INVESTOR PRESENTATION
SPAREBANKEN VEST BOLIGKREDITT AS MAY 2017 EGIL MOKLEIV, CEO
EXECUTIVE SUMMARY . The third largest savings bank in Norway with a strong market position in Western Norway . Capital ratio 18.4 % - Core Tier 1 ratio 14.8 % - Leverage ratio 7.1% at 31 March 2017 Sparebanken Vest . Rated A1 (stable outlook) by Moody’s . Strong asset quality – 76% lending to retail customers, of which 95% is residential mortgages . 100% owned and dedicated covered bond subsidiary of Sparebanken Vest . Cover pool consisting of 100% prime Norwegian prime residential mortgages . High quality cover pool reflected by the weighted average LTV of 56.3% at 31 March 2017 Sparebanken Vest . Covered bonds rated Aaa by Moody’s with five notches “leeway” Boligkreditt AS . Strong legal framework for covered bonds in Norway . Good position in the well-functioning domestic covered bond market which mitigates refinancing risk . Besides many domestic issuances, regular benchmark covered bonds issues in EUR-market . Higher growth ahead. Negative growth in petroleum investment is slowing, and offset by growth in housing investment and public expenditure. . Improved cost competitiveness and increasing mainland export helped by NOK depreciation Norwegian . Low unemployment economy . Still strong housing market in core area, also improvement in the Stavanger region. . Excellent financial position of the Norwegian government with large budget surplus and the government pension fund accounting over 200% of GDP . An important business region in Norway with the most diversified industrial structure including oil and Western Norwegian gas industry, metal industry, engineering, fish farming, fisheries, shipping and tourist industry economy . Unemployment in Western Norway is high but levelling out, and even falling latest months . Still good activity in the housing market.
2 # 1 SPAREBANKEN VEST SPAREBANKEN VEST
Market Area Brief Information about Sparebanken Vest . Established in 1823 and listed on Oslo Stock Exchange since 1995 . Norway’s second oldest savings bank . Third biggest Norwegian-owned bank . Head office in Bergen, Hordaland . Thirty-five branch offices in Hordaland, Sogn og Fjordane and Rogaland . The Group offers a wide range of services, incl. insurance, stockbroking and estate agency activities Sogn og Fjordane Market share*: 17.1% . Over NOK 160 billion in assets under Hordaland management, and more than 260,000 retail Market share*: 26.9% customers and 10,000 corporate customers . Return on equity target: > 11% Rogaland Market share*: 5.4%
* Market share in retail market 4 KEY DEVELOPMENTS IN THE FIRST QUARTER
Ambitious measures to prepare for the digital shift, Vipps
AIRB approved for the corporate market
Improved profit performance for Q1: NOK 432 million (NOK 322 mill.)
Higher return on equity: 10.6% (8.8%)
Net interest 1.47% (1.51%), up from 1.43% in the fourth quarter
Higher contribution from associated companies: NOK 28 million (NOK 8
mill.)
Lower cost development: NOK 355 million (NOK 370 mill.)
Core Tier 1 capital: 14.8% - Leverage ratio 7.1%
Low losses: NOK 29 million (NOK 26 mill.)
STRONG POSITION IN THE RETAIL MARKET - WELL-DIVERSIFIED POSITION IN THE CORPORATE MARKET
Loan portfolio NOK 139.6 bill. Breakdown by sector in the corporate market, NOK 33.4 bill.
