Nordea Bank AB (NDA), the Nordic region’s largest lender, said first-quarter profit rose 4.5 percent after loan losses receded and as it made more money from its lending business.
Net income grew to 773 million euros ($1.02 billion), compared with 740 million euros a year earlier, Nordea said in a statement today. That beat the 738 million-euro average estimate of 10 analysts surveyed by Bloomberg. Net interest income, the difference between what the bank earns from lending and what it pays on deposits, increased to 1.42 billion euros, from 1.32 billion euros. Net loan losses narrowed to 218 million euros from 242 million euros a year earlier, it said.
“Loan losses declined slightly from last quarter and our credit quality remains solid,” Christian Clausen, chief executive officer at the Stockholm-based bank, said in the statement. “There are still two areas where we have special attention -- Denmark and shipping. We have good insights in the development and close cooperation with customers facing potential problems.”
Sweden, whose bank industry is four times the size of the economy, is pushing through tougher capital rules than elsewhere and will require lenders to meet the standards earlier than the Basel Committee on Banking Supervision’s 2019 deadline. The government argues more rigorous standards are needed to protect taxpayers from the risk of losses. Nordea, which had a core Tier 1 equity ratio of 11.6 percent of its risk-weighted assets at the end of March, has warned stricter rules threaten competitiveness and growth.
Overall results were “very positive,” Jyske Bank A/S said in an e-mailed note to clients. “Costs and writedowns on loans aren’t surprising and the high income level therefore secures a bottom line above expectations.”
Nordea shares rose 2.9 percent to 56.15 kronor at 9:01 a.m. in Stockholm trading, rebounding from yesterday’s 5.8 percent slump. The 43-member Bloomberg Europe Banks and Financial Services Index climbed 1.1 percent.
Local rival SEB AB, Sweden’s fourth-biggest bank, also reported earnings that beat estimates today, as first-quarter net income rose 2 percent to 2.65 billion kronor ($392 million). The average in a Bloomberg survey of 11 analysts was for 2.6 billion kronor. SEB’s shares gained 1.5 percent to 44.45 kronor.
Nordea said it continues to face losses from its ship finance business and its Danish operations, where a regional banking crisis claimed another two lenders over the weekend.
“As expected, provisions for future loan losses in shipping and Denmark remained at elevated levels, whereas in other areas the losses decreased from already moderate levels,” Nordea said.
The bank’s loan loss ratio in shipping climbed to 176 basis points during the first quarter, up from 41 basis points a year earlier, while losses in its Danish banking unit increased to 64 basis points, up from 47 points a year ago, it said.
The tanker and bulk markets are struggling to overcome a slump in freight rates sparked by lower global demand and swelling overcapacity. Denmark’s economy entered a recession in the third quarter as the nation struggles to emerge from the fallout of a housing bubble that burst in 2007.
Denmark’s “housing market remains weak and house prices have continued to decline somewhat, reflecting increased forced sales and overall cautiousness in private spending and investments,” Nordea said.
Danish property prices will have slumped 25 percent by next year since the crisis started in 2007, the government-backed Economic Council said in November.
Still, Sweden’s banks have steered clear of Europe’s fiscal crisis and their balance sheets aren’t weighed down by assets linked to the region’s most indebted nations. That’s given lenders in the Nordic country better access to funding markets than many of their European peers, and allowed them to avoid resorting to emergency three-year loans provided by the European Central Bank since December.
“Nordea has maintained its strong funding position,” Clausen said. “We have an excellent access to all funding markets.”
The bank issued 11.5 billion euros of long-term funding in the first quarter, in both senior unsecured and covered bonds as well as lower tier 2 instruments, he said.
“We maintain our market-based funding strategy at strong terms and did therefore not participate” in the ECB’s longer- term loans, Clausen said.
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