Nordea Bank Abp
Half year financial report
17 July 2023 at 7:30 EET
Summary of the quarter
High income growth and strong operating profit. Operating profit increased by 26%, year on year, to EUR 1,718m. Total income increased by 22%, mainly driven by a 40% increase in net interest income. Net interest margins improved. Net commission income decreased by 6%, mainly due to subdued capital markets activity and lower savings income. Net fair value result and net insurance result were up 14% and 28%, respectively. Total costs excluding regulatory fees increased by 7%.
Return on equity 18.4% – earnings per share up 32%. Nordea’s return on equity increased to 18.4% from 13.6% a year ago, driven by strong income growth, improved efficiency and low cost of risk due to a very well diversified credit portfolio. The cost-to-income ratio excluding regulatory fees improved to 40% from 46%. Earnings per share increased by 32% to EUR 0.37.
Strong profitability and stable business volumes. Mortgage lending was stable, year on year. Corporate lending grew by 4% and continues to be the main lending growth driver of 2023. Retail deposits grew by 1%, year on year, and corporate deposits decreased by 7%. Assets under management were up 2%, mainly driven by net flows from internal channels.
Solid credit quality with low net loan losses. Net loan losses and similar net result amounted to EUR 32m or 4bp. Despite the economy slowing, individual net loan losses remained low at EUR 25m or 3bp. The management judgement buffer was kept unchanged in local currency (translating to EUR 572m).
Strong capital position. Nordea’s CET1 ratio increased to 16.0% from 15.7% due to good net profit generation. At the end of the quarter the CET1 ratio was 4.0 percentage points above the current regulatory requirement, demonstrating the bank’s strong capacity to support customers and society. Nordea continues to implement an efficient capital structure and is progressing with its fourth share buy-back programme, launched on 28 April 2023.
Upgraded outlook for 2023: return on equity increased to above 15% from above 13%. Nordea has a resilient business model, enabling it to perform well amid the current high macroeconomic uncertainty and volatile financial markets. Nordea aims to continue to deliver strong profitability and expects a return on equity comfortably above 15% for 2023.
(For further viewpoints, see the CEO comment on page 2. For definitions, see page 58 in the Q2 2023 report.)
Group quarterly results and key ratios
|
EURm |
Q2 2023 |
Q2 2022 |
Chg % |
Q1 2023 |
Chg % |
Jan-Jun 2023 |
Jan-Jun 20221 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,831 |
1,308 |
40 |
1,765 |
4 |
3,596 |
2,616 |
37 |
|
Net fee and commission income |
751 |
797 |
-6 |
765 |
-2 |
1,516 |
1,626 |
-7 |
|
Net insurance result |
68 |
53 |
28 |
46 |
48 |
114 |
88 |
30 |
|
Net fair value result |
290 |
254 |
14 |
345 |
-16 |
635 |
526 |
21 |
|
Other income |
15 |
16 |
|
0 |
|
15 |
33 |
|
|
Total operating income |
2,955 |
2,428 |
22 |
2,921 |
1 |
5,876 |
4,889 |
20 |
|
Total operating expenses excluding regulatory fees |
-1,184 |
-1,105 |
7 |
-1,167 |
1 |
-2,351 |
-2,203 |
7 |
|
Total operating expenses |
-1,205 |
-1,122 |
7 |
-1,422 |
-15 |
-2,627 |
-2,492 |
5 |
|
Profit before loan losses |
1,750 |
1,306 |
34 |
1,499 |
17 |
3,249 |
2,397 |
36 |
|
Net loan losses and similar net result |
-32 |
56 |
|
-19 |
|
-51 |
68 |
|
|
Operating profit |
1,718 |
1,362 |
26 |
1,480 |
16 |
3,198 |
2,465 |
30 |
|
|
|
|
|
|
|
|
|
|
|
Cost-to-income ratio excluding regulatory fees, % |
40.1 |
45.5 |
|
39.9 |
|
40.0 |
45.1 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
42.8 |
48.8 |
|
42.7 |
|
42.7 |
48.4 |
|
|
Return on equity with amortised resolution fees, % |
18.4 |
13.6 |
|
17.1 |
|
17.8 |
13.1 |
|
|
Diluted earnings per share, EUR |
0.37 |
0.28 |
32 |
0.31 |
19 |
0.68 |
0.49 |
39 |
1. Excluding items affecting comparability. See page 5 in the Q2 2023 report for further details.
CEO comment
This first half year, the geopolitical landscape has remained fragile, and macroeconomic uncertainty and persistently high inflation have put pressure on both private individuals and corporates. We have also seen turbulence in the financial markets.