2% 0% 0%
REAL ESTATE 4% 5% BUILDING AND CONSTRUCTION 5% AGRICULTURE AND FORESTRY
38% SERVICE 8% WHOLESALE AND RETAIL TRADE SHIPPING ENERGY 11% INDUSTRY HOTELS AND RESTAURANTS 11% OTHER FINANCIALS 16% PUBLIC SERVICES
6 LIMITED LENDING TO THE OFFSHORE SEGMENT - INCLUDING SEISMIC SECTOR AND CONSTRUCTION
Loans to the corporate market NOK 33.4 bill. Comments
. Total exposure below NOK 1.350 bill. constitutes approx. 1% of the total portfolio
. Offshore mainly comprises construction ships
. Reduced exposure to the offshore sector by NOK 150 mill. last year due to repayment and exchange rate effects
. The biggest commitments have good contract coverage
. Many of the big commitments have already been restructured with long-term capital
Offshore; Sjøfart 1.365 Overview offshore portfolio Shipping; 3.951 Eiendomsdrift Segment Loans NOK million Number of vessels Construction 764 7 Seismic sector 127 6 PSV 261 2 ERRV 134 5 Shipping Barges 79 1 TOTAL 1,365 21
7 KEY DEVELOPMENTS Q1 2017
PROFIT PERFORMANCE
PRE-TAX OPERATING PROFIT NOK 432 MILL. (322)
HIGHER RETURN ON EQUITY 10.6% (8.8%)
LOWER COSTS NOK 355 MILL. (370)
LOW LOSSES NOK 29 MILL. (26)
8 INCREASED EFFICIENCY - THROUGH COST REDUCTION AND HEALTHY GROWTH
Development in Employees - Full-time Equivalents Costs as % of Average Assets Under Management
1.73 1.64 886 881 1.46 821 814 803 1.31 1.27 1.2 1.22 713 1.1 1.06 0.99 0.95 0.79
År 2011 År 2012 År 2013 År 2014 År 2015 År 2016
9 STABLE LEVEL OF DEFAULTS *
* Includes all defaults, not just defaults of payment. Includes commitments with individual write-downs, 10 calculated as a percentage of the total lending volume. ROBUST PROVISION LEVEL
11 UPGRADED OUTLOOK FROM MOODY’S - FROM NEGATIVE BACK TO STABLE OUTLOOK IN SEPTEMBER 2016
The upgrade means that Moody`s expects Sparebanken Vest’s results to remain robust going forward, even in a period when the Norwegian economy is characterised by lower growth.
Moody`s emphasises the bank’s good results for the first half-year 2016, increased capital adequacy and a favourable development in losses and defaults.
Emphasis has also been placed on the bank’s healthy financial structure, with the majority of loans being housing loans, and a low exposure to the oil and offshore industry and commercial property in hard-hit areas of Rogaland and Hordaland.
12 IMPROVED CAPITAL ADEQUACY WITH 1.1 PERCENTAGE POINTS WHEN BASEL 1 FLOOR NO LONGER APPLY - AIRB APPROVED FOR THE CORPORATE MARKET
Approved Implication Effect
. Sparebanken Vest is recognised . That the bank can calculate the . An improvement in Core Tier 1 as an advanced bank with very regulatory capital requirement capital of 1.1 percentage points good internal credit models and using internal models for both the under AIRB at the end of the first risk management processes corporate and retail markets quarter
13 CONSIDERABLE EFFECT OF AIRB APPROVAL - FINANCIAL STRENGTH – CORE TIER 1 CAPITAL 14.8%
Basel 1 – floor IRB- AIRB
14 LOW LENDING RISK AND HIGH EQUITY RATIO - ABOVE REGULATORY REQUIREMENTS EVEN WITH HIGH RETAIL SHARE
Core Tier 1 capital Leverage ratio
14.8 14.9 14.8 13.8 14.1
7.3 7.1 6.6 6.1 6.1
Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17
15 SPAREBANKEN VEST # 2 BOLIGKREDITT AS SPAREBANKEN VEST BOLIGKREDITT AS
Market Area Brief Information about Sparebanken Vest Boligkreditt . Wholly owned subsidiary of Sparebanken Vest - and a dedicated covered bond company
. Revolving credit facility provided by Sparebanken Vest to cover payment obligations in covered bonds for a rolling 12 month period less amounts already disbursed under the facility
. Loans transferred to Boligkreditt as true sale on a non- recourse basis
. Cover pool 100% prime, Norwegian residential mortgages
. Covered bonds rated Aaa by Moody’s – five notches “leeway”
. Approval from the Norwegian FSA to report capital according to IRB methods
17 ELIGIBILITY CRITERIA FOR THE COVER POOL
