Nordea Bank Abp
Interim report (Q1 and Q3)
20 October 2022 at 7:30 EET
Summary of the quarter
Corporate sector driving continued lending volume growth, despite economic slowdown. Greater economic uncertainty and increased interest rates had a negative impact on mortgage and SME lending volume growth during the quarter. Despite this, Nordea continued to win market shares across the region with mortgage lending up 4% and corporate lending up 12%. Due to the financial market turmoil, assets under management (AuM) decreased by 4% compared with the previous quarter. However, net flows from internal channels were positive.
Increased income and operating profit. Third-quarter operating profit was EUR 1,297m and total income was up 7%, year on year. Net interest income increased by 15%, supported by higher deposit margins and strong growth in large corporate lending volumes. Net commission income decreased by 6%, due to lower AuM and subdued capital market activity. Net fair value increased by 18% driven by strong customer activity. Year on year, costs increased by 4%. Costs excluding regulatory fees increased by 3% driven by higher investments in line with our business plan.
Strong credit quality with low net loan losses. Net loan losses and similar net result amounted to EUR 58m in the quarter. The increase this quarter was mainly driven by lower house prices. These resulted in a model-based adjustment in the fair value of the Danish mortgage book, amounting to EUR 29m or 3bp. Realised loan losses were low and new net provisions for loan losses increased slightly to EUR 29m or 4bp (EUR 4m or 1bp a year ago).
Return on equity at 12.7% and earnings per share up 8%, year on year. Nordea’s return on equity (RoE) increased to 12.7% from 10.8%, year on year. The cost-to-income ratio improved to 48% from 49%. Excluding regulatory fees, the cost-to-income ratio improved to 45% from 47%. Earnings per share increased by 8% to EUR 0.27 from EUR 0.25.
Strong underlying capital generation. Nordea’s CET1 ratio decreased to 15.8% from 16.6% in the previous quarter following the reductions due to the third share buy-back programme. Nordea’s capital position is strong and 5.0 percentage points above the regulatory requirement. Capital generation continued, and excluding the buy-back programme, the CET1 ratio increased by 20bp from the previous quarter. This was driven by high profitability and low risk migration despite strong lending volume growth during the quarter.
2022 outlook improved – Nordea remains strong and well positioned for the future. The Nordic countries face increased macroeconomic uncertainty following higher inflation and lowered GDP forecasts. However, Nordea has a resilient business model and is well positioned to reach its 2025 financial target of a RoE above 13%. The outlook for 2022 is improved. The full-year 2022 RoE is expected to be above 11% (unchanged) while the cost-to-income ratio is expected to be 48–49% (previously 49–50%).
(For further viewpoints, see the CEO comment on page 2. For definitions, see page 53 in the Q3 2022 report.)
