Solid banking operations in a challenging year

Despite a challenging year, the Bank has strengthened its competitiveness throughout the year. Activity has been particularly high in Q4 and the growth rate has increased, and the bank had a good end to 2020.

"2020 has been a year that will go down in the history books, both from a societal perspective, but also for the bank. We have been able to test features that we know will continue to be important in the future, and I am very pleased that we have maintained a steady course throughout the period through good banking operations, a high level of activity – and not least adaptable employees who have put in a significant effort for our customers," says Trond Lars Nydal, CEO of Sparebanken Møre.

High availability
The total lending volume at year-end was NOK 66.9 billion, reflecting an annual growth of 4.4 per cent.

"Growth has been particularly strong in prioritized market areas, where we have had a good increase in new customers and an increasing business volume. Experience has clearly shown that the importance of a close and local bank and a separate personal adviser has strengthened over the past year. We receive clear feedback on this, both from retail and business customers," says Nydal.

Availability and expertise are high priority areas for the bank, which opened a new branch office at Digernes in Ålesund municipality in November. Last year, the customer centre at Sparebanken Møre was also named Norway's best in the banking category, for the second year in a row. Recently, the product and analysis company Cicero also conducted a survey of a selection of banks' first-line support for SME customers, which showed that Sparebanken Møre was the fastest to reach.

"We will be there when customers need us, and in demanding times this is extra important. We are working extremely accessibility and user-friendly digital solutions, and it is gratifying to have confirmation that we are succeeding," says Nydal.

Among Norway's most creditworthy banks
The bank's most important source of funding is deposits, and in 2020 deposit growth was 6 per cent. A high deposit/loan ratio, a CET1 capital ratio of 17.5 per cent and total assets of NOK 79.5 billion make the bank a central and solid source of capital for people and businesses in Northwest Norway.

In December, Sparebanken Møre had a full MREL requirement set by Finanstilsynet, which means that Finanstilsynet considers the bank to be very important for economic stability in Northwest Norway. In January 2021, Moody's also upgraded Sparebanken Møre's deposit and issuer ratings to A1 from A2, both with a stable outlook.

"The A1 rating from Moody's confirms that we are among the most creditworthy banks in Norway, which contributes to security for customers, equity certificate holders and debt capital investors," says Nydal.

In 2020, Sparebanken Møre established its first green framework, as part of the bank's strategy and commitment to sustainability. The green framework includes both Sparebanken Møre and its wholly-owned subsidiary Møre Boligkreditt AS.

High level of activity and good cost control
Net interest income ended at 1.57 per cent of average total assets at the end of the year, compared with 1.79 per cent in 2019. The lending and deposit margins for 2020 were strongly influenced by the interest rate changes implemented during the 2nd and 3rd quarters, where lending rates were reduced before deposit rates. This had a significant impact on both net interest income and margins for the year.

Total costs were NOK 630 million, a reduction of NOK 16 million compared with the previous year. Expenses as a share of revenues were 41.6 per cent, which is an increase of 1.4 p.e. compared to 2019.

The income statement for 2020 is charged with NOK 149 million in losses on loans and guarantees, and together with reduced interest income, this is the main reason why the bank's return on equity ended at 8.6 per cent, compared with 11.7 per cent in 2019.

"The losses are mainly related to the offshore/supply sector. However, the quality of our loan portfolio is good, and we have seen an impressive ability to adapt in the business sector over the past year. Both defaults and losses are still at a low level, both in the business and retail markets," says Nydal.

He says that the level of activity in the region is high, and that the growth of customers is increasing. The bank gained around 600 new corporate customers in 2020, which is the highest number ever measured. The bulk of this is companies in the SME segment.

Recommending dividend
In a letter to Finanstilsynet dated 20 January 2021, the Ministry of Finance has expressed an expectation that Norwegian banks that, after a prudent assessment and based on the ESRB's recommendations, find grounds for distributions, will keep total distributions within a maximum of 30 per cent of the cumulative annual profit for the years 2019 and 2020 up to 30 September 2021.

"Although the bank's dividend policy indicates a cash dividend for 2020 of NOK 13.50 per equity certificate, the Board of Directors has, on the basis of the current extraordinary situation and the authorities' expectations, found it appropriate to propose to the general meeting a cash dividend per equity certificate of NOK 4.50 for the 2020 financial year. The corresponding allocation for dividend funds to the local community will amount to NOK 45 million. The total dividend for 2019 and 2020 will thus amount to 30 per cent of the cumulative annual profit for the years 2019 and 2020," says Nydal.

In addition, the Board of Directors will propose to the Annual General Meeting that a Board of Directors authorization be issued in which up to an additional NOK 9 per equity certificate may be proposed to be distributed as a cash dividend, and up to NOK 91 million may be set aside as dividend funds to the local community for the 2020 financial year.

"Sparebanken Møre has two groups of owners; equity certificate holders and the local community. The bank's dividend strategy is based on the assumption that the owners shall be treated equally. By recommending a further distribution after 30 September, the total dividend for the financial year 2020 will be in line with the bank's dividend policy, and at the same time ensure that a significant amount is phased back into good measures in culture, sports, the local environment, infrastructure, expertise and business development in Northwest Norway," says Nydal.

Financial goals remain unchanged
The development in the labour market in Møre og Romsdal indicates that total production of goods and services in the county stabilised through the 4th quarter of 2020. According to NAV, registered unemployment at the employment offices amounted to 2.9 per cent of the labour force at end-December. In comparison, the unemployment rate for the country as a whole was 3.8 per cent. However, as a result of activity-reducing infection control measures over a longer period of time, there is a risk that unemployment may rise somewhat and that the number of bankruptcies will increase.

"The economic situation is serious for several industries. This is particularly true for tourism-related industries such as the hotel and restaurant industry, personal services and the maritime industry and their suppliers. In addition, there will still be challenges in oil-related industries," says Nydal.

Sparebanken Møre expects lending growth for the bank in 2021 to be somewhat higher than growth in 2020. Deposit growth is expected to remain high. "Although activity-reducing measures as a result of the coronavirus pandemic are expected to affect the market in 2021 as well, our target of a return on equity exceeding 11 per cent and a cost ratio below 40 per cent remains unchanged. We have a strong organization with highly competent employees, and we have implemented measures to achieve the goals. We look forward to further strengthening our market position in 2021," says Trond Lars Nydal, CEO of Sparebanken Møre.

Key figures – Q4 2020 (Comparable figures for Q4 2019 in brackets)

• Net interest income: NOK 314 million/1.58 per cent (NOK 339 million/1.79 per cent)
• Profit before loss: NOK 229 million (NOK 246 million)
• Profit after tax: NOK 147 million (NOK 190 million)
• Return on equity: 9.1 per cent (11.8 per cent)
• Expenses in relation to income: 40.6 per cent (40.6 per cent)

Key figures – accounts 2020 (Comparable figures for 2019 in brackets)

• Net interest income: NOK 1,228 million/1.57 per cent (NOK 1,314 million/1.79 per cent)
• Profit before loss: NOK 883 million (NOK 961 million)
• Profit after tax: NOK 567 million (NOK 711 million)
• Return on equity: 8.6 per cent (11.7 per cent)
• Cost-to-income ratio: 41.6 per cent (40.2 per cent)
• Common equity tier 1 capital: 17.5 per cent (17.7 per cent)
• Growth in lending over the past 12 months: 4.4 per cent (6.1 per cent)
• Growth in deposits over the past 12 months: 6.0 per cent (6.9 per cent)
• Profit per equity certificate (Group): NOK 27.10 (NOK 34.50)

See our IR pages for more information, reports and webcasts