. Employed retail clients and independent self employed individuals Customer criteria . Resident in Norway . No negative credit history
. Probability of default max 1.25% Credit criteria . Not in arrears . Not delinquent – 31 days or loss write-down
. Max LTV 75% Collateral . Recent valuations (less than 3 months) . Quarterly valuation from independent AVM provider
. Primary residences Type of properties . Cooperative housing loans . No holiday homes
. Principal repayment loans Type of products . Revolving credits (flexi-loans) . Fixed and variable rate loans
Source: Sparebanken Vest Boligkreditt 18
COVER POOL (1/2)
Cover pool as of 31.03.2017 Distribution according to LTV (indexed) Total cover pool NOK 65.8 bn Total loan balance (mortgages) NOK 60.1 bn Average loan balance NOK 1,249,000 No. of loans 48,110 No of properties 42,198 WA seasoning (in months) 43 WA remaining terms (in months) 278 WA indexed LTV (limit) 56.28% WA indexed LTV (drawn amount) 55.03% Variable rates 90.47% Defaults (Basel) NOK 44.0 m OC level (eligible)* 14.6% OC level if house prices drop 20% 8.5% OC % if house prices decline 30% 1.9%
. 100% prime Norwegian residential mortgages . Moody’s TPI of “High” . 6.96% substitute assets in the cover pool . CB rated Aaa with “leeway” of five notches** . 99.93% performing loans . Regulatory minimum OC-requirement: 2.0% . Cover Pool Collateral Score: 5.0%
* Based on hedged value of bonds 19 ** Sparebanken Vest is rated A1 by Moody’s (stable outlook)
COVER POOL (2/2)
Geographic Distribution Development in Arrears and Indexed LTV
1,0 % 75%
70%
0,8 % 65%
60% Rest of Norway (4.8%) 0,6 % 55% 30-60 60-90 50% 0,4 % 90 45% LTV (RA) 0,2 % 40% 35%
0,0 % 30% Sogn & Fjordane (5.9%) Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 Hordaland (75.7%)
Rogaland (13.6%)
. Properties mainly located in the market area of . Low arrears Sparebanken Vest in Western Norway . LTVs calculated based on limit of flexible credit . Western Norway has a very diversified industrial structure mortgages (i.e. undrawn portion included)
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MATURITY PROFILE - AMORTISATION OF MORTGAGES VS. COVERED BOND MATURITIES
70
60 Milliarder
50
40
30
20
10
-
jul. jul. 17 jul. 18 jul. 19 jul. 20 jul. 21 jul. 22
nov. 18 nov. nov. nov. 17 nov. 19 nov. 20 nov. 21 nov. 22
mar. 21 mar. mar. 17mar. 18mar. 19mar. 20mar. 22mar. 23mar.
Covered Bonds Planned amortisation cover pool Real amortisation cover pool (2,5% Prepayments)*
. Equivalent of EUR 350 mill. mature in the remainder of 2017 . The maturity profile of CBs matches real amortisation in mortgage portfolio in the cover pool
* Refers to prepayment level of 2.5% per month, which is the long term average observed in the cover pool 21 RISK MANAGEMENT - LOW RISK LEVEL
. Credit risk framework is set out in separate document stating which loans can be bought . Board resolution required for any change in credit risk framework Credit risk . Framework requirements: maximum risk level (PD), type of property, objective documented LTV threshold and customer requirements . Credit risk managed by IRB standards
. Currency risk – 100% hedged by swaps, open limit of MNOK 10 . Interest rate risk – hedged by swaps if any, limit of MNOK 40 (based on 1% parallel shift in yield curves) Market risk . No investments/placements in “risky” assets; Norwegian government or high quality fixed income securities (so far only rated Norwegian covered bonds investments)
. The law requires positive cash flow from the cover pool to cover bond holders . Soft bullet structure on all covered bonds issued Liquidity risk . Note Purchase Agreement with parent securing that Boligkreditt will be able to meet the next 12 months of maturities at all times
22 NORWEGIAN # 3 ECONOMY KEY INDICATORS OF THE NORWEGIAN ECONOMY
2014 2015 2016 2017E 2018E 2019E
Mainland GDP 2.2 % 1.1 % 0.8 % 1.3 % 2.2 % 2.2 %
Private Consumption 2.4 % 2.1 % 1.6 % 1,8 % 2.3 % 1.8 %
Real private investments -0.5 % -1.6 % 2.1 % 5.1 % 7.4 % 4.8 %
