ABN Amro Group NV, the third-biggest Dutch lender, said first-half profit fell 2.7 percent on higher loan-loss provisions related to the Netherlands’ economic slump.
Net income at the state-owned bank fell to 817 million euros ($1.09 billion) from 840 million euros a year earlier, the Amsterdam-based company said in a statement today.
The decline in earnings was cushioned by the release of provisions previously set aside for ABN’s Greek holdings and the Bernard Madoff fraud. Leaving aside those items, profit tumbled 36 percent to 510 million euros, as provisions on loans to small and medium-size companies and mortgages increased.
ABN Amro gets 83 percent of operating income from the Netherlands, leaving it vulnerable to an economy which is in its third recession since the start of the financial crisis in 2008. Consumer spending has dropped almost every month in the last two years, the central statistics agency said yesterday. Companies that have weathered a slump in sales are reaching the end of their reserves, ABN Amro said, leading to higher loan-loss provisions.
Impairments fell to 216 million euros in the first half from 554 million euros, helped by a 297 million-euro release of provisions on Greek government-backed corporate loans and a 253 million-euro release on loans to funds affected by Madoff’s fraud revealed in 2008. ABN Amro in June sold collateral on part of the holdings, which had been fully impaired, it said today.
Excluding those gains, impairment charges rose 38 percent to 766 million euros, the company said. About a fifth of outstanding loans to small and medium-size companies is managed by the bank’s so-called financial restructuring and recovery department, it said. Loss provisions on home loans rose by 13 million euros in the second quarter, as house prices continued to fall while unemployment increased.
The Dutch economy has contracted in eight of the last nine quarters and isn’t expected to return to growth until next year, according to the central planning bureau CPB. Gross domestic product in the euro area’s fifth-largest economy will shrink 1.25 percent this year and grow 0.75 percent in 2014, the CPB forecasts.
ABN Amro seeks to lower its reliance on the Netherlands by expanding its international operations, in areas including private banking and energy and commodities finance, to 20 percent to 25 percent of revenue by 2017, it said in March. It also wants to reduce risks from concentration, Chairman Gerrit Zalm said at that time, adding that half the bank’s loan book consists of Dutch mortgages.
The bank’s core Tier 1 ratio, a measure of its ability to absorb losses, rose to 13.3 percent from 12.1 percent at the end of last year, helped by profit retention. The increase was partially offset by a reservation for a possible 2013 dividend payment, reducing core Tier 1 capital by 300 million euros.
Part of that could be paid to the Dutch state, ABN Amro’s owner, as an interim dividend after the third quarter, the lender said. Last year, the company abandoned a goal to pay a dividend of 40 percent of net income and returned 250 million euros, unchanged from 2011. ABN Amro in March said it plans to gradually return to that level of dividends by 2015.