Sbanken Annual Report 2020 sbanken.no Sbanken Annual Report 2020 Content Important events 2020 4 Key figures (group) 6 Letter from the CEO 8 Sbanken’s history 10 Sbanken’s values 12 Sbanken’s business 15 Norway’s most recommended brand 16 Best in Norway on digital innovation 18 Corporate social responsibility and sustainability 20 How Sbanken’s ESG work is managed at the overarching level 21 Sbanken’s customers 22 Sbanken’s employees 27 Sbanken and society 30 Owners and social responsibility 34 UN SDGs in Sbanken’s work with ESG 35 Macroeconomic development in Norway in 2020 40 The capital market 41 Financial targets 2021–2023 43 Corporate governance 44 The management of Sbanken ASA 52 Board of Directors 54 Board of Directors’ report 58 Annual accounts and notes 69 Alternative perfomance measures 173 Statement 176 Auditor's report 177 Climate risk reporting based on the recommendations of the Task Force on Climate Related Financial Disclosure (TCFD) 182 Stakeholder engagement for Sbanken 2020 186 GRI Index 2020 188 2 3 Sbanken Annual Report 2020 Important events 2020 Q1 First quarter Q3 Third quarter • Sbanken is ranked first in the industry on the Norwegian • After Sbanken announces the lowest-ever fixed interest School of Economics’ (NHH) Innovation Index for 2019. rate offered to Norwegian customers – 1.39 per cent – as a Sbanken comes in second overall on perceived innovation measure to ensure predictability in a period of uncertainty, and in eighth place on social innovation, which means that the proportion of fixed rate mortgages increases markedly. customers consider the bank to be among the best in the The initiative also enables the bank to offer more Sbanken country in terms of innovation and development. products to its current long-term customers. • On 12 March, the Government decided to shut down many • The Ministry of Finance decided, in Sbanken’s favour, Norwegian institutions and at the same time announced that the parent company shall be exempt from the capital more wide-reaching restrictions based on the spread of buffer requirement of 2.0 per cent. The decision helps to the Covid-19 virus. That same day, Sbanken instructed give the bank capital flexibility going forward. many of its staff to work from home but managed to maintain normal operations in spite of this. • In order to further enable customers to make sustainable investment decisions, Sbanken launces low carbon- • Based on the extraordinary situation Norwegian mortgage labelling of funds, adding to the bank’s existing ESG customers found themselves in as a result of the Covid-19 labelling of funds. outbreak, Norges Bank lowered the key policy rate on two occasions. When the second cut was announced, Sbanken was the first bank to cut its interest rates for all customers effective immediately. This initiative attracted a lot of media attention and resulted in a strong growth in customer lending. Q2 Second quarter Q4 Fourth quarter • In May, Norges Bank cut the key policy rate for the third • Sbanken’s long-term A3 credit rating receives an outlook time, this time to a record-low zero per cent. Sbanken upgrade to “positive” by the rating agency Moody’s. The quickly followed suit with a new cut, directing attention to upgrade was a result of the bank’s low and improved risk long-term profitability. profile, solid capital situation, strong growth in deposits and resilient profitability. • For the 19th year in a row, the Norwegian Customer Satis- faction Barometer (NKB) finds that Sbanken has the most • Sbanken holds an extraordinary general meeting in satisfied and loyal customers among Norwegian banks. order to grant the Board authorisation to distribute the Sbanken’s strong reputation is also confirmed in Apeland postponed dividend for 2019. The authorisation is limited and the Reputation Institute’s RepTrak survey, which puts to up to NOK 3.15 kroner per share. to show what Norwegian companies that have the best reputation and brand. • The Norwegian FSA announces Sbanken’s Minimum Requirement for Own Funds and Eligible Liabilities (MREL). • After initially proposing a dividend of NOK 1.90 per share At the time of announcement, Sbanken had the lowest for 2019, the Board adjusted its dividend proposal to the MREL-requirement to have been given to Norwegian General Meeting at the request of the Financial Super- banks, underscoring the bank’s low risk profile. visory Authority. It was proposed to not pay dividend at that point in time, but that the Board would consider the dividend issue at an extraordinary general meeting by year-end 2020 at the latest. 