DBRS Comments on Nordea Group’s 2Q10 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 2Q10 results. The trend on all ratings remains Stable.
Nordea generated a net profit of EUR 539 million for 2Q10. While DBRS views the results as solid, net profit decreased 16% quarter-on-quarter (QoQ) and 13% from the year-ago quarter. The decline in net profit largely reflected lower net results from items at fair value in non-customer related areas, namely Group Treasury and Capital Markets Unallocated, which reflects results from Nordea’s risk management and trading positions. The reduction in fair value results from Group Treasury and Capital Markets reflected renewed turmoil in financial markets during 2Q10, as well as Nordea’s interest rate positioning. Importantly however, excluding these fair value results, underlying operating profit increased both from the linked quarter and the year-ago quarter. DBRS does not view the decrease in net profit as indicating any weakness in the franchise, as it was driven by non-customer related areas. Indeed, Nordea’s customer-driven earnings increased and the Bank reported market share gains in its core Nordic markets, demonstrating the continued strength of the franchise.
Further, evidencing the solid momentum of the franchise, the Bank increased the number of customers in key segments during the quarter. Lending volumes increased 3% while deposit volumes increased 1%. Both corporate lending and household mortgage activity benefited from the recovery in loan demand that reflected the improving economic environment in the Nordic region. As a result of the increase in lending and deposit volumes, Nordea was able to improve net interest income by 1% QoQ. Positively, as well, net fee and commission income increased 13% from the linked quarter, as customer activity levels improved.
Nordea enjoyed positive momentum in credit performance. The loan loss ratio declined for the fifth consecutive quarter, to a moderate 0.35% of lending (annualised), illustrating continued stabilisation in credit quality. Excluding provisions for the Danish guarantee scheme, which will end after 3Q10, net loan losses amounted to a very modest 0.26% of lending, which was a 28% QoQ. Moreover, gross impaired loans declined in 2Q10, after increasing each quarter since 1Q08. Impaired loans of EUR 4.4 billion amounted to a manageable 1.35% of lending at 30 June, down from 1.40% three months earlier.
Credit performance in the Baltics has also improved, with loan losses declining to 1.44% of lending (annualised) in 2Q10 from 1.66% in the prior quarter. Despite a slight decline, impaired loans in this book remain elevated at 8.08% of lending. With Baltic lending amounting to a limited 2.6% of lending at 30 June 2010, DBRS views the risk from this book to Nordea overall as manageable. In the Shipping & Offshore portfolio, impaired loans increased in the quarter, as persistent overcapacity remains an ongoing industry-wide challenge. Importantly however, at 30 June 2010, the shipping book represented a manageable EUR 11.7 billion or 3.9% of lending to the public.
The funding profile remains sound and well-managed. Despite the environment, Nordea successfully issued EUR 10.5 billion of long-term debt, including EUR 4.6 billion of senior unsecured funding. Illustrating the Bank’s prudent approach to funding, Nordea issued EUR 20.9 billion of Long term debt in the year through 30 June 2010, exceeding the full-year long-term debt maturities. Capitalisation remains solid, with a core Tier 1 ratio, excluding hybrids, of 10.0% and Tier 1 ratio of 11.1% at 30 June 2010 (Basel II). Positively, DBRS recognises that in the recent stress test conducted by the Committee of European Bank Supervisors, Nordea’s Tier 1 ratio remains at 10.1% in the most adverse stress scenario.
Note:
All figures are in Euros (EUR) 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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