Continued growth in volumes and core revenues
Growth in lending remains high (10.8% YTD) as the bank continues to increase on-balance-sheet lending to customers with loans previously transferred to Swedbank Mortgage. In total, total loans, including transferred loans, grew only 0.5%, but the shift had a positive impact on SpR’s core revenues given higher margins for loans on SpR’s own balance sheet.

The larger loan book and the impact of Riksbanken’s Dec. 2019 rate resulted in a 20% Y-on-Y increase in net interest income. Contrarily, lower commissions on transferred loans contributed to a 17% decline in fee and commission income. Changes in commission agreements with Folksam and Swedbank Mortgage also contributed to lower fee income.

Combined NII and fee income grew SEK 2.5m (1.6%) Y-on-Y while total revenues increased SEK 6.4m (3.6%) vs H1/18, including one-off gains on the partial sale of Portfolio Försäkra and the sale of Rekarne Mäklareteam. The one-off sales have allowed the bank to increase on-balance-sheet lending while maintaining capital ratios.

However, pre-provision earnings were held back by a SEK 10.7m increase in administration expenses. The bank highlights higher IT and consulting costs as the primary contributors. Despite a Y-on-Y increase, credit losses remain very low at 3bps of total lending. In total, SpR reported profits of SEK 63.6m during H1/19 (compared to SEK 63.0m for H1/18) for a strong 13.6% return on equity YTD.

Capital ratios decline as loan book grows
The bank reported a CET1 ratio of 15.5% and a total capital ratio of 17.7% as of June 2019, including 70% of YTD net profit (16.3% and 18.7% at end 2018). The bank is owned 50% by Swedbank and does not directly own shares in Swedbank, thus it is not affected by the YTD decline in Swedbank’s share price (see “Swedbank’s controversy spills over to Swedish savings banks”, 29 Mar. 2019).

For more information, please contact:
Sean Cotten, Lead Analyst, +46 735 600 337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, Credit Rating Analyst, +47 907 845 93, geir.kristiansen@nordiccreditrating.com