Investor Presentation Second quarter 2019 SpareBank 1 Østlandet – Where we are Norway • Population 5.3 million • One of the highest GDP per capita in the world SpareBank 1 Østlandet’s home • Excellent financial position market • GDP growth above international trend • Population 1.7 million • Low unemployment • The fastest growing region of Norway • EEA member for both population and job creation • Low unemployment and high economic activity • Market leader in the Inland region, challenger in the Capital region • 343,000 customers Executive summary
• Norway’s fourth largest savings bank • The best capitalised regional savings bank in Norway - CET1 16.9 %, Capital ratio of 19.1 %, Leverage ratio 7.3 % SpareBank 1 Østlandet • Low risk bank book with a 74% retail share, of which 96% housing mortgages • Diversified income stream • Long history of solid returns and profits. Stable low loan losses over time. • Largest owner of SPABOL, The SpareBank 1 Alliance’s covered bond issuer
• Rated A1 stable by Moody’s • Deposit coverage ratio 76.1 % Funding and rating • Liquidity coverage ratio (LCR) 170.7 % • Access to covered bond financing through SpareBank 1 Boligkreditt (SPABOL)
• One of the highest GDP per capita in the world Norwegian economy • Excellent financial position with large budget surplus and the sovereign wealth fund accounting for almost three times GDP
• The fastest growing region of Norway for both population and job creation Home market • Low unemployment and high economic activity • Market leader in the Inland region, challenger in the Capital region
3 Transaction rationale The Bank’s ambitions have implications for our funding strategy
SpareBank 1 Østlandet" (SPOLNO) has • The Bank’s revised business strategy has implications for the mandated BayernLB, Commerzbank, funding strategy going forward Goldman Sachs International and Nordea to organize a series of pan- • Deposits are and will continue to be the Bank’s most important European investor meetings commencing funding source on Wednesday 18th September. A EUR 500mn (no grow) RegS senior preferred • The Bank exclusively uses SPABOL for covered bond funding transaction, expected to be rated A1 (Moody`s) with a 5yr maturity will • Senior unsecured in NOK will still be the most important source for senior funding follow, subject to market conditions. • Senior unsecured in EUR will be important going forward MIFID II Target Market: Manufacturer ‒ The inaugural EUR 500 million senior unsecured was very target market (MIFID II product well received by the market governance) is eligible counterparties ‒ In addition the Bank has high activity in EUR private and professional clients only. placements (all distribution channels). ‒ Planning at least one EUR benchmark issue per year going forward Screen announcement 16 September 2019
4 Content
Introduction to SpareBank 1 Østlandet
Region, strategy and ambitions
Asset quality, rating and funding plans
Appendix: 1. Economic outlook 2. Financial accounts 2Q 2019
5 Introduction to SpareBank 1 Østlandet Business overview SpareBank 1 Østlandet at a glance
Highlights Return on Equity (ROE) (%) 16.9 % • Established in 1845 – known as Sparebanken Hedmark (“SBHE”) until 1 April 13.5 % 13.6 % 2017. 10.4 % 10.2 % 10.5 % • Norway’s fourth largest savings bank – total adjusted assets (incl. cov. bonds) of approx. NOK 174 bn as of 2Q-19. • Operations in Hedmark, Oppland, Oslo and Akershus – a market with more than 1.7 million inhabitants. 2014 2015 2016 2017 2018 2Q 2019 • Head office in Hamar (90 minute drive north of Oslo) – 37 bank branches and CET 1 ratio & Leverage ratio (%) 1,130 FTEs as of 2Q-19. • 343,000 customers – retail share of total lending 74%. 17.2 % 16.9 % 16.8 % 16.8 % 16.9 % 14.8 % • Diversified product offering – provides banking, leasing, accounting and real estate brokerage services. 9.2 % 8.2 % 7.5 % • Part of the SpareBank 1 Alliance – owns 12.4% of SpareBank 1 Gruppen AS. 7.4 % 7.1 % 7.3 %
2014 2015 2016 2017 2018 2Q 2019 CET 1 ratio Leverage ratio
7 Sources: Annual/interim reports, SpareBank 1 Gruppen Diversified main activities Several sources of income - parent bank, subsidiaries and other ownership interests
Operational divisions* Selected key subsidiaries Selected other ownership interests
EiendomsMegler 1 Totens Sparebank Retail ~25% 100% Innlandet AS Savings bank Segment Real estate agent
