Introduction, update on financial performance, credit and capital. Debt investor roadshow, Copenhagen 19 November 2018

Transcription

1 Introduction, update on financial performance, credit and capital Debt investor roadshow, Copenhagen 19 November 2018

2 Executive summary We are here today, because we are contemplating an issue of Tier 2 capital Part of our ongoing efforts to optimize capital structure Part of getting ready for the implementation of the MREL regime and the new requirements that come with that We believe that Spar Nord is a strong debt investment case Our asset quality is sound well diversified low-risk loan book We have a strong financial performance track record profitable also through the challenging years Our business strategy is clear and understandable we want to be The Personal Bank in a Digital World A purely Danish play: Danish economy is healthy and our market outlook is strong 2

3 Agenda 1. Introduction to Spar Nord 2. Update on financial performance 3. Credit update 4. Capital and liquidity 3

4 1. Introduction

5 A robust Danish retail bank focusing on private customers and local businesses Brief history Founded in 1824 one of the oldest financial institutions in the country Since 2001, we have focused exclusively on ordinary household customers and local SMEs We offer a full range of products and services (both own and distributed) to our core segments. We enjoy high customer satisfaction and loyalty - potential for further growth in market-share Our credit quality is very sound for many years agriculture has been our only real headache Until now, our standardized approach to risk weighting has made for lower leverage and risk In the light of expected upcoming SIFI appointment and MREL demands, we have decided to migrate to IRB models to improve capital efficiency Strategy and business model 1 Focus on households and local SMEs 2 StarPLUS loyalty program Focus on attracting and retaining attractive private and SME customers Focus on loyalty benefits for customers who buy the whole package 3 Investment in digital solutions 4 Spar Nord Foundation is the largest shareholder with 19% Nykredit Realkredit A/S holds 11% Source: Wilke 2018 Shareholders Strong reputation and customer satisfaction Spar Nord aims to be a market-leader in topnotch service and advise Ongoing efforts to train staff, refurbish physical branches etc. Robust credit quality New CRM system Focus on optimizing work Impairment percentage Through the cycle, Spar processes, e.g. through 493 Nord s performance has implementation of new IT been strong In-house focus on Key challenge has been developing new digital 1.30% 0.80% 0.60% 67 0% agriculture solutions 0% H Several non-domestic investors hold a total of 25 % Professional and institutional investors (incl. Spar Nord Foundation) hold a total of 66 % 5

6 Since 2001, we have created a nationwide retail network focused on bigger cities Branch network Our retail bank in numbers Branches Employees Q Outside North Jutland North Jutland Customers Q Outside North Jutland North Jutland Lending (DKK billion) 2 385, , , ,000 71,000 8, , , , Q Outside North Jutland North Jutland Q Outside North Jutland North Jutland 6

7 Thanks to our unique strategy, we have grown profitably and kept credit quality sound Comments Since we adopted our growth strategy, we have adhered to a principle of not taking on large single credit exposures While decentralising much of decision making, we have kept the underwriting policy and credit processes centralised Through the cycle, our cost of risk has been satisfactory compared to peers only challenge has been agriculture Financial performance last 5 years SPAR NORD BANK DKKm Q Net interest income 1,849 1,800 1,727 1,621 1,546 1,159 Net fees, charges and commissions ,030 1,053 1, Market-v alue adjustments Other income Core income 2,938 3,202 3,331 3,167 3,150 2,495 Costs 1,741 1,922 1,843 1,896 1,936 1,418 Core earnings before impairment 1,197 1,280 1,488 1,271 1,213 1,077 Impairments of loans and adv ances, etc Profit before tax ,074 1,028 1,251 1,011 Tax Profit Taken together, our growth in market share and our strong credit performance have meant that we have made it through tough times with black numbers SPAR NORD BANK DKKb/Pct Q Lending, banking and leasing activ ities Deposits, banking activ ities Shareholder's equity ROE Lending, banking and leasing activ ities / shareholder's equity

8 In a period with declining lending in the sector, we have steadily been gaining market share DKKb DKKb 5,000 4,000 3,000 2,000 1,000 0 Total lending 6.5 % Total lending - sector 0.2 % Spar Nord s bank lending and mortgage-distribution compared to sector lending DKKb DKKb 2,000 1,500 1, Lending, banking activities -0.4 % Lending, sector -3.6 % DKKb DKKb 4,000 3,000 2,000 1,000 0 Mortgage 12.2 % Mortgage, sector 2.4 %

