Nordea Bank Abp: Half-year Report

Half-year results 2022

Nordea Bank Abp

Half year financial report

18 July 2022 at 7:30 EET

Summary of the quarter

Continued growth in lending volumes led by strong performance in the corporate sector. Continued high business activity and increased market shares led to a 6% growth in mortgage and 7% growth in SME lending volumes. With high activity and customer demand, large corporate lending grew by 16% compared with the same period last year. Assets under management (AuM) decreased by 9% in the quarter due to the financial market downturn. However, Nordea generated a positive savings net inflow in the second quarter.

Increased income and higher operating profit despite weakening markets. Second-quarter operating profit increased by 2% to EUR 1,361m compared with the record levels of the second quarter of 2021. Total income increased by 1%. Net interest income increased by 6% supported by strong growth in lending. Net commission income decreased by 5%, with lower AuM and significantly lower capital market transactions compared with last year. Net fair value result was up by 1%. Costs increased by 1% but costs excluding regulatory fees decreased by 1% year on year.

Strong credit quality with 6bp net loan loss reversals. Net loan losses and similar net result amounted to reversals of EUR 56m or 6bp in the quarter. Realised loan losses remained very low as in previous quarters. In addition, EUR 45m was released from the COVID-19 management judgement buffer in response to lower credit risk in sectors affected by the pandemic.

Return on equity 13.3% and cost-to-income ratio 49%. Nordea's return on equity (RoE) increased to 13.3% from 11.4%, year on year. Cost-to-income ratio was stable compared to the second quarter of 2021, at 49%. Excluding regulatory fees, however, it decreased to 46% from 47% a year ago. Earnings per share increased by 12% to EUR 0.28 from EUR 0.25.

Strong capital - new buy-back programme approved. Nordea's CET1 ratio increased to 16.6% from 16.3% in the previous quarter and is 6.3 percentage points above the regulatory requirement. As previously stated, Nordea is implementing an efficient capital structure and to date has distributed EUR 4.5bn to shareholders during 2022. In addition, Nordea received approval from the European Central Bank to start a new EUR 1.5bn share buy-back programme and Nordea's Board of Directors has today decided to launch the programme.

Outlook maintained - Nordea very well positioned for the future, even in uncertain times. The Nordic countries face increased macroeconomic uncertainty following higher inflation and lowered GDP forecasts. However, Nordea has a resilient business model and is very well-positioned and committed to reach its financial target for 2025 of a RoE above 13%. The full-year 2022 outlook is unchanged: RoE above 11% and a cost-to-income ratio of 49-50%.

(For further viewpoints, see the CEO comment on page 2. For definitions, see page 55 in the Q2 2022 report.)

 

Group quarterly results and key ratios, Q2 2022

EURm	Q2 2022	Q2 2021	Chg %	Q1 20221	Chg %	Jan-Jun 20221	Jan-Jun 2021	Chg %
Net interest income	1,308	1,232	6	1,308	0	2,616	2,444	7
Net fee and commission income	838	878	-5	870	-4	1,708	1,705	0
Net fair value result	282	278	1	295	-4	577	648	-11
Other income	16	30		17		33	41
Total operating income	2,444	2,418	1	2,490	-2	4,934	4,838	2
Total operating expenses excluding regulatory fees	-1,122	-1,131	-1	-1,116	1	-2,237	-2,226	0
Total operating expenses	-1,139	-1,131	1	-1,388	-18	-2,527	-2,450	3
Profit before loan losses	1,305	1,287	1	1,102	18	2,407	2,388	1
Net loan losses and similar net result	56	51		12		68	-1
Operating profit	1,361	1,338	2	1,114	22	2,475	2,387	4
Cost-to-income ratio excluding regulatory fees, %	46	47		45		45	46
Cost-to-income ratio with amortised resolution fees, %	49	49		48		49	48
Return on equity with amortised resolution fees,  %	13.3	11.4		12.5		12.9	11.2
Diluted earnings per share, EUR	0.28	0.25	12	0.22	27	0.49	0.44	11

1. Excluding items affecting comparability. See page 5 in the Q2 2022 report for further details.

CEO comment

In the second quarter we maintained our strong business momentum, improved customer satisfaction and continued to make further progress in line with our business plan and key priorities.

