Hello, and welcome to the First Quarter Presentation for Svalbank 1 SML. To give you the news about results and our region, we have our CFO, Kjell Vordahl and our CRO, Ora Nirosen. But before we start, I'd just like to mention that you can ask questions in the chat window or by e mail to irsmn.no, and we'll try to address these at the end of the presentation. Shell, would you like
to start? Thank you, Trond. Good afternoon. It's our pleasure to bring forward the results of the performance of our banking group for the Q1. We see and the headline is strong performance and a bright outlook.
And that's a good thing to realize just 1 year after the coronavirus struck us. What we have seen is that we have stable net interest income despite margin pressure, but we see very healthy growth in especially in the corporate sector. We have that is very outstanding for this quarter, very strong performance for the Squibre Bank one market, which has been, it's fair to say over the last 10 years, the agla deckling in our system, but very, very strong figures this quarter, we are working on making the bank more efficient. We have low losses, low loan losses in the Q1, which is very important for the strong performance we have, and we see a continued decline in the offshore exposure. And the bank is well capitalized and we see that the society is working well and the prospect is very strongly improved as the way vaccination programs is going forward.
Figures, net profit, SEK 768,000,000 as opposed to SEK 290,000,000 1 year ago, it's very much better. 14.8% return on equity, well above our target is 12% and that on our capital that's 18% capital CIT1 ratio, which is 18%. Segment wise, which we like to present over time our figures, we can see that the personal banking, the banking for individuals and the real estate brokerage is performing well. It's not as good as the 2 previous quarters and that has to do with some margin pressure. But however, we see that the real estate brokerage is performing very well with a higher volume of sold homes another business line that is performing very well, and I think that's fair to say that, that is connected to the liquidity situation the individuals that we have very strong and improved performance in the savings area.
When it comes to corporate banking, we have business lines as the bank, of course. We have full markets, the accountancy company and the Sparibank 1 Finance Midland Lower, which is a leasing car financing company. Corporate banking has improved significantly, mostly due to reduced loan losses. And as I have mentioned, very, very strong performance in the markets operation that's improved every quarter over the last 4 quarters and also stable and very good performance for the accountancy company and the leasing business. Also the related companies is performing very well.
BN Bank has a very healthy figure and a nice return on equity and also the insurance company and the investment activities is performing very well. One important topic this quarter and the last quarters is to implement of our improvement program, 1 SML, which has to make all these business lines that I have been through to cooperate more intimately and gain synergies in order to improved experience for the customer and, of course, increase the sales. Another important part of that is to make the distribution system more efficient and reduce the cost and of course, a continuous efficiency of improving the efficiency of the capital utilization. We have restructured our branch network connected into 17 finance houses where all business lines are represented in order to improve the synergies, we are still present, but with fewer people and a more efficient organization. And on the digital side, we are continuously improving the product in order to improve the experience for the customers to have these cross selling activities I have been mentioning and have a good and efficient experience for the customer.
One of these cooperation activities is to improve the banking and accounting business lines, so there is significant advantage for the customer that is a banking customer to be an accounting customer and vice versa. This is in the beginning of our process, but we have very strong expectations for this, we have strong position in the corporate market. We have a strong position in the accounting business, but there is not enough synergies between the 2 of them. Sustainability, ESG is an important topic and we have moved another step forward in order to implement the ESG strategy in the bank and here we have established targets on the different ways of implementation, we are going to reduce our climate footprint by 50% over the next 10 years, which means 8% every year, we have in order to improve the proportion of green loans in our lending portfolio, the climate footprint, we start with ourselves and the bank, the footprint of the bank operation. And then we can move that going forward also to have a meaning for our customers and the customers' footprint, which the green loan part of the book portfolio is an important one.
And from this more long term targets and the important strategies, we also do the small things. We have implemented an app, this is in Norwegian, which says that you can analyze the transaction on your current account and you can see your footprint as you are going forward, we have started to climb track the transactions for our customers and we have also launched green bond this year. EspialBank 1 is a self owned institution, and we are taking steps forward to tell the customers that we are part of the society, so they should use us in order to make a big profit and social dividend, so to say. The targets are as they have been and they are still valid, profitable 12% we are there, solid about 16.9% we are there, we are paying out 50% of the profitability of the profits and we are reducing the cost in order to make the bank more efficient, the new thing is that we have put this climate target as one of the 4 most important targets for the bank's operation, so we are going to reduce, as I mentioned, the climate footprint by 50% over until 2,030 and maybe more important 8% every year, so we have been able to follow that.