9 Must win battles Our strategy: The Personal Bank in a Digital World Comments Key challenges facing our industry as we view it After 15 years with The Local Strategy, we are now persuing our strategy The Personal Bank in a Digital World With this strategy, we aim to address the challenges we have identified for the industry in general and for Spar Nord specifically Digitization More demanding customers Low growth and interest rates Tighter rules and standards The vision is to combine the best of digitization with the best of traditional banking and to become Denmark s most personal bank Our answer is our new strategy The Personal Bank in a Digital World Vision Strategic bearing Denmark s most personal bank The personal bank in a digital world To succeed with that, we must make progress on three concrete must win battles Financial targets ( ): ROE: 9-11 % after tax Cost/Income Ratio: 0.60 Top-notch personal advice and service The good customer meeting The good banking experience Better grip on customer relation Local ownership and strong central support Customer service of the future Improved wealth management concept New business customer concept Digitization the Spar Nord way More efficient processes New digital solutions New agile development organisations

10 Positive image = strong position for growth A number of recent image analyses have Spar Nord at the very top Retail market => Finansimage 2018 SME market => Aalund 2018 Strong image position among private customers in all regions No. 1 in all three regions in West Denmark No. 3 in Copenhagen and Zeeland Significant progress in important strategic areas High quality advice Great service Spar Nord is best-in-class among large Danish banks, when SME customers rate their banks Kilder: Wilke, Aalund 10

11 Strategic acquisition of 29 % stake in Danske Andelskassers Bank In September 2018, we acquired 27 % of Danske Andelskassers Bank Strong strategic match At present, our stake amounts to 29 % of capital and voting rights An interesting strategic investment Many similarities in strategy, customer focus, products and IT Strong geographic match We believe that a merger would be value enhancing for all stakeholders An attractive financial investment 26% Low capital consumption allocation after divestment of other large holdings in financial sector companies Even if DAB performs relatively modestly, return of invested capital will be satisfactory 23% 12% Koldby Aars Viborg Ikast Skjern Ølgod Varde Esbjerg Ribe Hobro DAB (8) Hadsund DAB og Spar Nord (9) Randers Grenaa Aarhus Ringe Svendborg Sønderborg 11

12 2. Update on recent financial performance

13 Q1-Q3 2018: Net profit of DKK 849 million and ROE of 13.5 % Comments NII stabilized amidst 5 % lending growth Net fee income at record level Large gains from strategic shareholdings IT-investments put pressure on costs PPP up 12 % (y/y) Challenges in agriculture Headlines from the income statement SPAR NORD BANK Realized Realized Realized Realized DKKm YTD 2018 YTD 2017 Index Q Q Index Net interest income 1,159 1, Net fees, charges and commissions Market-value adjustments Other income Core income 2,495 2, Staff costs Operating expenses etc Costs 1,418 1, Core earnings before impairment 1, Impairments of loans and advances, etc Profit before tax 1,011 1, Tax Profit

14 NII stabilized amidst 5 % lending growth and weakening margin pressure Net interest income came to DKK 1,159 million versus DKK 1,173 million in Q1-Q3 last year Bank and leasing lending has grown by 5 % YTD and by 7 % (y/y) Lending to household customers is up 3 % YTD and 5 % (y/y) Lending to corporates, excluding leasing, up 3 % YTD and 4 % (y/y) Leasing business has grown by 30 % YTD and 38 % (y/y) In Q3, net interest income came to DKK 386 million (Q2: DKK 384 million) Continued efforts to improve both deposit and lending margins DKKm Pct.-point Net interest income and lending volume Q Q Net interest income Q Q Q Lending, banking and leasing activities (DKKb) Margin trend Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Interest rate (Deposits) Interest rate (Loans) Interest margin 14

15 Net fee income at record level Net income from fees, charges and commissions came to DKK 856 million highest level for Q1-Q3 ever Continued growth in income from mortgage-distribution driven by volume growth in Totalkredit Declining income from investment funds (due to MiFID II) mitigated by growing income from asset management In Q3, net fee income came to DKK 293 million (Q2: DKK 273 million) Mortgages Other loans Securities trading and asset management Other fees DKKm 350 Y/Y: 5 % Y/Y: 7 % Y/Y: 0 % Y/Y: 0 % Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 YTD YTD Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 YTD YTD Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 YTD YTD Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 YTD 17 YTD 18 15

