Nordea profit beats estimates as lending growth continues

Bloomberg

Nordea Bank Abp’s profit beat estimates in a turbulent second quarter for financial markets, as demand for loans and rising interest rates herald higher income from lending for the biggest Nordic bank.
Second-quarter net income rises 2.8% from a year earlier, to 1.05 billion euros ($1.1 billion), according to a statement on Monday. Analysts polled by Bloomberg had expected 929 million euros. The bank reported continued growth in lending volumes led by the corporate sector.
While market turbulence weighed on fee and commission income from asset management and trading in the quarter, Nordea is set to profit from rising interest rates in Europe, which allow banks to charge more for loans.
The bank, which receives the bulk of its earnings from lending, kept its guidance intact, even as the economy and Sweden’s real estate market face a slowdown.
“Higher interest rates will dampen economic activity, but should also be seen as a healthy adjustment that gradually returns us to more normalised market conditions,” Chief Executive Officer Frank Vang-Jensen said in a statement on Monday. “This will mean a more balanced mix of income, as we will once again be generating income from our large deposit base.”
Net interest income of the bank increased 6.2% from a year earlier to 1.31 billion euros, matching analysts’ estimate. The lender has kept its guidance intact, telling investors to still expect a return on equity in excess of 11% and a cost-to-income ratio of 49% to 50% for 2022.
Earlier this month Nordea won approval from its regulator, the European Central Bank, for a third share-buyback program after 3 billion euros of repurchases since October. The next set of buybacks, worth as much as 1.5 billion euros, is expected to begin July 20, the bank said on Monday.
Nordea released 45 million euros from 610 million euros it had set aside against losses as a so-called management overlay put in place two years ago. The bank also reported net credit recoveries of 56 million euros, compared with an estimate for net loan losses of 61.4 million euros.
The profit beat was “largely” driven by the provisions, analyst Maria Semikhatova at Citigroup Inc. said in a note to clients. Investors are likely to “focus on net interest income sensitivity given anticipated rate hikes and asset quality outlook,” she said.