We grew our mortgage lending volumes by 6% and again increased our market shares across the Nordics. Activity slowed in the Nordic housing market due to increased economic uncertainty and the acceleration of interest rate hikes. However, customer demand remains at historically good levels.

Demand for corporate loans - especially among larger corporates - has increased and our pan-Nordic platform is well positioned to meet this demand. Large corporate lending grew by 16% and SME lending by 7%. Corporate customers are turning to Nordea to meet their financing needs, and we expect this trend to continue.

Our operating profit increased by 2% to EUR 1,361m, exceeding the record levels of the second quarter of 2021. Our cost-to-income ratio excluding regulatory fees improved to 46% from 47% a year ago. Return on equity (RoE) was 13.3%, with income and operating profit up despite challenging markets and regulatory pressure. We reconfirm our outlook for 2022: RoE above 11% and a cost-to-income ratio of 49-50%.

In the second quarter we faced a changed operating environment. The continued war in Ukraine and higher inflation led to rising interest rates, lower expectations for economic growth, lower consumer confidence and weaker financial markets. We can expect continued volatility and uncertainty in the coming quarters. 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. For Nordea, this will mean a more balanced mix of income, as we will once again be generating income from our large deposit base.

Our credit quality remains strong. We have the most diversified portfolio among the banks in the Nordic region - both in terms of countries and sectors. Net loan losses amounted to reversals of 6 basis points. Individual losses remained very low across sectors.

We have released EUR 45m of the COVID-19 management judgement buffer. This follows an updated assessment of the credit risk in sectors significantly affected by the pandemic. It is in line with our statements at Capital Markets Day in February, where we said that if conditions permit, we can expect to start releasing the buffer in 2022. 

Our Business Areas continue to drive strong performance. In Personal Banking we continued to engage extensively with our customers through our omnichannel model, and especially through our highly ranked digital channels, to drive increased activity and market shares. Mortgage lending volumes grew by 5% in line with previous quarters - despite lower housing market transaction volumes across the region. Mortgage margins decreased slightly due to rapidly increasing funding costs, mainly in Sweden.

Business Banking showed strong results especially in Norway and Sweden, which helped drive 7% higher lending volumes. We continued to win market shares across the region. Deposit margins improved and we saw strong customer demand for hedging solutions. In Sweden, we were ranked first in Prospera's customer satisfaction survey on Small Corporate Banking and our mobile app received its highest ever ratings in Finland and Sweden.

Large Corporates and Institutions grew lending volumes by 16% as corporates increasingly turned to us for their financing needs. This was mainly driven by high activity towards customers, the increased credit demand and higher corporate bond market yields. We also kept our leading role in climate transition finance and were once again ranked first for Nordic sustainable bonds.

In Asset and Wealth Management customer satisfaction remained high, driven by our proactivity, close customer relationships, large expertise and digital services. We expanded the ESG product range and won several large mandates with international institutional clients during the quarter. Financial market turbulence had a negative impact on AuM, down 9% during the quarter, but our net inflow remained positive. In Private Banking net flows were at record-high levels across the Nordics, despite the market turbulence.

Our capital position continues to be among the best in Europe. Our CET ratio was 16.6%, 6.3 percentage points above the regulatory requirement. As promised we are implementing an efficient capital structure and continue to distribute excess capital to our shareholders. In addition to the dividend of EUR 0.69 per share paid in April, we completed our EUR 1bn follow-on buy-back programme in June, which led to a total capital distribution of EUR 4.5bn or EUR 1.2 per share in the first half of the year. I'm happy that we recently received an approval for further buy-backs of up to EUR 1.5bn and that today our Board has announced its decision to launch the programme.

