Banco Sabadell Group closed 2016 with a net attributable profit of €710.4M, up 0.3% from 2015, and net interest income of €3,837.8M, a 19.8% increase compared with the previous year. Excluding TSB, net interest income also recorded an improvement, up 4.6% to €2,786.9M.
Banco Sabadell’s results demonstrate the strength of its profits and the stability of its generation of net interest income, in a low interest rate environment and after making extraordinary provisions which include the impact of floor clauses. Revenues from the bank's core banking business (net interest income plus commissions) remained stable and recurrent costs were lower, both in Spain and in the UK.
Commercial activity throughout the year has performed well despite a highly competitive environment, and the reduction of problematic assets has been far higher than expected and continues to be carried out successfully. Our capital position at the end of 2016 is resilient: Fully loaded CET1 stands at 12.0%.
NPL ratio has declined to 6.1% (vs. 13.6% in December 2013) and the accelerated sale of problematic assets continues at a good pace
The NPL ratio continued to decline during the last quarter of the year, declining to 6.14% (7.72% excluding TSB) as of 31 December 2016, down from 7.79% at 2015 year-end and 6.60% at the end of the third quarter. In December 2013, at the start of the Triple Strategic Plan, the NPL ratio stood at 13.6%, showing a decline of over 50% since then. In the last 12 months alone, it has declined by 165 basis points. The group NPL and NPA coverage is 47.3% and 47.4% when excluding €410M of coverage corresponding to the mortgage floors.
The reduction of problematic assets that has been achieved has been far higher than the target reduction set out in the strategic plan, being reduced by €7,411M over the last three years, and the accelerated sale of assets strategy continues to be applied successfully. 2016 marks a new record in the reduction of problematic assets, with a reduction of €2,961M during the year, including €648M in the fourth quarter. Of the latter, €575M correspond to non-performing exposures and €73M to foreclosed assets. In December 2016, the balance of problematic assets stood at €18,617.1 million, and the volume of non-performing exposures at €9,582.5 million.
Banco Sabadell ended the year with a strong capital position. Fully-loaded CET1 ratio stands at 12.0%, compared to 11.4% at 2015 year-end, and is comfortably above regulatory requirements.
Insolvency provisions and other impairments, which include the impact of floor clauses, amounted to €1,427.1M (€1,399.0 million excluding TSB) at the end of 2016, compared with €2,333.2M at the end of the previous year, representing a Group-level reduction of -38.8% (-40.0% excluding TSB).
Strength of the Group’s core business and lower expenses
Customer spread stood at 2.69% at the end of 2016, 2.59% excluding TSB, remaining stable compared with 2015. Income from net fees and commissions showed a 5.6% increase year-on-year (1.4% excluding TSB) to €1,148.6M at the end of 2016. The positive performance of asset management fees both YoY and QoQ was particularly notable.
The Group's recurrent expenses decreased throughout the last quarter, both in Spain and in the United Kingdom, by 1.9% to €634.5M. At the end of the year, operating expenses stood at €2,663M, of which €87.1M correspond to non-recurrent expenses. Excluding TSB, operating expenses stood at €1,816.7M, including €49.3M in non-recurrent expenses.
Performing loans increased despite an increasingly competitive environment
The Group's gross performing loans ended 2016 with a balance of €140,557.3M, implying an increase of 3.9% at a constant exchange rate in a highly competitive environment. Compared with the previous quarter, they increased by 2.0% and, excluding TSB, they amounted to €106,304.6M at the end of 2016. Year-on-year, they increased by 1.7% compared with the previous year.
On-balance sheet customer funds recorded a year-on-year increase of 5.4% considering a constant exchange rate (3.0% excluding TSB), totalling €133,456.6M (€99,123.0M excluding TSB), a 1.8% increase (1.7% excluding TSB) compared with the previous quarter.
Over the last 12 months, there has been an increase in both demand deposits and off-balance sheet funds. Total off-balance sheet customer funds amounted to €40,605.9M at the end of 2016, an 8.6% increase compared with the previous year (a 2.3% increase quarter-on-quarter). Equity in mutual funds amounted to €22,594.2M as of 31 December 2016, representing a 5.4% increase year-on-year (1.7% quarter-on-quarter).
