Faaborg, Denmark, 2012-06-15 12:03 CEST (GLOBE NEWSWIRE) -- The Danish FSA has just completed an ordinary examination of Sparekassen Faaborg and has indicated loan impairment losses in the bank amounting to DKK 134m. In addition the bank expects to make further impairments so that the total impairments of second quarter 2012 will amount to DKK 237m. It should be noted that the amount is not lost.
Only about 10 percent of the impairments are related to ordinary banking business. In addition to the ordinary banking business the bank also has a commitment with the Foundation of Sparekassen Faaborg. The remainder of the impairments – approx. 90 percent – has to do with loans related to the Foundation.
The Foundation was established in 1990, when the bank converted to a listed public limited company, and today it owns around 45 percent of the bank’s share capital. Before the start of the financial crisis in 2008 there were no problems with the bank’s loans to the Foundation. The Foundation has fallen into a difficult and complex economic situation because of the financial crisis including declining share prices and real property prices.
The bank has discussed the complex situation and the loan related to the Foundation with the Danish FSA, and the bank has noted the FSA’s assessments, including selection of new requirements of content and structure for foundations of savings banks. As mentioned above around 90 percent of the new impairments come from loans related to the Foundation. The impairments are combined by the FSA’s requirements and by impairments, which the bank – in continuation of a reconstruction plan implemented in the Foundation – expects further to charge on the loan related to the Foundation in second quarter. The bank is interested in having everything straight and in laying the Foundation to rest for some years to come in order to get the operations of the Foundation economically profitable again.
Solvency
The FSA has calculated the solvency need of Sparekassen Faaborg to 12.9 percent based on the bank’s balance sheet of 31 March 2012 less the imposed impairments. The bank agrees with the FSA’s calculation. Since the bank impairs further on the loans related to the Foundation, the solvency need is then calculated at 12.3 percent.
The FSA has used the credit reservation model to calculate the solvency need, while, as previously, the bank has used the model developed by the trade association named Lokale Pengeinstitutter, but the end result is the same.
By 30 June 2012 the bank estimates its solvency to 14.8 percent after impairments of DKK 237m in second quarter.
The solvency surplus, which is the gap between solvency and solvency need, is 2.5 percentage points. This is estimated acceptable, especially taking the new stricter impairment rules imposed on the bank’s loans and credits into account, just like the bank’s exposure to the Foundation has been reliably hedged.
Capital and liquidity
After impairments in second quarter Sparekassen Faaborg continues to have a solid equity of approx. DKK 750m. The financial crisis has left its mark on the bank’s padding, however, the assets and the reserves have shown to be sufficiently large to cope with the socio-economic crisis.
The activities implemented in 2008 by the bank with the purpose of reducing loans and increasing deposits to secure the necessary funding and liquidity in 2012 and 2013 have been fully followed. The bank has already a deposit surplus of approx. DKK 500m. The liquidity surplus is DKK 1,500m above the statutory requirements.
The FSA’s diamond
Sparekassen Faaborg continues to be within the limits of all 5 benches of the diamond.
Revision of the financial statements concerning 2012
A higher level than in 2011 for the group expectations of the core earnings before loan impairment losses etc. is maintained with the same uncertainty factors as stated in the annual report 2011.
The bank publishes the interim report on 13 August 2012. The core earnings develop positively but cannot absorb the substantial impairments in first and second quarter. By 30 June 2012 a net loss of approx. DKK 220m is expected.
Vision
Sparekassen Faaborg is well underway to put into practice the strategy of adjustment of the customer portfolio and controlled growth through branch coverage on Funen. The increased impairments do not affect this strategy negatively. The strategy to turn focus even more on household customers and small and medium corporate customers on Funen is more topical than ever before. Especially in the past year, the bank has adjusted the organisation to do so and is – as mentioned - well underway to put the strategy into practice.
CEO Claus Sejling, phone no +45 6361 1814
