Nordea’s bad loans jump less than feared

Bloomberg

The chief executive of Nordea Bank Abp said there’s no doubt loan losses will rise after the biggest Nordic bank reported a smaller spike than expected in impairments.
It’s still “too early” to know how much damage the Covid-19 crisis will do to loan books, CEO Frank Vang-Jensen said in an interview with Bloomberg Television on Wednesday, shortly after releasing first-quarter results. But it’s clear that provisions for loan losses will go up, he said.
Nordea reported a rise in credit impairments that fell far short of analyst predictions. Provisions reached 154 million euros ($167 million) last quarter, compared with the 318 million euros expected in a Bloomberg survey of analysts.
Net income rose almost 4%, thanks to a 5% increase in net interest income, while fees and commissions were up 4%. Nordea shares rose about 4% when the market opened in Stockholm, where most of its stock is traded.
Vang-Jensen said Nordea’s capital, liquidity and credit portfolio remain strong. But, “of course there will be higher provisions due to the uncertain economic outlook,” he said.
On a conference call after the results were published, Nordea executives said the bank estimated its first-quarter loan losses “based on observed credit developments, so we have not at this stage updated the macro scenarios in the IFRS9 model, we have not attempted to bring forward a re-rating of customers based on the coronavirus on the liquidity of the firms.” The decision is “very much in line with regulatory guidance,” Nordea said.
The bank is sticking with its longer term goals, despite the uncertainty caused by the Covid-19 crisis.
“We remain committed to delivering on our financial targets in 2022. It is too early to conclude on the economic consequences of Covid-19, but we are ready to take mitigating steps over time. Our immediate priorities are clear; the continued support of our customers, the safety of our employees and ensuring business continuity during these extraordinary times,” Vang-Jensen said.
Since Covid-19 hit the world economy, banks across the globe have seen impairments soar. On Tuesday, HSBC Holdings Plc revealed that its bad loan charges could hit $11 billion as a result of the pandemic.
Nordea is revising its economic scenarios used for calculating losses, which it expects to complete in the second quarter.
“Nordea has not worsened its customers’ stage classifications due to Covid-19 outbreak-related liquidity challenges. This is in line with regulatory guidance, but Nordea will make necessary adjustments in provisions going forward based on updated financial information as the impacts of the ongoing economic shock on the credit exposures become clearer,” it said.
In Europe, authorities have responded to the Covid-19 crisis by easing a number of regulations to help the flow of credit amid what could prove to be the worst economic crisis in a century.
Nordea has in recent years come under fire from investors after its efforts to cut costs ended up dragging revenue lower. Vang-Jensen was brought in last year to tidy up, which was followed by an overhaul of Nordea’s C-suite.
The bank’s net interest income rose 5% to 1.11 billion euros, while net income gained 3.8% to 433 million euros.