KOMM-IN AS ~24% EiendomsMegler 1 Local venture capital Corporate 100% Oslo Akershus AS Segment Real estate agent
BN Bank ASA 9.99 % Commercial bank
SpareBank 1 Organisations & 95% Finans Østlandet AS Capital Markets Financing/Leasing Youngstorget 5 AS 100% Real estate SPV
SpareBank 1 Østlandet Administration VIT AS ~71% Vato AS & Support Accounting/financial 100% advisory Property management
7 X % = Ownership ratio 8 Part of the SpareBank 1 Alliance Provides operational and financial economies of scale as well as diversified product offering
Key comments Key joint ventures Key associated companies • Total number of branches: 301 «SpareBank 1 Alliance» = 14 cooperating independent savings banks • Total number of FTEs: 6,000 SpareBank 1 Betaling AS Vipps, Payment services
• 14 independent Savings Banks SamSpar • 6 listed equity capital certificate 18.7 % (ECC) banks 12.4 % • 1 public listed ordinary share SPAREBANK 1 GRUPPEN AS | external product offering SpareBank 1 Kredittkort AS Credit cards bank (SR-Bank) SpareBank 1 Forsikring AS Fremtind Forsikring AS Life insurance Non-life insurance • 7 traditional Savings Banks with 20.5 % ECCs ODIN Forvaltning AS LOfavør AS Fund management Product management SpareBank 1 Boligkreditt AS • The SpareBank 1 Alliance is Conecto AS SpareBank 1 Factoring AS Covered bond issuer Debt collection Factoring/Debt purchase Norway’s second largest* financial 21.6 % group in terms of total assets. Modhi Finance AS SpareBank 1 Spleis AS Portfolio purchase and management Crowd funding • SpareBank 1 Næringskreditt AS The SpareBank 1 Alliance was Covered bond issuer created in 1996 to strengthen SPAREBANK 1 UTVIKLING DA | internal services 18.0 % each local bank’s competitiveness, 13.3 % EiendomsMegler 1 Norge AS SpareBank 1 Kundesenter AS profitability and solvency, as well Real estate Customer service SpareBank 1 Markets AS as to ensure each bank’s future SpareBank 1 Verdipapirservice AS Investment bank independence and regional ties. Securities settlement 6.2 %
89 X % = ownership ratio || (*) Source: SpareBank 1 Gruppen 9 The Bank has a history of increasing profits Nov 2018 Private Net profit and profit pre-financials and loan losses (NOK million) placement of 700 MNOK 2017 1600 IPO and 1600 listing on OSE 1400 1400 2016 No fiscal year Acquisition of 1200 with a financial Bank 1 Oslo 1200 deficit since the Akershus. mid 1940-ies 1000 1000 2010 Financial gains 800 Low losses. 800 2007 Business cycle 600 1988-91 600 High loan losses peak. 7 bps loss. in banking crisis, 1993 but no deficit or Bond gains and 400 government lower losses. 400 support or bailout 2009 200 Business cycle trough. 200 40 bps loss.
0 0 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Profit pre financials Net profit
10 Source: Bank reports and SpareBank 1 Markets. As of 4Q 2018 Long history of low loan losses Net loan losses as percentage of total lending*
3.0 %
2.5 %
2.0 %
1.5 %
1.0 %
0.5 %
0.0 %
-0.5 %
-1.0 %
SpareBank 1 Østlandet Peer Group
Source: Bank reports and SpareBank 1 Markets 2Q 2019. Peers: NONG, SRBANK, MING, MORG, SVEG (*) Included loans transferred to covered bond companies Higher capitalization and solid returns SpareBank 1 Østlandet versus Norwegian and Nordic peers
18.00% 16.7%16.5%
16.00% 15.2%15.0% 15.1% 14.7%14.4% 14.00% 13.2%13.0% 12.2%12.1%12.1%12.0%11.9% 11.6%11.4% 12.00% 11.2%11.0% 9.9% 10.00% 9.5%
7.6% 7.5% 8.00% 7.3% 7.3% 7.1% 7.0% 6.0% 5.3% 6.00% 5.0% 5.0% 4.8% 4.5% 4.4% 4.00%
2.00%
0.00%
DNB DNB DNB
Nordea Nordea
Sydbank Sydbank
Swedbank Swedbank
Jyske Bank Jyske
JyskeBank*
Nordic Peers Nordic Peers Nordic
Danske Bank Danske Bank Danske
Handelsbanken Handelsbanken
Norwegian Peers Norwegian Norwegian Peers Norwegian Peers Norwegian
SpareBankSMN 1 SpareBankSMN 1 SpareBankSMN 1
Sparebanken Vest Sparebanken Sparebanken Vest Sparebanken Vest Sparebanken
SpareBank 1 SR-Bank 1 SpareBank SR-Bank 1 SpareBank SR-Bank 1 SpareBank
SB1Ø levered to peers levered to SB1Ø
SpareBank 1 Østlandet 1 SpareBank Østlandet 1 SpareBank Østlandet 1 SpareBank CET1 ratio LeverageRatio ROE 5yrs
12 Source: Annual Reports 2014-2018/interim reports 2Q 2019, Bloomberg ||*) Leverage ratio based on Q4 2018 numbers The financial accounts show significant improvements from last year (Last year’s figures in brackets)
Pre-tax profit in 2Q-19 isolated NOK 471 million (NOK 416 million). Extraordinary high profit Pre-tax profit in 1H-19 NOK 1,227 million (NOK 730 million).
