Good afternoon, everyone. On behalf of SpareBank 1 SR-Bank, I would like to welcome you all to this international telephone conference. Together with me today, I have Benedicte Schilbred Fasmer, CEO of the bank, and Inge Reinertsen, CFO. After a brief presentation, we will open up for Q&As, and please state your name before asking questions. Then I will hand over to Benedicte. Please, start.
Hello, everyone, and good afternoon, or I can see some participants from the, the US, I guess, it's good morning to you. Welcome to a very brief summary of the quarterly results for SpareBank 1 SR-Bank. As Stian said, I'll just take you through the headlines, and then we'll open up for questions afterwards. If we look to the situation or the balance sheet of SpareBank 1 SR-Bank today, we started off as a regional bank for Rogaland, an important region in southern Norway. Today, approximately 40% of our loan portfolio is actually outside Rogaland. So our growth is mainly stemming from regions in the rest of the southern part of Norway, which is an important element of our strategy.
Even if the growth in the Rogaland, our home base, Rogaland, is flat over the last three years, I'm actually quite proud that with this region being in very much influenced by oil and energy and offshore sectors, where we've had a decline in volumes, we still have a good position in the retail market and approximately 3% annual growth and market share, which is actually at the same level as it was three years ago. If we look to the second quarter, the return on equity in the quarter was at 13.2%, which is an increase from 11.6% in the previous quarter.
We have a result characterized by growth, increased income, and significantly lower impairment provisions, and a good result on financial assets as well. If we look to the return on equity year to date, it came in at 12.4%, which is significantly above last year, which was 3.7%, and obviously with a negative impact, both from COVID-19, the COVID-19 situation, as well as high impairments in the oil and offshore sector. The impairments in the second quarter were only NOK 58 million or 10 basis points of loans. And we consider 10 basis points to be lower than normalized losses, which we anticipate is in the range of 15-18 basis points.
We are fairly optimistic now, when it comes to the period ahead of us, supported by fairly high activity in the economy, even if offshore and the rig sector still has some challenges. Our costs in the first half was 39.1%, which is below or better than our goal, which is below to be below 40. It's still an increase from 37.9% last year, but this is due to increased activity in our retail brokerage business, as well as in our accounting business, Forretningpsartner, and they have a higher cost-to-income ratio as a business and a higher, much higher activity. And we've also included Tveit Regnskap, which is partner of Forretningspartner from the fifteenth of April this year.
The cost-to-income ratio in the parent bank was 28.3%, which is a reduction from 30.9% last year. Our core equity capital ratio was 17.9% at the end of June, which is higher than our regulatory requirement of 15.2%, and also higher than our internal goal, which is at 16.7%. This gives us a strong financial position, and I'll come back to some reflections around our dividend possibilities a little bit later. Our long-term equity return on equity goal is a minimum of 12%. In light of the COVID-19 situation, as well as, you know, the challenges in the offshore sector, the goal for this year was set at 11%. With-...
12.4% return in the first half, the, we are very likely to meet our long-term target also this year. If we look to the core capital ratio of 17.9%, it has declined by 4.4 percentage points since year-end. Where approximately half is due to loan growth and negative migration, while the other half is increased goodwill from the acquisition of Tveit Regnskap, as well as increased capital weight of our loans to the SpareBank 1 Gruppen , which has increased from 20% to 100%. As I mentioned, you know, the impairments were NOK 179 million for the first half year, which is approximately 0.16 basis points compared to loans.
The COVID-19 pandemic gave much less financial consequences for us this year than it did last year. We are slowly opening up the Norwegian society again, and the vaccination situation is actually quite good on a national level. This, in combination with reduced exposure to the offshore sector, makes me quite confident that we will deliver or we have revised our goal or target guiding for the impairments from NOK 500-NOK 800 million, which we set at the start of this year. We are now anticipating to have impairments for the year in the range of NOK 300-NOK 450 million crowns, which we consider being within normalized levels.
We guided on a maximum growth in costs of 5%. Our cost growth is, or was at, 11.3%, which includes very high activity in the mortgage brokerage, as well as in the accounting business. So it's explained largely by very high activity in that part of our group. And if we adjust for those, we have a cost growth of 4.3%. And if we also adjust for the fact that we have set aside for bonuses this year, which we didn't have last year, our cost growth is at 0.6%.
We still believe we can have a loan growth of between 5%-7% for the year, even though our loan growth year to, sorry, on a 12-month basis is at 3.3%, due to the fact that the, we're still in our 12 months growth numbers, we still have a decline in exposure on the corporate market in the second half of last year. The general meeting gave the the board in April the authority to decide a dividend up to 3.10 NOK per share, if the authorities would allow us to do so at a later stage.
And a potential dividend in that magnitude is not included when you look at the core capital ratio of 17.9%, and would potentially reduce it to 17.3% if it was paid. The ECB decided in July not to prolong the restrictions on dividend payments from European banks, and if Norwegian authorities decide to follow ECB on that point, our board will consider using the authority to pay dividends before we publish our third quarter results in the end of October. I think I'll stop there, actually. I don't... Is there anything that you would like to mention, Inge, that we should kind of just brief the investors on before we go on to questions?
No, I believe you covered the most important topics, so probably we can just go to-
Move on to questions.
