The net profit of Sabadell Bank (+ 2.91%) in the first nine months of the year stands at 203 million euros at the end of September 2020 (358 million euros excluding TSB) thus showing a year-on-year drop of 74.1% compared to the same period last year for higher loan loss provisions after updating IFRS9 models that incorporate macroeconomic scenarios, as well as by lower income derived from less activity due to the pandemic.
In the third quarter, the profit stood at 57 million compared to 251 million in the third quarter of 2019 but improving by 10.9% compared to the second quarter of this year supported by the recovery of the core business and the decrease in provisions.
Income from the banking business (interest margin + net commissions) reached 3,546 million as of September, 6.2% less in year-on-year terms. In the quarter they show a positive behavior supported by the growth of the interest margin and commissions.
Net interest income stood at the end of September 2020 at 2,545 million euros, 6.2% lower year-on-year due to the effect of interest rates, the effect of the securitization of consumer loans carried out the previous year, as well as a lower contribution from the ALCO portfolio. In the quarter, net interest income stood at 841 million euros and records an increase of 2.5% supported by higher volumes and higher revenues from TLTRO III.
Net commissions amount to 1 billion euros, 6.3% lower than the previous year due to the reduction in activity derived from confinement due to the pandemic. In the quarter, commissions grew by 1.0% after the increase in activity due to the de-escalation.
Total costs amounted to 2,387 million euros at the end of September 2020, 0.9% more compared to the same period of the previous year. Recurring costs fell 1.9% in the quarter due to lower personnel expenses, and non-recurring costs included 71 million due to the acceleration of the restructuring at TSB.
The efficiency ratio stands at 56.3% due to restructuring costs at TSB. Isolating these costs, the efficiency ratio stands at 53.9%.
LIQUIDITY AND CAPITAL POSITION
The CET1 premium quality ratio increased 22 basis points in the quarter, standing at 12.9%. This CET1 ratio includes 92 basis points of IFRS9 transitional adjustments, so the fully-loaded CET1 ratio stands at 12.0%, improving +9 basis points compared to the previous quarter.
Regarding liquidity management, the LCR (Liquidity Coverage Ratio) at the end of September 2020 stood at 206% at the group level (226% Ex TSB and 211% in TSB). The loan to deposit ratio at the end of September 2020 is 98% with a balanced retail financing structure.
Likewise, in the third quarter of 2020 the first green bond issue was launched, in this case of 500 million euros of senior preferred bonds.
REDUCTION OF PROBLEMATIC ASSETS
Problematic assets at the end of September 2020 show a balance of 7,647 million euros; of which 6,127 million euros correspond to doubtful assets and 1,520 million euros to foreclosed assets. This level of problem assets (NPAs) assumes that the ratio of net problem assets over total assets is reduced, and stands at 1.5% compared to 1.7% in the third quarter of the previous year. In the quarter, problem assets experienced a reduction of 172 million euros.
The coverage of problem assets stands at 52.3%Therefore, the coverage of foreclosed assets reaches 35.6% and the coverage of doubtful assets reaches 56.5%. Among non-performing loans, the stage 3 coverage ratio stands at 40.0%.
The ratio of problem assets over gross loan and loss plus real estate assets fell in the quarter and stood at 5.0%.
The group's NPL ratio stands at 3.81%, thus improving compared to September 2019, which stood at 4.08% and compared to June 2020, which stood at 3.95%.
TSB EXPECTS THE 'BREAK EVEN' IN 2021
TSB has announced the acceleration of its restructuring plan to conclude it and reach the 'break even' in 2021. These changes have to do with the new way in which customers interact with the bank, with fewer and fewer visits to branches and an acceleration in the use of digital channels.
Sabadell has said that British subsidiary experiences "a strong recovery of its commercial activity" at the end of September 2020, both in the year-on-year comparison and in the quarter, with the best level of commercial activity since 2018.
DIGITAL TRANSFORMATION AND EFFICIENCY PLAN
Sabadell is going to launch from the fourth quarter of 2020 an efficiency and digital transformation plan in Spain, which aims adjust the organizational structure and costs to the new competitive reality.
The efficiency plan includes different initiatives, such as simplification of internal processes, self-service in transactional activities, automation of operations center activities, improving efficiency in call centers, all accompanied by the incorporation of of new digital capabilities and services.
It is also planned to carry out a simplification of the corporate center, through the centralization of competencies and the reduction of regional support structures. Likewise, there are contemplated other actions that will allow the entity to reduce costs, such as reducing the use of spaces and other lower discretionary costs.
The financing of this efficiency and digitization plan will be carried out with the capital gains from the sales of part of the ALCO portfolio, and will have a neutral impact on capital. The plan will have a positive annual impact on the margin before provisions of 115 million euros. After completing the financing of this plan, the unused unused capital gains of Banco Sabadell amount to 1,300 million.
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