Banco Sabadell Group achieved, up to September 2017, net profit of €653.8 million, representing a 4.2% increase compared with the same period in 2016 considering a constant exchange rate, thanks to the solid growth of 5.2% in income from the Group’s banking business (net interest income + net fees and commissions) in comparable terms1. This growth rate means that the bank is on target to achieve its annual profit objective of €800 million.
Quarterly net interest income amounts to €940.9 million due to positive volumes and the lower cost of customer funds. NII increased again this quarter, by over 2.4% (2.2% excl. TSB) and by 5.0% year-on-year (3.2% excl. TSB) considering a constant exchange rate and in comparable terms1. The customer spread stands at 2.79%.
High levels of capital and asset coverage
Banco Sabadell continues to strengthen its solvency position, jointly considering capital levels and accumulated provisions. The sound generation of capital throughout the first nine months of the year has allowed the bank to reach a phase-in CET 1 capital ratio of 13.2%, compared with 12.1% one year ago. The fully-loaded CET1 ratio stands at 13% (including +30bps following the sale of HI Partners and the stake in IberiaBank) at the end of September, the highest level of solvency of domestic listed banks. Banco Sabadell has therefore approved the distribution of an interim dividend of €0.02 per share.
Insolvency provisions and other impairments amounted to €1,967.8 million as at September 2017, compared to €1,113.5 million as at September 2016. Extraordinary gains from trading income, together with the capital gains on the sale of Sabadell United Bank and the reinsurance of BanSabadell Vida, which have materialised during the year, have been allocated in their gross value to extraordinary provisions.
The NPA coverage ratio stands at 52.8% (51.5% excluding floor clauses), with the plan to reduce problematic assets moving forward at a good pace, reducing these assets excl. TSB by €1.7bn during the year with a net profit of 2.6% during the last three months. Over the last twelve months, the reduction of problematic assets amounts to €2,316 million.
The NPL coverage ratio stands at 51.4% (48.8% excluding floor clauses) and the foreclosed asset coverage ratio at 54.2%. The NPL ratio continues to decline and stood at 5.40% as at September (6.90% excl. TSB) compared with 5.62% at the end of June in comparable terms (7.16% excl. TSB).
Increase of 5.0% in the loan portfolio
Balance sheet momentum over the last three months has led to a growth in performing loans of the Group of 5.0% year-on-year considering a constant exchange rate (excluding TSB’s mortgage enhancement portfolio, which has been returned to Lloyds, and Sabadell United Bank), with an improvement in the business mix. Compared with the previous quarter, performing loans grew by 0.3% considering a constant exchange rate, despite the seasonality associated with this quarter. Performing gross loans ended September 2017 with a balance of €137,833 million.
On-balance sheet customer funds increased year-on-year by 3.7% considering a constant exchange rate (3.5% excluding TSB), amounting to €131,295 million as at September (€96,958 million excluding TSB). There has been a growth of both sight accounts and off-balance sheet funds, mainly backed by the increase in mutual funds.
Sight account balances amounted to €98,625 million (€68,936 million excluding TSB), a 17.6% increase year-on-year considering a constant exchange rate (23.3% excluding TSB) and a 2.4% increase quarter-on-quarter (2.8% excluding TSB).
Total off-balance sheet customer funds amounted to €45,129 million at the end of September 2017, a 13.6% increase compared with the previous year (a 2.6% increase quarter-on-quarter).
Equity in mutual funds amounted to €26,920 million at 30 September 2017, representing a 21.2% increase year-on-year (3.8% quarter-on-quarter).
In TSB, franchise lending (together with the Whistletree portfolio) continues to perform well, driven by the growth in mortgage lending: increasing by 2.2% quarter-on-quarter and 15.5% year-on-year. Customer funds increased by 4.5% during the year and by 1.1% during the quarter, driven by the increase of current accounts.
Commercial activity has maintained a positive pace during the first nine months of the year, resulting in the acquisition of 405,496 customers up to September (excl. TSB). Overall, 302,491 individual customers, 200,000 direct deposits of salaries and 103,005 corporate customers have been acquired. Consumer lending has increased by 19.5% compared to last year, to €1,419 million from January to September 2017. In terms of insurance, the volume has increased by 22.5%.
Market shares have continued to improve across all products during the third quarter compared with the preceding year. In the corporates segment, at the end of September, the market share of Banco Sabadell in export documentary credit is particularly noteworthy, reaching 31.14% compared to 30.27% in the previous year, as is activity in POS terminals, increasing to 15.26% from 14.12%. The market share in terms of lending is also worthy of note, increasing to 11.30% from 11.02%. In the individuals’ card turnover segment, the market share rose to 7.73% from 7.46%, that of mutual funds improved to 6.37%, from 6.07% and household deposits to 6.42% from 5.94%.
Digital customers increase by 10%
Banco Sabadell’s commitment to digital transformation is unwavering, and the provision of new remote services to customers has led to a 10% increase in the number of digital customers, reaching 4.3 million. The number of mobile customers has increased by 15% year to date, and the number of those operating through the Active Management services has increased by 22% in Spain. 74% of usual transactions during the third quarter have been carried out using these services.