Q&A.
All right.
Yeah. Then we open up for questions. Remember to push star six before to unmute your line. Please go ahead.
Hi, good afternoon. Can you hear me?
Yes.
Hi, this is Håkon Astrup from DNB Markets. Two questions from me. I will start with one, say, high level one. So if you look at your, say, lending exposure, now you have 40% outside Rogaland, and Oslo and Viken is slightly over 10%. So how do you see the, this geographical composition, say, 5 years from today?
... Mm-hmm. I thought you had the answer to that, Håkon. Well, I think, it's fair to say that, the banking market in Norway is very much, there is a high degree of competition, I mean, both from Norwegian banks, local savings banks, as well as from more, the bigger Nordic banks. And, our strategy is, as you know, to be a bank for, for the southern part of Norway. And, and, as you see from the numbers, the growth has come from Vestlandet, Agder, and also Rogaland and Viken.
Obviously, we believe that, you know, with the centralization and, you know, the structure of the corporate market in Norway, that's also where the main part of our growth will come, also in the years to come.
Perfect. Thank you. That will be interesting to follow. So one other question on asset quality. So, to me, at least, you seem rather upbeat when it comes to asset quality, so is it correct to understand that the loan losses should be below normalized levels near term, as comparing that to your normalized level, which was 15-18 basis points, if I remember correctly?
If you look at our financial targets and estimates on page 5 in the presentation, we have changed our estimates for the full year 2021 down to NOK 300 million-NOK 450 million. That will be equal to what we regard as a normalized level, which we believe is through the cycle more in the area of 15-18 basis points.
So we are, as Benedicte mentioned, we are fairly optimistic that looking at the kind of the macro environment, our position and our portfolio, we feel confident that, as kind of the situation is today, we have the provisions that is needed, and that's also reflected in the fairly low provision of NOK 58 million this quarter. At the same time, we have not started any reversal of the IFRS 9 provisions, neither do we have any significant contribution from reversal on the individual impairments on the larger corporate engagements.
So, it is kind of a situation where we are fairly optimistic, but at the same time, still the offshore sector has its issues, and still we are not completely through the COVID situation, although it has kind of had a very low impact on the overall situation for Norway as a country.
Okay. Thank you very much. That was all from me.
Thank you, Håkon.
Thank you, Håkon. We're open for more questions. Please press star six.
Hello, it's Jan Erik Gjerland from ABG. Could I ask two questions, please?
Yes. Hello, Jan Erik, please.
Hi, Jan Eric.
Thank you. Hi, on your loan loss side, the NOK 58 million, you mentioned that you haven't taken too much back from IFRS 9 and other sort of reversal or reserves that you added in the COVID on the pandemic situation. Where did the losses actually come from this time around, the NOK 58 million, if you have sort of zero losses in all other areas? Where could you shed some light into the NOK 58 million, where it really stems from then?
Yes. The majority of that provision was still from the offshore sector. So it's kind of more or less the same picture. The vast majority of the portfolio performs very well, and the credit quality has been improved even further for the housing market and the retail sector. But still, the kind of situation in the offshore sector is demanding with excess supply of vessels and relatively low operating results within the sector. But at the same time, there has been some restructuring of debts, and we feel pretty comfortable with our position with this portfolio, which has been significantly reduced during the last five years, as also shown in the presentation.
Indeed. Could you shed some light into how large your pandemic provision would be in your corporate book and in your household book? If you have some details on that.
Yeah, it, we have kind of. We haven't tagged it, whether it is a kind of a COVID provision. But if you look at the total balance of provisions, it is equal to 2.5, or almost NOK 2.6 billion, with approximately NOK 200 million in the retail sector, where we, during the Covid crisis, have had a very strong performance. And NOK 2.4 billion is provision on the corporate sector, where, of course, most of it is kind of related to the troubles of shore and rig sector.
Hmm. Okay, thank you. Then finally, on the cost side, since we have had sort of some distortion in how much you would add on cost and how much you would add on income from Tveit Regnskap. Is it so that we could take the current quarter and add, of course, 15 days of cost from that acquisition, and come to a fairly level of cost, which we should put on going forward, so to speak? So we should not see—We should, of course, see a cost growth going forward, but not in the same magnitude as we have seen from this quarter, if I can get that straightened out.
That is correct. If you look quarter-to-quarter, Tveit Regnskap or Tveit Accounting, what was incorporated in our PNL from April the fifteenth. So that means that it, in kind of five of six two-week periods in this quarter, it has been incorporated in the figures. And besides from that, there are kind of no extraordinary cost element this quarter. And at the same time, of course, the real estate broker and the accounting company had some seasonal changes, where usually the second quarter is traditionally pretty busy quarters.
Of course, the third quarter has, to some extent, an impact from vacation and summer holiday in Norway, which takes part in July and then up to the beginning of August.
Perfect. I think that was all from my side. Thanks a lot for your answers.
Thank you, Jan Erik. Anyone else? Please, just go ahead.
No more questions. Okay. We don't... remember to press star six, if you want to ask some questions. It doesn't look, it look as if you've got all the answers already. Okay, thank you so much, and looking forward to talking to you again then, in a quarter's time, in October.
Thank you. Bye-bye. Bye-bye.