Sparebanken Sør Sparebanken Sør Boligkreditt AS
Investor Presentation May 2017 Executive summary
• The sixth largest savings bank in Norway with a strong market position in Southern Norway • High capitalization; Core Tier 1 ratio of 14.6 %, and leverage ratio of 8.9% as of March 31th 2017 Sparebanken Sør • Rated A1 (stable outlook) by Moody’s • Strong asset quality – 65 per cent of loan book to retail customers • 100 % owned and dedicated covered bond subsidiary of Sparebanken Sør • Cover pool consisting of 100 % prime Norwegian residential mortgages Sparebanken Sør • High quality cover pool reflected by the weighted average LTV of 53.7 % Boligkreditt • Covered bonds rated Aaa by Moody’s with 5 notches of leeway • Strong legal framework for covered bonds in Norway with an LTV limit of 75 % for residential mortgages • Current OC of 14.2 %, of which 2.0 % is provided on a committed basis • Economic growth in Norway has picked up after the downturn in the oil sector • The rest of the economy is still supported by low interest rates, historically weak NOK and fiscal stimulus • Unemployment has peaked and is expected to remain at current levels or lower. In the European context Norwegian unemployment is among the lowest economy • The Norwegian government has a strong financial position with large budget surplus. The government pension fund, which accounts over 300% of the GDP, provides the government with substantial economic leeway • The Southern region is clearly less exposed to oil production than Western Norway Southern region • Registered unemployment in the Southern region remains below 4 % and has decreased at a higher pace economy than the national average • House price development over the past years has been more moderate than average in Norway 2 Table of content
I Sparebanken Sør
II Financial key figures
III Sparebanken Sør Boligkreditt
IV Norwegian economy
V Contact details
VI Appendix 3 Historical milestones 190 years of development and renewal
1985 The bank entered for the first time Telemark, through a merger with Sparebanken Sør was Nissedal Sparebank and Arendal Sparebank 1973 established in 1984 after a totals today 7 branches in was founded in 1825 The bank merged with 4 merger between Aust- the county, where the as one of the first other savings banks in Agder Sparebank, 2 other latest was the opening of savings banks in Aust-Agder, and formed savings banks in Aust-Agder an office in Skien in the fall Norway. Aust-Agder Sparebank. and 9 from Vest-Agder. of 2012. 2014 Merger between Sparebanken Pluss and Sparebanken Sør and the new bank is named Sparebanken Sør. The bank´s history The banks more recent Four savings banks in In January 1997 Sparebanken dates back to 1824 history starts in 1984 when Telemark and Pluss and Sparebanken NOR when Christianssand Sparebanken Agder was Sparebanken Agder agreed that Sparebanken Sparebank was established through a merger joined forces in 1987. NOR was to take over established as one of between Christianssands Through the merger the Sparebanken Pluss’ branches the first savings Sparebank, Halse and bank was named in Telemark while Sparebanken banks in Norway. Harkmark Sparebank, Sparebanken Agder and Pluss was to take over Iveland Sparebank, Oddernes Telemark. In 1988 the Sparebanken Nor`s office in Sparebank, Vennesla name was changed to Kristiansand. Through this deal Sparebank Sparebanken Pluss the banks business again was and Øvrebø and Hægeland concentrated in the Agder Sparebank. counties.
