Improved profitability in Norwegian financial institutions after the first three quarters of 2021
Published: 29 November 2021
Last updated: 30 November 2021
Document number: 12/2021
After the first three quarters of 2021, both banks and insurers show a better performance than in the corresponding period of 2020. For the banks, lower loan losses were the main factor behind the rise in profits. For the insurers, the stock market upturn helped to raise investment income. Non-life insurers also recorded an increase in profits from insurance business.
Low loan losses gave an increase in banks' profits
Norwegian banks' combined pre-tax profits were 28 per cent higher in the first three quarters of 2021 than in the corresponding period a year earlier. In consequence of the increase in profits, the total return on equity rose from 9.4 to 11.0 per cent, which is roughly on a level with the years prior to the pandemic. The rise in profits is mainly a result of lower loan losses, reflecting significant reversals of previous losses in several of the large banks. Total loan losses came to 0.1 per cent of lending (annualised), compared with 0.6 per cent in the corresponding period of 2020. A reduction in net interest income from the previous year resulted in a slight increase in the total cost/income ratio, to 44 per cent. Year-on-year lending growth was 3.3 per cent, on a level with the previous quarter. The volume of non-performing loans was 10 per cent lower than the year before, representing 2.0 per cent of lending.
Continued decline in consumer loans
At end-September 2021, the institutions in Finanstilsynet's survey of consumer loans recorded a year-on-year decline in lending volume to Norwegian customers of 12 per cent. Adjusted for the sale of portfolios of non-performing consumer loans, there was a reduction of 7 per cent. A total of 13 per cent of the institutions’ consumer loans were more than 90 days past due at end-September, which was a one percentage point reduction from a year earlier. The level of non-performance was higher for banks with consumer loans as their main business at 19 per cent of lending volume, down one percentage point from a year earlier.
Stronger performance for insurers
Life insurers recorded higher pre-tax profits in the first to third quarter of 2021 compared with a year earlier. The stock market upturn was a strong contributor to the rise in investment income. The value-adjusted return on the collective portfolio, which includes unrealised changes in value, was 6.4 per cent in the first to the third quarter of 2021, up from 2.5 per cent in the corresponding period of 2020. The return on the unit linked portfolio was 10.7 per cent in the first three quarters of 2021.
Non-life insurers also generated higher pre-tax profits in the first to the third quarter of 2021 than in the corresponding period of 2020, which was mainly due to a record-high insurance result combined with the realisation of gains on equities. Pre-tax profits represented 26.0 per cent of premium income for own account in the first to the third quarter of 2021, compared with 16.6 per cent in the corresponding period of 2020.