Digital sales in Spain account for 19% of the total, and for over 58% in the UK. The remote contracting of loans has soared, increasing by87% over the last year, whilst downloads of Sabadell Wallet have increased by 69%, with 15% of all digital sales taking place through Bizum, the multi-bank payment platform. In Spain, monthly website and mobile traffic through BSOnline and Sabadell Mobile, respectively, has increased by 21% over the last twelve months, with up to 33 million connections.
Banco Sabadell’s new digital business hub, InnoCells, created in May, has joined Kelvin Atlas, the first real-time open data portal of the Spanish banking sector, in making its first investment in British fintech start-up, Bud, the leading UK platform in aggregating financial services and products into a single marketplace. Through its vehicle, InnoCapital, Innocells has co-led an investment round of £1.5 million (around €1.6 million) in seed capital from different investors. Bud has agreements with over 60 financial service firms that it links together with retail banks in the UK, allowing financial institutions to innovate at a fast pace and improve customers’ experience.
The other two start-up investment vehicles, BStartup10 and Sabadell Venture Capital, continue to be active participants in the entrepreneurial ecosystem with more than 45 start-ups in their portfolio. Over 2,500 start-ups are already Banco Sabadell customers.
Banco Sabadell is also one of two companies sharing the role of deputy chairmanship of the first national regulated multi-sectoral network based on blockchain in the world, Alastria (formerly, Lyra). The Alastria consortium, formed of over 70 different companies, will develop the technology for shared accounting records, in a bid to become the new data exchange ecosystem that will enable and accelerate the digital transformation of a number of industrial and business sectors over the next few years thanks to its agility, accuracy, security and efficiency. Alastria was created to accelerate the creation of digital ecosystems by making a common collaborative platform available to them.
Net interest income of the TSB franchise increases by 10.5%
Franchise lending continues to perform well, driven by the growth in mortgage lending. The franchise’s customer lending, together with its Whistletree portfolio, has increased by 2.2% quarter-on-quarter and 15.5% year-on-year.
Another example of the resilience of the franchise and the Whistletree portfolio is its net interest income, which grew by 3.2% quarter-on-quarter and 10.5% year-on-year.
In TSB, customer funds increased by 4.5% during the year and by 1.1% during the quarter, driven by the increase in current accounts. In line with TSB’s long-term objectives, 6.4% of customers switching banks or opening a new account in the UK over the last 12 months have chosen TSB.
Customers continue to recommend TSB to their families and friends, and its NPS (an indicator of service quality) reached +24 points up to September.
Other key developments
Interim dividend out of the earnings of 2017 amounting to €0.02 (gross) per share
On 26 October 2017 the Board of Directors has resolved to distribute an interim dividend out of the earnings of 2017 amounting to €0.02 (gross) per share, which shall be paid on 29 December 2017, the ex-dividend date being 27 December 2017.
Legal domicile moved to Alicante
On 5 October, the Board of Directors of Banco Sabadell resolved to move its legal domicile to the city of Alicante. Banco Sabadell made this decision with a view to safeguarding the interests of customers, shareholders and employees. The bank has continued to provide, without any disruption whatsoever, financial services to all of its customers and companies in all of the territories in which the bank operates under the supervision of the European Central Bank and the regulation of the European Banking Authority.
The change in legal domicile does not entail any relocation of employees, as the bank has corporate and operational centres in various cities in Spain and the UK.
Sale of HI Partners
On 17 October, Banco Sabadell announced the sale of 100% of its hotel management platform, Hotel Investment Partners, to Halley Holdco S.à r.l., an entity controlled by funds managed by subsidiaries of The Blackstone Group. The price of the transaction was 630,732,907 euros. The definitive amount depends on possible non-material adjustments and is subject to receipt of the required authorisation from the Spanish National Markets and Anti-Trust Commission (Comisión Nacional de los Mercados y la Competencia).
The transaction will result in a net capital gain of 55 million euros for Banco Sabadell’s income statement for 2017 and will generate 22 basis points of common equity tier 1 (CET1) capital for the regulatory capital position of Banco Sabadell at 31 December 2017.
Closing of the sale of Sabadell United Bank and the reinsurance of BanSabadell Vida
During this quarter, Banco Sabadell has closed the transactions of the sale of Sabadell United Bank and the reinsurance of BanSabadell Vida.
On 24 July, BanSabadell Vida reached an agreement with Swiss Re to enter into a reinsurance contract for its individual life risk insurance portfolio in exchange for a reinsurance fee of €683.7 million.
On 28 February, Banco Sabadell closed a deal with IBERIABANK Corporation to sell Sabadell United Bank, its retail banking subsidiary which had been operating in the state of Florida since 2007. The subsidiary was sold for USD 1,025 million (approximately €967 million).
(1) All comparable figures exclude Sabadell United Bank, Mediterráneo Vida and TSB’s Mortgage Enhancement portfolio, considering a constant exchange rate.