SpareBank 1 - The Alliance – Status, Challenges and the Future
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Transcript of SpareBank 1 - The Alliance – Status, Challenges and the Future
SpareBank 1 - The Alliance – Status, Challenges and the Future
Kirsten Idebøen
Group Executive Vice President
SpareBank 1 Gruppen AS
14 June 2005
2
SpareBank 1 Alliance- established in 1996
Maintain local attachment
Secure each bank’s independence and regional attachment through competitive strength, profitability and solidity
Efficiency as competitors
Separate names and legal units
Separate Boards of Directors and Management
Utilize knowledge of local markets
Share development costs
Achieve scale advantages
Achieve critical competence
The primary target of the AllianceBackground for the co-operation
3
Co-operating savings banks:
SpareBank 1 Vestfold
SpareBank 1 Ringerike
SpareBank 1 Moss
SpareBank 1 Hallingdal
SpareBank 1 Gran
SpareBank 1 Gudbrandsdal
SpareBank 1 Jevnaker Lunner
SpareBank 1 Nordvest
SpareBank 1 Kongsberg
Halden SpareBank 1
GS-banken
Modum Sparebank
Sparebanken Grenland
Lom og Skjåk Sparebank
Nøtterø Sparebank
Other distributors
Sparebanken Vest
Sparebanken Pluss
Sparebanken Hedmark
Svalbard
SpareBank 1 Nord-Norge
SpareBank 1 Midt-Norge
SpareBank 1 SR-Bank
SpareBank 1 Oslo
• Total assets: NOK 250 billion• No. of branches: 290• No. of employees : 4500• No. of customers: approx. 1,6 mill.• (of whom 820,000 insurance clients – Trade Unions/LO)
• No. of Internet banking customers: 364,000
January 2005
SpareBank 1 Alliance
4
Size of financial institutions - Norway
Total assets as per 31/12/2004
913
539
265232
173141
10879 68 46 40 33 24 19 19
0
100
200
300
400
500
600
700
800
900
1000
DnB N
OR
Saving
s ban
ks e
xcl.
DnB NOR
Norde
a Nor
ge
Spare
Bank 1
Store
bran
dKLP
Terra-G
rupp
en
Fokus
Bank
Handels
bank
en
Spb. V
est
BNBank
Gjen
sidige
Spb. M
øre
Spb. S
ør
Sandn
es Spb.
Source: Accounting reports - total assets. DnB NOR: incl. Vital. 1) Source: The Norwegian Savings Banks Association, 2) excl. Helgeland Sparebank.
2)
1)
5
Norwegian Banking Industry – Key elements going forward
Expect increasing competition among the banks– In particular increased competition from the foreign banks. Fokus Bank and Handelsbanken seems to be
the most aggressive ones– The merger process in DnB NOR has so far been successful, and the bank has been surprisingly
customer oriented during the merger period and been able to keep the customer base and even keep good growth figures, in particular on the retail side
– We expect to see increased competition from niche players in most areas (i.e. mutual funds, credit card businesses and smaller banks)
Margins will continue to be under pressure– New BASEL II requirements will be favourable for the capital ratios for most of the banks– More use of economic capital in the pricing models will give lower margins for high quality lenders– Will particularly be the situation for residential loans on the retail side– Introduction of a new legislation for covered bonds will give further pressure on the interest margins
Increased focus for the banks to increase other operating income– To compensate for lower interest margins, we expect the banks to continue the work to increase other
operating income. Focus will be on cross sale of banking, savings and insurance products
Pressure for lower operating costs will continue
All in all we expect that the ROE within the banking industry will be reduced
6
SpareBank 1 Livsforsikring
(100 %)
SpareBank 1 Skadeforsikring
(100 %)
Bank 1 Oslo
(100 %)
SpareBank 1 Bilplan
(19.9 %)
ODIN Forvaltning
(100 %)
SpareBank 1 Gruppen AS
Eiendoms-Megler 1(Chain)
SpareBank 1 Fondsforsikring
(100 %)
First Securities (24.5 %)
Bank Co-operation Programme
• Centres of Excellence• IT operations and development• Internet and telephone banking• Risk Management• Credit Systems• Competence building• Payment - cards and services• Brand building• Industrial and structural matters
Nordic Co-operation Agreement with Swedbank National Co-operation Agreement with Norwegian Federation of Trade Unions
The SpareBank 1 Alliance and Group
SpareBank 1Nord-Norge
SpareBank 1 Midt-Norge
