Good afternoon. Can you hear us? Yep. Jan Erik? You're okay. Good. Then, welcome to the English short version presentation of the quarterly results for SpareBank 1 SR-Bank, for quarter one 2024. I thought I'd just start with—for those of you who don't know us that well, I'm just going to set SR-Bank for short into perspective. We are Norway's largest Spare bank or savings bank. We are in the process of merging with SpareBank 1 Sørøst-Norge and other savings banks to become SpareBank 1 Sør-Norge, which is what you see on the right-hand side, and we will become the third largest bank in the Norwegian market and the second largest with the listed on the Oslo Stock Exchange. We are working on the merger itself. We are planning to make it effective from legally from the 1st of October.
It's the biggest bank merger in Norway in 25 years, and we expect to realize capital synergies of NOK 2.5 billion and cost and income—cost synergies, sorry—of NOK 150 million per year. We also have an ambition to look forward to communicate potential income synergies at a later stage. We got the permission from the Norwegian Competition Authority a couple of weeks ago, and we are awaiting the permission to merge from the Norwegian FSA, as well as we have a tax application to the Norwegian Ministry of Finance. All of those have to be thumbs up before we have the permission to merge, but we are very positive and optimistic that that will actually take place well before the 1st of October.
If we look at the merged bank, we will become approximately a 65%-35% share, you know, in the retail market and the corporate market, respectively. We will have—we will serve the Big Smile on the south coast of Norway from Bergen on the northwest around the coast to Oslo in the east. We don't have any overlaps. This is the merged, or picture of the merged, office structure, and we will not have any overlaps in any towns or cities, so it's a—it's very complementary, two very complementary banks. We also, both banks or both groups, have quite a large accounting business. Altogether, we will be 550 people working in accounting, you know, making accounts for companies. And we also have a similar structure on the retail broking side, real estate broking side.
If we look at this, now I'm back to just SpareBank 1 SR-Bank prior to merger and also as of first quarter 2024. This is our growth split down into regions in Norway, and you also see where we are represented, and you see there in the big smile we lack a couple of tooth or teeth to the right, which will be part of the or where the merger will actually make the smile complete. We have a lending growth altogether in the quarter, 12-month lending growth of 7.7%. It's well diversified in all the five regions, as you see onto your left, and I'm also quite pleased to see that we are able to grow in our home market, which is Rogaland, you know, on the very left-hand side of this slide.
We have a growth of approximately 15.5% in the SME corporate SME segment, 9.9% in large corporate segment, and 5.8% in the retail market, and we grow by more than the market in all three segments. If we look at the 1st quarter result, it was as close as we can come to NOK 1.5 billion in pretax profit, an increase of 32% if we compare it to the 1st quarter of last year. In the fourth quarter of 2023, we recorded a one-off income due to a sale of a part of our business. If we disregard that, this quarter is actually the strongest quarter in nominal terms in the history of SR-Bank, which I think I can allow myself to say I'm quite proud of. The return on equity was 14.6% and well above our goal of 13%.
As I mentioned, we have a growth exceeding the growth in the credit market, both in retail and corporate markets, so we are gaining market shares. We have a profitable growth all the way, and if we look at our net interest income, it increased by 26% as a result of high growth, higher margin, and higher rates on the equity capital. In addition to that, we have good growth on other income and the businesses that we own. So all in all, we are quite pleased with the top line and top line growth. Our ambitions to grow in, particularly in the Oslo area, and a higher level of activity has given us some higher costs, but our cost to income ratio is at 35% in the first quarter, down from 39.5% in the same quarter of last year.
If we look at the parent bank, it came in at 31% compared to 34% in the same quarter of last year. We have low loan losses, 5 basis points, NOK 35 million, and Inge will give you a bit more detail as to how that is composed. We are well capitalized at 17.6%, which gives us core capital, which is 1.25 percentage points above the required level. With that little start, I'll hand you over to Inge, who will go a bit more in detail on the numbers.
Thank you, Benedicte. Just to have a quick look at the key figures, our return on equity target is 13%, and with the 14.6%, we are well above that. Also on the capital side, as commented on by Benedicte, the target for the time being is 16.37%, leaving us with a headroom of 125 basis points as of today. But as we have become SIFI bank, the capital requirement will increase by 100 basis points by end of third quarter, increasing that target 100 basis points. But still, our Common Equity Tier 1 capital ratio is above that requirement, and we also of course expect profitable growth, adding to the capital ratio for the two upcoming quarters.
Also, with the merger in place, we will have significant capital synergies, so our capital position is undoubtedly strong, and we will have a good headroom for the capital requirements and also being able to have a profitable growth and a steady dividend to our owners. The cost to income ratio is commented on already, and the 35% is well below the 40% or less target. We can then look at the main figures. Here they are. As you can see, we managed to increase net interest income by NOK 14 million, compared to the 4th quarter. That is also with one less interest day, which is approximately accounts for NOK 19 million Norwegian kroner, and also the fact that by year-end we have to capitalize the deposit rate towards our customers, and that adds cost of funds.