Nordea is one of the most stable and profitable banks in Europe. Our franchise is resilient: we have a very well diversified pan-Nordic business model, a sound financial risk position and a strong balance sheet. Moreover, the Nordic region is a very stable and profitable banking market. All this gives us a unique position and makes us a safe and strong partner for customers, shareholders and broader society.
Our aim has always been – and remains – to support our customers while delivering stable and predictable financial performance. In the second quarter we continued to drive high levels of customer activity and strong profitability, leading to a return on equity of 18.4%.
In all our divisions, income is growing faster than costs and our aim is to continue to deliver positive jaws. In the second quarter our income grew by 22% despite significant negative effects from the weak Norwegian and Swedish currencies. Our costs increased by 7% as we continued to manage strong inflationary pressures and invest to protect against financial crime, strengthen cyber security and enhance our technological capabilities even further, in line with our plan. We improved our cost-to-income ratio to 40% from 46%.
We have again shown that we can generate stable and sustainable profit growth. Our operating profit increased by 26% to EUR 1.7bn. The second quarter of 2023 marks the tenth quarter in a row for which we were able to grow our operating profit, year on year.
However, it is clear that the economic slowdown and interest rate increases have had a negative impact on our business volume growth, mainly in mortgages. We continue to focus on giving high-quality advice and support, and I am glad to see that our customers have, in general, adapted well to the new interest rate environment. Higher living costs and lower consumer confidence have been reflected in lower demand for housing loans and investment products.
Despite the slower economic growth, our corporate lending volumes continue to grow, particularly in Norway and Sweden. During the quarter we maintained proactive support for our customers and further developed our deposit offering for both retail and corporate customers. On the savings side, our strong momentum in Private Banking continued and we secured net inflows of EUR 1.8bn. Digital customer activity further increased, with private mobile app users and logins up 7% and 9%, respectively, year on year. By consistently adding new products and services, and increasing our use of data, analytics and automation, we have attracted 1.2bn logins to our mobile bank in the past year alone.
Our risk position and credit quality remain solid, supported by a uniquely well diversified pan-Nordic credit portfolio. Our loan portfolio is large and spread evenly across the Nordic region and across different sectors. This is a structural advantage, which enables us to avoid larger concentrations. We see no real signs of stress in our portfolio, but are naturally following the impact of macro developments on our customers very closely. Despite the Nordic economies slowing, quarterly individual net loan losses remained low at EUR 25m or 3bp.
Overall, net loan losses and similar net result for the second quarter was EUR 32m or 4bp. The increase compared with previous quarters was mainly due to lower reversals rather than new provisions. We kept our management judgement buffer unchanged in local currencies, which in euro terms translates to EUR 572m.
In Personal Banking lending volumes were stable, year on year, while deposit volumes grew by 1%, driven by savings deposits. In Sweden we drove a 21% increase in digitally generated leads for mortgage and savings advisers, helping us to continue increasing our market share.
In Business Banking we grew lending volumes by 4%, led by Norway and Sweden. We remain committed to supporting the transition to a more sustainable economy. In May, we introduced a new sustainability guarantee, which makes it easier for customers to obtain financing for sustainable investments, such as solar panels and energy renovations.
In Large Corporates & Institutions we grew lending volumes by 3%, year on year, excluding foreign exchange impacts. We saw strong demand for credit among large corporate customers. We also continued to support our customers in meeting their risk management needs. Deposits returned to more normal levels following the dividend season and the exceptional events in the first quarter.
In Asset & Wealth Management we maintained strong momentum and generated positive net flows of EUR 2.6bn through our internal channels. In Private Banking, we saw continued strong inflows and attracted further new customers, especially in Sweden. Our long-standing focus on ESG was recognised by the 2023 Responsible Investment Brand Index, which awarded us a top ranking in the Nordics.