The balances of sight accounts amounted to €92,010.6M (€62,624.0M excluding TSB), an 8.8% increase year-on-year (16.3% excluding TSB). In total, funds under management amounted to €201,588.8M (€162,584.9M excluding TSB), compared with €200,355.1M (€160,605.2M excluding TSB) one year previously, representing a 0.6% increase year-on-year (1.2% excluding TSB).
Market shares continue to increase. In the corporates segment, activity in POS terminals was notable, with Banco Sabadell’s market share increasing in 2016 to 14.36%, compared with 13.62% in 2015, and export activity stood at 19.91% at year-end, up from 11.96% 12 months previously. The market share in terms of lending also increased to 11.14% from 11.13%. In the individuals’ credit card segment, the market share improved to 7.58% at 2016 year-end, from 7.41% in 2015, that of life insurance policies improved to 5.47%, from 5.23%, and household deposits to 6.06% from 5.73%.
Commitment to transformation and leaders in customer experience
The successful commercial and digital transformation has led the way in the continuous improvement of efficiency and customer experience, ranking Banco Sabadell high up in terms of quality. According to STIGA and EQUOS studies, in addition to the objective quality assessment of banks’ branch networks, Banco Sabadell scored 7.78 in terms of the quality of its customer care, compared to the sector average of 6.99. The bank is also in first place in the NPS ranking of large corporations and SMEs. The Net Promoter Score (NPS) indicator calculated by Accenture is based on the following question: “On a scale of 0 to 10, where 0 is not at all likely and 10 is extremely likely, how likely are you to recommend Sabadell to one of your contacts?”
The distribution model has been restructured with the creation of hub and spoke branches, and this new model has satisfied customers’ requirements and improved customer satisfaction and efficiency, as it offers faster service and a high value. The structure of the branch network has also been redesigned and simplified, in order to increase the level of autonomy and speed up the decision-making process.
TSB: integration in line with expectations and improved business activity
In 2016, TSB recorded profit before tax and extraordinary gains of £177.7M, a 68.1% increase, and net interest income amounted to £866.8M, 10.9% more than in 2015. The positive trends of franchise lending have been maintained, boosted by the growth of the mortgage brokerage business and supported by the continued growth of deposits. Furthermore, deposits continued to increase, reflecting customer trust.
The process of integrating TSB onto Banco Sabadell’s technology platform is progressing on schedule. In fact, the UK Proteo platform is currently in its final testing stage.
Banco Sabadell was notified by the European Central Bank of the decision regarding minimum prudential capital requirements applicable to the Bank for 2017, following the review and evaluation process (SREP). Banco Sabadell is required to maintain, on a consolidated basis, a Common Equity Tier 1 (CET1) ratio of 7.375% measured against phased-in regulatory capital. Banco Sabadell’s fully-loaded Common Equity Tier 1 (CET 1) ratio stands at 12.0%.
Distribution of a dividend at €0.05 per share charged to the 2016 income statement, which includes €0.02 per share which was paid in cash in December 2016, in addition to another supplementary dividend of €0.03 per share which will also be paid in cash in 2017, and which will be submitted for approval at the next Annual General Meeting.
Banco Sabadell carried out a private placement through an accelerated book building process aimed solely at qualified and institutional investors of 38,577,892 shares of Banco Comercial Português, S.A. (Millenium BCP), of which it was a direct and indirect holder, representing 4.08% of its share capital and voting rights. The resulting sale price was of €1.15 per share, representing a total of €44,364,575.80 for the total shares, with no significant impact (losses of approximately €8.3 million (gross)) in the income statement and balance sheet of Banco Sabadell.
Under the terms already notified by Banco Sabadell in public financial information corresponding to the first half of 2016, Banco Sabadell’s floor clauses have not been definitively cancelled generically by any final ruling, as the entity has legal arguments that should be reviewed and taken into consideration before implementing such an action. The maximum estimated impact in the event that all floor clauses were to be cancelled, and considering full retroactive effects, would be €490 million, an amount which would be reduced in line with the specific terms of the ruling and its method of enforcement. Banco Sabadell considers that the value adjustments due to impairment and provisions made by the Group in the financial statements as of 31 December 2016 would be sufficient to absorb potential losses on the Group’s assets and the effects of any open contingencies.