ROE in 2Q-19 at 12.8% (12.9%). Return on equity ROE in 1H-19 at 16.9% (11.4%).
CET 1 ratio 16.7 % (16.1 %). Solid capitalization Leverage ratio at 7.3 % (7.3 %).
Lending growth in 2Q-19 of 2.3% Dampened lending growth Lending growth of 6.5 % (8.9 %) (incl. covered bond companies) last 12 months.
Strong deposit growth Deposit growth of 9.5 % (6.0 %) last 12 months.
Impairments on loans and guarantees NOK 8 million in 2Q-19. Reversal on loan losses Impairments on loans and guarantees in 1H-19 NOK -25 million (NOK 12 million).
13 The bank and the market area
Lillestrøm and Romerike is a region of strong growth, both when it comes to population and creation of new jobs. SpareBank 1 Østlandet has a strong presence. Our market position gives ample opportunities to grow the bank By the end of 2021 – our strategy pillars
We are the third largest savings bank in Norway.
We have one of the most attractive equity certificates on Oslo Stock Exchange.
We have differentiated ourselves from the main competition and have increased our market share.
We have made banking easy for our customers and employees.
Best at cross-sales in the alliance and have utilised the profitable potential in the Group.
We have established ourselves as a bank with a distinct ESG profile.
15 High profitability in 1H-19, but also high growth in operating costs Financial targets 2019 and actual performance
Profitability Return on equity at least 10 % 16.9 %√ √ Dividends 50 % pay-out ratio* 50 % √ Solidity CET 1 at 16 % 16.7 %
Costs Growth in operating costs in parent bank within 2 %** 6.8 %!
16 * Profit after tax and minority interests ** After restructuring costs Solid position and growth opportunities Market leader in Hedmark, market challenger in other counties
Hedmark Oslo Population 197, 571 Population 685,811 Market share* RM 49 % Market share RM 11 % Market share CM 45 % Market share CM 2 % Position market leader Position challenger Unemployment 2.1 % Unemployment 2.7 %
Oppland Akershus Population 189,343 Population 628,746 Market share RM 4 % Market share RM 7 % Market share CM 8 % Market share CM 4 % Position challenger Position challenger Unemployment 1.8 % Unemployment 2.0 %
17 Source 1: NAV, Unemployment: % of workforce, August 2019 |Source 2: Statistics Norway – Population 2Q 2019 Source 3: Main bank share: TNS Gallup H1 2017, position survey | (*) Customers who consider SpareBank 1 Østlandet as their main bank A market area with long term growth potential Considerable population growth in the Greater Capital Area
Population projection 2018-2040 Population projection, municipalities 2018-2040
2000,000 +19% (0.8% yearly) 1750,000 Oppland Hedmark 1500,000
1250,000
1000,000 Oslo
750,000
500,000 Akershus 250,000
,0
2024 2032 2040 2018 2019 2020 2021 2022 2023 2025 2026 2027 2028 2029 2030 2031 2033 2034 2035 2036 2037 2038 2039
18 Source: Statistics Norway: “Population forecasts base scenario 2018-2040” The bank is strengthening its ESG focus Obtaining a distinct ESG profile is a cornerstone of our business strategy
SpareBank 1 Østlandet has • Ensures all 10 principles of sustainability are integrated in signed up for the United Nations day-to-day operations Global Compact • The bank is since 2017 reporting ESG performance according to the GRI reporting standard *)
The SpareBank 1 Alliance is a • The Norwegian Green Building Council, a part of the World Green Building Council, was established in 2010 to drive member of the Norwegian Green sustainability in the Norwegian built environment, Building Council primarily through the introduction of environmental rating tools
SpareBank 1 Østlandet • The CSR strategy has since been expanded to cover all established a CSR strategy in relevant aspects of the bank’s ESG initiatives, including 2014 credit policies, investment policies, HR policies, procurement policies and so on.
