Norwegian Niche Banks 3Q 2015 Review

Norwegian niche banks - 3Q 2015 Review - Healthy top-line growth in 3Q

Healthy top-line growth in 3Q and we hike 16e avg. EPS +7.3% as niche banks continue to benefit from underlying growth and drop in deposit rates. We reiterate buy recommendation on all niche banks after 3Q15.
• Bank Norwegian (BUY, NOK 62)
• Pareto Bank (BUY, NOK 42)
• yA Bank (BUY, NOK 70)
• Bank 2 (BUY, NOK 5.50)

Our analysis

• Average 3Q15e ROE = 23.6% - down vs. 2Q on lower financial income 3Q15 NII came in 8% above our estimates. As expected 3Q was lowered by, a poor financial result but never the less net profit came in 10% above our already fairly positive outlook.
• 6% leverage ratio not problematic for niche banks

In our scenario analysis, we find that the exceptionally high ROE is adequate in raising capital organically if lending growth stay at these levels. In 16 we estimate a avg. leverage ratio of ~11%, but in particular, Bank Norwegian and Pareto Bank have limited growth potential at current capitalization. We estimate lending growth for the two banks in 2016 to be 35% and 4.5% respectively.

• Valuation remains attractive and 3Q confirm positive outlook
We reiterate our BUY recommendations on all four niche banks and Swedish listings provide further fuel valuation wise.


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