Group quarterly results and key ratios, Q3 2022
|
EURm |
Q3 2022 |
Q3 2021 |
Chg % |
Q2 2022 |
Chg % |
Jan-Sep 20221 |
Jan-Sep 2021 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,407 |
1,226 |
15 |
1,308 |
8 |
4,023 |
3,670 |
10 |
|
Net fee and commission income |
816 |
870 |
-6 |
838 |
-3 |
2,524 |
2,575 |
-2 |
|
Net fair value result |
264 |
224 |
18 |
282 |
-6 |
841 |
872 |
-4 |
|
Other income |
14 |
24 |
|
16 |
|
47 |
65 |
|
|
Total operating income |
2,501 |
2,344 |
7 |
2,444 |
2 |
7,435 |
7,182 |
4 |
|
Total operating expenses excluding regulatory fees |
-1,130 |
-1,098 |
3 |
-1,122 |
1 |
-3,367 |
-3,324 |
1 |
|
Total operating expenses |
-1,146 |
-1,098 |
4 |
-1,139 |
1 |
-3,673 |
-3,548 |
4 |
|
Profit before loan losses |
1,355 |
1,246 |
9 |
1,305 |
4 |
3,762 |
3,634 |
4 |
|
Net loan losses and similar net result |
-58 |
22 |
|
56 |
|
10 |
21 |
|
|
Operating profit |
1,297 |
1,268 |
2 |
1,361 |
-5 |
3,772 |
3,655 |
3 |
|
|
|
|
|
|
|
|
|
|
|
Cost-to-income ratio excluding regulatory fees, % |
45 |
47 |
|
46 |
|
45 |
46 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
48 |
49 |
|
49 |
|
49 |
49 |
|
|
Return on equity with amortised resolution fees, % |
12.7 |
10.8 |
|
13.3 |
|
12.8 |
11.1 |
|
|
Diluted earnings per share, EUR |
0.27 |
0.25 |
8 |
0.28 |
-4 |
0.76 |
0.69 |
10 |
1. Excluding items affecting comparability. See page 5 in the Q3 2022 report for further details.
CEO comment
In the third quarter we maintained strong momentum and business volume growth – in line with our business plan and key priorities. Our operating profit increased by 2% to EUR 1,297m. Although the third quarter is typically seasonally quieter, we delivered 7% income growth. Our cost-to-income ratio excluding regulatory fees improved to 45% from 47% a year ago. Including the fees, it was 48%. Return on equity (RoE) was 12.7%, up from 10.8% last year.
Lower consumer activity was clearly seen in the Nordic housing market. The slowdown was most pronounced in Sweden, where house prices declined by around 5% compared with last year. Despite this, we grew our mortgage lending volumes by 4% and again increased our market shares across the Nordics. At the same time the demand for corporate loans – especially among larger corporates – continued to increase, and we are well positioned to meet this demand. Corporate lending grew by 12% compared with the previous year.
In the third quarter, central bank policy rates in Denmark and Finland turned positive, following Norway and Sweden. Although the higher interest rates will dampen economic activity, in the long term they should also be seen as a healthy adjustment that gradually returns us to more normalised market conditions. Improved deposit margins supported our income. We expect this trend to continue in the coming quarters as interest rates are likely to continue to increase in all four countries.
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. In the third quarter net loan losses and similar net result amounted to 7 basis points. Individual losses remained very low across sectors and the increase was mainly attributable to the model-based impact of lower house prices on our mortgage loans in Denmark. Our management judgement buffer was kept unchanged at EUR 565m in the third quarter.
Our business areas continued to deliver strong performances. In Personal Banking mortgage lending volumes grew by 4% – despite the lower housing market transaction volumes across the region. The rate hikes improved our deposit margins, but mortgage margins in especially Norway and Sweden remained under pressure due to higher funding costs. Credit quality remained strong. We continued to engage extensively with our customers through our omnichannel model to drive activity, and also completed the launch of our updated mobile bank app.
Business Banking continued to grow solidly especially in Norway and Sweden. Lending volumes increased by 6%, with good growth in green loans, which were up by 80%. Credit quality remained strong. Our deposit margins improved after the rate hikes, and we continued to see high customer demand for hedging solutions. Capital markets activity remained subdued.
Large Corporates & Institutions grew lending volumes by 25% as corporates increasingly turned to us for their financing needs. This was mainly driven by customers strengthening liquidity in the power production sector as well as in order to support a number of large deals in Mergers & Acquisitions. Credit quality remained strong with net reversals in the quarter. We were once again ranked first for Nordic sustainable bonds.
In Asset & Wealth Management, assets under management (AuM) were EUR 341bn, down 4% during the quarter. The macroeconomic uncertainty and interest rate increases continued to cause high volatility in both the equity and fixed income markets. However, net flows in our internal channels continued to be positive, mainly driven by the positive momentum in Private Banking. We continued to show ESG market leadership and expanded our ESG product range with a new Article 9 real assets fund, one of the first of its kind in Europe.
Our capital position continues to be among the strongest in Europe. Our CET1 ratio was 15.8%. During the quarter our CET1 requirement increased to 10.8%, as expected, due to increased counter-cyclical buffers in Denmark and Sweden. Our CET1 ratio was 5.0 percentage points above the regulatory requirement. We continue to implement an efficient capital structure and distribute excess capital to our shareholders through our third share buy-back programme.
