Sparebanken post positive results

Fitch affirmed the ratings of Norway’s Sparebanken on Tuesday, saying that their current ratings of A or A- reflect the sound asset quality and good capital and leverage ratios of the banks.

The rating action came after Norwegian saving banks reported their results for 2012. On the back of declining borrowing costs resulting from lower Nibor levels, banks such as Sparebanken Vest and SpareBank 1 SR were able to report increased pre-tax profit levels.

Sparebanken Vest posted a 63% growth in pre-tax profits in 2012, primarily as a result of increased net interest income and increased gains on financial instruments, as well as a one-off effect related to pension scheme changes, Ragnhild Janbu Fresvik, head of investor relations at Sparebanken Vest, told Nordic FIs & Covered.

Sparebanken Vest published its annual results on 6 February, reporting pre-tax profit of NOK1.19bn (Eu159m), up from NOK732m.

A rise in net interest income deriving from increased margins due to repricing of lending portfolios and declining funding costs, in addition to increased lending volumes, was one of the main drivers of the underlying growth, according to Fresvik.

She added that pre-tax profit in 2012 was also positively affected by a one-off effect related to change in pension scheme of NOK262m. Net interest income and credit commissions increased 13.2%, growing from NOK1.59bn in 2011 to NOK1.80bn in 2012.

“The bank benefited from lower borrowing costs and a decline in Nibor last year,” she said.

The average three month Nibor fell by 65bp in comparison to 2011, and Sparebanken Vest’s average borrowing costs decreased by 20bp, according to figures from the bank.

The bank also expanded its portfolio, as lending grew 7.5% to reach NOK107.5bn, with retail market loans constituting 73.6%.

“We have a quite large retail market portfolio and we try to make best use of it,” said Fresvik. “50% of this portfolio is transferred to the bank’s fully-owned covered bond issuing arm, Sparebanken Vest Boligkreditt.”

The covered bond programme total limit was raised from Eu5bn to Eu8bn in 2012. In 2012 Sparebanken Vest Boligkreditt issued covered bonds for a total of NOK9.8bn, equally divided between Norwegian kroner and foreign currencies.

“Sparebanken Vest Boligkreditt has issued few bonds that are due in 2013,” said Fresvik. “However, if markets permit, we expect to issue new covered bonds with an approximately similar volume as in 2012.”

She added that a new public covered bond will probably be launched before summer.

SpareBank 1 SR posted a 17.8% increase in pre-tax profits for 2012, driven by a rise in the commissions it received from the loan portfolio sold to its shared covered bond issuer, according to Inge Reinertsen, chief financial officer at SpareBank 1 SR.

SR Bank reported its annual results on 8 February, posting pre-tax profits of NOK1.76bn (Eu237m), up from NOK1.49bn in 2011.

Reinertsen said that the rise in profits was due to factors such as an increase in all operating areas, low loan losses and moderate growth in the bank cost base, but the main contributor to the growth was an increase in net interest income, which was driven by higher commissions that the banks received on the loan portfolio that it had sold to SpareBank 1 Boligkreditt, the covered bond issuer shared between the banks of the SpareBank 1 group.

“Net interest income deriving from the approximately NOK49bn portfolio that has been sold to the covered bond company has increased significantly,” said Reinertsen.

Net commissions, and other operating income deriving from covered bond operations were up from NOK1.19bn in 2011 to NOK1.47bn in 2012.

“SpareBank 1 Boligkreditt is a really important funding instrument for us,” said Reinertsen. “Approximately 50% of our retail portfolio has been funded by using our covered bond company last year.”

As for 2013 funding plans, Reinertsen noted that SR Bank has already launched a Eu500m seven year senior unsecured deal that was priced at 85bp over mid-swaps on 14 January. The deal is SR Bank’s longest euro benchmark.

“We are very satisfied with this transaction,” said Reinertsen, “and in that occasion we announced that we would be a regular issuer and go to market once or twice this year.

“All together we have almost NOK8bn senior unsecured refinancing need this year,” he added. “With the Eu500m deal (NOK3.7bn) we have collected almost 50% already. This means we will look at market conditions closely and consider whether to issue again.”

Funding needs will also be met through covered bonds and customer deposits, said Reinertsen. Customer deposits rose by 5.5% in 2012, reaching NOK67.6bn.