12,0%. In September 2018, the Financial Supervisory Authority of Norway set new Pillar 2 requirements for SpareBank 1 BV of 1.9% from 31 December 2018, but at least NOK 457 million above the minimum requirement and buffer requirements in Pillar 1. The current total requirement for common equity tier 1 capital is thus 13.9%. The Group’s target common equity tier 1 capital ratio is a minimum of 15.5% at the end of 2019, taking account of increased regulatory requirements for the countercyclical buffer, which will rise by 0.5 percentage points to 2.5% as of 31 December 2019.
At the end of the quarter, the common equity tier 1 capital ratio was 16.9% (16.6%). The profit/loss for the period, assuming a dividend level of 50%, is included in the capital adequacy calculation as at 30 September. Unweighted tier 1 capital coverage (the leverage ratio) amounted to 8.4% (8.1%) at the end of the quarter. The regulatory requirement for unweighted tier 1 capital is 5.0%.
Outlook for the future
The Board is satisfied with the profits recorded for the core business during Q3 of 2019. The changes in rates of interest adopted in August will take full effect during Q4. In addition, the adopted change in interest rates that will take effect from mid-November will have a positive effect on interest margins in the fourth quarter of 2019.
The Group is financially strong and has very good liquidity.
The proposal for amended capital requirements from the Ministry of Finance entails equal treatment of IRB and standard banks in terms of the increase in the systemic risk buffer by 1.5 percentage points. The Board believes that tighter capital requirements for standard banks in parallel with the removal of the Basel 1 floor for IRBA banks will cause some distortion of competition for the lending business in favour of Norwegian and Nordic banks with IRB approval.
The Financial Supervisory Authority of Norway has proposed substantial changes to the Mortgage Regulation from 2020. The Board is of the view that the current Mortgage Regulation has worked as intended and that current developments do not necessitate any significant changes.
There remains good growth in the Norwegian economy and continued positive development is expected in 2019. Exports are currently benefitting exponentially from the very weak NOK at present. The labour market has improved and the registered unemployment rate has fallen. The growth in house prices has been moderate so far this year. The growth in household debt is stable, but still above wage growth. Continued sluggish development of the NOK may result in increases to the Norges Bank key interest rate, but is is likely that the peak has been reached for interest rates in the medium-term.
It is assumed that higher interest rates, ongoing international unrest and relatively weak GDP growth in many of Norway’s trading partners over a slightly longer time horizon could combine to slow the growth in the Norwegian economy.
There are good prospects in the Group's market areas with low unemployment, a stable housing market and good conditions for local business. Lending growth in the retail market is expected to remain in line with market growth nationally, while moderate growth in the corporate market is expected.
Continued low losses are expected in 2019.
SpareBank 1 BV expects good profits in 2019 and maintains its long-term goal of a minimum 10% return on equity.
Tønsberg, 7 November 2019
Contact persons at SpareBank 1 BV :
CEO Rune Fjeldstad, tel.:+ 47 90 07 90 17
CFO: Geir Årstein Hansen, tel.:+ 47 91 32 21 37
Head of Treasury: Per Grøtterød, tel.:+ 47 91 32 21 38