The SpareBank 1 Alliance’s asset • The SpareBank 1 asset manager ODIN is a signatory of the manager and insurance UN PRI – principles for responsible investments company are guided by • SpareBank 1 insurance integrated ESG factors in its sustainability in their investments and is in the process of evaluating investments international initiatives to sign up to. Nearly all external fund managers for the insurance company are UN PRI signatories
• This is an initiative where over 5400 Norwegian companies, SpareBank 1 Østlandet’s public institutions and other organizations have become branch offices are certified as certified and follow certain industry specific rules and principles to reduce their environmental impact. ‘Eco-lighthouses’ in Norway • The EU recognized Norway’s Eco-lighthouse arrangement in December 2017, meaning it complies with the eco- management and audit scheme (EMAS) in the European 19 Union. (*) https://www.sparebank1.no/nb/ostlandet/om-oss/samfunnsansvar.html The strategic focus on ESG bears fruit SpareBank 1 Østlandet receives solid ESG ratings
• In the survey “Sustainable Brand Index 2019”, customers named SpareBank 1 Norway’s most sustainable banks. • In 1Q-19, the Bank received its first ESG rating from Sustainalytics. Sustainalytics rates SpareBank 1 Østlandet as one of the best among Norwegian savings banks according to their ESG framework. • In 2Q-19, the bank received an “A” ESG-rating from MSCI. • SpareBank 1 Østlandet is climbing on the ranking from Fair Finance Guide Norway , and is now among the highest ranked regional savings banks. • The Governance Group scores SpareBank 1 Østlandet among the top companies on Oslo Stock Exchange when it comes to ESG reporting.
Source: The Governance Group – “Bærekraft på Børs 2019” 20 (ESG reporting on Oslo Stock Exchange 2019) Asset quality, rating and funding plans
Lillestrøm and Romerike is a region in strong growth, both when it comes to population and creation of new jobs. SpareBank 1 Oslo Airport, centrally located in the bank’s market area, is one of Østlandet has a strong presence. several large infrastructure investments ongoing in the region. Loan book dominated by retail and SME lending Lending to customers per sector (NOK million and %)
22 The concentration risk is low Retail and corporate loans by size (% share)*
Retail market Corporate market
37.9 % 35.0 %
26.9 % 23.5 %
13.7 % 18.1 %
9.0 % 11.7 % 11.0 % 8.8 % 4.4 %
23 * Including loans transferred to the covered bond companies High quality credit process leads to low and stable LTV Percentage of granted mortgages and average LTV per period and county
Percentage of granted volume Average LTV at the time of grant 78% 73% 72% 69% 70% 67% 70% 66% 66% 66% 69% 67% 64% 62% 62% 61% 62% 63% 62% 64% 60% 60% 61% 60% 58%
33% 34% 31% 32% 29% 30% 30% 30% 31% 30% 30% 28% 28% 27% 25%
7% 5% 5% 6% 6% 6% 6% 3% 4% 4%
Oslo Akershus Hedmark Oppland Other
24 Mortgage regulation – The Bank is utilising the flexibility quota Exposure per LTV bucket in the residential mortgage portfolio
94.8 % Mortgages - Utilisation of flexibility quota in 2Q-2019:
City of Oslo Other areas 7.4 % (8 % quota) 6.5 % (10 % quota)
• The mortgage regulation* constrains housing mortgage lending through defined requirements: • Debt servicing capacity • Stress test of 5 % mortgage rate increase • Maximum loan to value • 85 % LTV on new lending • (A stricter 75 % LTV legal requirement in the SB1 Boligkreditt cover pool) • Gearing • Total debt must not exceed five times gross annual income • Requirement of installment payment 4.2 % • Exceptions are permitted within 10 % (8 % for Oslo) of the total 0.5 % 0.5 % granted volume each quarter Below 70% LTV 70-85% LTV 85-100% LTV Over 100% LTV • The so called “Flexibility quota”
25 * "Regulation on the requirements for new lending with collateral in housing" Still very low impairments on loans and guarantees Net losses* and stage exposure Impairments per segment - quarterly 80 0.30% 2Q-19 1Q-19 4Q-18 3Q-18 2Q-18 0.25% Personal customers -0,2 -8,6 0,2 3,6 1,1 60 Corporate customers 2,8 -36,0 4,6 0,3 5,4 0.20% SB 1 Finans Østlandet 5,4 11,6 6,7 8,0 0,8 40 0.15% Total 8,1 -32,9 11,4 11,9 7,2