4 Sparebanken Sør
Sparebanken Sør is an independent financial group with activities within Business banking, securities and real estate
The sixth largest Norwegian bank with total assets above NOK Balance 100 billions. Total lending of NOK 93 billions and total deposits of NOK 53 billions 431 employees in branch offices across the counties of Aust-Agder, Vest- Employees Agder and Telemark
General banking services- and products, in addition to real-estate Products and brokerage, life- and non-life insurance, stock brokerage and leasing through services wholly- and partially owned subsidiaries and companies
As one of the largest regional banks, Sparebanken Sør is committed to Summary further growth and development in the region
5 Company structure
Sparebanken Sør (parent bank) rated A1 Moody’s Subsidiaries Affiliates Sparebanken Sør Boligkreditt Sørmegleren (Covered bond company) (real estate broker) Covered bonds rated Aaa Ownership 90.1% Frende Brage Norne Moody’s (insurance) (leasing) (brokerage) Ownership 100 % Ownership 10 % Ownership 15 % Ownership 18 %
6 A complete provider of financial services Considerable product range - still potential for increased product sales Subsidiaries Business partners Vendors
• Sparebanken Sør entered in 2008 as a 10%- • Sparebanken Sør Boligkreditt is a wholly owner in Frende Holding and is one of 15 owned subsidiary of Sparebanken Sør independent savings banks with holdings • The subsidiary is licensed as a financial • Frende has 175 000 customers and offers enterprise with the right to issue bonds, in insurance, both life and general, to corporate which investors receive preferential coverage and retail customers in home mortgages granted by the bank (covered bonds) • Through the issuance of covered bonds, the Sparebanken Sør Group can offer mortgages with competitive terms to its customers • Brage Finans is a financing company owned by 10 independent savings banks, and Sparebanken Sør is a 15%-owner • The distribution of the company's products is done through the owners and through its own • Sparebanken Sør is a 90.1%-owner in sales organization Sørmegleren Holding AS, which is the parent company of the real estate agency Sørmegleren AS • Sparebanken Sør became a 18%-owner in • Sørmegleren is represented with a total of 14 Norne Sec. in 2008, and is one of 14 offices, with its headquarters in Kristiansand independent savings banks with holdings • Convey about 2.200 homes a year, and is the • Norne is a full service investment firm with region's largest real estate agency corporate finance – services, analysis, and stock and bond brokerage 7 Telemark
Aust-Agder
Vest-Agder
A market with 470 000 inhabitants. No other bank covers this area as Sparebanken Sør. The bank has approximately 150 000 retail customers and 14 000 corporate customers. RM – Retail Market CM – Corporate Market 8 Table of content
I Sparebanken Sør
II Financial key figures
III Sparebanken Sør Boligkreditt
IV Norwegian economy
V Contact details
VI Appendix 9 A well diversified loan portfolio High RM share and geographical diversification contribute to a balanced portfolio
Geographical distribution of loans Distribution RM / CM
Gross loans Gross loans
• # 1 position in Vest-Agder and Aust-Agder, # 3 position in Telemark • Close and long term cooperation with major firms/organizations in the region. The KNIF segment amounts to NOK 7.4 billion in loans to customers and NOK 4.5 billion in customer deposits. KNIF corporates constitute the biggest share with NOK 4.5 billion in loans and NOK 3.9 billion in deposits • Loans to customers are concentrated in the banks market area • High RM share is in itself risk reducing. Loans under NOK 2 million constitute a dominant portion (42 percent)
Note(*): KNIF = Kristen-Norges interessefellesskap (Norwegian Christian interest organization) -> Consists of more than 70 national organizations 10 Sparebanken Sør – Mortgages
The loan portfolio in Sparebanken Sør Loan to Value (Group)
• Mortgages constitute a large part of the RM portfolio
• Loans with LTV (Loan to Value) below 75 percent constitute 82.1 percent
The LTV distribution is based on a distribution, of which the whole commitment is rated as the last part of the commitment. As a consequence the actual LTV-distribution will be lower than what is displayed in the table. 11 A well diversified loan portfolio CM portfolio with very low direct exposure to oil and oil service industry
Tenant distribution1): Property management (rental), real estate development Distribution Corporate Market (CM) and building and construction (Loan commitment > NOK 10 million)
Rental fin./com. services - 26,4 % Property management - 49,9 % Dev. Real estate - 12,5 % Social services - 12,5 % Dev. plot area - 9,8 % Real estate development - 10,8 % Rental rest./hotel - 9,6 % Rental other trade - 8,0 % Financial/commercial services - 6,9 % Rental other - 7,0 % Building and construction industry - 4,3 % Rental public - 7,0 % Retail trade - 3,1 % Rental other industry - 3,1 % Rental merchandising- 2,7 % Housing cooperatives - 3,0 % Rental shopping center - 2,3 % Manufacturing industry - 2,8 % Dev. trade - 2,2 % Primary industry - 2,5 % Entrepeneur etc. - 1,9 % Rental social services - 1,7 % Transport - 1,8 % Dev. others - 1,7 % Public sector 1,1 % Rental offshore ind. - 1,3 % Hotel and restaurants - 1,0 % Others - 2,8 %
The CM loan portfolio reflects the business activity in the region with one major exception: Sparebanken Sør has a very low direct exposure to the oil and oil service industry.
