Good afternoon. I hope you can hear us. Welcome to the presentation of the fourth quarter results for SpareBank 1 SR-Bank. I'm Benedicte Schilbred Fasmer. I'm the CEO of SR-Bank, and with me today I have Inge Reinertsen, our CFO, and I'm sorry, Morten Forgaard, who's Head of Investor Relations and Accounting in our group. If we look back at 2022, we have had a series of event this has brought us forward. We deliver good growth, and we've taken some important strategic steps in order to lay a ground for future development of SR-Bank.
It's worth mentioning the fact that we had established a cooperation with Swedbank, starting in the fourth quarter. We've also decided to spin off our markets operations into SpareBank 1 Markets, and we're hoping to get the permission from the FSA to do so in the first quarter of this year. We've also expanded our business in the Oslo region. Doing some real estate, or more within the real estate area in the personal market. We're looking forward to grow that even further going forward. If we look at the lending growth in 2022, we've our growth has been NOK 22.7 billion , and 9.8%.
Approximately half of our growth has been in the Oslo and Viken area, whilst 27% of our growth is in our main region, which is Rogaland. The other, the remaining growth approximately NOK 6 billion is split between Vestland and Agder. If we look a little bit into Norwegian macro, and macro is in a way also a bit regional even in our small country.
We've had quite diverse development in the real estate market or in the housing market over the last seven years, and you can see that to your upper left, whereby the prices in the Oslo region have increased significantly compared to, for instance, the Stavanger region, which is our home base, which has been around flat if you look at the seven years all in all. We see that the housing market is expected to decline particularly in the Oslo area when we move into 2023. It's, but we expect a slight increase in the housing prices in the other main cities which you see in this chart. Three times a year we do a survey amongst 600 businesses in southern Norway.
Where they say something about their sentiment and/or their expectations for the period to come. The last survey was done in the fourth quarter, and the expectations from the businesses themselves is that there will be going from growth to decline in the corporate segment, that the inflation will mean that the investment level will level out somewhat. We also see that there is a wide array of, or, or a big difference between the different industries. If we look at the energy sector, maybe it's quite obvious that the sentiment is quite positive, whilst in the, for instance, the building sector and the retail sector, the sentiment is a bit more sluggish.
Overall, the expected unemployment rate is expected to be stable also going forward. We believe that SR Bank's position within the Rogaland region where the historic price picture and the in the retail market has been very conservative, and the fact that we have a very active energy sector which will give us a good basis for the year to come. If we look at the fourth quarter, we delivered an ROE of 14.6%, and a result of NOK 1.225 billion. The result for the year was NOK 4.211 billion. It includes a one-off gain of NOK 106 million from the sale of our previous headquarter, which is called Bjergsted Terrasse. Take that away, our return on equity was 13%.
We've had loan growth in all three customer segments and above the market growth rate, which means that we've gained market shares in all three segments. The costs are in line with our long-term ambition of 40%. As you see, our loan losses are close to zero. In the fourth quarter, it actually includes a management buffer of NOK 100 million, which we took as an extra cost in the fourth quarter. If we look at the return on equity, we've delivered 12.6% of the last two years. We are well capitalized and ready for further growth. We have a cost ratio in line with our ambition of 40%.
Our board has suggested to the general meeting to pay out NOK 7 per share in dividend, which is a dividend share of 54.4% and a yield of around 6%. We've raised our ambition for return on equity to 13%, which is a long-term goal some years forward. As I mentioned, after having delivered 12.6% over the last two years, we think that longer term, we will be able to grow the return on equity even further through actually benefiting from the investments we've already started in the geographical expansion in Norway, have a higher loan growth than growth in risk-adjusted capital. The fact that the interest level is higher than before gives us some extra income on our own equity.
We also expect to be able to take higher income from our product companies and subsidiaries, which will also improve the ROE ratio. We have a well-diversified portfolio of high quality. We hope that the loan losses will also going forward be lower than normalized. Last but not least, we're continuously looking at being more cost efficient and to deliver a good efficiency in our banking and other operations. Here you see the quarterly development in the on the ROE. As I said, the main driver for the return on equity is actually a good and solid banking operations and growth. The decline in the capital ratio is mainly explained by the fact that we have our suggested dividend of NOK 7 per share.
We have a decline in the cost ratio through the year. Some one-off effects that I guess Inge will possibly comment a little bit later on, but still good cost control. It gives us an earnings per share, and I think I'll switch to the full year figure of 12.9 per share. You also see the full year figures on these ratios for 2022. With that little intro, I'll hand you over to Inge, who will give you some more details around the results.
