Heartily welcome to a short form or short version of the presentation of the fourth quarter results and results for 2023 for SpareBank 1 SR-Bank. For those of you who are not so familiar with SR-Bank, this is a snapshot of us at a glance. We are a bank whose we've been here for 185 years. We have a very strong position in Southern Norway. I think you have to mute. There is some noise on the line. We have a very strong position in Southern Norway. We are about to merge with SpareBank 1 Sørøst-Norge creating the by far largest savings bank in the Norwegian market and with a strong Norwegian ownership and incorporation.
We will become a SIFI bank in third quarter of 2024. We are unlike many of the other savings bank, we are a limited company with ordinary shares and one vote one share. We have a well-diversified portfolio and loan book and a good rating, and we also have a very clear ambition to be proactive into the transition to a more sustainable future. As mentioned, to say SR-Bank in English is pretty hard, so forgive me. I do that in with my Norwegian accent. We are about to merge with SpareBank 1 SR-Bank. It's about half of our size, so it will be two-thirds SR-Bank and one-third SR-Bank. When we are merged, we...
It will be a solid platform for future growth. And we have estimated potential synergies to NOK 2.5 billion in capital synergies, and about NOK 150 million in cost synergies. And we also have an ambition to create income synergies in due course. We have shifted the date for the merger from first of July to first of October, just due to the simple fact that our technology partners had other projects with delivery in July, and then which we had to postpone our merger date for that reason. And we've decided to do that on a quarter end, so it would be end of third quarter rather than end of second quarter.
When merged, we will be about 65% of our portfolio will be in the retail market and 35% in the corporate market. The ratio for SR-Bank standalone today is about 60/40. And we will, as I indicated, become the third largest bank in the Norwegian market, where followed or following DNB and Nordea. If you look at our loan book profile at present, you will see that from having a solid position with a very a strong position in the Rogaland and in the southwestern Norway, we have decided to diversify both geographically within Southern Norway as well as you know, industry-wise, in the portfolio.
A large part of our growth in 2023 was outside of Rogaland, which is our home turf. But we grew by 7.5% in total, around 19.5 billion NOK, and about 38% of the growth was outside—was in the Oslo region, and about 21% in Rogaland, and the rest well spread across the rest of our market area. If we look at the results for the quarter, we reported a return on equity of 19.7%.
If we exclude two one-off effects in the fourth quarter, one, which is the sale of SR Markets to SpareBank 1 Markets, amounting to NOK 421 million, and our share of the write down of SpareBank 1 Gruppen's position in Kredinor, which amounted for our, you know, our share was a NOK 150 million, the return on equity would have been 16.1%. If we compare that with the or take that into account for the year overall, the reported ROE was 15.3%, and the number up without the one-offs was 14.4%.
In the quarter, we generated NOK 1.8 billion in pre-tax profit, and we delivered, in total, the best result ever in SR- Bank history, both for the quarter isolated as well as for the year, overall. The strong results, and now I'm talking about the year, in total, were driven by growth, both in the retail market and in our two corporate markets, which is, we have a division also for SME and agriculture. As you see, we grew large corporates in by 10.2% and, SME and agriculture by 15.4%. We grew our retail business by 5.2%, and the credit growth in the retail market in 2023 was 3.4%.
So we had a nice development compared to the market growth and taking step-by-steps on market share. We have net reversals of loan loss provisions and/or impairments, which amounted to write-back income, write-backs of NOK 232 million. Having said that, the underlying loan losses were at a normalized level, meaning between 15 and 18 basis points of the loan book. So we are now—we're still having tailwinds from loan losses or impairments from 2020 and 2021 due to the pandemic and also the fall in the oil prices four years ago.
If we look at the deposit growth, that was more modest at 0.7%, and if you look behind the numbers, the corporate, large corporate market was a decline of close to 12%. That, if we dig below that, it's due to a couple of municipality as clients of the bank, which we let go due to we couldn't follow on price. If we look at the underlying growth for all three segments in total, excluding that, it was a growth of 7.5%. We turn into the new year with a core capital ratio of 17.6%, which is 122 basis points above the regulatory requirement.
When we become a CP bank, or system critical bank, I don't know what's the term is in English, the requirement of core capital will increase by 1 percentage point. So we are well capable of meeting that requirement. And when we merge, we will also, as I said earlier, have significant synergies on the capital front, so we will be well capitalized also by the end of the year. The cost to income ratio for the year was 37.7%, despite the fact that we also had some one-off costs in 2023, which I expect Inge to give you some details on in a moment. We have...
The board has proposed a NOK 7.5 per share dividend for 2023. That number is not correct, is it?
Yes.
Is it?
Yes.
49.2,
If you exclude the write-down-
Yeah, that
The sale of some.
Yeah, and including the one-offs, the dividend share is around 46%. With that, I'm handing you over to Inge, our CFO, to give you some more details on the figures.
Thank you, Benedicte. If we look at income statement, we have a profit after tax for this quarter of NOK 1.5 billion. We have a 7.5% quarter-on-quarter increase in the net interest income. And if we look at the full year on the net interest income, we have an increase of 36%, which is equal to approximately NOK 1.6 billion. Also, we have a steady growth on the net commission and other income, which ended on NOK 1.939 billion, and that is an increase of approximately 9.5% year-on-year. So our business model is very robust. We have a steady growth on the lending side and also on the net commission and other income.