We continue to deliver our 2025 business plan and key priorities: creating the best omnichannel customer experience, driving focused and profitable growth and increasing operational and capital efficiency. We have sustainability at the core of our business plan and continued to support our customers to make sustainable choices and make progress towards our Sustainability targets. We aim to be a true digital leader and the number of active and engaged customers keeps rising. During the quarter we had 300m digital customer logins and 4.1m digitally active customers - both all-time records. We continued to develop our digital channels and added many new service features and products. This development ensures that we can fulfil all banking needs efficiently and smoothly - whenever and wherever our customers want.

Overall, Nordea performed very well in the second quarter and we progressed as planned in executing our business plan. However, I am sure that increased economic uncertainty, rising inflation and lower GDP forecasts will challenge our customers and broader society during the coming quarters. We are well placed to weather more difficult economic conditions and support our customers. We expect to benefit from the strength and breadth of our business as well as from the higher interest rates, and we are committed to reach our financial target for 2025 of a RoE above 13%.

That is our way forward - to be the preferred partner for customers in need of a broad range of financial services. In both good and challenging times.

Frank Vang-Jensen

President and Group CEO

Outlook (unchanged)

Financial target for 2025

Nordea's financial target for 2025 is a return on equity above 13%.

The target will be supported by a cost-to-income ratio of 45-47%, an annual net loan loss ratio of around 10bp and the continuation of Nordea's well-established capital and dividend policies.

Financial outlook for 2022

Nordea expects a return on equity of above 11% and a cost-to-income ratio of 49-50% for 2022.

Capital policy

A management buffer of 150-200bp above the regulatory CET1 requirement.

Dividend policy

Nordea's dividend policy stipulates a dividend payout ratio of 60-70%, applicable to profit for the financial year. Nordea will continuously assess the opportunity to use share buy-backs as a tool to distribute excess capital.

 

Income statement excluding items affecting comparability¹

EURm	Q2 2022	Q2 2021	Chg %	Q1 2022	Chg %	Jan-Jun 2022	Jan-Jun 2021	Chg %
Net interest income	1,308	1,232	6	1,308	0	2,616	2,444	7
Net fee and commission income	838	878	-5	870	-4	1,708	1,705	0
Net result from items at fair value	282	278	1	295	-4	577	648	-11
Profit from associated undertakings and joint ventures accounted for under the equity method	-4	3		0		-4	-11	-64
Other operating income	20	27	-26	17	18	37	52	-29
Total operating income	2,444	2,418	1	2,490	-2	4,934	4,838	2
Staff costs	-699	-705	-1	-703	-1	-1,402	-1,387	1
Other expenses	-265	-262	1	-266	0	-531	-524	1
Regulatory fees	-17	0		-273	-94	-290	-224	29
Depreciation, amortisation and impairment charges of tangible and intangible assets	-158	-164	-4	-146	8	-304	-315	-3
Total operating expenses	-1,139	-1,131	1	-1,388	-18	-2,527	-2,450	3
Profit before loan losses	1,305	1,287	1	1,102	18	2,407	2,388	1
Net loan losses and similar net result	56	51	10	12		68	-1
Operating profit	1,361	1,338	2	1,114	22	2,475	2,387	4
Income tax expense	-307	-313	-2	-246	25	-553	-574	-4
Net profit for the period	1,054	1,025	3	868	21	1,922	1,813	6

1. Excluding the following items affecting comparability in the first quarter of 2022: a non-deductible loss from the recycling of EUR 529m in accumulated foreign exchange losses related to operations in Russia and EUR 8m (EUR 6m after tax) in losses on fund investments in Russia, recognised in "Net result from items at fair value"; and EUR 76m (EUR 64m after tax) in credit losses on direct exposures to Russian counterparties, recognised in "Net loan losses and similar net result". There was no impact on equity, own funds or capital from the recycling of the accumulated foreign exchange losses, as a corresponding positive item was recorded in "Other comprehensive income". Consequently, this item has no impact on Nordeaʼs dividend or share buy-back capacity.