And this slide we have used for several presentations and interesting enough, we find it very relevant every time. We have high return over time and on our social on our high capital base, efficient banking, very, very strong position in the market we operate within, which we see through a very good growth in all product lines, we have a very good brand. We have in the companies we own, both the subsidiaries and the affiliated companies in the Spadobank Group and BN Bank, we have underlying assets or underlying values. And we are well positioned for whatever consolidation should be results to us. To go in some more detail into the financial information, 14.8% return on equity, as you can see, the return equity is slightly volatile, but this time we can say that the quality of the return equity is very good.
End on the lower left right slide there, you can see that very much of this has to do with higher that we have had high loan losses over a period and the figures is created on very high capital. Figure wise, what you can see is reduced slightly reduced net interest margin coming from a high level and that has to do with margin pressure, even though we see some more positive profits going forward, the commission income and other income is now well above 50% of the total operating income, this last two quarters, very much connected to the Spirebank 1 Markets operation. Cost is very good cost control, but there is some volatility connected to the variable salary system of the Sberbank 1 Markets operation, low loan losses, fairly good resource in the related companies and this also the securities and foreign currency derivatives line, there is a one off profit of SEK100 1,000,000 connecting to one investment we have in the investment company. Otherwise, it's profits that is sustainable, so sales. Lending growth.
In the retail market, we have 7.3%, that's high growth. We see some slower growth over the last month, which had good sales on new loans. There is increasing prices for the homes and we sell a lot on new loans, but we see what is the new thing we see is that due to the very good liquidity among the customers, there is more repayment of their mortgages, which is the growth somewhat. New thing is that we have strong and stronger growth in the corporate market. We have for many years had fairly low growth due to that we wasn't competitive under the CIT regulation that was in place, which is now certainly improved, we have enough capital and you're able to take profitable and low risk customers.
Margins, as I mentioned, the retail the mortgage margins is under pressure as they are from time to time. This we have we don't have margin loans on the mortgage size, so they are affected on an increasing market rate. That will change when and if you have an increase in the interest rate level pronounced as an IBOR interest, on the corporate side, we have done some efforts in order to increase the margins. And there is more margin based pricing of those loans. The corona situation has made the inhabitants fairly liquid.
There is they have a job, they have reduced interest costs and there is nothing to use the money to. You can't travel. There are many limitation in that respect. So we see a high growth in all bank in Norway and also over bank by 11% over the last 12 months. It's very good to see that also upside, there is a high growth in deposits, low level of investments and also a very liquid public sector.
And the margins on the deposits is reflecting the flip side of the lending margins. Ore bank has a very broad spectrum of products. We like to have a high pocket share of our customers, which we find profitable, it improves loyalty for the customers and it has been a long lasting strategy, here we can see that there is growth in all areas apart from credit cards payments and that has to do with the liquidity situation for the individuals and the fact there is very little traveling, which is negatives for those business lines, the savings, insurance, estate agency, accounting services and not to forget market is performing very well. Cost is important. We are continuously growing the business and on the other hand, we are working very hard of reducing the cost.
We can improve the efficiency of the bank and improved bank's competitive edge, this and we have been through this wall SMN program, which we can see has resulted in some reduction in cost. And also, of course, you have our corona sector with no traveling, no seminars and lots of things that is much cheaper in such a situation. We have a program on, we have stated that we're going to have SEK 200,000,000 in reduced costs annually. And we are still working on, there's lots of implementation to come. The cost of variable salaries in the market operation will vary from year to year.
This has been an extremely comfortable quarter with very, very high variable salaries, so we have to keep that apart. Loan losses at a very low level, my colleague, the CRO, Ronen Rosen, will come back to them, as I think I started with is that the capitalization is very solid. We have 18% CIT1 ratio. We have a target, which is available the regulatory requirements of 16.9%. So we can say that we have a big levy towards those targets.
And in total, in absolute terms, the capitalization with 7% leverage ratio for a bank with high proportion of mortgages is very well. Then I will leave the floor to Oren Ejossen, that is going to take us in the credit side.
Thank you, Ulfjell. Certainly, the outlook has changed dramatically since we were 12 months ago, and we were very uncertain about how COVID would impact our lending book. We see that outlook is really wise up for agriculture and construction and the COVID impact has been significantly less than we assume that it would be. So the one challenging segment that we are exposed to is offshore. Otherwise, things are looking strong.