If we look at the net income on financial investments, this quarter was of course heavily impacted by the two one-offs, with which stood for NOK 270 million, if you subtract the loss on Kredinor from the gain from SR Markets, which leaves us on approximately NOK 200 million financial investment line, which is according to what we would call as a modest level. The impairment on loans this quarter ended on a net reversal of NOK 91 million, and that is even with an increase of NOK 89 million in the IFRS 9 collective impairment. So that means that we have a net reversal of NOK 180 million on an individual basis. And of course, growing the bank, making a platform for profitable growth also has an impact on the cost side.
As you can see, we have a significant increase on the cost. However, if we look at the parent bank, it has increased by NOK 389 million for the full year, and you compare that to the net interest income and net commission, which all together grew by NOK 1.8 billion Norwegian kroner, we have had a significant positive contribution to the cost-income ratio. We have added some cost on anti-money laundering, sustainability, and so on, but we have also significantly increased our distribution power, and that, together with the upcoming merger of with SpareBank 1.
So Norway makes a very strong platform for profitable growth in the upcoming year, although we expect the growth in the region market as such to be lower than what we have had for many years. But also, we expect now that the interest rate is on peak, and the market expects a few rate reductions from the central bank during the second half of 2024. So altogether, we expect the macro environment to be favorable for running a profitable bank, and our position has been further strengthened, both by the organic growth and now also the significant inorganic growth with the upcoming merger. I believe that concludes the main figures. So then, it's open for you to ask your questions, and we will do our very best to answer.
So please just raise your hand, unmute, and I see the first one up now is Håkon Østbye from DNB Markets. Please, Håkon.
Hi, good afternoon.
Hi.
Thanks for the presentation. So, two questions from me. First one on capital, because if we look at your buffer now versus the fully phased-in requirement, it's actually lower now than when you raised equity last quarter. So I was just wondering that, if the growth continues to be strong and profitable, could we expect or could another equity issue be a possibility?
No, I will definitely say that that is not an issue. The reason why the Common Equity Tier 1 ratio is a tad below what might have been expected is that we've had a one-off this quarter due to tax-related issue, where we have a temporary difference in between the financial statement and the tax profit. That leaves us with... And now I have to look at Morten if you know what that's called in English. We have,
Yeah.
We have a kind of the tax expense or the payable tax for the upcoming year is fairly high. This temporary difference in between the financial accounts and the tax accounts is something that will be reversed in an upcoming year or two, and it is actually with the Norwegian government as counterparty. Unfortunately, this asset also increases the risk-weighted assets. That means that we have to put capital behind, even if it is kind of a zero risk counterparty, and that has subtracted 55 basis points of our Common Equity Tier 1 ratio this quarter.
Yeah, and the amount in question, Håkon, is about NOK 2.5 billion. And you know, this is due to hedging, hedging on derivatives. So over the lifespan of the derivatives, it will, you know, go back to zero, right? So it's a differential that will, you know, come back to zero. But right now, we had to put an asset of NOK 2.5 billion and 250% risk weight against that tax liability.
Perfect. But just to understand the tech now or how this works. So if the Norwegian kroner continues to depreciate against the euro and dollar, may we can it be a risk that this this tax asset may actually increase, and you get a further negative impact on your on your capital position?
Would you like to answer that, Morten? Yeah, I think it's, well, it's not.
... only the Norwegian kroner, it's also the rates. So it's also depending on where the rates goes. So it's a bit difficult to say yes or no to your question. I think now we have losses on all our-- or not, not losses, but in the taxation towards the... Because in the accounting, you have this is a zero effect. But now we have losses on the internal swaps, the externals, and also on the rates. For that to happen again is very unlikely, but you couldn't rule it out. But most likely, this will go back to zero, and we will have a reduction on the RWA. But it's very difficult to say.
Perfect.
So-
So it's a lot of technicalities, but, no, no equity issue.
Yeah. And bottom line, we should be able to fund the fund with our profitability, a steady growth going forward without adding any new equity that is currently.
And the other effect that you might have explained a little bit, Inge, is the one from selling SpareBank 1 Markets, which has both a positive and a negative effect on the capital as well, which might be just explained for the sake of understanding the numbers or the, the movement in that, in that number.
Yeah. But because the profit that we have on selling SR Markets to SpareBank 1 Markets adds NOK 421 million on the net income on financial investments. However, we reinvest that in becoming the second largest owner in SpareBank 1 Markets, so we don't have any capital release. That actually, we have a capital hit because of the goodwill position within SpareBank 1 Markets. So actually, that has also subtracted basis points on the Common Equity Tier 1 ratio as of the fourth quarter. So it. The movement in the Common Equity Tier 1 ratio this quarter is not kind of representative when it comes to kind of the impact of the organic growth in itself.
Perfect. Thank you so much. One last question on expenses. So you report now that close to 20% growth year-over-year in costs. And going forward, at least I don't think that revenue trends will be as beneficial as we have seen over the last two years. So how do you see your cost line developing into next year, taking that into account?
If you look at the cost growth, it will definitely come down on a lower percentage. We have had significant investments now in what is increased the fixed cost base. However, now we prepare for the merger, where we, of course, are aiming at reducing the full-time employees. So we will be very restricted now on hiring new people as a preparation for the upcoming merger. And of course, we have identified synergies on the cost side with the two banks, which, of course, is to be gained-
Yeah
... during the merger. So we will definitely grow the cost base on a lower pace, and at the same time, we are well positioned with respect to organic growth and increased revenues.
Perfect. Thank you so much.
You're welcome.
Please.
Okay. I don't see any more hands. And, thank you very much for participating. And, everybody, if you have any follow-up questions, don't hesitate to contact us. We're available, and we'll be happy to have more in that conversation if you have any topics to discuss. So, thank you all for participating, and have a good day.
Thank you very much.