1) Updated Q3 2016 12 A well diversified loan portfolio Low exposure to oil and offshore industry - Stable exposure to real estate
Norways largest petroleum counties Exposure to oil- and oil service**
. Sparebanken Sør has virtually no direct exposure to oil and offshore industry - A long term strategic choice . Even though Vest-Agder has a slightly above average exposure to oil, the Aust-Agder and Telemark counties ensure a total exposure under the average in Norway
Note(*): Industribyggerne 2015 - Rapport IRIS 2015/031 (Directly and indirectly empoyed in the petrolium industry) Note(**): Swedbank Research, EAD Oil and Oil service, except * - in % of total lending Balance sheet items – Quarterly development
NOK billion Total assets Equity
+1,3 %2) +17,9 %2)
1) The equity incl. hybrid capital 2) Changes from the same accounting period in 2016
14 Balance sheet items – Quarterly development
NOK billion Loans Deposits
92,6 52,8 89,3 90,2 90,1 90,9 51,2 51,2 51,6 48,7
+3,8 %1)2) +8,4 %1)
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
1) Changes from the same accounting period in 2016 2) Loan growth in Q1 2017 amounted to NOK 1.7 billion, equivalent to 7.5 percent, of which retail customers accounted for 3.2 percent and corporate customers 15.7 percent (annualized)
15 Losses and non-performing loans – Quarterly development
Development in losses in NOK million Development in non-performing loans in NOK Development in loss provisions in NOK million and as a percentage of gross loans million and as a percentage of gross loans and as a percentage of gross loans
16 Profit and loss – Quarterly development
NOK million Net interest income Net commission income
Net interest income, adjusted for the fee to the Norwegian Banks’ Guarantee Fund and interest on hybrid capital
+10,8 %1) +6,0 %1)
1) Changes from the same period in 2016.
17 Profit and loss – Quarterly development
Net interest income to total assets Costs Income Ratio
Net interest income to total assets, adjusted for the fee to the Cost income ratio excl. financial instruments
Norwegian Banks’ Guarantee Fund
18 Interest margin - Quarterly development
Loans: Average interest rates minus 3 month weighted average of 3 month NIBOR. Deposits: 3 month weighted average of 3 month NIBOR minus average interest rates. All numbers in % per annum. 19 Profit and loss - Quarterly development
NOK million
Operating expenses Profit from ordinary operations1)
0 %2) +3,5 %2)
1) Net interest income, adjusted for accounting changes + Net commision income + Other operating income – Operating costs, adjusted for the conversion of the pension scheme 2) Changes from the same accounting period in 2016 3) Included the accounting effect of NOK 42 million from the conversion of the pension scheme 20 Restructuring and cost focus
Total assets in NOK million per Number of employees Number of offices employee
520 44 431 243 33 180
2013 Status 31.03.2017 2013 Status 31.03.2017 2013 Status 31.03.2017
Considerable potential has been realized – further efficiency improvements will take place as part of ongoing operations. The Group opened a new office in Jæren on 27 April 2017.
21 Three strategic pillars One of the most cost effective Strong customer relations financial institutions1) The bank is customer relation oriented, known for fast decisions based on local knowledge through closeness to customers and market
Optimal channel interaction and digitalization
1) Costs as a percentage of total assets, Q1 2017 22 Our focus areas Differentiated and high growth potential Local, regional and national customer segments Regional business
INDUSTRY TRANSPORTATION
REAL TOURISM ESTATE
MERCHANDISING
HEALTH
AGRICULTURE PUBLIC SECTOR
FINANCIAL EDUCATION SERVICES
23 Solid financial base – High capital ratios
Common equity tier 1 capital ratio Leverage ratio
Common equity tier 1 capital ratio including 80 % of profit and Leverage ratio including 80 % share of profit and equity issuance in Q2 2016 equity issuance in Q2 2016
24 Capital ratio – Leverage ratio
• Sparebanken Sør has fullfilled the Financial Authorities’ expectations of a 14,5% common equity
31.03.2017 tier 1 (CET1) capital ratio
Sør 14,30 % 8,80 % • Sparebanken Sør is the only of the large regional banks that uses the standard method in the capital Peer 1 14,70 % 8,60 % adequacy calculations