Our capital strength is among the best in Europe and we continue to deliver market-leading returns for our shareholders. Our CET1 ratio increased to 16.0% from 15.7% during the quarter. This is 4.0 percentage points higher than the current regulatory requirement and demonstrates our strong capacity to support customers and society. We remain focused on capital excellence and launched our fourth share buy-back programme, of EUR 1bn, on 28 April.
Since we launched the repositioning of Nordea in 2019, we have consistently improved our business performance and profitability. We have established a new, sustainably higher level of profitability and are now among the best performing banks in Europe. We have upgraded our outlook for the full year and expect return on equity to be comfortably above 15% in 2023. In addition, we are reassessing our long-term financial target for 2025. We will provide a target update in conjunction with the release of our fourth quarter report.
Building on our current position, we are consistently striving to improve our performance further. We remain committed to delivering great omnichannel customer experiences, driving focused and profitable growth and improving operational and capital efficiency. We aim for nothing less than to serve our customers to the best of our ability and be the preferred partner for them – now and in the future.
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 2023
Nordea expects a return on equity of above 15% (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 2023
Nordea expects a return on equity of above 13%.
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 2023 |
Q2 2022 |
Chg % |
Q1 2023 |
Chg % |
Jan-Jun 2023 |
Jan-Jun 2022 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,831 |
1,308 |
40 |
1,765 |
4 |
3,596 |
2,616 |
37 |
|
Net fee and commission income |
751 |
797 |
-6 |
765 |
-2 |
1,516 |
1,626 |
-7 |
|
Net insurance result |
68 |
53 |
28 |
46 |
48 |
114 |
88 |
30 |
|
Net result from items at fair value |
290 |
254 |
14 |
345 |
-16 |
635 |
526 |
21 |
|
Profit from associated undertakings and joint ventures accounted for under the equity method |
3 |
-4 |
|
-12 |
|
-9 |
-4 |
|
|
Other operating income |
12 |
20 |
-40 |
12 |
0 |
24 |
37 |
-35 |
|
Total operating income |
2,955 |
2,428 |
22 |
2,921 |
1 |
5,876 |
4,889 |
20 |
|
Staff costs |
-725 |
-689 |
5 |
-719 |
1 |
-1,444 |
-1,381 |
5 |
|
Other expenses |
-304 |
-258 |
18 |
-287 |
6 |
-591 |
-517 |
14 |
|
Regulatory fees |
-21 |
-17 |
24 |
-255 |
-92 |
-276 |
-290 |
-5 |
|
Depreciation, amortisation and impairment charges of tangible and intangible assets |
-155 |
-158 |
-2 |
-161 |
-4 |
-316 |
-304 |
4 |
|
Total operating expenses |
-1,205 |
-1,122 |
7 |
-1,422 |
-15 |
-2,627 |
-2,492 |
5 |
|
Profit before loan losses |
1,750 |
1,306 |
34 |
1,499 |
17 |
3,249 |
2,397 |
36 |
|
Net loan losses and similar net result |
-32 |
56 |
|
-19 |
68 |
-51 |
68 |
|
|
Operating profit |
1,718 |
1,362 |
26 |
1,480 |
16 |
3,198 |
2,465 |
30 |
|
Income tax expense |
-383 |
-308 |
24 |
-332 |
15 |
-715 |
-553 |
29 |
|
Net profit for the period |