Ratios and key figures excluding items affecting comparability^1,2

	Q2 2022	Q2 2021	Chg %	Q1 2022	Chg %	Jan-Jun 2022	Jan-Jun 2021	Chg %
Diluted earnings per share (DEPS), EUR	0.28	0.25	12	0.22	27	0.49	0.44	11
EPS, rolling 12 months up to period end, EUR	1.00	0.83	20	0.98	2	1.00	0.83	20
Return on equity, %	14.0	11.9		10.7		12.3	10.7
Return on tangible equity, %	15.9	13.4		12.1		13.9	12.0
Return on risk exposure amount, %	2.8	2.7		2.2		2.5	2.4
Return on equity with amortised resolution fees, %	13.3	11.4		12.5		12.9	11.2
Cost-to-income ratio, %	47	47		56		51	51
Cost-to-income ratio with amortised resolution fees, %	49	49		48		49	48
Cost-to-income ratio excluding regulatory fees, %	46	47		45		45	46
Net loan loss ratio, incl. loans held at fair value, bp	-6	-6		-1		-4	0
Return on capital at risk, %	18.2	17.7		15.1		16.6	15.7
Return on capital at risk with amortised resolution fees, %	17.3	17.0		17.7		17.5	16.4

1. Excluding the following items affecting comparability in the first quarter of 2022: a non-deductible loss from the recycling of EUR 529m in accumulated foreign exchange losses related to operations in Russia and EUR 8m (EUR 6m after tax) in losses on fund investments in Russia, recognised in "Net result from items at fair value"; and EUR 76m (EUR 64m after tax) in credit losses on direct exposures to Russian counterparties, recognised in "Net loan losses and similar net result". There was no impact on equity, own funds or capital from the recycling of the accumulated foreign exchange losses, as a corresponding positive item was recorded in "Other comprehensive income". Consequently, this item has no impact on Nordeaʼs dividend or share buy-back capacity.

2. See here for more detailed information regarding ratios and key figures defined as alternative performance measures.

Business volumes, key items¹

EURbn	30 Jun 2022	30 Jun 2021	Chg %	31 Mar 2022	Chg %
Loans to the public	347.6	338.4	3	351.9	-1
Loans to the public, excl. repos/securities borrowing	328.5	317.2	4	333.1	-1
Deposits and borrowings from the public	223.0	204.6	9	221.1	1
Deposits from the public, excl. repos/securities lending	210.6	196.2	7	212.0	-1
Total assets	611.0	586.8	4	624.5	-2
Assets under management	355.5	384.2	-7	389.4	-9
Equity	30.7	35.5	-14	30.9	-1

1. End of period.

 

 Income statement including items affecting comparability

EURm	Q2 2022	Q2 2021	Chg %	Q1 2022	Chg %	Jan-Jun 2022	Jan-Jun 2021	Chg %
Net interest income	1,308	1,232	6	1,308	0	2,616	2,444	7
Net fee and commission income	838	878	-5	870	-4	1,708	1,705	0
Net result from items at fair value	282	278	1	-242		40	648	-94
Profit from associated undertakings and joint ventures accounted for under the equity method	-4	3		0		-4	-11	-64
Other operating income	20	27	-26	17	18	37	52	-29
Total operating income	2,444	2,418	1	1,953	25	4,397	4,838	-9
Staff costs	-699	-705	-1	-703	-1	-1,402	-1,387	1
Other expenses	-265	-262	1	-266	0	-531	-524	1
Regulatory fees	-17	0		-273	-94	-290	-224	29
Depreciation, amortisation and impairment charges of tangible and intangible assets	-158	-164	-4	-146	8	-304	-315	-3
Total operating expenses	-1,139	-1,131	1	-1,388	-18	-2,527	-2,450	3
Profit before loan losses	1,305	1,287	1	565		1,870	2,388	-22
Net loan losses and similar net result	56	51	10	-64		-8	-1
Operating profit	1,361	1,338	2	501		1,862	2,387	-22
Income tax expense	-307	-313	-2	-232	32	-539	-574	-6
Net profit for the period	1,054	1,025	3	269		1,323	1,813	-27