• Sparebanken Sør is very solid, has a high CET1 Peer 2 14,80 % 7,40 % capital and a very high Leverage ratio
Peer 3 14,70 % 7,10 % • With a CET1 capital ratio of 14.3 percent, the bank has a considerable buffer beyond the regulatory Peer 4 14,40 % 7,10 % requirements
• Norwegian banks are well-capitalized compared to European banks
1) Common equity tier 1 capital ratio excluding 80 % of profit 2) Leverage ratio excluding 80 % share of profit 25 Capital ratio – Leverage ratio Q4 2016 – Selected European banks
Source: DNB Sparebanken Sør Q1 2017: 8,9 %1) 1) Leverage ratio including 80 % share of profit 26 Solid financial base - Deposits
Distribution RM/CM (31.03.17) Deposit to net loans
Deposits as a percentage of net loans have increased over the last 12 months, with a deposit growth of 8.4 percent
27 Solid financial base – Well diversified funding profile
Remaining maturity of outstanding wholesale funding
4 % 20 % 20 %
NOK million . Total funding for the Group amounted to NOK 40.6 bn, with NOK 24 bn issued as covered bonds as at 31 March 2017 . The bank has a reassuring maturity profile and limited maturities in 2017 . Funding with maturities after 2017 amounts to 96% of the portfolio . Liquidity indicator 1 at 108% . Average maturity at 3.1 years
28 Solid financial base – High liquid buffers to handle liquidity stress
Category Rating
0,9 % 4,3 % 1,4 %
9,4 %
23,1 %
71,7 % 89,3 %
AAA Norwegian government bonds AA 0 weighted bonds/gov. guarantees/owned AAA/AA A Norwegian covered bonds/nordic/municipal Finance/power production/other < B (1)
. Total liquidity portfolio of NOK 10.9 bn . 100 % investment grade and 100 % liquid instruments ( LCR eligible) . Liquidity reserve (LCR) of 114 % for the Group (1) Norwegian covered bonds without rating 29 Status as of 31 March 2017
Improved profit from ordinary operations, through positive growth, stable net interest Result income, combined with low costs and losses on loans
Positive net income from financial instruments due to positive changes in the Finance market value of bonds
The Bank’s financial strength is considered satisfactory in light of the current Capital regulatory requirements. Included 80 percent of the profit, the common equity tier 1 capital ratio amounts to 14.6 per cent and the leverage ratio amounts to 8.9 percent
Loan growth of NOK 3.4 billion the last 12 months, corresponding to a 3.8 percent Capital annual growth. The deposit growth of NOK 4.1 billion, or 8.4 percent the last 12 months
Sound operations contribute to a pre-tax result of NOK 276 million in Q1 2017 Summary
30 Table of content
I Sparebanken Sør
II Financial key figures
III Sparebanken Sør Boligkreditt
IV Norwegian economy
V Contact details
VI Appendix 31 Business concept - governed by Norwegian covered bond legislation
Board of Directors
Loan Transfer Agreement External auditor and Service Agreement
Sparebanken Sør Covered Bonds Sparebanken Sør Covered Bonds Boligkreditt AS Investors Credit Facilities
Interest- and currency swaps with external counterparties Loan origination and management Cover Pool
External investigator appointed by NFSA 32 Sparebanken Sør Boligkreditt AS
• Dedicated and integrated covered bond company 100% owned by Sparebanken Sør • Overdraft facility with the bank to handle daily operations • Revolving credit facility with Sparebanken Sør, which covers refinancing risk • The company has no employees, all operations are handled by the mother company under legally binding service agreements • Loans are originated by the bank and transferred to the CB company • Borrowers are tested on income status and stress test analysis on changes of interest rates is performed • Aaa long term rating by Moody´s • Credit opinion from Moody´s updated by 1 March 2017 with basis on: • High credit quality of the cover pool, collateral score of 5.0% • Support provided by the Norwegian legal framework for covered bonds • Credit strength of the issuer • Minimum OC level consistent with current rating of 0.5%, TPI of High, Leeway of 5 notches • Sparebanken Sør (parent bank) A1 rated by Moody´s
33 Sparebanken Sør Boligkreditt AS
