- The Bank is managing the current situation with a comfortable solvency and liquidity position and a clean balance sheet
- The proforma(1) CET1 ratio stands at 12.6% (phase-in) and at 12.1% (fully-loaded)
- Solid liquidity position with a Liquidity Coverage Ratio (LCR) of 172%, a loan-to-deposit ratio of 100%, and more than 45 billion euros in liquid assets
- Having completed the first ICO tranche with 2,125 million euros. Volume of operations being considered reached 7.887 million euros
- There was strong containment of costs, which were down 8.1% in the quarter and, notwithstanding seasonal swings, a year-on-year decrease is forecast
Banco Sabadell Group has closed the first quarter of 2020 with net attributable profit of 94 million euros (63.7% lower), having front-loaded extraordinary provisions of 213 million euros for potential impairments associated with the Covid-19 crisis. Without impairments associated to Covid-19 profit would be 245 millions of euros (5.1% lower).
Core banking revenue (net interest income + net fees and commissions) fell slightly by 0.8% (-0.3% ex-TSB) year-on-year in a negative interest rate environment.
Net interest income amounted to 884 million euros as at end of March 2020, representing a decline of 1.8% in the year, due to the consumer loan securitisation carried out in the third quarter of the previous year and lower interest rates. This item fell during the quarter, impacted by lower interest rates, the maturities of the ALCO portfolio and the seasonal effect in the first quarter of the year. The customer spread stood at 2.58% (2.50% ex-TSB) and net interest margin relative to average total assets stood at 1.62% (1.46% ex-TSB), having remained virtually stable in the quarter.
Net fees and commissions reached 349 million euros, representing year-on-year growth of 1.9%, with increases recorded across all product segments: services, risk transactions and asset management. In the quarter, fees and commissions declined by 6.0% (-4.6% ex-TSB) impacted by reduced economic activity associated with Covid-19 and by volatility in the financial markets and the seasonal effect on asset management fees.
Total costs amounted to 778 million euros at the end of March 2020 and declined by 8.1% (7.9% ex-TSB) quarter-on-quarter, with a notable reduction of both recurrent and non-recurrent costs, including 5 million euros corresponding to TSB restructuring costs.
The efficiency ratio stands at 49.3% as at the end of March 2020, representing an improvement on the previous quarter.
Total provisions and impairments amounted to 454 million euros at the end of the first quarter (416 million ex-TSB), compared with 190 million euros at the end of the first quarter of 2019. The change is largely due to provisions for Covid-19 amounting to 213 million euros.
Meanwhile, it is important to note that these provisions involve a credit risk cost for the Group of 93 bps, which is 39 bps when this impact is excluded.
Comfortable capital and liquidity position
In terms of solvency, Banco Sabadell is able to confront the potential effects of Covid-19 from a solid starting point, having progressively increased its capital ratio throughout 2019. The CET1 ratio stood at 12.2% in phase-in terms and at 11.6% in fully-loaded terms as at the end of March 2020. The pro forma(1) CET1 ratio was 12.6% (phase-in) and 12.1% (fully-loaded).
The Bank also has a solid liquidity position, with the Liquidity Coverage Ratio (LCR) at the end of March 2020 standing at 172% at Group level (184% ex-TSB and 256% in TSB). The loan-to-deposit ratio as at the end of March 2020 was 100% with a balanced retail funding structure.
Lending performed well
Gross performing loans ended the first quarter of 2020 with a balance of 143,475 million euros (108,631 million euros ex-TSB), representing year-on-year growth of 2.4% (3.4% ex-TSB). Based on a quarterly comparison, lending fell -0.8% (growth of 0.5% when considered ex-TSB), impacted by receipt of the DGF payment. Organic growth(2) of lending was up 3.1% year-on-year (4.3% ex-TSB) and up 0.6% in the quarter (2.5% ex-TSB) driven by growth in corporates, SMEs and public administrations.
At the end of March 2020, on-balance sheet customer funds amounted to 144,005 million euros (109,414 million euros ex-TSB), representing a year-on-year increase of 2.9% (3.3% ex-TSB) due to the growth of sight accounts, and a quarter-on-quarter decrease of -1.6% (-1.3% ex-TSB), due to the reduction of term deposits. Total off-balance sheet customer funds amounted to 40,044 million euros as at the end of March 2020.