We will continue to deliver on our key priorities in order to continuously improve our performance and reach our financial target. The three key priorities are to create the best omnichannel customer experience, drive focused and profitable growth and increase operational and capital efficiency. We are also focusing on two key levers across the entire bank: being a digital leader among our peers and integrating sustainability into the core of our business.
The Nordic countries face increased macroeconomic uncertainty following the higher inflation and lowered GDP forecasts. The visibility is currently low and we expect the challenging environment to continue during the coming quarters. However, we are well positioned to weather this environment and have a resilient business model. We are committed to reaching our 2025 financial target of a RoE above 13%. For 2022, our outlook for the cost-to-income ratio is improved to 48–49% (previously 49–50%). Our RoE guidance of above 11% remains unchanged.
Nordea’s role is the same as it has been for 200 years: we are here to support our customers and the societies where we operate. And that is our way forward – to be the preferred partner for our customers. In both good and challenging times.
Frank Vang-Jensen
President and Group CEO
Outlook (updated)
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 48–49% for 2022 (updated).
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.
Outlook (previous)
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 |
Q3 2022 |
Q3 2021 |
Chg % |
Q2 2022 |
Chg % |
Jan-Sep 2022 |
Jan-Sep 2021 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,407 |
1,226 |
15 |
1,308 |
8 |
4,023 |
3,670 |
10 |
|
Net fee and commission income |
816 |
870 |
-6 |
838 |
-3 |
2,524 |
2,575 |
-2 |
|
Net result from items at fair value |
264 |
224 |
18 |
282 |
-6 |
841 |
872 |
-4 |
|
Profit from associated undertakings and joint ventures accounted for under the equity method |
-3 |
9 |
|
-4 |
-25 |
-7 |
-2 |
|
|
Other operating income |
17 |
15 |
13 |
20 |
-15 |
54 |
67 |
-19 |
|
Total operating income |
2,501 |
2,344 |
7 |
2,444 |
2 |
7,435 |
7,182 |
4 |
|
Staff costs |
-701 |
-702 |
0 |
-699 |
0 |
-2,103 |
-2,089 |
1 |
|
Other expenses |
-282 |
-237 |
19 |
-265 |
6 |
-813 |
-761 |
7 |
|
Regulatory fees |
-16 |
- |
|
-17 |
-6 |
-306 |
-224 |
37 |
|
Depreciation, amortisation and impairment charges of tangible and intangible assets |
-147 |
-159 |
-8 |
-158 |
-7 |
-451 |
-474 |
-5 |
|
Total operating expenses |
-1,146 |
-1,098 |
4 |
-1,139 |
1 |
-3,673 |
-3,548 |
4 |
|
Profit before loan losses |
1,355 |
1,246 |
9 |
1,305 |
4 |
3,762 |
3,634 |
4 |
|
Net loan losses and similar net result |
-58 |
22 |
|
56 |
|
10 |
21 |
-52 |
|
Operating profit |
1,297 |
1,268 |
2 |
1,361 |
-5 |
3,772 |
3,655 |
3 |
|
Income tax expense |
-285 |
-267 |
7 |
-307 |
-7 |
-838 |
-841 |
0 |
|
Net profit for the period |
1,012 |
1,001 |
1 |
1,054 |
-4 |
2,934 |
2,814 |
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.
