Reversals and deferred tax behind net profit beat… …while the full effect of rate hikes awaits 2024e adj. EPS raised by 24% from NII trajectory
Net profit was stronger than expected despite bumps
Vestjysk reported Q3’22 net profit 30% above ABGSCe driven by significantly larger-than-expected loan loss reversals and exploitation of its deferred tax asset, where the remaining sum is expected to be used in Q4. Profit before loan losses came in 12% below ABGSCe but 12% higher q-o-q. Net interest income was in line with our estimates and grew 7% q-o-q, as was trading income with losses from the bond portfolio totalling DKK 61m. Commission income was 3% below our estimates due to lower-than-expected income from payment services and securities trading. Costs came in DKK 8m higher than we expected, however, ~DKK 5m of these were one-off costs. The cost/income ratio therefore stood at 71.6%, and 70% adjusted for one-offs. Q3 showed significantly larger loan loss reversals than seen in recent quarters, which is a positive signal for Vestjysk’s strengthened asset quality in recent years. Most of the reversals stem from lending to the agricultural sector and in particular to pig farming. Lending growth only came in at 0.2% due to large debt reductions among customers in the CRE and agricultural sectors. Adjusting for this, lending grew ~3%. The capital position remains strong with the CET1 ratio at 16.9% vs. ABGSCe at 16.3%, due to a lower REA, as credit and market risk are positively affected by the bond market and Vestjysk’s strengthened asset quality.