So with the underlying growth, we are content with the development in the net interest income. And if we look at the lending and deposit margins separately, we have managed to increase the lending margin, although there is some pressure on deposit margin from record high level. Net commission and other income increased by NOK 15 million compared to last quarter. Strong contribution as always from the net commission and other income where we build portfolio and also manage to increase the arrangement fees from our corporate customers significantly this quarter. The 14.6% return on equity came with a net income and financial investments below average, with NOK 149 million, and we have some negative basis swap effect this quarter, but also good contribution from partly owned companies.
The total operating expenses were down by NOK 89 million compared to the fourth quarter, but there was some significant one-offs that quarter. So if we compare the 826, on an annual growth basis, that is explained on the right-hand side, which means that cost has increased by approximately 8%. We, at the same time, as shown on the right-hand side, have significantly increased the net interest income and the net commission at the same time. So, of course, our growth, definitely outperforming peers for the time being, also have some cost effect, but the merger, the upcoming merger is to make us become even more cost-effective, and the kind of platform for profitable growth with a low marginal cost increase is, according to our schedule, and we're very much looking forward to the upcoming merger with our SpareBank 1 peer.
The impairments on loans came in low at NOK 35 million, and that is composed by NOK 125 million in individual impairments, but at the same time, a reversal of NOK 90 million in the IFRS 9 collective impairments due to positive migration within the portfolio. And this leaves us after tax expenses with a profit after tax of nearly NOK 1.2 billion, which is a record high result if we subtract the one-offs from the last quarter of 2023. I believe that summarized the main figures, and then we will open up for questions from you. So please just raise your hand and unmute, and we'll be happy to answer any questions.
Jan Erik, please.
Thank you for that. I can't unmute now. You had a fantastic growth, in a sort of a cooling Norwegian market. You have based yourself in Rogaland, which is probably one of the better places to be, but you also have fantastic growth in the other areas, which you showed on the slide, in both Vestland, Norway and the Oslo area. When should we really expect that to sort of cool off, if anything, or do you intend to move your market share even further upwards, as it didn't seem like you had to give so much on the margin side to take this kind of volume? That is my first question.
Yeah.
I think, you know, when the market cools off, as we see signs of now, and it was actually confirmed today that the market growth on the retail side is around 2.3%, and we deliver 5.8%. I think it's just very good work, you know, both in the digital channels as well as in all of our offices by our employees, and I don't think we intend to stop that. Whether or not we can keep the pace with that margin up at length, I mean, we'll do our best every day, but I mean, I was about to say time will show, but having said that, I think we see also a tendency on the SME side that the growth is actually coming down a little bit, and I think that will affect all banks, including SR-Bank.
Okay, so so. Sorry, come on .
Please, Jan Erik. Please.
No, no, no, it was more about the since you haven't sort of been giving that much on the margin side, it looks like it's quite impressive to be there. How do you do the competition for deposits these days? You still have sort of probably a wish and an urge for more deposits, as it's a cheap funding source. How should you view you in that context going forward?
We definitely would like to have our fair share of the deposit side, as well, but as we do on the lending side, our ambition is to grow profitable growth, and maybe this is wrong to say, but you know, I don't think we don't have an ambition to be the cheapest. I mean, we have a different strategy in how to serve our clients, and it's not being a single product price leader. It's more we are in relationship banking and trying to combine the digital services with, you know, a presence either by phone or video or, you know, in our offices. And I think that's being loyal to strategy and approach, I think, is one of the core ingredients in our recipe, also going forward.
When it comes to the deposit side, you see that in our figures that it's been a bit down in the first quarter, which is mainly a result of some deposits that we lost in the municipal.
Municipal, yeah, public sector. Deliberately due to low quality and the combination of volatility and price. So the underlying deposit growth is actually in there more in the area 6% for the group as such. So we have a nice increase on both sides of the balance sheet.
Perfect. Thanks a lot.
Thank you, Jan Erik.
I think , Johan Strøm, you had a question?
Yes, I do. I have two questions. I'll start with one, and that is on the capital side. So I'm just curious on how you see the trajectory of the CET1 ratio in the next couple of quarters. I mean, we have the SIF I label coming up in Q3, so just curious on the trajectory in the next couple of quarters given the strong growth, and then also the potential capital synergies from the merger with SpareBank 1 Sørøst-Norge, when can we expect the IRB conversion to be completed and free up additional capital for the bank? That's my first questions, and then I can probably come back with another one if that's okay.
