Outlook for continued high rates

Although we continue to expect some margin headwind, the outlook for postponed rate cuts – leaving interest rates at continued high levels – should bode well for sector earnings, further supported by a strong profitability focus and modest loan losses. With the sector trading at an average 2026e P/E of c11.0x, and solid dividend potential, we find the valuation undemanding. We reiterate our positive sector view but highlight a larger share of HOLD recommendations than 12 months ago.

SpareBank 1 Østlandet (Hold, TP: NOK158.00) - Solid post-merger quarte...

Helped by strong core revenues, ROE was 11.5% in Q4 (Totens Sparebank included from 1 November), despite somewhat elevated costs (partly driven by one-offs) and loan losses. Implying a ~60% payout ratio and a 6.3% dividend yield, the board proposed a 2024 DPS of NOK10.3. We have raised our 2025–2026e EPS by ~3%, and our target price to NOK158 (150). That said, at a dividend-adjusted 2026e P/E of 10.2x, we still find the valuation fair and reiterate our HOLD.

On course for ample distributions

While we forecast some margin moderation from current highs, we believe still-high interest rates, robust asset quality and a firm profitability focus bode well for continued strong earnings. With the sector trading at an average dividend-adjusted 2025e P/E of ~9.3x and several banks having additional excess capital, we still find the valuation undemanding. Noting some HOLD recommendations, we keep our positive sector view.

SpareBank 1 Østlandet (Hold, TP: NOK150.00) - Non-NII tailwinds, but l...

Aided by strong trading income (including a NOK287m gain from the Fremtind/Eika merger) and fees, Q3 ROE was a strong 20.4%, despite somewhat elevated loan losses. With solid lending growth partly offset by margin pressure, ‘real NII’ rose by 0.6% QOQ. Adjusted for merger-related expenses, YOY cost inflation was 11.0%. We have raised our 2025–2026e EPS by ~1% and our target price to NOK150 (148). However, trading at a 2025e P/E of ~9.9x, we continue to find a more attractive risk/reward elsewher...

Still-encouraging profitability outlook

Despite expecting some margin headwinds, we believe still-high interest rates, robust asset quality and a firm profitability focus bode well for sector earnings remaining strong. Adding generous dividend prospects, we continue to find the valuation undemanding, with a coverage average 2025e P/E of ~9.1x. While noting a slightly more nuanced perspective with some HOLD recommendations, we maintain our positive sector view.

2024 Norwegian bank survey - Sector trends remain promising

While the respondents unsurprisingly forecast margins to decline from current highs, our 11th annual survey of the 50 largest banks in Norway presents an upbeat outlook, in our view. In addition to robust asset quality, the banks expect a slight uptick in lending growth. Supported by a market-disciplining profitability focus and solid dividend potential, we still find the sector valuation undemanding at an average 2025e P/E of ~9.3x. Noting a slightly more nuanced perspective with some HOLD reco...

SpareBank 1 Østlandet (Hold, TP: NOK146.00) - Profitability in focus

Boosted by solid lending growth, strong non-interest income and modest loan losses, SPOL reported a Q2 ROE of 14.2%, despite cost pressure. Emphasising a strategic focus on good cost control and capital discipline, the bank raised its ROE target to >13% (>12%) and revised its dividend policy to >50% (~50%). While we have edged up our target price to NOK146 (143), we continue to find a more attractive risk/reward elsewhere in the sector (the stock is trading at a 2025e P/E of ~9.6x). Thus, we rei...

Robust profitability outlook

With the key policy-rate trajectory indicating still-high interest rates, we see prospects for NII remaining at solid levels, despite expecting some margin pressure. Helped by additional support from robust asset quality, we expect continued strong sector profitability. Trading at an average 2025e P/E of ~8.9x, we continue to find the valuation undemanding and keep our positive sector view. SRBNK is our top sector pick.

SpareBank 1 Østlandet (Hold, TP: NOK140.00) - On HOLD after strong Q1

Fuelled by further NII expansion, the tax benefit of customer dividends, strong trading income and low loan losses, SPOL reported a Q1 ROE of 17.4% (>12% target), despite NOK26m of merger-related costs. We have made minor changes to our 2025–2026e EPS and reiterate our NOK140 target price. However, after the recent share price appreciation, we find more attractive risk/reward elsewhere in the sector. Thus, with the stock trading at a 2025e P/E of ~9.2x, we have downgraded to HOLD (BUY).