16 Large gains from strategic shareholdings contribute to strong market value adjustments Market value adjustments and dividends amounted to DKK 260 million in Q1-Q3 2018, which is DKK 43 million, or 14 %, lower than in the same period of 2017 Market value adjustments and dividends on share holdings in sector companies grew by DKK 121 million (y/y) especially driven by Bankinvest DKKm Market value adjustments and dividends Sharp drop in market value adjustments on bonds and listed shares due to less favourable market conditions 0 Q Q Q Q Q DKKm YTD 2018 YTD 2017 Change Market-valued adjustments in Trading, Financial Markets & The International Division Tangible assets incl. dividends Currency trade and -agio Total

17 IT-investments put pressure on costs containment efforts in all other areas Costs and C/I Ratio The Group s total costs and expenses amounted to DKK 1,418 million in Q1- Q3 2018, against DKK 1,411 million in the same period of 2017 DKKm 2,000 1,500 1,000 YTD 2017 YTD Payroll costs were 1% lower than in Q1-Q Collective wage increases partly offset by small reduction in headcount Other items with positive impact (overtime pay, holiday pay) 0 YTD 2017 YTD 2018 Breakdown on cost types 0.0 Other operating expenses were 3% higher than in Q1-Q Higher costs associated with strategic IT projects Partly offset by lower costs on most other lines Costs (DKKm) YTD 2018 YTD 2017 Change Staff costs Operating expenses Depreciation Costs 1,418 1,411 7 At 30 September 2018, Spar Nord employed 34 people (FTE) fewer than 30 September 2017 Operating expenses (DKKm) YTD 2018 YTD 2017 Change Staff-related expenses Travel expenses Marketing costs IT expenses Cost of premises Other administrative expenses Operating expenses

18 Challenges in agriculture visible in loan losses Loan impairment charges etc. were an expense of DKK 67 million, which compares to an income of DKK 51 million in Q1-Q3 last year Impairments and impairment percentage Broken down by customer segment impairment charges came to: DKKm 200 Pct. 2.0 Retail incl. SparXpres: DKK 7 million Business excl. agriculture: DKK -62 million Agriculture: DKK 122 million Impairments related to agriculture are impacted by lower pork prices and a large individual loss (produce sector) IFRS9 implemented Additional impairments of DKK 250 million Individual impairment charges (stage 3): DKK 1,463 m (Q2: DKK 1,518 m) Stage 1 and Stage 2 impairments: DKK 408 m (Q2: DKK 376 m) -50 Q Q Q Q Q

19 Business volume grows to DKK 245 billion Positive trend in lending to both retail and business customers Bank lending has grown by 1.9 billion (5 %) and distribution of mortgage loans has grown by DKK 3.3 billion (4 %) year-to-date Modest growth in deposits Bank deposits are up by DKK 0.3 billion (1 %) and deposits in pooled schemes by 0.3 billion (2 %) year-to-date Custodianship accounts have declined by DKK 2.5 billion (5%) year-to-date Bank- and leasing lending Mortgage distribution Guarantees Bank deposits Pension pools Investments DKKb 90 Q3 17/Q3 18: 7 % Q3 17/Q3 18: 5 % Q3 17/Q3 18: 2 % Q3 17/Q3 18: 2 % Q3 17/Q3 18: 3 % Q3 17/Q3 18: -4 % Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q3 17 Q4 17 Q1 18 Q2 18 Q

20 Guidance for 2018 Core earnings before impairments amounted to DKK 1,077 million in Q1-Q which should be viewed in the context of an original full-year guidance of DKK 1.1 billion and a revised guidance of DKK 1.3 billion Based on performance in Q1-Q3, guidance is maintained in the DKK 1.3 billion range Net profit amounted to DKK 849 million in Q1-Q which should be viewed in the context of an original fullyear guidance of DKK 0.8 billion and a revised guidance of DKK 1.0 billion Based on performance in Q1-Q3, guidance is maintained in the DKK 1.0 billion range 20

21 3. Credit update

22 Our loan book is well-diversified in terms of industries Comments Loan book broken down by industry Our loan book is generally very well diversified on industries No abnormal exposure to any business sectors No exposure to oil or shipping Exposure to household segment accounts for 45 % of loan book against a sector average of approx. 1/3 Agriculture has been the key challenge in recent years and isn t out of the woods yet 22

23 DKKm Our loan book is well-diversified in terms of sizes Comments Loan book broken down by sizes Loans and guarantees below DKK 100 million account for 88,3 % of total exposure considerably below sector average 20 largest exposures amount to 74 % of CET1 FSA threshold is 175 % Loans, advances and guarantees broken down by size of exposure* Q Q ,965 51, ,658 35, ,783 13, ,285 8, Total 110, , *) Excl. Reverse repo transactions and SparXpress Number of exposures Share of exposure in pct. 23