Thank you, Benedicte. If we look at the income statement, you will see that we have a significant increase in the net interest income from the third to the fourth quarter. I will come more in detail on the margins on the lending and deposit side. We had an increase of NOK 32 million also on the net commission and other income for the fourth quarter. You also see the net income and financial investments at NOK 274, which is driven mainly by two factors. That is the one-off by selling of our previous headquarter, as mentioned by Benedicte, by NOK 106 million. Also we had a significant increase in the profit from the SpareBank 1 Gruppen after three rather weak quarters in a row.
Total operating expenses came in at NOK 752. That is an increase from the third quarter. Also bear, please bear in mind that in the third quarter, we had a one-off reversal caused by a new pension scheme of NOK 17 million which of course did not repeat in the fourth quarter. Overall, we had a high activity. Of course, the 9.8% growth on the lending side, it means that we have hired some more people during the year. We have approximately 36 full-time employees in increase for 2022. We also had an increase on the variable compensation due to the strong result of NOK 12 million in the fourth quarter.
Impairments on loans and financial commitments remains on a very low level. Actually, the individual impairments was zero this quarter. We had a few reversals. We also had some new impairments, they were equal. This increase by 36 is everything is caused by an increase in the IFRS 9 impairments. We have deliberately increased PD, probability of default, in some sectors. We now have what we regard as a NOK 200 million reserve due to the situation in Ukraine and inflation and the more kind of challenging international macroeconomical environment, that we feel very confident that the quality of the portfolio and then remains high. Also, as you see all together, we only accounted NOK 5 million in impairments for the full year 2022.
Deducting tax expense, we reached a profit after tax of exactly NOK 1 billion and NOK 3.378 billion for the full year. As mentioned by Benedicte, this gave us a return on equity of 14.6% for the quarter. If we deduct the one-off from the headquarters, even, we had underlying even 13% for the quarter and also then 12.6% for the full year of 2022. If we at the lending volume, it grew by 9.8%. Also the deposit side grew by 7.6%. The total margin for the year has remained pretty stable.
The total increase of a little more than NOK 500 million on net interest income has been caused by the volume growth. If we look at the different segments, the retail market, we had a growth of 7.4% on the lending side and 5.1% on the deposit side. This reduction on the deposit side is also caused by NOK 1.5 billion being transferred from the retail market to the SME and agriculture segment. If we look at the margin side, it has been challenging on the lending side to remain margins due to the fact that after the central bank has hiked its rate, we have to notice our customers in advance.
That means that we are lagging on the pricing, but at the same time, we have been able to increase the deposit margin significantly. Altogether, it has been a pressure on the margin side, but the relative steep increase in net interest income in the fourth quarter shows how effective these rate hikes will be as NIBOR flattens out because it has been more challenging in the previous quarters where we had a significant increase in the NIBOR. If we look at corporate market, we have a double digit lending volume growth, and margins have remained pretty stable in this segment. Also in the SME and agriculture segment, we have a significant growth both on the lending side and the deposit side.
As you can see also in this segment, a sharp increase in the deposit margin. If we go on further to look at draw amount on credit facilities, we see a slight increase in the average drawn on credit facilities in the corporate sector. We don't have any increase at all when it comes to number of application for interest-only payment in retail market. Even with the ongoing increasing inflation also in Norway, and with higher electricity prices, we don't see any signs of weakening credit quality in neither the retail market nor the corporate market. Net commission and other income shows us a marginal increase from 2021 to 2022.
A significant increase on the payment facilities, only minor changes in the other areas, except from the saving placements, where we now have sold SR-Forvaltning, which was a fully owned subsidiary of SR Bank, into the SpareBank 1 Alliance, or the SpareBank 1 Forvaltning, which is an alliance company where we now own 35%, 36% of that company. That means that some of the revenues there have been transferred from net commission and other income and onto our financial income. If we look at the income on financial investments, it came in on NOK 756 for the full year. We had a relatively strong fourth quarter underpinned by the two factors of the previous headquarter and Gruppen as mentioned.
If we look at the operating expenses, we had a full year increase of 4%. That has also been influenced by the fact that we have transferred SR-Forvaltning. Also has an impact here on the cost side, which means that we have reduced costs since we now have our share of the net profit within this company and then on the financial line. SR Bank, we are targeting steady growth, but a profitable growth.
To some extent, we add cost to strengthen our distribution, but we are very concerned to remain cost efficient, both within our day-by-day operation and also on the joint initiatives that we take in within the Alliance corporation together with the other Alliance banks where we develop state-of-the-art products and also invest in systems to increase efficiency within our daily operation. We have inflation also having an impact on the cost level in Norway, but the combination of some cost growth with a high growth on income, we believe is compliant to reach the target of 13% return on equity going forward. Perhaps, Benedicte, you will add a few comment on the outlook for the upcoming period.
I think it's just summing up a little bit from what I said earlier, I think the business sentiment is turning from growth to downturn. I think we are well positioned in SR-Bank within the Rogaland region where the energy businesses are very dominant, and where we expect that trend to be less severe. We have a higher inflation, which is impacting both people and businesses and the investment levels, obviously. I think I've also explained to you how we hope to achieve the 13% new target for return on equity longer term. By that, I think I'll leave it up to you to ask us questions.
Please, I don't believe, Trond, we are not able to see the different participants, so please unmute and just feel free to ask questions.
Maybe we can take down the presentation. Would that help?
Perhaps we can try to push the escape button.
It's now open to ask questions for those who would like to do that.
Excellent. Thank you, Trond.
Hi, this is Håkon from DNB. Can I ask a question?
Yes, please, Håkon.
Thank you. Start off with your new return on equity target. It's a new long-term target of 13%, if I understood correctly. Is it only for the long term and not for 2023?
That's right, Håkon. It's a long-term ambition to reach three years, whatever, at least a three years horizon.
Okay. It's 12%, for 2023 then?
We haven't explicitly said that, Håkon. Of course, we have delivered a 12.6% return on equity now for two years. Of course, it is also a possibility that we can reach it already by 2023. That will, of course, be due to a financial line and also loan losses lower than what we regard as a normalized level. Of course, there are scenarios that could make us able to reach it already within 2023. We don't kind of issue any guarantees for that, of course.
Understand. You hope to deliver higher, but you will not be disappointed if it's just 12%. Right?
I believe that is a good way to say it. Yes.
If you look at our normalized result, you know, taking away one-offs, and the fact that we have, you know, a very low loan loss level for 2022, I think, you know, last year's return on equity would have been around 11%. I think to move it two percentage points in one year is a very ambitious target, but we hope to move to progress towards the 13%.
Sounds very good. Thank you. One other questions if I may? On the net interest income, there was a very strong performance in the quarter. You have talked about previously that you will see some lag effects from the higher rates. Now I guess you're starting to see that momentum coming through. I was just wondering if you can shed some light on what you expect here going forward, having now seen all the expansion in net interest margin that we should expect from the rate hikes that have been carried out, or is it still some more room here going forward?
If we look at the third quarter, we had interest hikes from the central bank, they were not coming into effect until the fourth quarter for SR-Bank. That means that within the third quarter, September was kind of the weakest month on the net interest income. By the three rate hikes finally coming into effect within our books during the fourth quarter, we started kind of to repair the margin. If you look at the lending margin on the retail segment, it only improved 2 basis points during the fourth quarter compared to the third quarter. That also means that within the quarter, December was a better month than October.
That means that the sentiment going into the new year is pretty benign compared to what was the situation during many of the previous months. We feel pretty optimistic when it comes to the margin side, at least in the short run. In the long run we are always dependent on the competition among the different banks. In the short run, we feel pretty confident that we should be able to strengthen the margin.
Just approximately how much higher was the net interest income in December versus October?
We haven't enclosed that, Håkon. This is more on a kind of qualitative basis. We haven't enclosed the margins month by month, and I don't want to do that during this presentation, either.
I see. I see also that Thomas has some questions. I will let him go. I have some follow-up questions afterwards, if that's okay.
Thank you, Håkon.
Yes. Good afternoon. Thomas Svendsen from SEB here. Just a question on dividends and CET1 ratio. It seems you're steering towards just slightly above your CET1 expectation, including the countercyclical that's applied from March this year. Is this how we should think going forward, that is at that level, including the extra Pillar 2 requirement you have?
Yes. We want to be kind of capital efficient. That means that we should meet the requirements from the Norwegian FSA, but we don't want to have excess capital. The combination of what we expect to be also a profitable year for the upcoming year, we believe that we should be able to be both compliant with the regulatory requirements and also have growth capacity for profitable growth. At the same time, we want to have a strong dividend to our shareholders. We believe that we should be able to kind of combine these three kind of issues.
Thank you. Just second question on deposit margins. You showed how they have sort of skyrocketed. How comfortable are you that you could keep this blended deposit margin when rates sort of stabilize and the risk it get more visible for the clients?