SpareBank 1 SR-Bank
Förenings-Sparbanken
LOSamarbeidende Sparebanker
17,63 % 17,63 % 17,63 % 17,63 % 19,5 % 10 %
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The SpareBank 1 Alliance has been a success in essential areas
Strong brand – Co-ordinated marketing efforts have established focus on the
SpareBank 1 brand and reduced marketing costs
Development in the banks – Broad line of products, marketing, profitability
Through common efforts the Alliance has achieved– Considerably reduced IT costs
– Increased use of ”Best Practice”
– Co-ordinated projects in essential areas like credit processes and Basel II
– Mutual operations and administration of e.g. Internet banking
– Development of skills
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SpareBank 1: Success in cross sales
means a high share of other income
43,7
36,7 36,4 35,6
29,927,7 27,5 26,9
25,2
18,417,5 17,1 16,7
14,1
1,7
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
50,0
DnB NOR
SB1MN
SB1SR
Bank
1 Osl
o
SB1NN
Spb Sør
Fokus
Bank
Spb Ves
t
Nordea
Norg
e
Spb Øst
Spb Møre
Spb Hed
mar
k
Store
brand B
ank
Sandnes
Spb
BNBank
Other revenue in per cent of total revenue, excl. gains/losses on shares as per 1Q05
Spb Øst: excl. gains from shares in BNbank
Source: Accounting reports – total assets
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... and yet maintained to control the level of costs
31,6
49,751,7 52,3 53,8 54,0 55,1 55,2 55,3 55,5 55,8
61,1 61,8
67,772,0
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
BNBank
Spb Møre
SB1NN
SB1SR
DnB NOR
Spb Øst
SB1MN
Sandnes
Spb
Spb Sør
Spb Hed
mar
k
Nordea
Norg
e
Store
brand B
ank
Spb Ves
t
Bank
1 Osl
o
Fokus
Bank
%
Costs in per cent of total revenue, excl. gains/losses on shares as per 1Q05
Spb Øst: excl. gains from shares in BNbank
Source: Accounting reports – total assets
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SpareBank 1: Positive profit development
20,1 % 20,0 %18,9 %
15,3 %14,6 % 14,3 %
13,1 % 13,0 % 13,0 %12,1 % 11,6 % 11,2 %
10,5 %9,4 %
8,3 %
0,0 %
5,0 %
10,0 %
15,0 %
20,0 %
25,0 %
SB1SR
SB1MN
SB1NN
DnB NOR
Spb Ves
t
Spb Øst
Spb Møre
Spb Sør
Nordea
Norg
e
Bank
1 Osl
o
BNBank
Sandnes
Spb
Store
brand B
ank
Fokus
Bank
Spb Hed
mar
k
Return on equity as per 1Q05
Spb Øst: excl. gains from shares in BNbank
Source: Accounting reports – total assets
11
SpareBank 1 has maintained its strong position in the bank market and has assumed a challenging position in new product areas
Development market shares 2000-1Q2005
0,0 %
2,0 %
4,0 %
6,0 %
8,0 %
10,0 %
12,0 %
14,0 %
16,0 %
18,0 %
20,0 %
2000 1Q05
2000 9,9 % 5,3 % 10,5 % 12,6 % 13,4 %
1Q05 18,8 % 10,7 % 9,9 % 12,7 % 14,0 %
Unit trusts Unit Link Non-life insurance Deposits Loans
1) Excl. Sparebanken Vest
2) Unit Link and traditional pension insurance
Source: Accounting reports – total assets, Norwegian Financial Services Association (FNH), Norwegian Mutual Fund Association, Norges Bank
12
The Parliament decided this spring both a reform in the state pension system and a mandatory occupational pension system
100 000 enterprises with 600 000 employees have to establish a scheme
– The scheme will be ”a minimum requirement” scheme yielding a minimum increase in annual premiums of NOK 3 bn. Large upside potential
40 % of all private enterprises have already a pension scheme
– Broad coverage in large enterprises
– Little coverage in small and medium sized companies i.e. the market in focus for SpareBank 1 Alliance
In addition approximately 170 000 self employed persons will be offered a scheme with tax incentives
1 to 4 5 to 19 20 to 99 100 +
Number of employees
With a scheme today
Without a scheme
Per
cen
t
13
2,3
3,2
4,8
7,4
1,6
2,1
3,2
4,6
7,2
1,4
2,3
3,2
4,6
7,1
1,3
2,1
3
4,1
5,9
1,4
0
1
2
3
4
5
6
7
8
9
1st Q 2004 2nd Q 2004 3rd Q 2004 4th Q 2004 1st Q 2005
pc
t.
SpareBank 1
Storebrand
Vital
Nordea
Very competitive returns in SpareBank 1 Livsforsikring
Source: Norwegian Financial Services Association (FNH), SpareBank 1
Value-adjusted return per quarter (excl. value change system)
14
0 %
1 %
2 %
3 %
4 %
5 %
6 %
7 %
8 %
9 %
10 %
4th Q03
4th Q04
1st Q05
4th Q03
4th Q04
1st Q05
4th Q03
4th Q04
1st Q05
4th Q03
4th Q04
pct
.
