Danske Bank kommentar: Sydbank – Q4 20

Sydbank (OW) out with Q4 figures. At first sight, we see the report as credit positive due to asset quality improvements and solid income lines, but we also note some uncertainty as to how much of the improvement is driven by the inclusion of Alm Brand. Net profit amounted to DKK226m, corresponding to an ann. RoE of c.7.9% (Q3: 8.9%). The decline in net profit was driven by costs increasing quite significantly (16%) compared to Q3 (which was, however also unusually low). Core NII amounted to DKK372m, which was a 2% above Q3 while other core income was up 4%. For both costs and income, we should remember that the Q4 figures include Alm Brand, which Q3 did not. This is also evident from bank lending volumes, which were up more than 3%. Loan losses amounted to DKK1m, corresponding to an ann. loan loss ratio of only c.1bp. Asset quality metrics seemed to improve – we see the ratio of problem loans in Q4 at around 2.4% (Q3: 2.9%), which could however, be because of volume growth. Despite CET1 ratio declining 130bp (to 18.8%), Sydbank remains strongly capitalized as the CET1 requirement stood at 9.6%. Sydbank expects impairments for 2021 to be ‘at a low level’. Most of the amounts owed to the mink industry expected to be paid in full, which could give reversal of DKK150m. They also expect one-off related to Alm Brand acquisition and restructuring of DKK150-175m. Profit after tax expected to be at DKK850m-1150m (2019: DKK853m, 2020: DKK799m).