As you commented on, there has been a significant increase and we always kind of respect the forces of competition, but it's better to have a margin on the portfolio than aiming at increasing it. We feel pretty comfortable that we should be able to maintain also in the upcoming quarter, a high margin on deposit. That is also reliant on the growth within in the market, the growth of the consumer banks and their appetite for funding. They are dependent entirely on deposits. It's, it's difficult to have kind of an exact prediction of the margins going forward.
We also believe that we should be able to increase the lending margins due to these rate hikes that hasn't been fully applied on the portfolio.
Okay. Thank you for that.
We don't see the different hands on our screen. Please feel free to ask more questions if you have.
I think it's my turn again. Håkon here. Just to follow up on the discussion on the deposit side. You had a very nice overview in the presentation of the quarterly development in the deposit volumes in the personal, large corporates and SME business. I was just wondering if to get some flavor on what is happening to the deposits account with zero interest rates on it. Are you seeing, are those amounts also, say, falling in the personal segment and what is happening with them in the SME segment?
I think... I mean, if you're thinking about the volume side, Håkon, is that your question? You know.
Yeah, your volume of the transaction accounts in the business segment and also in the personal segment, what is happening with volumes there?
There hasn't been any significant changes so far. I think, you know, we've chosen to be very transparent on all, you know, elements of the combined margin in each of the three segments, which is, you know. In times where we've had large interest rates movements, which we've had over the last year, and, I mean, these are the kind of movements you see that are more, you know, dramatic than we've seen in many years. I think if you look at the combined margin, sorry, in the personal and the SME margin, they are fairly stable.
I think you have to look a bit at, you know, the combination of the two because there is. We came from a negative territory when it came to, you know, margin on, on deposits and now that has kind of improved somewhat whilst we've had quite a decline on the margin on the loan lending side. I think, you know, if we look a bit forward, that both of them would probably normalize somewhat without, you know, being able to tell you anything about how our pricing strategy is going forward, because I think we cannot disclose for obvious reasons. The answer to your question is in effect.
how will the competition look in this space, going forward, as Inge said, and we'll have to adjust accordingly. I think, I know it's not a very, the answer you would like, but I guess it's the closest we can, as specific as we can be.
Thank you for that, Benedicte. I was just also wondering a bit what happened in this quarter. For instance, if you look at your SME deposits, you're seeing that increased from, NOK 17.5 billion to over, NOK 20 billion. Is that, say, driven by, deposits with a high interest rate, meaning that you're competing, for volumes there, or is it the more transaction accounts that increases with, such a large degree?
Well, NOK 1.5 billion of that increase, if you look into the notes on the slide, is actually an internal move of NOK 1.5 billion in deposits from personal or from retail to SME. That's just an adjustment. All right? The other... The answer to your question, if you take that away or set that aside, is that we've it's just increasing market share. It's not a very pricing intense exercise. Having said that, we're very conscious that we have solutions and products for our SME and our personal clients so they can move funds between deposits accounts which has zero interest or and savings account with a higher interest level.
Great. One last question from me, I promise. On Fremtind, you, Benedicte, you are chair of that company. They reported numbers earlier this week with. Looking at their insurance result, that was pretty weak compared to their peers. Do you know if it's anything particular there, or is it just a bad luck with a cold winter, et cetera? They seem to be have a bit more bad luck than the other companies that have reported so far.
You're right. The answer is actually bad luck, Håkon. You have to keep in mind when you compare Fremtind to the other non-life companies in the sector that the share of corporate business in Fremtind is very small or very limited, of the overall business of the company. Means that you are very vulnerable to insurance claims or events on, particularly on the corporate side. That's the explanation for the very weak results on that side for 2022. There was one fire in Drammen with a big building where Fremtind had both the building itself and 70% of the apartments within that building, which, you know, was caught in the fire.
That's one, you know, big event, even though there was a reinsurance, you know, that's one. There was actually five floodings, you know, 20-year floods within the 2022 that hit also to a large extent the clients of Fremtind. And, I think until you see Fremtind having built a more robust corporate insurance portfolio, that volatility risk will be present, you know, a bit going forward. With the pace DNB is building portfolio in the corporate segment, I think it won't take very long.
Sounds good. Thank you so much.
Any more questions?
No.
I can't see that there are any more hands at least, but, please feel free for those who are, have a question perhaps.
Doesn't sound like it, so, unless you really raise your voice very quickly, I think we'll say thank you very much and thank you so much for your time, and hope to see you again or hear your voices again in the next quarter. Thank you.
Bye-bye.
Thank you as well. Bye.