• Cover pool • The covered bonds have full recourse to the issuer • The cover pool consists of 100 % prime Norwegian residential assets • Low LTV of 53.7 % (indexed) • No non-performing assets in the cover pool • Current OC of 14.2 %, of which 2.0 % is provided on committed basis • Cover pool exposure towards Southern Norway, where price development is rather stable
34 Sparebanken Sør Boligkreditt AS
• Further legal assessments • Claw back risk • All borrowers are notified when loans are transferred from the bank to the covered bonds company • Provided that borrowers are notified, the transfers cannot be subject to claw back by the transferor or any public administration or any purchaser of a mortgage loan • Any transfer done in accordance with the Loan Transfer Agreement will be valid and binding between the bank and the issuer • Co-mingling risk • In the event of a public administration of Sparebanken Sør, in which the issuer has its bank account and into which cash flows from the cover pool is transferred on a daily basis, the issuer will have an unsecured claim on the bank account • Upon a rating downgrade of the account issuer bank below P-1, a more suitably rated bank should be considered • No set-off • A borrower whose residential mortgage loan has been transferred by the bank to the issuer may not set-off any obligation under the residential mortgage loan against; • any sum owed by the bank to the borrower (e.g. deposits) • any sum owed by the issuer to the borrower
35
Eligibility criteria for cover pool mortgages
•Residential Norwegian properties •Holiday homes – p.t. none, according to internal Type of properties guidelines •Minor volumes of buy to let
•Mortgages with floating or fixed interest rates – p.t. only Type of products floating interest rate •Serial, annuity or non-amortizing loans
•No arrears Credit criteria •Borrowers probability of default ≤ 2%
•LTV limit of 75 % for residential mortgages Collateral •(LTV limit of 60 % for holiday homes) •Quarterly valuation from independent third party (Eiendomsverdi)
•Maximum loan per borrower of 12 MNOK (Euro 1,3 mill) Loan volume
36 Risk management
•Payment flow from the cover pool is to meet the payment obligations to the covered bond holders and Liquidity risk derivative counterparties •Revolving credit facility in place with the mother company
•Interest rate risk measured on a 2 basis points parallel shift in the interest rate curve, alternatively including the effects of non parallel shifts Interest rate risk •Should not exceed NOK 100 million •P.t. only floating rate loans and floating funding base incl. swaps
•FX risk is fully hedged Foreign exchange risk •Long term FX funding is swapped into NOK •Derivative contracts with external counterparties
37 Cover pool characteristics
Cover pool composition Sparebanken Sør total loan portfolio
Cover Pool Composition 31.03.2017
Type of Collateral: 100% residential
Total LOAN BALANCE: 27.369.275.176 Average LOAN BALANCE: 1.188.522 NO. OF LOANS 23.028 30% WA SEASONING (in months): 39 35% WA REMAINING TERM (in months): 203 NO. OF BORROWERS 20.999 NO. OF PROPERTIES 23.077 35% WA Indexed LTV (LOAN BALANCE/INDEXED valuation) (e.g. 85% or 0.85): 53,70 % WA LTV(LOAN BALANCE/original valuation)(e.g. 85% or 0.85): 60,20 % Percentage of VARIABLE MORTGAGES (S.Def.): 100,00 % Loans in arrears > 90 days (e.g. 1% or 0.01): 0,00 % Substitute assets: 0 CM RM Cov.bond Committed over collateralisation: 2,00 % Over Collateralisation: 14,20 % • Loans transferred to S.B. Sør Boligkreditt account • 100 % prime Norwegian residential mortgages for 30% of Sparebanken Sør´s total loan portfolio • Current OC level of 14.2 % and commitment to maintain level above 2.0 %
38 Cover pool characteristics
Current indexed LTV distribution Historical development in weighted average indexed LTV
80,00% 33,6 % 57% 75,00%
70,00%
65,00% 21,1 % 21,5 % 60,00% 14,2 % 55,00%
8,7 % 50,00%
45,00% 0,8 % 40,00% 0-≤40% 40%<-≤50% 50%<-≤60% 60%<-≤70% 70%<-≤80% >80% 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
• The weighted average LTV is 53.7 % on an indexed basis • On a historical level the weighted average LTV is well below the legislative maximum of 75 % for residential mortgages • Approx. 57% of the cover pool has an LTV below 60%
39 Cover pool characteristics
Cover pool geographic split Seasoning of mortgages in the cover pool (in % of total loan balance)