0.12% 20 0.09% 0.10% Maximum exposure net of accumulated impairments (on and off- 0.07% balance sheet items) 66 56 75 35 0.04% 0.05% 0 94.5 % 93.4 % 93.4 % 93.3 % 93.5 % 2014 2015 2016 2017 2018 1H 2019 0.00% -0.02% -20 -0.05% -20 -0.05% -25 -40 -0.10% 5.2 %6.3 % 6.3 %6.2 % 6.3 % 0.3 % 0.4 % 0.3 % 0.3 % 0.4 % Net losses Net losses in % of gross lending Stage 1 Stage 2 Stage 3 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
26 *) NOK million and percentage of total lending Minimum Requirement for Own Funds and Eligible Liabilities MREL – The Norwegian legislation 40.0 % • Legislation High scenario 36.1 % ‒ Loss absorbing amount equal to Pillar 1 35.0 % Base scenario 33.1 % 3.0 % and Pillar 2 requirements and combined buffer requirement 30.0 % ‒ Covered by AT1 and Tier 2 ‒ 15.3 % Recapitalization amount equal to Pillar 25.0 % 1 and Pillar 2 requirements and combined buffer requirements except 20.0 % countercyclical buffer ‒ Covered by excess capital and 15.0 % capital subordinated to senior debt
10.0 % 17.8 % ‒ NFSA has proposed an increase in the systemic risk buffer to 4.5 % (+1.5 %) 5.0 % ‒ Still uncertainty concerning final consequences for the bank 0.0 % Loss Absorbing Amount Recapitalisation Amount NFSA Systemic Risk proposal 27 MREL and moving regulatory parts Two main funding scenarios based on regulatory uncertainty (EUR million)
Scenario • Base scenario: Base High Senior funding ‒ The Norwegian legislation as of today (previous slide) Senior Preferred Senior Non Preferred ‒ App. EUR 1 bn SNP debt by YE2022 1,000 1,300 • High scenario: ‒ NFSA has proposed a higher systemic risk buffer ‒ Significantly higher MREL levels ‒ App. EUR 1.3 bn SNP debt by YE2022
3,900 3,700 3,500 • The Bank’s response 3,100 2,800 ‒ MREL - Gradually refinancing of maturing senior debt with SNP until YE2022 ‒ Implementation – timing and scope - highly dependable of regulatory decisions
2019 2020 2021 2022
28 The bank’s ambitions for the funding strategy Today’s funding mix and thoughts on funding going forward
Loans from banks Covered bonds 2% 26% • The Bank’s revised business strategy leads to higher funding activity going forward
Senior NOK 11% • Deposits are and will continue to be the Senior EUR Bank’s most important funding source 7% Deposits 44% Equity Subordinated • The Bank exclusively uses SPABOL for 9% 1% covered bond funding
858 849 • Senior unsecured in EUR will be increasingly more important in the funding mix going forward 502 ‒ Building a senior unsecured curve in EUR 375 ‒ Planning at least one EUR benchmark 257 172 172 193 issue per year going forward 108 EUR million EUR 77 ‒ Active curve in PP with tenors up to 15 15 years 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 >2028
29 Loans from banks Senior unsecured NOK Senior unsecured EUR Subordinated AT1 A1 Moody’s Senior Unsecured rating Based on Credit Opinion as of 12 June 2019
Main take aways ‒ “SpareBank 1 Østlandet's ratings are supported by its Very Strong Macro Profile” ‒ “Solid capital levels, which are the strongest among peers” ‒ “Asset risk metrics are strong on the back of a low credit risk portfolio” and ‒ “Large volume of deposits and junior debt resulting in deposit ratings benefiting from a very low loss-given-failure rate”
• Rating Action – 3 June 2019: Moody’s changes rating outlook from negative to stable for seven Norwegian banks and covered bond company based on upcoming MREL requirements
30 Solid performance and a strengthened regional footprint
Summary
31 Geir-Egil Bolstad CFO Phone: +47 918 82 071 [email protected]
Cathrine Mordal Contact Head of Treasury Phone: +47 62 51 09 10 details [email protected]
Runar Hauge Portfolio Manager/IR Phone: +47 482 95 659 [email protected]
32 APPENDIX Norwegian and regional outlook Norway: Positive economic conditions and outlook Turnaround in oil, growth on trend and falling unemployment
Major improvement in GDP/capita – low global correlation NOK normally moves with oil – but divergence this time
Low and falling unemployment PMI – Positive expectations
35 Source: Thompson Reuters Datastream Strong Norwegian economic momentum Macro outlook • Base Case: Strong economic momentum ‒ GDP growth above trend short term ‒ Stable low unemployment – but could end up tight ‒ Inflation higher than expected • For SpareBank 1 Østlandet’s market area ‒ Diverse and cyclical stable Growth in production (q/q, %) ‒ High population growth long term 4 3 2 • Worst Case: Rapid decrease in real estate/increase in 1 interest rates 0