 

Ratios and key figures including items affecting comparability¹

	Q2 2022	Q2 2021	Chg %	Q1 2022	Chg %	Jan-Jun 2022	Jan-Jun 2021	Chg %
Diluted earnings per share, EUR	0.28	0.25	12	0.06	367	0.34	0.44	-23
EPS, rolling 12 months up to period end, EUR	0.84	0.83	1	0.82	2	0.84	0.83	1
Share price2, EUR	8.40	9.40	-11	9.38	-10	8.40	9.40	-11
Equity per share2, EUR	8.18	8.79	-7	8.04	2	8.18	8.79	-7
Potential shares outstanding2, million	3,753	4,050	-7	3,860	-3	3,753	4,050	-7
Weighted average number of diluted shares, million	3,792	4,041	-6	3,894	-3	3,850	4,040	-5
Return on equity, %	14.0	11.9		3.3		8.4	10.7
Return on tangible equity, %	15.9	13.4		3.7		9.6	12.0
Return on risk exposure amount, %	2.8	2.7		0.7		1.7	2.4
Return on equity with amortised resolution fees, %	13.3	11.4		5.1		9.1	11.2
Cost-to-income ratio, %	47	47		71		57	51
Cost-to-income ratio with amortised resolution fees, %	49	49		61		55	48
Net loan loss ratio, incl. loans held at fair value, bp	-6	-6		7		0	0
Common Equity Tier 1 capital ratio2,3, %	16.6	18.0		16.3		16.6	18.0
Tier 1 capital ratio2,3, %	18.8	19.5		18.4		18.8	19.5
Total capital ratio2,3, %	20.9	21.3		20.5		20.9	21.3
Tier 1 capital2,3, EURbn	28.4	29.6		28.3		28.4	29.6	-4
Risk exposure amount2, EURbn	150.7	152.2	-1	154.0	-2	150.7	152.2	-1
Return on capital at risk, %	18.2	17.7		4.7		11.5	15.7
Return on capital at risk with amortised resolution fees, %	17.3	17.0		7.2		12.3	16.4
Number of employees (FTEs)2	27,350	27,510	-1	27,076	1	27,350	27,510	-1
Economic capital2, EURbn	22.8	23.2	-100	23.4	-100	22.8	23.2	-100

1. See here for more detailed information regarding ratios and key figures defined as alternative performance measures.

2. End of period. 

3. Including the result for the period.

This release is a summary of Nordea's Q2 2022 report. The complete report is attached to this release and can also be found on the below link on our website.

Nordea Group Q2 2022 Report

A webcast for media, investors and equity analysts will be held on 18 July at 11.00 EET (10.00 CET), during which Frank Vang-Jensen, President and Group CEO, will present the results.

To participate in the webcast, please use the webcast link or dial one of the following numbers:

+44 33 3300 0804, +46 8 5664 2651, +358 9 8171 0310, +45 35 445 577, confirmation code 13359084, no later than 10.50 EET (09.50 CET).

The webcast will be directly followed by a Q&A audio session for investors and analysts with Frank Vang-Jensen, Ian Smith, Group CFO, and Matti Ahokas, Head of Investor Relations.

For further information:

Frank Vang-Jensen, President and Group CEO, +358 503 821 391

Ian Smith, Group CFO, +45 5547 8372

Matti Ahokas, Head of Investor Relations, +358 405 759 178

Ulrika Romantschuk, Head of Brand, Communication and Marketing, +358 10 416 8023

The information provided in this stock exchange release was submitted for publication, through the agency of the contact persons set out above, at 07.30 EET (06.30 CET) on 18 July 2022.

Nordea Q2 2022, full report as PDF: http://www.rns-pdf.londonstockexchange.com/rns/7748S_1-2022-7-18.pdf

 

 

 

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