4 5 Sbanken Annual Report 2020 Key figures (group) In NOK thousand Reference 2020 2019 Profit performance in NOK million Return on equity Summary of income statement Net interest income 1 644 137 1 564 127 14 % 13.1 % 12.9 % 1 800 1 644 12 % 11.4 % 11.4 % Net fee and commission income 184 310 214 924 1 600 Net other income 22 050 20 778 1 400 10 % Total income 1 850 497 1 799 829 1 200 1 007 8 % 1 000 783 6 % Other operating expenses -710 371 -727 239 800 600 Operating profit before loan losses 1 140 126 1 072 589 4 % 400 2 % 200 Loan losses -133 482 -153 149 0 0 % Earnings before tax 1 006 643 919 440 Net interest income Profit before tax Net profit 2017 2018 2019 2020 2017 2018 2019 2020 Calculated tax -223 601 -209 388 Net profit 783 042 710 052 Profitability Loans to customers (NOK billion) and lending growth (per cent) Loan losses in NOK million and per cent Return on equity 1 11.4 % 11.4 % 90 20 % Net interest margin 2 1.66 % 1.68 % Cost-to-income ratio 3 38.4 % 40.4 % 200 153 0.40 % 85 83.4 13.7 % 15 % 133 Earnings per share 7.00 6.34 81.5 80 79.2 150 0.30 % 10 % 0.19 % Balance sheet figures (in NOK million) 76 75 9.8 % 100 0.16 % 0.20 % Total loan volume 83 438 81 494 72,1 0.10 % 5 % Customer deposits 58 644 52 845 70 2.9 % 2.4 % 50 0.10 % Deposit-to-loan ratio 4 68.4 % 64.8 % 0.00 % 0.00 % 65 0 % 0 Lending growth (gross) previous 12 months 2.4 % 2.9 % 2017 2018 2019 2020 -1 Total loan volume Lending growth (r.a.) 2017 2018 2019 2020 Average total assets 5 98 939 92 913 -50 -0.10 % Net loan losses Loan loss ratio (r.a.) Total assets. end of period 100 726 93 006 Book value per share 64.72 57.83 Losses and defaults Net interest margin Cost/Income (C/I) ratio in per cent Total loan loss (%) 6 0.16 % 0.19 % 2.50 % 45 % Capital adequacy and leverage ratio 7 2.00 % 1.68 % 1.65 % 1.66 % 1.53 % Common equity Tier 1 capital ratio 15.5 % 15.6 % 40 % 1.50 % 1.55 % 39.4 % Tier 1 capital ratio 17.3 % 17.5 % 39.0 % 38.6 % 37.7 % Total capital ratio 19.6 % 19.9 % 1.00 % 1.06 % 35 % Leverage ratio 6.3 % 6.7 % 0.89 % 0.70 % 0.50 % Employment 0.00 % 30 % 2017 2018 2019 2020 2017 2018 2019 2020 FTEs 334 370 Net interest margin 3m Nibor (annual average) C/I ratio C/I ratio adjusted for one-offs References 6) Loan losses as a percentage of average loan volume in the period 1) Return to shareholders after tax (annualised) as a percentage of average 7) Year-end 2020 includes 37.2 per cent retained earnings for 2020 and 50.4 shareholder equity in the period. per cent of retained earnings for 2019. Year-end 2019 includes 70.1 per cent 2) Net interest income (annualised) as a percentage of average total capital retained earnings following the Board’s original dividend proposal. 3) Operating expenses before loss as a percentage of total income 4) Average deposits from customers as a percentage of average loan volume 5) Average total assets in the period 6 7 Sbanken Annual Report 2020 We have broken down barriers by launching a fee-free fully- succeed: (1) We will become Norwegian customers’ preferred digital corporate bank based on new technology. The savings partner, and (2) We will deliver the most automated and recruitment of new customers in 2020 was slower than hoped, scalable core banking services in the market. primarily due to the outbreak of the coronavirus. Many corporate customers have asked for access to liquidity and Succeeding in our focus areas will require change on the part financial advice, services not included in the bank’s efficient of both us as well as our customers, but as a bank we have a digital concept. A large proportion of customers now have tradition of making smart choices simple, which we will active accounting integration through Fiken, and in 2021, we continue to do. Our target for mortgages is to issue the loan will raise the bar by offering integration with several of Norway’s preapproval letter in seconds and the actual loan in minutes. leading ERP solutions. It is also pleasing that the bank’s range We will be the first Norwegian bank to achieve this, and our of savings products appeals to corporate customers too, customers will be the first to benefit of this. A more granular especially private investment firms, a segment that saw strong price model aimed at attracting more customers was last year customer growth towards the end of the year. introduced, and will be further perfected as 2021 moves on.