Oil investments -1.7 % -15.0 % -14.7 % -10.0 % 2.7 % 5.3 %
Exports Mainland 3.4% 4.8 % -6.7 % 4.4 % 4.3 % 4.3 %
Core inflation 2.4 % 2.7 % 3.0 % 2.4 % 1.8% 1.7 %
NIBOR (Level) 1.7 % 1.3 % 1.1 % 0.9 % 0.8 % 0.8 %
Unemployment, LFS (Level) 3.5 % 4.4 % 4.7 % 4.6 % 4.6 % 4.2 %
Source: Statistics Norway 24 NORWEGIAN ECONOMY - INTERNATIONAL CONTEXT
GDP Growth, 2000=100 Unemployment
25 LOWER GROWTH - OIL INVESTMENT IS STILL FALLING, BUT LESS THAN EARLIER
Oil Investment Norway, GDP
26 UNEMPLOYMENT IS FALLING - STABILIZING IN WESTERN NORWAY
Norway, Unemployment
27 VARIETY OF EMPLOYMENT IN HORDALAND - JOBS ARE SPREAD ACROSS A WIDE RANGE OF INDUSTRIES
Employees per Industry in Hordaland Hordaland’s Exports (value) 60000
50000 17% 24%
40000
30000 2015 16% NOK 62 BN 20000 2% 10000
41% 0
Food, beverages and tobacco Fish Crude materials except fuels Fuels Manufactured goods
1 EUR = NOK 8.90 ( 31 Jan. 2017) 28 … ALSO IN ROGALAND - NOT ONLY PETROLEUM RELATED JOBS
Employees per Industry in Rogaland Rogaland’s Exports (value) 50000
45000 9% 40000 7% 35000 30000 37% 5% 25000 2015
20000 NOK 62 BN
15000
10000 3% 5000 39% 0
Food, beverages and tobacco Fish Crude materials except fuels Fuels Chemicals and related products Manufactured goods
1 EUR = NOK 8.90 ( 31 Jan. 2017) 29 LABOUR MARKET CONTINUED - LABOUR FORCE DEVELOPMENT
Labour Force and Employment - Norway Labour Force Growth in Western Norway
30 HOUSEHOLDS LESS NEGATIVE - STILL NO GROWTH IN GOODS CONSUMPTION
Index of Retail Sales Household Expectations Survey
31 NEGATIVE REAL WAGE GROWTH IN 2016 - LOW GROWTH OUTLOOK DAMPENS CONSUMPTION GROWTH
7
6
5
4
3
2
1
0
-1
ReallønnWages KPICPI
32 NORWEGIAN GOVERNMENT FINANCIALS
Government Net Debt, Estimate IMF Government Pension Fund
33 NORWEGIAN SHOCK ABSORBERS
. Exchange rate
. Pension Fund
. Pension Fund mechanism
. Stable inflation expetations
. Monetary policy
. Flexible labour market
. Solid banks
34 THE NORWEGIAN MORTGAGE # 4 MARKET NORWEGIAN HOUSING MARKET – KEY FEATURES
. Among the highest in the world - around 80% of households own their own home Home ownership . Buy-to-let market is very limited in Norway
. Best social security benefits for unemployed people in the world (according to OECD) Social benefit . On average unemployment benefit approx. 62% of previous salary system . Unemployment benefits paid for minimum of 104 weeks . All interest expenses are tax deductible in Norway Tax incentives . Low effective real estate tax - i.e. approx. 40 pct. of market value . Capital gain on a dwelling is tax-free after one year of occupancy by the owner . Borrowers personally liable for their debt - also after foreclosure/forced sale Personal liability . Strong incentive to service debt reflected in low arrears . Transparent and reliable information about borrowers available to the lenders
. 95% of residential mortgage loans granted by banks . Typical maturity 25-30 years Mortgage lending in . Around 90% of residential mortgages variable rate loans Norway . Banks allowed to increase interest rates with a six weeks notice to the borrower . No “sub-prime” market in Norway
36 HOUSE PRICES - PRICES MORE THAN DOUBLED SINCE 2003
Introduction Nominal House Prices, 2003=100 . Average price increases in 2016: +8.3 % . Large regional differences . Prices has come down in Stavanger . Strong price growth in Oslo + 23% . Average yearly growth rate of 6.9* percent in period 2003-2016
* Source: NEF Price Statistics 37 HOUSE PRICES - LARGE REGIONAL DIFFERENCES IN HOUSE PRICES
Bergen Stavanger Oslo Norway
Price change past -0.3 % 0.1 % 0.6 % 0.5 % month*
Price change past 12 2.4 % -1.2 % 20.7 % 10.7 % months*
Price change past 5 27.5 % -3.4% 57.9% 35.6 % years*
Time on market (no of 21 40 14 33 days)*
Figures as of September 2016
* Source: Housing market update -April 2017 – Eiendomsverdi 38 VERY DIFFERENT PRICE DEVELOPMENT - HOUSE PRICES ARE BEGINNING TO RECOVER IN ROGALAND
Norway, Real Estate Prices