Sight account balances amounted to 118,878 million euros (87,498 million euros ex-TSB), representing an increase of 7.8% year-on-year (10.6% ex-TSB) and remaining in line with the previous quarter (growth of 0.7% ex-TSB). Term deposits amounted to 25,115 million euros (21,905 million when considered ex-TSB).
Funds under management amounted to 207,957 million euros (171,011 million ex-TSB), compared with 206,353 million euros (169,637 million ex-TSB) one year previously, representing a year-on-year increase of 0.8% at Group level and ex-TSB.
Essential focus on supporting SMEs, the self-employed and corporates via the ICO guarantee line
Sabadell has exhausted the first tranche of the ICO guarantee line, with a total of 2,125 million in loans granted to SMEs, self-employed persons and corporates, and has handled around 61,036 applications to date for a total volume of 7,887 millions euros. SMEs and self-employed have 60.195 applications for 5,384 millions euros and corporates have 841 applications for 2,503 millions euros. Furthermore, Banco Sabadell expects that the second and third line of liquidity designated for these segments will be fully consumed.
Banco Sabadell has provided the necessary tools for its customers, offering the best funding solutions in an attempt to alleviate the consequences of the Covid-19 crisis. The institution’s commitment to SMEs, the self-employed and corporates through its customer support plan, known as the “Plan de Acompañamiento”, should not be understated. The plan provides appropriate solutions to the liquidity problems suffered by the Bank’s customers, guiding and advising them so that they may adapt their business strategies according to their objectives and profile.
Increased customer digitisation
The current situation is increasing the use of digital channels by customers of Banco Sabadell Spain. During April, online transactions increased by 13% and access via the app was up by 9%, while 96% of transfers were carried out using these remote channels. Around 20% of new digital customers are over 65 years of age, doubling the average number in that age group in previous quarters. At Banco Sabadell, the rate of employees teleworking has reached 73% in the branch network and 97% in the headquarters, all of which serves to ensure operational continuity for the Bank’s customers.
Non-performing assets were reduced over the year, and at the end of March 2020 their balance was 7,422 million euros, of which 6,112 million euros correspond to non-performing loans and 1,310 million euros correspond to foreclosed assets. This volume of problematic (non-performing) assets has brought down the ratio of net NPAs to total assets to 1.7%, compared to 1.8% in the first quarter of the previous year.
The NPA coverage ratio stood at 49.6%, with the coverage of non-performing loans standing at 52.8% and the coverage of foreclosed assets at 34.4%.
The ratio of problematic assets in relation to gross loans plus real estate assets stood at 4.9%, down from 5.5% in the first quarter of the previous year.
The Group’s NPL ratio stood at 3.8%, improving from the first quarter of the previous year, when it stood at 4.1%.
TSB stays focussed on its strategic plan and implements support measures for customers affected by Covid-19
TSB remains focussed on implementing its new strategic plan and developing its commercial activity. Net loans at the end of March 2020 had increased by 2.8% year-on-year. Quarter-on-quarter, there was a marginal decline of 0.5%. Lending amounted to 34,844 million euros, representing a decline of 0.6% year-on-year, impacted by the depreciation of the pound. At constant exchange rates, lending grew 2.7% year-on-year, driven by an increase in the mortgage portfolio.
On-balance sheet customer funds amounted to 34,590 million euros, representing an increase of 1.7%, impacted by the negative effect of the sterling exchange rate. At constant exchange rates, this item increased by 5.0% year-on-year, supported by the growth of current accounts as a result of the low savings rate on term deposits.
With regard to measures to manage the impact of Covid-19 by offering funding solutions to their customers, amongst others, the implementation of a three-month payment holiday on mortgages, which has also been rolled out to cover personal loans and credit cards, is particularly noteworthy. For the Corporates segment, a six-month moratorium on capital repayments has been established.
(1) Includes +5bps from the sale of the real estate developer, +35bps from the sale of Sabadell AM and +7bps from the sale of the Depositary.
(2) Excludes CAM APS and the account receivable created for the pre-emptive right associated with the NPA portfolio sales of €1.1bn in 4Q19 and €0.5bn in 1Q20.