DNB Seeks 12 Percent Return on Equity as Capital Buffers Raised

DNB ASA (DNB), Norway’s largest bank, plans to keep increasing capital to reach a ratio of as much as 14 percent by 2016 by retaining profits, limiting dividend payments and cutting costs.

The bank will keep its dividend payout ratio at about 25 percent “during the capital build-up phase until 2016,” while maintaining a long-term policy of 50 percent, Oslo-based DNB said in a statement today. DNB doesn’t plan to sell stock to build the buffer, the lender said.

The Norwegian bank will target a return on equity of more than 12 percent “towards 2016” based on a core equity Tier 1 ratio requirement of 13.5 percent to 14 percent by that year. The ratio includes a minimum requirement of 7 percent as well as an additional buffer of 6.5 percent to 7 percent, it said. DNB had a core Tier 1 capital ratio of 11 percent as of Sept. 30 under Basel II transitional rules, up from 8.5 percent at the end of 2009.

DNB and Danish rival Danske Bank A/S (DANSKE) have been lagging behind their Swedish peers in boosting capital under fully applied Basel III rules. Those peers have been rewarded with falling funding costs by investors because of their growing buffers. DNB had a common equity Tier 1 ratio under Basel III standards of 12.5 percent at the end of September, compared with Svenska Handelsbanken AB (SHBA)’s 18.8 percent and Swedbank AB (SWEDA)’s 18 percent.

“Regulation has been and it will be even stricter and shifts in customer trends are here to stay and it is now about how to adapt to these changes,” DNB Chief Executive Officer Rune Bjerke said in a presentation at the bank’s capital markets day in London today. “It’s all about delivering a competitive return on an increasing requirement.”

DNB rose 0.5 percent to 107.5 kroner by 12:38 p.m. in Oslo trading, bringing the gain this year to 53 percent.

DNB’s ROE target of 12 percent compares with goals of 15 percent at Nordea Bank AB (NDA), the Nordic region’s largest lender, Swedbank and Stockholm-based SEB AB. Danske Bank on Oct. 31 lowered its 2015 ROE target to 9 percent from a previous goal of more than 12 percent.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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