24 Agriculture remains a challenge Comments Exposure to agriculture by production line After huge challenges in recent years from the trade crisis between EU and Russia and from a volatile milk market, now farmers are faced with new challenges: Extreme drought in the spring/summer of 2018 Relatively low pork prices even through the barbeque season Threat from African swine fever in Eastern Europe 24

25 Latest FSA inspection (May 2017) confirmed strong credit quality and low-risk nature Positive key conclusions from the FSA Spar Nord s credit quality is better than in comparable financial institutions Spar Nord has adequate provisions on both households, corporates and agriculture - fourth FSA inspection in a row, where the FSA hasn t had remarks to our provisioning Spar Nord s calculated solvency need is adequate No remarks to areas such as the compliance and risk management functions, IT or audit Enforcement orders A number of primarily administrative and reporting related enforcement orders related to areas such as credit risk, market risk and operational risk all issues that can be resolved within very short time Recommendation from the FSA The FSA recommends that Spar Nord revises its dividend policy and capital targets (from minimum targets to absolute numbers) Note: FSA report can be found on FSA website 25

26 4. Capital and liquidity

27 In recent years, we have significantly strengthened our capital position CET1 ratio +61% Capital percentage (own funds ratio) +65% Q Equity (DKKbn) 2008 Q Loans and guarantees (DKKbn) +93% +21% Q Q

28 SIFI appointment and roadmap to IRB Comments Capital requirement as SIFI bank* In Q4 2017, we learned that we are about to be 27.6 appointed systemically important in Denmark 24.2 One consequence is that we will face relatively sharp MREL demands gradually increasing to 28 % Phase-in time: 4 years Estimated need for senior non-preferred debt : DKK 6-7 billion As a response, we have decided to migrate to internal rating based methods on credit risk Our aim is to file an application with the Danish FSA within 3 years Estimated processing time hereafter: 6-12 months Capital relief is expected to be substantial MREL buffer SIFI buffer Countercyclical buffer Conservation buffer Pillar II Pillar I *All numbers express expectation beginning of year 28

29 SIFI appointment and roadmap to IRB Comments Capital requirement as SIFI bank* Capital targets 27.6 CET1 Ratio: 13.0 (will be changed to 13.5 when we become SIFI) 24.2 Total capital ratio: 16.5 (17.5) Dividend policy % of net profit paid out as ordinary dividends Possibility of extraordinary dividends and/or buy-backs MREL buffer SIFI buffer Countercyclical buffer Conservation buffer Pillar II Pillar I *All numbers express expectation beginning of year 29

30 Current capital position Capital percentage and subordinated capital CET1 ratio of 14.3 and own funds ratio of 18.7 Slight decline from Q2 to Q3 attributable to volume growth and acquisition of shares in Danske Andelskassers Bank Individual solvency requirement of 9.3 and combined buffer requirement of 1.9 Excess capital coverage of 7.0 percentage points or DKK 3.7 billion Pct YTD 18 Own funds ratio Common equity Tier 1 capital ratio DKKm Capital base > Additional Tier 1 Subordinated loan capital Pct. Q Common equity Tier 1 capital ratio Additional Tier Deductions in additional Tier Tier 1 capital ratio Tier 2 capital Deductions in own funds Own funds ratio

31 Comfortable strategic liquidity of DKK 19.9 bn Strategic liquidity Loan to deposit ratio Pct. DKKb YTD Deposits, banking activities Seniorfunding Core capital and sub. capital Stable long term funding Loans, banking and leasing activities Maturity < 1 year Liquidity target YTD 18 31

32 Legal disclaimer Certain statements in today s presentation are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, financial condition, business strategy and future objectives can generally be identified by terminology such as targets, beliefs, expects intends, plans, assumes, will, may, anticipates, continues or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in the presentations including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks and changes in legislation. We urge you to read our financial reports available on sparnord.com for a discussion of some of the factors that could affect our future performance and the industry in which we operate. Should one or more of these risks or uncertainties materialise or should nay underlying assumptions prove to be incorrect, our actual financial condition or results could materially differ from that presented as anticipated, believed, estimated or expected. Please note that we are not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. 32

33 Contact us at Lasse Nyby Carsten Levring Jakobsen Jan Frølund Poulsen Telephone: Telephone: Telephone: Mail: Facebook LinkedIn Mail: Mail: