Nordea Bank Abp, the biggest bank in the Nordic region, reported better than expected profits from its lending business in the first quarter, joining a slew of peers as they enjoy a tailwind from rising interest rates.
(Bloomberg) — Nordea Bank Abp, the biggest bank in the Nordic region, reported better than expected profits from its lending business in the first quarter, joining a slew of peers as they enjoy a tailwind from rising interest rates.
Nordea’s net interest income rose to €1.77 billion ($2 billion) in the quarter, according to a statement on Thursday. That was a 8% increase from the previous quarter, and above the €1.72 billion average analyst estimate.
Interest-rate increases by central banks over the past year have boosted the traditional business of banks, as they raise rates on mortgages more than the interest they pay on deposit accounts and pocketing the difference. In neighboring Sweden, Svenska Handelsbanken AB and SEB AB on Wednesday posted better-than-forecast net income from lending activities.
But that comes against a backdrop of recent turbulence in the industry, with banking crises both in the US and in Switzerland pummeling lenders’ stocks across Europe during the quarter.
“When I look at the European banking sector, it looks strong. That’s my take,” Nordea Chief Executive Officer Frank Vang-Jensen said in an interview. “So I don’t see any signs of weakness in the European sector as of now. We have seen a couple of defaults outside of the Nordics, and in my opinion that is isolated cases.”
Volatility in financial stocks in March also sent Nordea’s shares falling, and they are now trading roughly 5% higher than their start-of-year levels, having been up about 20% before the turbulence began.
Nordea shares fell as much as 1.5%, paring the drop to 0.6% at 9:27 a.m. in Stockholm.
The bank holds a €585 million buffer against future losses and said net loan losses in the first quarter amounted to €19 million.
“Looking at Nordea, we are one of the strongest banks in Europe,” Vang-Jensen said. “We are very stable, very profitable, very well capitalized and very resilient.”
Net income from fees and commissions fell 3% from the prior quarter to €765 million. Analysts had penciled in €800 million. Net income amounted to €1.15 billion, beating estimates, and deposits grew by 5% from a year earlier.
“Nordea delivered a solid first-quarter result, supported by growth in net interest income, costs under control and strong return on equity,” Svenska Handelsbanken AB analyst Marcela Klang said in a note, adding that loan losses remain low.
Nordea reiterated its return-on-equity target of 13% for the year as well as the cost-to-income ratio forecast of 45% to 47%. It plans to update 2025 targets by the end of 2023, “when the economic outlook will hopefully be clearer.”
What Bloomberg Intelligence Says:
“Nordea’s upbeat first-quarter report and €1 billion share buyback confirm the lender’s turnaround is continuing, with scope for additional estimate upgrades on lowered costs (2% beat) and credit quality (lowly 2 basis-point charge). Capital is strong with a post-buyback 15.7% CET1 ratio (200 basis points above target) underpinning the potential for further repurchases this year. Commercial real estate exposure — with a 53% loan-to-value and just 39% to higher-risk offices — is reassuring.”
— Philip Richards, BI banking analyst. Click here to read more.
Nordea on Wednesday announced it plans to launch its fourth program of share buybacks on Friday, worth as much as €1 billion. That comes on top of €4.5 billion worth of shares it’s bought back since September 2021. That’s when its regulator, the European Central Bank, allowed lenders to resume payouts following a pandemic pause.
The Helsinki-based bank in February 2022 projected returning to its owners as much as €17 billion in dividends and share buybacks combined, through 2025. Nordea is likely reach the upper end of that range as keeps shifting out capital, according to Danske Bank A/S analyst Andreas Hakansson.
–With assistance from Anton Wilen, Christopher Jungstedt, Leo Laikola, Jonas Cho Walsgard and Douglas Lytle.
(Adds CEO comment from fifth, share move in seveth paragraphs)
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