1,335 |
1,054 |
27 |
1,148 |
16 |
2,483 |
1,912 |
30 |
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; 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
|
Q2 2023 |
Q2 2022 |
Chg % |
Q1 2023 |
Chg % |
Jan-Jun 2023 |
Jan-Jun 2022 |
Chg % |
|
|---|---|---|---|---|---|---|---|---|
|
Diluted earnings per share (DEPS), EUR |
0.37 |
0.28 |
32 |
0.31 |
19 |
0.68 |
0.49 |
39 |
|
EPS, rolling 12 months up to period end, EUR |
1.30 |
0.99 |
31 |
1.21 |
7 |
1.30 |
0.99 |
31 |
|
Return on equity with amortised resolution fees, % |
18.4 |
13.6 |
|
17.1 |
|
17.8 |
13.1 |
|
|
Return on equity, % |
19.1 |
14.3 |
|
15.3 |
|
17.1 |
12.4 |
|
|
Return on tangible equity, % |
22.2 |
16.3 |
|
17.6 |
|
19.8 |
14.2 |
|
|
Return on risk exposure amount, % |
3.8 |
2.8 |
|
3.2 |
|
3.5 |
2.5 |
|
|
Cost-to-income ratio excluding regulatory fees, % |
40.1 |
45.5 |
|
39.9 |
|
40.0 |
45.1 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
42.8 |
48.8 |
|
42.7 |
|
42.7 |
48.4 |
|
|
Cost-to-income ratio, % |
40.8 |
46.2 |
|
48.7 |
|
44.7 |
51.0 |
|
|
Net loan loss ratio, incl. loans held at fair value, bp |
4 |
-6 |
|
2 |
|
3 |
-4 |
|
|
Return on capital at risk with amortised resolution fees, % |
23.5 |
17.3 |
|
23.7 |
|
23.6 |
17.4 |
|
|
Return on capital at risk, % |
24.3 |
18.2 |
|
21.2 |
|
22.8 |
16.6 |
|
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; 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 2023 |
30 Jun 2022 |
Chg % |
31 Mar 2023 |
Chg % |
|---|---|---|---|---|---|
|
Loans to the public |
340.0 |
347.6 |
-2 |
339.7 |
0 |
|
Loans to the public, excl. repos/securities borrowing |
316.6 |
328.5 |
-4 |
319.3 |
-1 |
|
Deposits and borrowings from the public |
217.9 |
223.0 |
-2 |
217.7 |
0 |
|
Deposits from the public, excl. repos/securities lending |
202.9 |
210.6 |
-4 |
210.7 |
-4 |
|
Total assets |
602.4 |
610.9 |
-1 |
604.1 |
0 |
|
Assets under management |
363.1 |
355.5 |
2 |
362.4 |
0 |
|
Equity |
29.1 |
30.1 |
-3 |
28.2 |
3 |
1. End of period.
Income statement including items affecting comparability
|
EURm |
Q2 2023 |
Q2 2022 |
Chg % |
Q1 2023 |
Chg % |
Jan-Jun 2023 |
Jan-Jun 2022 |
Chg % |
|---|---|---|---|---|---|---|---|---|
|
Net interest income |
1,831 |
1,308 |
40 |
1,765 |
4 |
3,596 |
2,616 |
37 |
|
Net fee and commission income |
751 |
797 |
-6 |
765 |
-2 |
1,516 |
1,626 |
-7 |
|
Net insurance result |
68 |
53 |
28 |
46 |
48 |
114 |
88 |
30 |
|
Net result from items at fair value |
290 |
254 |
14 |
345 |
-16 |
635 |
-11 |
|
|
Profit from associated undertakings and joint ventures accounted for under the equity method |
3 |
-4 |
|
-12 |
|
-9 |
-4 |
|
|
Other operating income |
12 |
20 |
-40 |
12 |
0 |
24 |
37 |
-35 |
|
Total operating income |
2,955 |
2,428 |
22 |
2,921 |
1 |
5,876 |
4,352 |
35 |
|
Staff costs |
-725 |
-689 |
5 |
-719 |
1 |
-1,444 |
-1,381 |
5 |
|
Other expenses |
-304 |
-258 |
18 |
-287 |
6 |
-591 |
-517 |
14 |
|
Regulatory fees |
-21 |
-17 |
24 |
-255 |
-92 |
-276 |
-290 |
-5 |
|
Depreciation, amortisation and impairment charges of tangible and intangible assets |
-155 |
-158 |
-2 |
-161 |
-4 |
-316 |
-304 |
4 |
|
