Improved profitability for Norwegian financial institutions in 2021
Published: 28 February 2022
Document number: 1/2022
Banks, insurers and pension funds delivered a stronger financial performance in 2021 than the year before. For insurers and pension funds, stock market developments had the most pronounced positive impact on profits, while non-life insurers also recorded an increase in profits from insurance business. A significant decline in loan losses from 2020 was the main factor behind the rise in banks' profits.
Low loan helped raise banks’ profits
Banks' total pre-tax profits were 27 per cent higher in 2021 than the year before. The total return on equity was up 1.5 percentage points, to 10.7 per cent. Lower loan losses were the main factor behind the improved profitability. Significant reversals of previous impairment losses in several of the large banks contributed to reducing total loan losses to 0.1 per cent of lending, compared with 0.5 per cent a year earlier. A decline in operating income in per cent of total assets compared with 2020 resulted in a slight increase in the total cost/income ratio, to 45 per cent. Lending growth was 4.7 per cent for the twelve-month period. Twelve-month growth was somewhat higher than in the previous quarter, largely as a result of increased growth in lending to corporate customers. Non-performing loans came to 1.8 per cent of lending volume, down from 2.1 per cent a year earlier.
Decline in the volume of consumer loans
The institutions in Finanstilsynet's survey of consumer loans recorded an 11 per cent decline in lending volume to Norwegian customers in 2021. Adjusted for the sale of portfolios of non-performing consumer loans, there was a reduction of 6 per cent. Non-performing consumer loans, including loans to customers abroad, represented close to 12 per cent of lending volume at year-end 2021. For banks with consumer lending as their main business, 16 per cent of the loans were non-performing. The level of non-performing loans is somewhat lower than a year earlier, reflecting substantial sales of portfolios of non-performing loans.
Stronger performance for insurers and pension institutions
Life insurers performed better in 2021 than the year before. The stock market upturn gave a marked increase in unrealised gains. In the collective portfolio, the adjusted return, which includes unrealised changes in value, was 7.1 per cent, up from 4.3 per cent in 2020. For pension funds, the adjusted return increased by one percentage point during the same period, to 8.9 per cent. The increase is primarily due to a higher level of income from the realisation of gains and changes in the value of equities.
Overall, non-life insurers delivered a strong performance in 2021. As a share of premium income for own account, pre-tax profits came to 25.5 per cent, an increase of 5.8 percentage points from the previous year. Both profits from insurance operations and the financial result improved significantly during the period. The net combined ratio was down 3 percentage points, from 87 to 84 per cent, as a result of a lower claims ratio.