Yes, thank you, Johan. If you look at the capital requirement today, our capital position is 125 basis points beyond the capital requirement. Then the capital requirement will increase by 100 basis points by the end of third quarter. So if you subtract that, we have a headroom of 25 basis points, but then, of course, we expect the combination of our growth and profitability for the upcoming two quarters to add on top of that. And also, as we are to merge with our counterparty October the 1st, they have a higher Common Equity Tier 1 ratio than we have, so it will be additive, and that is even before we have the application for utilizing IRB Advanced on their portfolio, which will release NOK 2.5 billion approximately. That is equal to almost NOK 7 per share.
We don't know when that application will be granted, whether it will happen in the fourth quarter this year or the first quarter 2025, but we expect to have a capital position which gives us kind of a headroom for both profitable growth and a steady dividend according to our dividend policy, and even a potential for even more distribution as we have the application granted by the Financial FSA. Yes.
That is a great answer, so thanks for that. Then secondly, and this is my last question on the risk-weighted density shown on one of the slides in the presentation, it's at 40.4%. Just curious on how you see this moving forward with the strong growth in the corporate market compared to perhaps the more capital-light retail market. Is it going to creep up a little bit, or how should we think about the risk-weighted asset sort of development in the next couple of quarters?
We are aiming at having a growth in risk-weighted assets less than the nominal lending growth on the corporate side. We have deliberately kind of excluded new engagements in the higher risk categories, and by that, we expect also for the upcoming period to have a lower growth on the risk-weighted assets than what we have on the nominal lending side, making the total risk in the portfolio even lower than what we have today.
I know, you know, as I mentioned earlier, I think, you know, we do see some less demand also, you know, in the big corporate segment if we look ahead. So monitoring our current pipeline, I think that, you know, we're quite comfortable that that would be the situation as we go forward. And remember, you know, it's a bit. I was about to say funny, but that's probably the wrong word, but. We are a SIFI bank as of now. The capital requirement will be increased by one percentage point 30th of September. We know the 1st of October this will certainly not be an issue, and we will make sure that we will actually, you know, maneuver well over that, you know, point, which would be a minimum of potential discrepancy in worst case.
Thank you very much, Benedicte. Just coming back to the answer there, you said you're not avoiding to take on too much risk on the higher risk categories. Does that include commercial real estates?
Yeah, all industries.
Yeah, but not. We are still open for commercial real estate, but we don't want it to add risk into our books.
Much appreciated.
Yeah.
Sorry for abruptly.
Yeah.
So, the higher risk categories, that kind of is relevant to all industries, including corporate real estate, but that means that we are still open for corporate real estate in the lower risk categories.
Thank you and congrats for the great quarter.
Thank you very much, Johan.
Perfect. Then it's Håkon Astrup.
Hi, thanks for taking the questions. One question from me on the margin development. We are now likely to see a bit longer period with a stable central bank benchmark rate. How do you think that that environment will impact the competition and the margin development?
We are kind of always humble in the meaning that the competition is fierce at all time on both the lending side and deposit side. We have seen some pressure now on the deposit margin. However, we have managed to increase the lending margin. Altogether, we have increased the total margin by 28 basis points during the last 12 months. Of course, even if we had now pressure on the margin, the growth and the underlying cost efficiency of the group, which will be even further strengthened by the upcoming merger, clearly means that that should leave us in a very good position for profitable growth and fulfilling our above 13% return on equity target.
On the deposit side, do you still expect that, say, customer will, say, move money from low-yielding transaction accounts to higher-yielding saving accounts or move from saving accounts to, say, term deposits, which has higher rates, or do you think that that environment has now stabilized out a bit as it seems that the central bank has reached a top in terms of interest rates?
I believe most customers, they have kind of transferred their available cash from low-yielding payment accounts to the savings accounts, doing whatever they can to increase their deposit rate. And of course, from accounts with almost zero rates to high-quality deposit accounts, you have a very kind of variety in the different interest rates. Of course, it's very difficult for us to kind of predict what our competitors will do on their margins, but we will be competitive no matter what our competitors do. And we also have a very strong kind of access to market funding if we have a pressure on the deposit margin and we don't want to kind of follow up on the race on the margin side.
But I think, again, I can just add a little bit of flavor to that. I think there is an increased competition on the deposit side, without a doubt. And I think also we've seen more than 60% higher activity when it comes to requests from clients on price or, you know, seeking advice. And we see an increasing trend on price demands or, you know, references on the deposit side as well. So I don't think that is over, Håkon. I think it will continue going forward.
Perfect. Thanks for the flavor.
Any other questions, Håkon?
Yeah, we have one from, it's only stated M. We don't have the full name, so please go ahead.
Sounds like James Bond with M. Are you there? We can't hear you if you try to unmute.
Oh, yeah. Now the hand's.
Hand is down?
Hand is down, so I think we'll conclude this session then.
Okay.
Okay.
Thank you very much for your attention, and thank you for calling in. Please don't hesitate to keep in touch or contact either Morten, Inge, or myself if you have further questions.
Thank you.
Thank you.