Ratios and key figures excluding items affecting comparability1,2
|
|
Q3 2022 |
Q3 2021 |
Chg % |
Q2 2022 |
Chg % |
Jan-Sep 2022 |
Jan-Sep 2021 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Diluted earnings per share (DEPS), EUR |
0.27 |
0.25 |
8 |
0.28 |
-4 |
0.76 |
0.69 |
10 |
|
EPS, rolling 12 months up to period end, EUR |
1.03 |
0.87 |
18 |
1.00 |
3 |
1.03 |
0.87 |
18 |
|
Return on equity, % |
13.4 |
11.3 |
|
14.0 |
|
12.6 |
10.9 |
|
|
Return on tangible equity, % |
15.2 |
12.6 |
|
15.9 |
|
14.3 |
12.3 |
|
|
Return on risk exposure amount, % |
2.7 |
2.6 |
|
2.8 |
|
2.6 |
2.4 |
|
|
Return on equity with amortised resolution fees, % |
12.7 |
10.8 |
|
13.3 |
|
12.8 |
11.1 |
|
|
Cost-to-income ratio, % |
46 |
47 |
|
47 |
|
49 |
49 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
48 |
49 |
|
49 |
|
49 |
49 |
|
|
Cost-to-income ratio excluding regulatory fees, % |
45 |
47 |
|
46 |
|
45 |
46 |
|
|
Net loan loss ratio, incl. loans held at fair value, bp |
7 |
-3 |
|
-6 |
|
0 |
-1 |
|
|
Return on capital at risk, % |
17.7 |
17.2 |
|
18.2 |
|
17.0 |
16.2 |
|
|
Return on capital at risk with amortised resolution fees, % |
16.8 |
16.4 |
|
17.3 |
|
17.3 |
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 Sep 2022 |
30 Sep 2021 |
Chg % |
30 Jun 2022 |
Chg % |
|---|---|---|---|---|---|
|
Loans to the public |
345.9 |
342.6 |
1 |
347.6 |
0 |
|
Loans to the public, excl. repos/securities borrowing |
327.4 |
319.5 |
2 |
328.5 |
0 |
|
Deposits and borrowings from the public |
225.4 |
210.8 |
7 |
223.0 |
1 |
|
Deposits from the public, excl. repos/securities lending |
215.7 |
202.1 |
7 |
210.6 |
2 |
|
Total assets |
624.8 |
614.5 |
2 |
611.0 |
2 |
|
Assets under management |
341.4 |
392.9 |
-13 |
355.5 |
-4 |
|
Equity |
31.0 |
36.6 |
-15 |
30.7 |
1 |
1. End of period.
Income statement including items affecting comparability
|
EURm |
Q3 2022 |
Q3 2021 |
Chg % |
Q2 2022 |
Chg % |
Jan-Sep 2022 |
Jan-Sep 2021 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,407 |
1,226 |
15 |
1,308 |
8 |
4,023 |
3,670 |
10 |
|
Net fee and commission income |
816 |
870 |
-6 |
838 |
-3 |
2,524 |
2,575 |
-2 |
|
Net result from items at fair value |
264 |
224 |
18 |
282 |
-6 |
304 |
872 |
-65 |
|
Profit from associated undertakings and joint ventures accounted for under the equity method |
-3 |
9 |
|
-4 |
-25 |
-7 |
-2 |
|
|
Other operating income |
17 |
15 |
13 |
20 |
-15 |
54 |
67 |
-19 |
|
Total operating income |
2,501 |
2,344 |
7 |
2,444 |
2 |
6,898 |
7,182 |
-4 |
|
Staff costs |
-701 |
-702 |
0 |
-699 |
0 |
-2,103 |
-2,089 |
1 |
|
Other expenses |
-282 |
-237 |
19 |
-265 |
6 |
-813 |
-761 |
7 |
|
Regulatory fees |
-16 |
- |
|
-17 |
-6 |
-306 |
-224 |
37 |
|
Depreciation, amortisation and impairment charges of tangible and intangible assets |
-147 |
-159 |
-8 |
-158 |
-7 |
-451 |
-474 |
-5 |
|
Total operating expenses |
-1,146 |
-1,098 |
4 |
-1,139 |
1 |
-3,673 |
-3,548 |
4 |
|
Profit before loan losses |
1,355 |
1,246 |
9 |
1,305 |
4 |
3,225 |
3,634 |
-11 |
|
Net loan losses and similar net result |
-58 |
22 |
|
56 |
|
-66 |
21 |
|
|
Operating profit |
1,297 |
1,268 |
2 |
1,361 |
-5 |
3,159 |
3,655 |
-14 |
|
Income tax expense |
-285 |
-267 |
7 |
-307 |
-7 |
-824 |
-841 |
-2 |
|
Net profit for the period |