SpareBank 1 Ostlandet: 3 directors

A director at SpareBank 1 Ostlandet bought 800 shares at 125.500NOK and the significance rating of the trade was 41/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years c...

Scope for continued strong earnings

Seeing support from still-high interest rates and sound fundamentals, we expect solid NII and robust asset quality to contribute to continued strong earnings generation for the banks, despite the stable and eventually falling key policy rate trajectory. Trading at an average 2025e P/E of ~8.5x (adjusted for undistributed 2023 dividends), we continue to find the valuation undemanding. We maintain a positive view on the sector and highlight SVEG as our top pick.

SpareBank 1 Østlandet (Buy, TP: NOK140.00) - Sustained NII uptick, but...

Supported by continued NII expansion (+5.7% QOQ), SPOL reported a Q4 ROE of 11.3%, despite elevated cost inflation and a YOY downtick in fee income. The board proposed a 2023 DPS of NOK7.8, implying a ~60% payout ratio (50% policy) and a 6.3% dividend yield. Trading at a dividend-adjusted 2025e P/E of ~7.8x, we find the valuation undemanding following the recent share price depreciation. Thus, while we reiterate our NOK140 target price, we have upgraded to BUY (HOLD).

Scope for further generous distributions

With repricing efforts yet to take full effect and sound fundamentals boding well for manageable loan losses, we see prospects for solid earnings generation ahead, despite likely margin pressure from high levels longer-term. Given the banks’ solid capital positions, a more moderate growth outlook, and an enhanced profitability focus in the sector, we forecast further generous shareholder distributions, with an average dividend/ buyback yield of ~8% for 2023e. At an average 2024e P/E of ~8.4x, we...

NII momentum to continue into 2024e

With recent repricing efforts yet to take full effect, we expect continued margin momentum for the rest of 2023 and into 2024. With additional support from relatively resilient asset quality, we see room for still-solid earnings for the sector ahead. Also, we believe enhanced profitability focus, comfortable capital positions and a more moderate growth outlook bode well for sustained generous dividend distributions. Trading at an average 2024e P/E of ~8.5x, we reiterate our positive sector view....

Norwegian bank survey 2023 - Supportive ROE focus

Helped by its NII-skewed income mix, the Møre og Romsdal market leader has been a key beneficiary of rising interest rates. With recent repricing efforts leaving scope for further margin momentum near-term, we estimate 2024–2025 ROEs roughly in line with the >11% target, despite elevated cost inflation. With approved model changes to be implemented and an updated Pillar 2 assessment expected by year-end, we see potential upside to its already comfortable capital headroom. We continue to find the...

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SpareBank 1 Østlandet (Buy, TP: NOK145.00) - Gradually regaining momen...

Q2 PTP rose by almost 60% YOY, as favourable capital markets and continued NII momentum more than offset higher loan losses following the reversals in 2022. Despite the strong NII, interest margins narrowed QOQ following sharp step-ups in money market rates, causing a lag effect and prompting us to cut our 2024–2025e EPS by 1–2%. We reiterate our BUY and NOK145 target price, and continue to find the stock attractively priced at a 2024e P/E below 9x.

Nordea to acquire Danske’s Norwegian retail portfolio

This morning, Nordea announced that it has entered into an agreement with Danske Bank to acquire its Norwegian retail portfolio, increasing its mortgage market share in Norway from ~11% to ~16%. At end-2022, Danske’s operations consisted of ~EUR18bn in lending, ~EUR4bn in deposits and ~EUR2bn of savings assets. The transaction is expected to close in Q4 2024 and the exact amount paid will be determined by the assets left on Danske’s balance sheet at that date. We expect further consolidation fro...

Strong ROE and valuation support

Boosted by the full impact of recent repricing efforts and the still-positive rate trajectory, we expect further margin momentum ahead. Moreover, with sound fundamentals boding well for relatively resilient asset quality, we see scope for continued solid earnings generation, despite greater cost pressure. At an average 2024e P/E of ~8.3x, we still see an attractive valuation for the banks we cover and reiterate our positive sector view. SRBNK is our top sector pick.

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