-1
2008 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ‒ Thorough credit work in the loan portfolio 2002 -2 ‒ Reduced LTVs through a corrective cycle in real estate
markets. -3 Norway Inland Region* -4 Capital Region**
36 Source: Statistics Norway/Norges Bank Monetary Policy Report 02-19/Norges Bank Regional Network 03-19 Robust and diverse market area NOK (I-44) vs Brent Crude counterweight worst case scenarios Macro outlook • Lower oil prices ‒ Indirectly affected by the lower oil prices in 2014-2015 ‒ Weaker currency and government stimulus turned positive for the area
• Sharper real estate downturn Registered unemployment rate, NAV (per cent) ‒ Will affect the general economy and the performance of 5.0 5.0 the bank ‒ But a solid and conservative portfolio will act as buffer 4.0 4.0 • Tightening of global financial conditions 3.0 3.0
‒ Weaker currency – positive impact 2.0 2.0
‒ Lower interest rates and (probably) higher funding costs 1.0 1.0 Hedmark Oppland Akershus Norge Oslo 0.0 0.0
37 Source: Statistics Norway, NAV, Refinitiv Datastream Moderate housing price growth on record Housing prices, indexed (2015=100) high turnover 150.00 150.00 Housing prices, indexed and YoY 140.00 140.00 130.00 130.00 • Moderate growth in housing prices after a corrective period 120.00 120.00 ‒ August: +2.6 % in Norway YoY (Oslo +3.8 %/Inland Region +1.9 %) 110.00 110.00 100.00 100.00 ‒ Balance in the market: High supply – high demand 90.00 90.00
‒ Short lead times
05-15 12-14 10-15 03-16 08-16 01-17 06-17 11-17 04-18 09-18 02-19 07-19
Norway Oslo Romerike Inland Region*
• The Mortgage Regulation works well Housing prices by area, YoY (per cent) ‒ More modest growth and well balanced market 30.0% 30.0% ‒ Could be used counteractively if necessary 25.0% 25.0% 20.0% 20.0% ‒ Flexibility quota gives us the opportunity to be a supportive bank 15.0% 15.0% for good customers 10.0% 10.0% ‒ Oslo: 7.4 % (quota 8%) 5.0% 5.0% ‒ Rest of Norway: 6.5 % (quota 10 %) 0.0% 0.0%
-5.0% -5.0%
01-15 06-15 11-15 04-16 09-16 02-17 07-17 12-17 05-18 10-18 03-19 08-19 -10.0% -10.0% -15.0% -15.0% Norway Oslo Romerike Inland Region*
38 Source: Eiendom Norge Housing Prices August 2019 | (*) Includes: Oppland and Hedmark | (**)Index 31 December 2014 = 100 Norges Bank: Hawkish central bank Hiking mode 5.00 • First hike since 2011 in Norges Bank deposit rate NIBOR 3m 4.50 September 2018 – followed up in Swap NOK 5yrs Swap NOK 10yrs March and June 2019 4.00
3.50 • The Central Bank’s interest rate
3.00 path indicates one more hike this year 2.50 ‒ September or December 2.00
1.50 • Flat curve from mid 2020 based on dovish international 1.00 Norges Bank's forecasted key interest rate (PPR 2/2019) sentiment 0.50 ‒ Based on strong underlying macro the risk is perceived - to be on the upside
Source: Norges Bank/Bloomberg Pressure down on interest rates after dovish central banks Government benchmark bonds 10 years
Source: Thompson Reuters Datastream Strong Public sector finances The Sovereign Wealth Fund
• The sovereign wealth fund is almost 3 times GDP • All petroleum related income – oil taxes and direct revenue flows into the fund • 3 % of the fund’s size may be spent in the National Budget ‒ Could be used as a countercyclical buffer through the cycle ‒ In 2016 and 2017, total government expenditure was slightly above its income (before oil income) ‒ The countercyclical buffer is used in these years • The fund is restricted from investing in Norwegian assets or banks • The return from the fund outweighs the reduction in buffer ‒ Positive net return
41 Sources: NBIM, Ministry of Finance “National Budget 2019” Mortgage market: key characteristics
Mortgage Market • Total size approximately NOK 3,000 billion (USD 375 billion, €330 billion) Household credit growth • Private banks (incl. savings banks) are the dominant suppliers of (12 months growth rate) mortgages with over 95% market share • Scheduled repayment mortgages: 83.4%, flexible: 16.6% • Typical maturity: 25 years • First priority security market with thorough documentation vetting
