The impacts of COVID-19 have become increasingly evident during the second quarter and the pandemic continues to severely affect individuals, businesses and societies. It is nevertheless encouraging that an increasing number of countries are starting to gradually re-open, and that business sentiment has recovered towards the end of the quarter, even though uncertainty still remains high.
During the past months, societies have adapted to new ways of living, working and consuming. As a bank we have witnessed an increasing trend for e-commerce, mobile payments and digital customer interaction. Most of our customer meetings have been online while we have been fully operational with more than 70% of our staff working remotely. The common denominator for our actions has remained clear – everything we do, we do to support our customers and employees. The dedication and engagement of our employees have been remarkable and I am proud to see their extraordinary efforts paying off through improving customer satisfaction in all business areas.
These challenging societal and economic conditions have furthermore tested and proven the resilience of our business model. In the second quarter we reported another solid result and continue the progress towards our 2022 targets.
Our high activity level has made it possible to keep revenues largely unchanged. Net interest income increased by 2%, supported by sound volume growth. Net fair value result recovered, increasing 12%, mainly from improved trading activities. However, the lockdowns and market turbulence had a negative financial impact, primarily affecting net fee and commission income which declined by 9%. Sizeable cost reductions led to profit before loan losses 4% higher than last year. All key activities to improve our operational efficiency are delivering on target. Costs decreased by 8% from the previous year resulting in a steady reduction in our cost to income ratio to 52%.
We entered the COVID-19 crisis with a strong financial position which we have maintained. At the end of the second quarter, our liquidity buffer was EUR 105bn, equivalent to a liquidity coverage ratio of 160% and our capital position remains very strong with a common equity tier 1 ratio of 15.8%, which is 5.6%-points above requirement. We have undertaken an additional severe stress test, reinforcing our confidence that our strong capital position enables us to continue supporting our customers while at the same time maintaining our dividend capacity.
The credit quality of our loan book remains strong. We have now updated our macro-economic scenarios, including our longer-term view of the expected impact of the economic downturn. Furthermore, we have concluded a thorough review of our loan book. Based on this analysis we project total net loan losses for the full year 2020 below EUR 1bn, equivalent to less than 41 bps.
In the quarter underlying net loan losses were EUR 310m. On top of that we have made additional management judgement allowances of EUR 388m leading to total Q2 net loan losses of EUR 698m.
Including earlier management judgement allowances we now have a total buffer of EUR 650m to cover for estimated future loan losses, IFRS 9 model improvements and the European Central Bank’s new guidance on non-performing loans.
All in all, we deem this proactive approach to be prudent and appropriate given the current economic uncertainty.
The development in business areas remains promising, even though there are still further improvements to be made to reach our financial targets.
In Personal Banking, mortgage volume growth continued steadily in all four countries, and especially strong in Norway and Sweden. However, total revenues declined by 5% primarily due to lower payment fees and lower deposit margins. Our focus on improving operational efficiency continued and costs decreased by 5% leading to a decrease in the cost to income ratio by 3%-points to 54%.
In Business Banking, lending volumes increased and deposit volume growth was strong. Revenues decreased by 1%, due to the impact of lockdowns on fee and commission income. Costs declined by 5%, leading to an improved cost to income ratio to 48%.
Large Corporates and Institutions continued to execute on its re-positioning plan to create a focused, less complex and more profitable business. Revenues grew by 19%, driven by trading income, despite lower fee and commission income due to the market turmoil. Costs were significantly decreased by 14%. Economic capital was adversely affected by an increase in market volatility, impacting profitability. The cost to income ratio improved significantly to 44% and our focus remains on improving profitability.
In Asset and Wealth Management revenues declined 4% due to the market turmoil. High customer activity and market development with good net inflow increased assets under management by EUR 31bn compared to the previous quarter to EUR 311bn. Costs continued to decrease, and the cost to income ratio improved by 3%-points to 55%.
The Annual General Meeting on 28 May 2020 mandated the Board of Directors to decide on a dividend payment of a maximum of EUR 0.40 per share for the financial year 2019 to be distributed in one or several instalments. This authorisation will remain until the beginning of the next AGM. Clearly, our financial strength allows us to support our customers and pay a dividend. However, the Board of Directors intends to follow recommendations adopted by the European Central Bank and will refrain from deciding on a dividend payment based on the authorisation before 1 October 2020.
We are fully focused on fulfilling our social responsibility by supporting our customers, employees and stakeholders through this crisis. Our three key priorities are unchanged - to optimise operational efficiency, drive income growth initiatives and create great customer experiences.
The COVID-19 pandemic has created challenges for businesses, and it is too early to conclude on the longer-term consequences of the crisis. However, we remain committed to our plan and are ready to act to ensure we meet both our three key priorities and financial targets for 2022.
President and Group CEO
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Today we published our financial results for the third quarter