The macro development in the Nordics has been relatively healthy in 2018 but there are clear signs of increased uncertainty, especially Sweden that gradually lost steam on the back of uncertainty on housing market impacting investment and sluggish private consumption. In recent years, Nordea has proactively de-risked the bank, re-focused on core Nordic activities and maintained strict underwriting discipline in lending. This, combined with a record-strong balance sheet, makes us comfortable we can manage the bank successfully through the cycle.
2018 featured challenging revenue development. Net interest income was down 7% in 2018 compared to 2017 driven mainly by margin pressure and the deconsolidation of the Baltic operations. In recent quarters, the level has stabilised, and towards the end of the year, we saw volume growth and stabilising blended margins. The market making trading environment has been challenging throughout the year, and the worsening market conditions in the fourth quarter further weighted on net fair value as well as fees and commission.
We continue to deliver on our cost efficiency plans with costs below EUR4.8bn for 2018, excluding the goodwill impairment in Russia of EUR 141m. We are well on track to reach our 2021 target to reduce costs* by 3% compared to 2018 and in 2019 the target is to have lower costs than in 2018, adjusted for non-recurring costs in 2018 and 2019**. Credit quality remains strong and loan losses were 5bps in the fourth quarter 2018. Common Equity Tier 1 capital ratio was 15.5%, in line with our expectations and well above the required level of 13.9%. The Board is going to propose an increase in dividend per share from EUR 0.68 to EUR 0.69, in line with the capital policy.
Net profit for 2018 increased compared to 2017, also including the goodwill impairment in Russia.
Sustainability and responsible banking is at the heart of what Nordea wants to be and we are integrating sustainability into our day-to-day business at an increasing pace. Together with the United Nations and 27 other banks from around the world, Nordea was co-founder of the Principles for Responsible Banking, launched in Paris in November. For the second year in a row, Nordea was ranked as one of the top 100 most sustainable corporations in the world by the specialised media and investment research firm Corporate Knights and was the only Nordic bank to qualify among the top 100.
In 2018 we have made progress in Personal Banking in terms of increasing customer satisfaction particularly in Sweden where it has gone up to 67 from 60 during 2018. We also see a continued positive trend in both Private Banking and Business Banking, and we retain our very strong position in the large corporate sector.
In 2016–2018, Nordea carried out a significant transformation programme in line with the strategic priorities l communicated when I was appointed CEO in H2 2015. The transformation consisted of four key elements.
1. Risk and compliance – During the last three years, Nordea has invested more than EUR 730m within risk and compliance and resilience, recruited approximately 1,300 compliance professionals, and in 2018 12,000 front office staff members received 110,000 hours of training. These investments have significantly strengthened the risk and compliance platform and provide vital support to our financial crime prevention efforts, making Nordea a safer and more trusted bank.
2. Simplification – Nordea has created a streamlined legal structure with a Finnish parent company, with fully owned product companies and significant branches in the other Nordic countries. With this structure, we became a simpler bank and easier to scale. In the digital factory, Nordea has a completely new Group Common Data platform, all SEPA payments are now on a new platform with instant payments and significant progress has been made with the new Core Banking Platform. Our robots have now the same capacity as 1,500 FTEs. Following divestments of our non-Nordic private banking operations and the ongoing divesting of our Baltic operations, and a significant reduction in Russian and non-Nordic Shipping, Oil and Offshore lending, Nordea is now a more focused, simpler and resilient bank – operating in the banking union – with a much improved risk and compliance platform.
3. Digitalisation – In 2016–2018, Nordea invested above EUR 200m in digital solutions making us easier to deal with and accessible to even more customers. The most important outcomes of these investments are; a new mobile bank platform, a fully digital trade finance solution (We trade), online advisory meetings and launches of Apple Pay (as the only Nordic bank), Google Pay and Samsung Pay. We launched a new digital advisor, Nora, who has more than 115,000 advisory meetings in 2018 and around 30,000 advisory meetings in just January 2019. Corporate and Business Banking has also launched a new Digital Corporate Bank and in our Open Banking platform there are approximately 2,500 external developers forming part of our digital ecosystem, creating ideas and solutions for our customers.
4. Cost and capital efficiency – While the transformation undoubtedly led to cost increases in 2016–2017, Nordea now has a foundation for long-term cost efficiency improvement. Between 2017 and 2021, costs are expected to be reduced by 7% in constant currencies. In the same period, combined cash costs on both the profit & loss accounts and the balance sheet are expected to come down by approximately 15–20% in constant currencies. There is also potential to reduce costs beyond 2021 when the new Core Banking Platform is implemented, and we can start decommissioning the legacy systems. We also note that currently, the Nordic banking sector is phasing out relatively high cost inflation, driven by the same kind of investments made by Nordea in 2016–2017. Also, during 2016–2018, we created one of the strongest capitalised balance sheets in Europe.
For 2019, our priorities are very clear. We are now well placed to intensify our client efforts and increase business momentum while at the same time continuing to drive structural cost efficiency. Each business area has identified a number of initiatives to drive client value and revenue growth. Examples include investments in Private Banking in Norway and Sweden, acquisition of Gjensidige Bank, new distribution channels within Asset Management and Wholesale Banking and clear plans to regain momentum on mortgages where we already start to see results. On the cost side, we continue to drive operational excellence, frontline efficiency and simplification. At the end of the day, it is now all about execution.
/Casper von Koskull, CEO
*Excluding EUR 141m in goodwill impairment in 2018 related to Russia
** EUR141m in goodwill impairment related to Russia in 2018 and approximately EUR 90m related to divestment of Luminor-shares and acquisition of Gjensidige Bank in 2019
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