Sabadell profits hit by botched TSB migration

Source: Banco Sabadell

At the end of September 2018 Banco Sabadell Group's net profit amounts to 247.8 million euros after adjustments due to institutional portfolio sales and extraordinary provisions arising from the TSB migration.

Excluding these extraordinary costs, net profit growth, considering a constant exchange rate, stands at 14.7% year-on-year (647.2 million euros).

TheGroup’s banking business (net interest income + net fees and commissions) shows a positive trend in the principal markets, with a 2.2% year-on-year increase and 4.4% growth quarter-on-quarter.

Net interest income amounts to €2,742.7 million at the end of September 2018, representing a 4.1% increase in the quarter, and0.7% year-on-year.

Excluding the impacts of one-offs at TSB, customer spread stands at 2.75% and net interest income over average total assets stands at 1.71%. Excluding TSB, customer spread at the end of the quarter stands at 2.67%, and net interest income over average total assets stands at 1.57%, remaining stable with regards to the previous quarter.

Fees and commissions have performed well in the quarter, growing by 5.9% (1.8% excluding TSB) driven by service fees and lower extraordinary TSB costs. Year-on-year, net interest income grows 0.7% (10.8% excluding TSB), considering a constant exchange rate.

Recurrent operating expenses showed a reduction of 1.5% quarter-on-quarter. At the end of September they amounted to €1,985.9 million, increasing by 1.5% year-on-year. Non-recurrent expenses during the year amount to €212.8 million, mainly due to TSB migration and post-migration costs. Non-recurrent expenses amount to €69.6M in the quarter.

Commercial strength: Lending increases by +5.4%, on-balance sheet customer funds increase by +5.3%, and off-balance sheet customer funds grow by 4.5%.
Performing loans growth year-on-year, ex-TSB . Thus, lending, considering a constant exchange rate has grown by 3.6%. Excluding the impact of the APS run-off (1), it has grown by 3.1% considering a constant exchange rate (5.4% excluding TSB) year-on-year, driven by the good performance of SMEs and large corporates.

Mortgages to individuals also performed well, growing by 1.2% on a quarterly basis and by 1.0% year-on-year. Total off-balance sheet customer funds amount to €47,159 million at the end of the third quarter of 2018, and increase by 4.5% when compared to the previous year (0.6% increase quarter-on-quarter ).

Equity in mutual funds at the end of the third quarter of 2018amounts to 28,882 million euros, representing a year-on-year increase of 7.3% (0.9% on a quarterly basis).

Sight accountbalances amount to€106,499 million (€76,168 million excluding TSB) representing a 8.0% year-on-year increase (10.5% excluding TSB) and a 1.0% increase quarter on quarter (1.6% excluding TSB).

The rate of new customer acquisition in Spain during the first nine months of the year is also significant. A total of 342,738 new customers have been acquired, of which 268,814 are individuals and 73,924 are corporates. Furthermore, it is also worth highlighting that Sabadell has acquired 207,080 new salaries.

The prices of new loans and products remained stable in the segments with the highest growth, thanks to our ability to defend pricing. Market share growth across segments reflects the dynamism of commercial activity in Spain.

New loans and credit lines to SMEs grew by 8% year-on-year, while consumer and mortgage loans increased by 18%. The rate at which Expansión accounts are opened grew by 10%, and cards turnover increased by 14%, whilst new insurance premiums and POS turnover increased by 17% and 16% respectively.

In Corporates, the market share of lending increased to 11.66% from 11.25%, and POS turnover increased to 16.16% from 14.83%, while penetration in SMEs stands at 52.0%, 200 basis points above the latest available data from 2017 year-end. In individuals, the market share for lending stands at 5.51%, 7.80% for cards turnover and 6.28% for mutual funds.

The reduction of NPLs continues, and the NPL ratio has been reduced to 4.32%.
At the end of the third quarter of 2018 the balance of non performing assets, excluding TSB, amounts to 13,630 million euros (€6,594 non-performing loans and €7,036 foreclosed assets) which represents a quarterly reduction of 538 million euros (€402 million non-performing loans and €135 million foreclosed assets).

Excluding the sale of institutional NPA portfolios, the organic reduction of non-performing assets amounts to €244 million in the quarter and €9,282 million in the last 12 months, bringing the balance to €7,667 million (€6,280 million in non-performing loans and €1,387 million in foreclosed assets).

The NPL ratio continues to be reduced, currently standing at 4.50% (5.44% ex-TSB), reduced even further to 4.32% (5.20% ex-TSB) when considering the portfolio sales. NPA coverage stands at 56.6%. NPA coverage stands at 57.4% and foreclosed asset coverage stands at 55.9%.

Once the institutional portfolio sales have materialised, annual expected savings amount to 153 million euros* and will positively impact capital as well as earnings per share. If Solvia is maintained, these savings will increase to €209 million euros.

In terms of the capital position, the phase-in CET 1 ratio stands at 12.1% and the fully-loaded CET1 ratio stands at 11.0% at the end of the third quarter of 2018. Once the sales of the NPA portfolios have been closed, the phase-in CET 1 ratio stands at 12.3% and fully-loaded at 11.2%.

Other key developments in the quarter

Interim dividend of 0.02 euros por share
On 25 October, 2018, the Board of Directors has agreed to the payment of a gross interim dividend against 2017 results, for the amount of 0.02 euros per share which shall be paid on 28 December

Banco Sabadell receives an Equality in Business Distinction
Banco Sabadell has received an Equality in Business distinction (DIE for its acronymn in Spanish) granted by the Spanish Ministry of Health, Consumerism and Social Welfare, due to its policies in favour of equality in professional opportunities for men and women, as published in the most recent publication of the Official State Gazette. Thus, the bank now forms part of the DIE Network, comprised of 147 companies in the country, formed of 236,000 persons, of which 42% are women.

The granting of this distinction is carried out through annual meetings in which any company which stands out due to the implementation of equality measures can participate. To obtain the recognition from the Ministry, an activity report must be submitted, which is evaluated from the perspective of proving that the company maintains a level of excellence in terms of equality.

Claudio Chiesa will manage the insurance 'joint venture'
Claudio Chiesa has been appointed as the new Managing Director of BanSabadell Vida, BanSabadell Pensiones and BanSabadell Seguros Generales. The new General Manager of the joint insurance venture, formed between Banco Sabadell and Zurich Insurance, has extensive experience in the sector, and has held relevant roles in corporate development and business in an international environment. This year marks the tenth anniversary of the joint venture between the bank and the insurance company.

Sabadell Venture Capital participates in the funding round of Lingokids
Banco Sabadell, through its investment vehicle Sabadell Venture Capital, has participated in funding round for $7.3M in Lingokids, an online English learning platform

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