Shipping loan losses hit Norwegian bank DNB's earnings

Posted by Joseph Keefe
Thursday, July 10, 2014

Q2 net profit NOK 4.65 bln vs f'cast NOK 4.77 bln; loan losses NOK 554 mln vs fcast NOK 398 mln. Bank on schedule to fulfill capital requirements, but shares down 4.6 percent, Swedish bank shares lower.

Higher-than-expected loan losses in the shipping sector ate into DNB's second-quarter earnings, sending shares in Norway's largest bank down almost 5 percent on Thursday.

Nordic banks made it through Europe's recent financial crisis relatively unscathed, but have suffered from their exposure to countries in the Baltic region and to a shipping sector which has struggled with overcapacity in recent years.

DNB, one of the world's biggest lenders to the shipping sector, had been seeing a declining trend of souring loans in shipping, but the second quarter saw an unexpected uptick in losses for the sector.

That took the shine off of what analysts said was otherwise a healthy quarter for the bank.

DNB shares traded down 4.6 percent at 110.2 Norwegian crowns by 0851 GMT, underperforming the Oslo market as a whole which was 1.5 percent lower.

The results dragged on DNB's Swedish banking peers which report earnings next week.

Loan losses in the quarter reached 554 million Norwegian crowns ($90 million), higher than 398 million seen in a Reuters poll of banks and brokerages, due in part to lower freight rates in shipping which makes up about 6 percent of its overall lending portfolio.

Still, Karl Storvik, an analyst at Oslo-based brokerage Arctic Securities, said he did not think the increase in collective shipping provisions reflected a change in underlying credit quality, as it was partly due to the way the bank monitored shipping loans.

Nordea, the Nordic region's biggest bank, is also a large lender to the shipping sector and will report earnings next Thursday. Its shares traded down 1.6 percent.

DNB said overall loan losses were on a downward trajectory from a year earlier and it was on schedule to fulfill new capital requirements for Norwegian banks.

"The rise in profits from the second quarter of 2013 reflects higher lending volumes, wider lending spreads, reduced restructuring expenses and lower impairment losses on loans," Chief Executive Rune Bjerke said in a statement.

The bank, the first Nordic lender to report second-quarter results, has had to meet tough new core capital requirements designed to prevent a repeat of a banking collapse in the early 1990s that forced the government to rescue several big lenders.

It posted a net profit of 4.65 billion crowns ($756 million), lagging the 4.77 billion seen in the Reuters poll, up from 3.80 billion at the same time a year ago.

DNB shares were up 6.5 percent in the six months before Thursday's report, lagging an Oslo benchmark index up 13 percent over the same period.

($1 = 6.1834 Norwegian Kroner)

By Gwladys Fouche and Mia Shanley

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