Total operating expenses |
-1,205 |
-1,122 |
7 |
-1,422 |
-15 |
-2,627 |
-2,492 |
5 |
|
Profit before loan losses |
1,750 |
1,306 |
34 |
1,499 |
17 |
3,249 |
1,860 |
75 |
|
Net loan losses and similar net result |
-32 |
56 |
|
-19 |
68 |
-51 |
-8 |
|
|
Operating profit |
1,718 |
1,362 |
26 |
1,480 |
16 |
3,198 |
1,852 |
73 |
|
Income tax expense |
-383 |
-308 |
24 |
-332 |
15 |
-715 |
-539 |
33 |
|
Net profit for the period |
1,335 |
1,054 |
27 |
1,148 |
16 |
2,483 |
1,313 |
89 |
Ratios and key figures including items affecting comparability1
|
Q2 2023 |
Q2 2022 |
Chg % |
Q1 2023 |
Chg % |
Jan-Jun 2023 |
Jan-Jun 2022 |
Chg % |
|
|---|---|---|---|---|---|---|---|---|
|
Diluted earnings per share, EUR |
0.37 |
0.28 |
32 |
0.31 |
19 |
0.68 |
0.33 |
106 |
|
EPS, rolling 12 months up to period end, EUR |
1.30 |
0.85 |
53 |
1.21 |
7 |
1.30 |
0.85 |
53 |
|
Share price2, EUR |
9.97 |
8.40 |
19 |
9.84 |
1 |
9.97 |
8.40 |
19 |
|
Equity per share2, EUR |
8.13 |
8.03 |
1 |
7.84 |
4 |
8.13 |
8.03 |
1 |
|
Potential shares outstanding2, million |
3,589 |
3,753 |
-4 |
3,605 |
0 |
3,589 |
3,753 |
-4 |
|
Weighted average number of diluted shares, million |
3,588 |
3,792 |
-5 |
3,622 |
-1 |
3,607 |
3,850 |
-6 |
|
Return on equity with amortised resolution fees, % |
18.4 |
13.6 |
|
17.1 |
|
17.8 |
9.2 |
|
|
Return on equity, % |
19.1 |
14.3 |
|
15.3 |
|
17.1 |
8.5 |
|
|
Return on tangible equity, % |
22.2 |
16.3 |
|
17.6 |
|
19.8 |
9.7 |
|
|
Return on risk exposure amount, % |
3.8 |
2.8 |
|
3.2 |
|
3.5 |
1.7 |
|
|
Cost-to-income ratio with amortised resolution fees, % |
42.8 |
48.8 |
|
42.7 |
|
42.7 |
54.3 |
|
|
Cost-to-income ratio, % |
40.8 |
46.2 |
|
48.7 |
|
44.7 |
57.3 |
|
|
Net loan loss ratio, incl. loans held at fair value, bp |
4 |
-6 |
|
2 |
|
3 |
0 |
|
|
Common Equity Tier 1 capital ratio2,3, % |
16.0 |
16.6 |
|
15.7 |
|
16.0 |
16.6 |
|
|
Tier 1 capital ratio2,3, % |
18.3 |
18.8 |
|
18.0 |
|
18.3 |
18.8 |
|
|
Total capital ratio2,3, % |
20.5 |
20.9 |
|
20.1 |
|
20.5 |
20.9 |
|
|
Tier 1 capital2,3, EURbn |
25.6 |
28.4 |
-10 |
25.5 |
0 |
25.6 |
28.4 |
-10 |
|
Risk exposure amount2, EURbn |
140.0 |
150.7 |
-7 |
142.0 |
-1 |
140.0 |
150.7 |
-7 |
|
Return on capital at risk with amortised resolution fees, % |
23.5 |
17.3 |
|
23.7 |
|
23.6 |
12.2 |
|
|
Return on capital at risk, % |
24.3 |
18.2 |
|
21.2 |
|
22.8 |
11.4 |
|
|
Net interest margin, % |
1.69 |
1.14 |
|
1.58 |
|
1.64 |
1.15 |
|
|
Number of employees (FTEs)2 |
29,317 |
27,350 |
7 |
28,922 |
1 |
29,317 |
27,350 |
7 |
|
Economic capital2, EURbn |
21.9 |
22.8 |
-4 |
22.2 |
-1 |
21.9 |
22.8 |
-4 |
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 2023 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 17 July at 11.00 EET (10.00 CET), during which Frank Vang-Jensen, President and Group CEO, will present the results. The presentation will be 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.
The event will be webcast live and the presentation slides will be posted on www.nordea.com/ir.
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 17 July 2023.
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.