Howe Ownership • Over 80% of households owner occupied (little buy to let) • Between 50 and 60% are detached one-family houses Social security • Unemployment benefits represents ca 60% of salary for 2 years
Personal Liability • Borrowers are personally liable for their debt • Swift foreclosure regime upon non-payment • Transparent information about borrowers
Regulation • Loan to value: 85% (75% legal limit for cover pool) Avg. variable interest rate for new mortgages • Flexible repayment mortgages: max 60% LTV • 5% mortgage interest rate increase as stress test • High risk weighting for banks for mortgage lending (20-25%) • Maximum 5x debt / gross income for borrowers Interest Payments • 90-95% of mortgages are variable rate • Interest rates can be reset at the lender’s discretion, by giving the debtor 6 weeks notice Tax Incentives • 24% of interest paid is tax deductible (equal to the basic rate of tax) • Low effective real estate tax (lower net worth tax on real estate than financial assets)
42 Source: Norwegian FRA «Regulation on the requirements for new lending with collateral in housing “ and Statistics Norway Financial Accounts 2Q-2019 Income statement 2Q 2019 and 1H 2019 Group
2Q 2019 2Q 2018 1H 2019 1H 2018 2018 Net interest income 520 511 1.027 1.006 2.074 Net commission income 287 283 560 564 1.106 Other income 78 51 145 93 181 Total operating expenses 489 468 983 918 1.881 Operating profit before losses on loans and guarantees 396 377 749 745 1.480 Impairment losses on loans and guarantees 8 7 -25 12 35 Operating profit after losses on loans and guarantees 388 370 774 733 1.445 Dividends 6 0 18 13 13 Net profit from ownership interest 131 54 477 84 198 Net income from financial assets/liabilities 61 95 125 98 80 Profit before tax 585 518 1.395 928 1.735 Tax charge 114 102 167 198 321 Profit after tax 471 416 1.227 730 1.414
Return on equity capital after tax 12.8 % 12.9 % 16.9 % 11.4 % 10.5 % Total operating costs in relation to total income 45.2 % 47.6 % 41.8 % 49.4 % 51.5 % Losses on loans as a percentage of gross loans 0.03 % 0.01 % -0.05 % 0.01 % 0.04 %
44 Key financials – quarterly (1) Pre-tax profit (NOK million) Net interes income and and commision fees from 810 covered bond companies (NOK million)
585 633 518 599 606 592 605 461 347
2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
Impairments on loans and guarantees (NOK million) Total operating costs (NOK million) 506 468 494 489 12 11 457 7 8
-33 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
45 Key financials – quarterly (2)
Return on equity CET 1 ratio 21.2 % 16.1 % 15.9 % 16.8 % 16.9 % 16.7 %
12.9 % 12.8 % 10.8 % 9.1 %
2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
Lending growth (including loans transferred to Deposit growth last 12 months covered bond companies) last 12 months 9.5 % 9.5 % 8.4 % 8.9 % 8.9 % 7.6 % 8.2 % 6.5 % 6.5 % 6.0 %
2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
46 Net interest income – influenced by reclassification effects Net interest income incl. commissions from covered bond companies 1.76% 1400 1.75% 1.73% 1.80% • In the subsidiary SB1 Finans Østlandet 1.65% 1.70% 1200 1.62% there has been a reclassification of 1.60% 1000 certain items from net interest income to
1.50% other commission income. 800 • The effect is a NOK 28 million reduction of net 633 1.40% interest income in 1Q-19 and a NOK 21 million 599 606 592 602 600 reduction in 2Q-19. 82 89 88 84 82 1.30% • The effect corresponds to a 8 bps isolated
400 reduction of the net interest margin for 1H 1.20% 2019. 511 524 544 508 520 200 1.10% • The Bank announced interest rate 0 1.00% increase on 26 June 2019. 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 • “Mainly 0.25 % on retail lending”. • “Up to 0.25 %” on corporate lending. Net interest income and commission fees from covered bond companies (MNOK) • Rates on savings accounts are increased Commission fees from covered bond companies “mainly 0.15 %”. Net interest income Net interest income in % of average of average total assets (accumultated)
47 Dampened lending growth – above market growth last 12 months Lending volume (Group, NOK billion)
160.0 144 140 141 135 138 • Total lending in the Group, including 140.0 loans transferred to covered bond 43 41 42 120.0 companies, increased by NOK 3.3 billion 39 40 in the second quarter.