25,20%
21,00% 19,60% 18,00% 16,20%
Regional diversification Vest-Agder 43,40 % Aust-Agder 28,30 % Telemark 9,20 % Oslo 8,00 % Akershus 4,10 % < 1 year 1≤-<2 years 2≤-<3 years 3≤-<5 years ≥5 years Other 7,00 %
• The cover pool is primarily exposed towards Vest-Agder and • Weighted average seasoning is 3 years Aust-Agder, and secondly to Telemark and Oslo/Akershus • 84% of the cover pool consists of mortgages with longer age than • Property price development in Vest-Agder and Aust-Agder has 1 year been more modest than in the rest of the country
40 Cover pool characteristics
Pool notional Property type
3 % 11 % Detached House 43,03%
Semi Detached 18 % House Apartment 68 % Other 22,73% 20,07%
Principal payment frequency 8,41% Non-amortizing 23 % 3,23% 2,53% BULLET 1 %
MNOK 0-1 MNOK 1-2 MNOK 2-3 MNOK 3-4 MNOK 4-5 MNOK > 5 Annually 0,02 % Quarterly / Semi- Monthly • Average loan value of NOK 1.2 million annually 76 % 0,24 %
41 Cover pool characteristics
Historical development in over collateralisation Current situation
18,30% 17,80% 17,40% 17,00% 17,00% 16,75% 16,76% 16,30% 14,38% 14,24% 14,44% 14,20% • Committed OC: 2.0% 10,66% • OC consistent with current rating: 0,5% • Current OC: 14.2%
• Commited OC: The minimum level of OC included in Sparebanken Sør 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 Boligkreditt Covered bond program Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Rating requirements Surplus OC Current OC
Stress test of the cover pool 74,3 % 53,7 %
14,2 % 6,2 %
Status Q1 17 House price decline 30% Weighted average LTV Nominal OC
42 Funding as of 31.03.2017
Annual maturity of wholesale funding 4% 18% 19% 18% 38% 0% 1% 2% • Total funding amounts to NOK 24 bn in 10.000 issued covered bonds 8.000 • The company has a diversified maturity EUR funding 6.000 profile and few expiring bonds in 2017 NOK funding 4.000 • Funding > 12 months totalled 96% 2.000 • Soft bullet structure on all outstanding debt - 2017 2018 2019 2020 2021 2022 2023 2028
Ticker ISIN Outstanding Amount Issuance Date Expected Maturity Interest Rate Type Coupon SORB02 NO0010623945 NOK 1000 million 24.08.2011 24.08.2017 Floating rate Nibor 3 mnd + 53 bps SORB21 NO0010673296 NOK 4500 million 14.03.2013 14.09.2018 Floating rate Nibor 3 mnd + 46 bps SORB10 NO0010679806 NOK 4500 million 22.05.2013 22.05.2019 Floating rate Nibor 3 mnd + 44 bps SORB07 NO0010664659 NOK 28 million 27.11.2012 27.11.2019 Floating rate Nibor 3 mnd + 54 bps SORB24 NO0010714058 NOK 4500 million 24.06.2014 24.06.2020 Floating rate Nibor 3 mnd + 30 bps SORB27 NO0010778954 NOK 4500 million 22.11.2016 22.11.2021 Floating rate Nibor 3 mnd + 54 bps SORB09 NO0010671597 NOK 350 million 13.02.2013 13.02.2023 Fixed rate 3.850 % SORB08 NO0010670409 NOK 500 million 24.01.2013 24.01.2028 Fixed rate 4.000 % - XS1383921803 EUR 500 million 22.03.2016 22.03.2021 Fixed rate 0.250%
43 Euro Medium Term Covered Note Programme
• Sparebanken Sør established a €4,000,000,000 Euro Medium Term Covered Note Program (EMTN) in the third quarter of 2015 • In the first quarter of 2016 the company issued covered bonds amounting to EUR 500 million under the program • Sparebanken Sør Boligkreditt AS plans to further acquire loans from Sparebanken Sør, and the company intends to issue new covered bonds towards investors in Norway and abroad
44 Credit opinion from Moody´s updated by 1 March 2017
45 Credit opinion from Moody´s updated by 1 March 2017
46 Looking ahead
The Norwegian economy was affected by low growth in 2016. The outlook is considered Macro positive, but the rate of change in growth is uncertain Government finances are rock solid, with a Oil fund EUR 850 bn, and a positive net financial position of 300 % of GDP
The economic outlook for the bank's market area is considered positive. Housing The region prices show moderate positive development and unemployment is falling
The Group has a common equity tier 1 capital ratio of 14.6 percent and leverage Capital ratio of 8.6 percent. Along with a positive profit from ordinary operations, the requirements opportunities for further loan growth are positive
Funding and The Group is well positioned to establish long-term funding from the Norwegian liquidity and the international financial market