1,012 |
1,001 |
1 |
1,054 |
-4 |
2,335 |
2,814 |
-17 |
Ratios and key figures including items affecting comparability1
|
|
Q3 2022 |
Q3 2021 |
Chg % |
Q2 2022 |
Chg % |
Jan-Sep 2022 |
Jan-Sep 2021 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Diluted earnings per share, EUR |
0.27 |
0.25 |
8 |
0.28 |
-4 |
0.61 |
0.69 |
-12 |
|
EPS, rolling 12 months up to period end, EUR |
0.87 |
0.87 |
0 |
0.84 |
4 |
0.87 |
0.87 |
0 |
|
Share price2, EUR |
8.80 |
11.24 |
-22 |
8.40 |
5 |
8.80 |
11.24 |
-22 |
|
Equity per share2, EUR |
8.40 |
9.06 |
-7 |
8.18 |
3 |
8.40 |
9.06 |
-7 |
|
Potential shares outstanding2, million |
3,714 |
4,050 |
-8 |
3,753 |
-1 |
3,714 |
4,050 |
-8 |
|
Weighted average number of diluted shares, million |
3,722 |
4,042 |
-8 |
3,792 |
-2 |
3,815 |
4,041 |
-6 |
|
Return on equity, % |
13.4 |
11.3 |
|
14.0 |
|
10.0 |
10.9 |
|
|
Return on tangible equity, % |
15.2 |
12.6 |
|
15.9 |
|
11.3 |
12.3 |
|
|
Return on risk exposure amount, % |
2.7 |
2.6 |
|
2.8 |
|
2.1 |
2.4 |
|
|
Return on equity with amortised resolution fees, % |
12.7 |
10.8 |
|
13.3 |
|
10.2 |
11.1 |
|
|
Cost-to-income ratio, % |
46 |
47 |
|
47 |
|
53 |
49 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
48 |
49 |
|
49 |
|
52 |
49 |
|
|
Net loan loss ratio, incl. loans held at fair value, bp |
7 |
-3 |
|
-6 |
|
3 |
-1 |
|
|
Common Equity Tier 1 capital ratio2,3, % |
15.8 |
16.9 |
|
16.6 |
|
15.8 |
16.9 |
|
|
Tier 1 capital ratio2,3, % |
18.2 |
18.9 |
|
18.8 |
|
18.2 |
18.9 |
|
|
Total capital ratio2,3, % |
20.3 |
21.0 |
|
20.9 |
|
20.3 |
21.0 |
|
|
Tier 1 capital2,3, EURbn |
27.1 |
28.8 |
-6 |
28.4 |
-5 |
27.1 |
28.8 |
-6 |
|
Risk exposure amount2, EURbn |
149.4 |
152.6 |
-2 |
150.7 |
-1 |
149.4 |
152.6 |
-2 |
|
Return on capital at risk, % |
17.7 |
17.2 |
|
18.2 |
|
13.5 |
16.2 |
|
|
Return on capital at risk with amortised resolution fees, % |
16.8 |
16.4 |
|
17.3 |
|
13.8 |
16.4 |
|
|
Number of employees (FTEs)2 |
27,649 |
27,126 |
2 |
27,350 |
1 |
27,649 |
27,126 |
2 |
|
Economic capital2, EURbn |
22.5 |
23.1 |
-3 |
22.8 |
-1 |
22.5 |
23.1 |
-3 |
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 Q3 2022 report. The complete report is attached to this release and can also be found on the below link on our website.
A webcast for media, investors and equity analysts will be held on 20 October at 11.00 EET (10.00 CET), during which Frank Vang-Jensen, President and Group CEO, will present the results 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.
To participate in the webcast, please use the webcast link or dial one of the following numbers:
+44 (0) 33 0551 0211, +46 (0) 8 5051 0086, +358 9 2319 5436, +1 646 843 4609, confirmation code 4130473, no later than 10.50 EET (09.50 CET).
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 contacts set out above, at 07.30 EET (06.30 CET) on 20 October 2022.
We are a universal bank with a 200-year history of supporting and growing the Nordic economies – enabling dreams and aspirations for a greater good. Every day, we work to support our customers’ financial development, delivering best-in-class omnichannel customer experiences and driving sustainable change. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges. Read more about us at nordea.com.