Norway’s Largest Bank Beats Retreat From Oil as Losses Mount

Updated on
  • DNB to increase focus on retail customers, small businesses
  • Losses on shipping, offshore lending jumps 34% in quarter

Norway’s biggest bank is cutting back on its oil and shipping lending after a tripling of loan losses sent its stock tumbling.

DNB ASA is “rebalancing” to focus on more profitable businesses areas and plans “to take down shipping exposure as well as the commercial real estate,” Chief Executive Officer Rune Bjerke said in an interview. “And over time we will also do that with the offshore part of the book.”

The Oslo-based bank surprised investors as it more than tripled its impairments on its lending book, sending its shares plummeting as much as 9.2 percent on Tuesday. Net income fell 10 percent in the quarter, missing analyst estimates.

Norway’s Financial Supervisory Authority warned banks in June their historical loss and default estimates probably understated potential losses from oil’s decline. More debt restructuring are likely amid an overcapacity in vessels and a worsening of companies’ ability to pay their debts, the country’s central bank said that same month.

The more than 50 percent plunge in crude prices since 2014 has rippled through the economy of western Europe’s largest oil exporter. More than 30,000 industry workers have lost their jobs and there has been a wave of debt defaults for companies that service the oil producers.

Even so, Bjerke said he’s “not that pessimistic” about the oil industry as restructurings are bringing together equity holders, bond investors and the banks. DNB’s oil-related portfolio comprises about 8 percent of DNB’s total 1.94 trillion-krone loan portfolio.

“I would say that we have seen a few restructuring cases where we have brought in new equity, new investors willing to restructure the industry,” he said. Ultimately, “there will be a restructuring overall that will lead to fewer but stronger players.”

And a lower exposure for DNB.

The bank will grow its business in retail banking and in small and medium-sized businesses in Norway, where there is the “highest profitability,” he said. “What’s important to the bank now is to be able to maneuver when it comes to large corporate clients.”

The bank’s operating profit for large corporate and international customers has more than halved since the second quarter last year. Total impairments in that segment has more than tripled.

Tough competition from other Nordic banks for commercial real estate lending also means that loan book “is one of the least profitable segments for the time being,” Bjerke said. “We can find better and more profitable opportunities in other segments.”