Sparebanken Sparebanken Sør Boligkreditt AS will further acquire loans from the bank to issue Sør public covered bonds in Norway and abroad, primarily as benchmark issuances that are eligible to LCR requirements for level 1 assets Boligkreditt
47 Table of content
I Sparebanken Sør
II Financial key figures
III Sparebanken Sør Boligkreditt
IV Norwegian economy
V Contact details
VI Appendix 48 Key indicators for the Norwegian economy Growth on its way back
In % 2015 2016 2017E 2018E 2019E
GDP growth, mainland 1.1 0.8 1.6 2.0 2.2 Core inflation 2.7 3.1 1.7 1.5 1.3 Unemployment rate registered 3.0 3.0 2.9 2.8 2.7 Key policy rate (Average) 1.05 0.6 0.4 0.4 0.6 Current account surplus / GDP 8.7 4.9 6.9 7.4 7.6 Sovereign wealth fund / GDP 224 276 N.A N.A N.A
• Economic growth in Norway has picked up after the downturn in the oil sector • The rest of the economy still supported by low interest rates, historically weak NOK and fiscal stimulus • Unemployment has peaked and is expected to remain at current levels or lower. In the European context unemployment is among the lowest • Excellent financial position for the Norwegian government with a large budget surplus and a government pension fund accounting nearly 300% of GDP
Source: Estimates from Norges Bank’s March Monetary Policy report and Statistics Norway (Current account) 49
The economy has picked up Both hard and soft data are pointing upwards
50 Negative drag from oil sector diminishing Oil investments have bottomed
51 NOK, oil price and competitiveness We have benefitted from weak NOK and increased competitiveness
52 Strong public finances Fiscal policy has supported the economy
• The Government Pension Fund currently amounts to close to NOK 8,000bn (approx. EUR 850bn) which is near three times the size of Mainland GDP and equals six annual national budgets • The Fund and large petroleum revenues give the Norwegian government substantial economic leeway • The fiscal rule: 3% (previously 4%) of the fund’s value can be used in the national budget (expected real return on the fund) • The rule is to ensure that the fund itself would not be tapped. Thus the fiscal break even oil price is zero • In response to lower oil price public spending has increased. The fiscal policy stimulus is estimated to be 0.4% of the Mainland GDP in 2017
53 Unemployment has peaked and is falling back - Even in the oil counties
54 Unemployment is now decreasing
Key figures from the Norwegian labour market, April 2017
As a percentage Percentage As a percentage Number of of the work Change from change from last of the work unemployd force last year year force, last year Total 78 212 2,8 % -7 259 -8 % 3,1 % Østfold 4 405 3,1 % - 274 -6 % 3,3 % Akershus 6 973 2,2 % - 780 -10 % 2,5 % Oslo 10 708 2,9 % -1 663 -13 % 3,3 % Hedmark 2 065 2,1 % - 293 -12 % 2,4 % Oppland 1 756 1,8 % - 263 -13 % 2,1 % Buskerud 3 804 2,6 % - 331 -8 % 2,8 % Vestfold 4 039 3,2 % 176 5 % 3,1 % Telemark 2 641 3,0 % - 331 -11 % 3,4 % Aust-Agder 1 833 3,2 % - 339 -16 % 3,8 % Vest-Agder 3 153 3,3 % - 399 -11 % 3,7 % Rogaland 10 865 4,2 % - 898 -8 % 4,5 %
Source: NAV.no 55 Debt and income Rich countries have higher debt relative to income
56 Norwegian housing market House prices have increased alongside income growth
57 House price development March 2017
Year over year : Vest-Agder + 2,7 % Aust-Agder + 2,1 % Telemark + 8,4 % Rogaland - 0,6 % Oslo + 22,4 %
February - March: Vest-Agder + 0,1 % Aust-Agder + 0,3 % Telemark + 0,6 % Rogaland + 0,3 % Oslo + 1,0 %
Source: Eiendomsverdi AS 58 Apartment price development March 2017
Year over year: Kristiansand + 3,6 % Stavanger - 1,5 % Oslo + 22,7 %
February - March: Kristiansand - 0,5 % Stavanger - 0,2 % Oslo + 0,9 %
Source: Eiendomsverdi AS 59 How expensive is housing? House prices have increased, but cost of serving has not
• Cost of serving downpayment and interest rate for buying the average house in Norway at the price level at each time • 25 years downpayment and 85% loan-to-value • Share of median income after tax for nuclear familiy (couple with two kids)
Sources: Statistics Norway, Real Estate Norway and Macrobond 60 Income and living expenses Income has increased a lot and households spend less on living expenses
Sources: Statistics Norway and National Institute for Consumer Research
