DBRS Comments on Nordea Group’s 1Q10 Results – Senior Unaffected at AA, Trend Stable
DBRS has today commented that the ratings for Nordea Bank AB and its main operating banks (together, Nordea or the Group), including Nordea Bank AB’s AA Senior Unsecured Debt & Deposits rating, are unaffected by the Group’s 1Q10 results. The trend on all ratings remains Stable.
This comment follows Nordea’s 1Q10 results which showed a 44% quarter-on-quarter increase in net profit, to EUR 643 million. The profit was the highest since 3Q08 and primarily reflected falling net loan losses and improved total income. DBRS sees the result as evidencing the strength of Nordea’s franchise and earnings generation ability. The Group also benefited from improving economic conditions in the Nordic countries and signs of stabilisation in the Baltic region.
Total income increased by a solid 7% quarter-on-quarter (4% on a currency-adjusted basis) to EUR 2.3 billion in 1Q10. While net interest income declined 5% on a linked-quarter basis, owed to the low interest rate environment, income benefited from strong gains on items at fair value and slightly-higher fee and commission income. Lending remained solid, increasing 4% quarter-on-quarter. The quarter’s results benefited from reduced credit costs.
Net loan losses of EUR 261 million in 1Q10 declined 25% on a linked-quarter basis and by 27% from the year-ago quarter. This marked the third consecutive quarterly decline and was driven by improved loan performance in Denmark, Sweden and the Baltic countries. Further, credit costs were lower by EUR 29 million in the most recent quarter as Nordea did not add to new provisions for the Danish guarantee scheme. Importantly, the Group reported lower net loan losses in the Baltic region, yet impaired loans continued to increase. The quarterly increase in impaired loans in the Baltics reflected a few exposures which are performing and are viewed by Nordea as well collateralised. Nonetheless, DBRS remains cautiously optimistic about the improving economic conditions in the Baltics. Overall, credit quality remains solid, with impaired loans amounting to a manageable 1.4% of lending at 31 March 2010 (unchanged from year-end 2009).
DBRS continues to view Nordea’s diversified liquidity profile as well-managed. The Group maintains a large liquidity buffer and has further increased the average maturity of its funding. To this end, during the quarter Nordea issued EUR 10.4 billion of long term funding, including an USD 1.25 billion ten-year 144a bond and a EUR 1.5 billion seven-year bond. Capital remains solid with a core Tier 1 ratio, excluding hybrids, of 10.1% and a Tier 1 ratio of 11.2% at 31 March 2010.
DBRS sees the Group as well positioned to further expand and strengthen its franchise, while navigating the still uncertain environment. Nonetheless, the Group continues to face risks inherent in the fragile economic recovery across Northern Europe and the Baltics, the potential for renewed market turmoil given heightened concerns about sovereign risks, as well as uncertainty about the ultimate form and impact of new regulation.
Notes:
All figures are in Euro unless otherwise noted.
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.
This is a Corporate (Financial Institutions) rating.
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