As I mentioned, the COVID brought about is significant spike in unemployment in our area, but unemployment drop again, our region is the region with the lowest unemployment level in the Nordic countries. So we have we've benefited from a large public sector. So many of our customers on the retail side have not have any problems with unemployment. Housing prices have increased over the past year, after a long period with very stable housing prices, that is primarily due to the fact that the interest rate has been significantly lowered with and we expect that this house pricing trend will taper off, but it is after many years without any significant changes, we to a strong growth last year. When it comes to the effect area of the COVID, you can see that the effect was very much a temporary thing.
Both for the retail and the corporate side, payment differs were spiked in the first quarter we have been slowly or rather sharply decreasing towards normal levels again. And the level of the government guaranteed loans, it has been stable, and we also see that there have been prepayments on those loans, the composition of the loan book is so that we are around 68% of mortgages and the largest exposure on the corporate side is commercial real estate. And we also have growth in commercial real estate during the last 12 months. Agriculture is a large sector for us and one that is historically been very low risk. One topic, one sector where we see challenges is related to offshore.
And we have slightly decreased exposure in offshore, the growth in the rest of the sectors is stable and healthy. If we look further into the offshore exposure, around 50% exposure is related to Subsea, which we view as a segment with lower we have taken substantial write downs on the portfolio and also been increasing both the absolute and relative size of the segment where we are or there is the highest level of uncertainty as we further look forward. Loan losses, as Kjell mentioned, has come significantly down around SEK 59,000,000 in the first quarter. Of that, we still see that offshore is the major contributor to those loan losses, but overall very satisfactory development in losses. Problem loans have seen a slight increase, which we view as a one off related to the new definition area of defaults, which came into place in January 1, 2021.
And that was credit risk very short. Room, I don't know if there are any questions for us.
Of course, there are questions. Thank you very much, gents. If you both joining here, we have some questions from our viewers around the world.
And the first thing is growth, lending growth,
a little lower in the retail segment this quarter. How are you going to maintain the historically high growth that you've had? Retail growth has to do with the market, I think. We are for many years had the higher the market growth, which is taking market share. And that is the real growth actually.
That we improved the concept, we adjust the prices and we improve the sales efforts. So we take over share and more than that.
And the high growth in the corporate segment, is that can you maintain that? No, I think the growth in the corporate segment is much more than a question of whether you want to have that it's not like so taking market share is certainly a possibility, but it has to be solid, good credit quality. Any concentration risk in the corporate? Which corporate growth it is today? I think if you look, our largest sector there is commercial real estate, but it's relatively to all the Norwegian banks fairly small in our loan book.
So there's no particular concentration risks that we are concerned with.
And then of course margins. It's an increase in the corporate segment. There seems to be
a bit pressure in retail.
There, it's very we're working very hard in better pricing models for corporate loans. So that is probably an impact on that. On the retail segment, it's one thing is the competition, but in addition to that is changes in LIBOR, which is increasing over the last month and that is hurting us, lately it has been decreasing somewhat. So it's we don't know what will happen probably, but I think it's fair to say that interest rate increase, National Bank increase in interest rate level, it would be healthy for the banking margins. Thank you.
Let's topic losses. This is significantly lower this quarter than last year. Any guidance going forward? What are your any expectations rather? Now we thought from the guide, but we would like to say that this quarter's loan loss level is a correct one and it's taken into account every knowledge we have and I think there is some guidance in that.
Thank you. Now here's an interesting one. You have a small digital bank called BN Bank. Any what's your plan on that with everything that's going on with S7K and It makes an improved room for that bank certainly as I know, you can the figures and they were released last week, we have a healthy growth there, we have a profitable growth there and the ambition there is to take increased market share, it's both in the corporate sector and in the retail sector for that. Thank you.
Then last couple of questions on capital. What's your plans for the excess capital? Continued growing extra dividend and what causes the drop in the CET1 ratio from the in the first quarter? General answer is that we have the capital we need or regulatory wise have. So we don't put into place an excess growth due to much capital.
We take the growth we find profitable and suitable for the bank. If you have too much capital, we'll pay it back, but that is not exactly the situation for the time being. And the drop in the The drop is related to the new definition of default, which has given an increase in regulatory expected loss. Good answer. Thank you.
I think that concludes. We have answer to both the questions that has come. So thank you all for watching and tune back in, in August.