100.0 • This is equivalent to a 2.3 % lending 80.0 growth in the quarter.
60.0 96 98 99 99 102 • The lending growth the last 12 months 40.0 was 6.5 % (8.9 %) • Retail lending growth was 6.0 % 20.0 • Corporate lending growth was 8.0 %
0.0 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 • Credit growth in Norway last 12 months • Households 5.5 % Mortgage transferred to covered bond companies • Non-financial corporations 5.8 % Gross loans to customers (own balance sheet) Growth in lending including mortgage transferred to covered bond companies in the last 12 months
48 Source: Statistics Norway – «Credit indicator – Domestic loan debt (C2)» June 2019 Reduced lending towards retail and wholesale trade, hotels and restaurants Corporate lending growth YoY – sector (NOK million)
56 41 -66 95 -94 180 -278 320
345
393
412 2.805
1.400
49 Lending margins Retail and corporate divisions (parent bank) • The lending margins saw a reduction in the second quarter, both within the CM and the RM of the parent bank. 2.53% 2.51% 2.50% 2.48% 2.44% • The reduction is largely explained by the 18 bps increase of the 3M Nibor in the second quarter.
• The customers were notified of interest rate increases on 4 April 2019. • 6 weeks notice on retail mortgages. • 45 % of the corporate lending is Nibor-linked, 1.59% 1.60% with the remainder repriced at the Bank’s 1.55% 1.53% discretion. • Interest rate hikes on retail mortgages with 1.37% “mainly 0.15 %” were effectuated mid May – hence only partial effect in the quarter. 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 • Another interest rate hike was announced 26 Lending margins RM, incl. covered bond companies June 2019, and had therefore no effect on Lending margins CM, incl. covered bond companies the margin development in the second quarter.
50 Satisfactory deposit coverage and strong deposit growth Deposit volume and deposit growth (Group)
Deposit volume (NOK billion)
77 71 70 71 72 • Deposit growth of 6.9 % in the second quarter. • Seasonality (tax settlements, holiday pay)
• Deposit growth last 12 months: 9.5% (5.3 %). 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 • Deposit growth - retail 5.3 %. • Deposit growth - corporates 15.5 %. Deposit growth (%) 9.5 % 9.5 % 8.4 % 7.6 % • Deposit coverage ratio 76.1 % (73.6 %). 6.0 % • Deposit coverage ratio - including mortgages transferred to the covered bond companies 53.6 % (52.1 %).
2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 51 *) Includes 100% ownership of Bank 1 Oslo Akershus Deposit margins Retail and corporate divisions (parent bank) • Strong increase in deposit margins in the parent bank both for RM and CM.
0.42% • The increase is largely explained by the 18 bps increase of the 3M Nibor in the second 0.36% quarter.
0.33% 0.32% • The customers were notified of interest rate 0.30% increases on 4 April 2019 • 35 % of the corporate deposits are Nibor- 0.28% linked while the rest can be repriced at the 0.29% Bank’s discretion. 0.28% • Interest rate increases on retail deposits followed increases on housing mortgage rates (which have a 6 weeks notice) and were effectuated mid May – hence only 0.22% 0.22% partial effect of the rate increases in the second quarter.
• Another interest rate increase was 2Q-18 3Q-18 4Q-18 1Q-19 2Q-19 announced 26 June 2019, and had no effect on the margin development in the second Deposit margins RM Deposits margins CM quarter. 52 Stable capitalization Common Equity Tier 1 ratio (Group)
16.8 % 16.9 % 16.7 % 16.1 % 15.9 % • The Group’s CET 1-target is 16 %.
• The CET 1 ratio was 16.7 % by the end of 2Q-19. The leverage ratio was 7.3 %.
• An increase in the LGD-buffers in the IRB capital requirement calculations was implemented in 1Q-19 according to a ruling by the Norwegian FSA.
• The ruling was appealed to the Ministry of Finance and is still under review.
2Q-18 3Q-18 4Q-18 1Q-19 2Q-19
53 • This presentation contains forward-looking statements that reflect management’s current views with respect to certain future events and potential financial performance. • Although SpareBank 1 Østlandet believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the Disclaimer forward-looking statements as a result of various factors. • Important factors that may cause such a difference for SpareBank 1 Østlandet are, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change in the regulatory environment and other government actions and (iv) change in interest rate and foreign exchange rate levels. • This presentation does not imply that SpareBank 1 Østlandet has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided.
54 Together – to create