61 Income and living expenses Income has increased a lot and households spend less on living expenses
Sources: Statistics Norway, Real Estate Norway and National Institute for Consumer Research
62 Norwegian housing market Key characteristics
High home ownership • Around 80% of Norwegian households own their home, which is among the highest home ownership ratios in the world. Hence, the buy-to-let market is limited in Norway
Key features of residential • Residential mortgage loans are predominantly granted by banks and mortgage credit institutions mortgage loans in Norway (97% as of January 2015) • Lenders have access to a wide range of information about borrowers before granting the mortgage (e.g. tax records for the last three years, any debt collection outstanding, any bankruptcies) • Properties are registered in a central register to which banks have direct access • Typical maturity of a new loan is 25 to 30 years • The majority of residential mortgage loans have a floating interest rate meaning that banks are allowed to increase the interest rate with a six weeks’ notice • Borrowers are personally liable for their debt also after foreclosure or forced sale
Good tax incentives and • Borrowing costs on mortgages are tax deductible (the tax rate applied is 24%) supportive social security • Tax valuation of dwellings is favourably treated in the wealth tax system system • If a dwelling is occupied by the owner for a minimum of one year, capital gain is tax free when the dwelling is sold • Unemployment benefit equals approximately 62% of the previous calendar year’s gross income and is paid for up to 104 weeks
Source: Finance Norway, Norwegian Labour and Welfare Administration 63 Contact details and website
Marianne Lofthus – Director Capital Market/CEO Sparebanken Sør Boligkreditt AS Phone, mobile + 47 90 51 41 83 E-mail [email protected] Bjørn Erik Kittelsen – Head of Treasury, Sparebanken Sør Phone, mobile + 47 90 92 86 63 E-mail [email protected] www.sor.no Table of content
I Sparebanken Sør
II Financial key figures
III Sparebanken Sør Boligkreditt
IV Norwegian economy
V Contact details
VI Appendix 65 Key features 1st quarter 2017
• Good results from ordinary operations
• Positive development in net interest income
• Positive net income from financial instruments due to a positive change in the market value of bonds
• Costs under control
• Low loan losses
• Defaults on loans further reduced
• Loan growth of 3.8 percent during the last 12 months
• Deposit growth of 8.4 percent during the last 12 months
• Return on equity after tax of 8.7 percent
• Common equity tier 1 capital ratio of 14.6 percent and leverage ratio of 8.9 percent, when including 80 percent of accrued profit 66
Income statement Sparebanken Sør
Profit before tax at the end of Q1 2017 NOK million 31.03.2017 31.03.2016 Change amounted to NOK 276 million Net interest income 401 362 39 The main features for Sparebanken Sør in Net commission income 71 67 4 Q1 2017: Net income from 14 -21 35 • Satisfactory development in net financial instruments interest income Other operating income 4 5 -1 • Positive net income from financial Total income 490 413 77 instruments due to changes in the Total expenses value of bonds 199 199 0 • Good cost control Profit before losses on 291 214 77 loans • Low losses on loans Losses on loans, 15 13 2 guarantees The profit in Q1 2017 gives a return on Profit before taxes 276 201 75 equity after tax of 8.7 percent Tax expenses 66 51 15
Profit for the period 210 150 60
67 Improvement in profit before taxes, Q1 2016 – Q1 2017
NOK million
-1 0 2 35 4
39
income 276
income
from from
income
costs
loans
instruments
201
on
operating operating
income
interest comission
Other Operating Losses
Net Net financial
Net Net Net
Q1 2016 Q1 2017
68 Key figures – quarterly development
Return on equity after tax1) Return on equity after tax
excl. financial instruments2)
69 Financial key variables and ambitions
Common equity tier 1 capital Return on equity Loan growth2) (Group)1) 3)
14,5-15 %3)
Cost development Dividend ratio
1) Incl. share of profit 2) Growth YTD annualized 3) Will be determined with regard to market expectations, the Financial Supervisory Authority recommendations and ICAAP 70
1) Tillagt andel av resultat
2) Vekst hittil i år annualisert