39 LONG TERM OVERVIEW OF HOUSE PRICES - HIGH ECONOMIC GROWTH CONDUCIVE TO RISING HOUSE PRICES
House Prices Deflated with Gross National Disposable House Prices Deflated with CPI Growth, 2000 = 100 Income per Capita, 2000 = 100
. House prices in Norway correlate highly with increase in wages and disposable income
40 SUPPLY OF HOUSING IS LIMITED
Population Growth, Western Norway Construction Activity, Norway
. Immigration and demographic changes drive up demand for housing in most major cities . New dwellings too low to match the increased demand for houses . Continued low interest rates are important factors for price increases
41 CONTACT DETAILS / MORE INFORMATION
Egil Mokleiv, Managing Director/CEO, Sparebanken Vest Boligkreditt AS . Mobile: +47 95265976 . E-mail: [email protected]
Fredrik Skarsvåg, COO, Sparebanken Vest Boligkreditt AS . Mobile: +47 98857275 . E-mail: [email protected]
Websites for more information
Sparebanken Vest Boligkreditt https://www.spv.no/om-oss/investor-relations/sparebanken-vest-boligkreditt
Sparebanken Vest www.spv.no
Web-site for the Norwegian Covered https://www.finansnorge.no/en/covered-bonds/ Bonds Market
42 DISCLAIMER
This material does not constitute an offering circular in whole or part and you must read the actual offering circular related to the Covered Bond program and the notes which may be issued from time to time thereunder as referred to in this material (respectively the"Program" and the “Notes”) before making an investment decision. The offering circular for the
Program is available from the Arrangers. You should consult the offering circular for more complete information about Sparebanken Vest Boligkreditt and the Program. The Notes are not to be offered or sold in any jurisdiction in circumstances in which the distribution of this document or the Notes would be prohibited in such jurisdiction. This document must not be acted on or relied on by persons who are not eligible to invest in the Notes. Any investment or investment activity to which this communication relates is available only to person's eligible to invest in the Notes and will be engaged in only with such persons. By electing to receive this transmission, you represent, warrant and agree that you will not attempt to reproduce or re-transmit the contents of this presentation by any means. By receiving this presentation, each recipient (i) acknowledges that the offering is being made only outside the United States to non-U.S. persons in reliance upon Regulation S under the U.S. Securities Act Of 1933 and (ii) is deemed to represent that it is not a U.S. person within the meaning of Regulation S and is not accessing the presentation from a location within the United States.
In addition, institutions mentioned in this material, affiliates, agents, directors, partners and employees may make purchases and/or sales of the Notes as principal or agent or may act as market maker or provide investment banking or other services in respect of the Program or the Notes which may be issued from time to time thereunder. Sparebanken Vest
Boligkreditt, Sparebanken Vest, the Arrangers and the Dealers and their respective affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Although the statements of fact in this presentation have been obtained from and are based upon sources that Sparebanken Vest Boligkreditt believes to be reliable, no representation or warranty, either expressed or implied, is provided in relation to the accuracy,completeness or reliability of the information contained herein. All opinions and estimates included in this presentation constitute Sparebanken Vest Boligkreditt’s judgement, as of the date of this presentation and are subject to change without notice and Sparebanken Vest Boligkreditt is not under any obligation to update or keep current the information contained herein. This presentation is the property of Sparebanken Vest Boligkreditt.
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