Core capital, exceeding etc. Interim profit Supplementary allocations Securities adjustment reserve
Satisfactory ability to carry risk in SpareBank 1 Livsforsikring
Definition buffer capital:
1) core capital above that which is required to fulfill valid capital coverage requirements and solvency margin requirements 2) interim profits which are not included in eligible primary capital3) total additional provisions 4) securities adjustment reserve
Source: Norwegian Financial Services Association (FNH), SpareBank 1
5.5% 5.2%
6.7%6.1%
SpareBank 1 Storebrand Vital Nordea
7.3% 7.5 %
5.8 % 5.2%
7.7%
Buffer capital in per cent of insurance provisions excl. supplementary allocations
7.7 %
5.9 %
NA
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The SpareBank 1 Alliance is allocating large resources to be competitive the vast increase in the Pension Market
• Detailed plans have been made
• A large potential number of customers of the mandatory scheme among the banks’ present customers
– 13,400 enterprises with 160,000 employees
• Ambitious targets
– Offer to 95 pct of enterprises, sale to 50 pct before the end of 2006 (”95/50/06”)
• A large increase in dedicated resources From 10 to more than 100 man-years in the Alliance
– Pensions Specialists - Enterprise Relationship Managers - Saving Specialists
– A large joint recruiting and educational program between the Life Insurance Company and the banks
• An expected 10-fold increase in sales and portfolio NOK 400 mill / 7 500 enterprises in 2006
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SpareBank 1 GruppenHighlights 1st quarter 2005
• SpareBank 1 Gruppen had a pre-tax profit of NOK 122.3 million, an improvement of NOK 92.7 million from 1st quarter last year
– IFRS-related consequences amounted to NOK 30.8 million before tax, of which NOK 25.1 million was due to the elimination of goodwill write-downs
• Return on equity (before amortization of goodwill and added value, but after tax) was 19.4 % p.a.
• Generally good cost control
– Operating costs in the holding company were reduced by 45 % to NOK 7.9 million (14.5)
• Income growth and increased total assets
• Capital adequacy ratio of 11.8 %
Very satisfactory profit development
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SpareBank 1 GruppenHighlights 1st quarter 2005
• Stable net interest and positive loss development in Bank 1 Oslo
– Systematic use of credit score models and risk pricing reduce the risk in the loan portfolio and allows for careful growth
• Good sales and strong profit development in the life company
– Good risk control and attractive returns gives a good platform for pension sales
• Good profits in the non-life insurance company
– Allows for careful reduction of reassurance programs
• Strong improvement in profits in ODIN. Market share in unit trusts increased to 18.8 %
– Keep up the good work
Strong improvements in all operational areas a good platform for profitable growth in the years to come
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SpareBank 1 GruppenProfit and loss 1st quarter 2005
*) The subsidiaries’ results are shown by NGAAP standards. The total result from subsidiaries is corrected for changes from IFRS standards. Other items are shown by IFRS standards.Results from 1st quarter 2004 and the year 2004 are shown by NGAAP standards.
YearFigures in MNOK 2005 2004 2004
Part of result from subsidiaries before tax - SpareBank 1 Livs- og Fondsforsikring 44,7 35,2 159,2 - SpareBank 1 Skadeforsikring 23,0 10,1 121,3 - Bank 1 Oslo 46,7 22,4 94,5 - ODIN Forvaltning 29,4 18,7 60,6 - Other companies 0,6 0,7 2,6 - correction subsidiaries - pro forma IFRS -5,1 0,0 0,0Net result before tax from subsidiaries 139,3 87,0 438,2Total operating costs and adjustments -7,9 -14,5 -53,4Net investment charges -8,6 -12,3 -53,5Result from investments in associated companies 8,6 6,2 26,5Net result before goodwill amortisation 131,5 66,5 357,8Goodwill amortisation -9,2 -36,8 -149,3Pre-tax result 122,3 29,7 208,5Taxes -30,9 -15,0 -60,7Net result for the period 91,5 14,6 147,8
1st Q
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What does SpareBank 1 see as the most important challenges going forward?
• To continue to generate profitable growth in the banks and product companies
• To increase cross selling• To successfully implement the skills strategy. The skills in the
customer consultancy section of the organisation will be crucial• To further develop the benchmark systems• To improve and incorporate “best practice” in the banks and
product companies• To succeed with the heavy investment in the market for company
pensions for small and medium sized enterprises• To successfully implement and further develop IT projects such as
the Internet portal and credit process in the retail and commercial markets
• To increase sales of electronic BankID
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The SpareBank 1 Alliance is well positioned for profitable growth
• The SpareBank 1 banks generate high ordinary operating incomes and still have considerable potential for cross-sales
• The SpareBank 1 Alliance will attain greater economies of scale, best practice and benchmarking
• SpareBank 1 will investment heavily in sales of company pensions to small and medium sized companies
• Access to loans and equity financing is good and competitive
SpareBank 1:
A future winner in the Norwegian financial market!