CEO Frank Vang-Jensen comments on the third-quarter results

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20-10-23 7:00 | Om Nordea

Over the past few quarters we have witnessed how individuals, businesses and societies have adapted to a new way of living due to the COVID-19 pandemic. We have seen a gradual recovery, but have also faced some setbacks. Although uncertainty remains, the risk of a renewed severe downturn has decreased. Thanks to our dedicated employees, strong balance sheet and high quality digital services, we have been able to support our customers and the societies around us, and will continue to do so. 

We have seen clear performance improvements in all main areas in the third quarter. Our customer satisfaction levels are higher now than prior to the outbreak. We have launched new products and services for our customers. For example, we now offer green mortgages in our mobile bank app. Our business volumes have continued to increase in a range of areas, particularly in mortgages and savings. We have continuously taken steps in the right direction. 

Consequently, the results in the quarter were strong. Operating profit increased by 24% compared with the third quarter of 2019, with income increasing by 4% and costs declining by 6%, which means we have taken a decisive step towards our cost-to-income target. Return on equity was 10.1%. Our return on equity was supported by very low net loan losses in the third quarter, but the underlying development is clearly positive. 

Our income growth was driven by high customer activity. Our assessment is that we are growing faster than the market in several areas. Net interest income was 6% higher than in the third quarter of 2019, the highest growth rate since 2012, due to increased mortgage lending volumes and higher market shares, as well as increased SME lending. Net fee and commission income declined by 4%. This was mainly due to card and payment fee income continuing to be negatively impacted by the lower levels of economic activity related to COVID-19. Assets under management reached a record high of EUR 326bn and net inflows from all business areas were solid. Savings income increased by 4%. Typically, net fair value result is seasonally low in the third quarter, but our result increased by 30% compared with last year, mainly due to an improving performance in Markets. 

Our efforts to improve cost efficiency continue to pay off. We have lowered our cost-to-income ratio to 52% from 58% within a year. There have been some temporary COVID-19-related effects, but the main driver was structural cost reductions: we have reduced levels of complexity in our operations and processes, and now have lower numbers of employees. We continue to expect that total costs for 2020 will be below EUR 4.7bn, including the costs from SG Finans. 

Our credit quality remains strong. Net loan losses amounted to a reversal of EUR 2m. We have maintained our EUR 650m total management judgement, as the full economic impact of the pandemic remains uncertain. As previously stated, we project that total full-year 2020 net loan losses will be below EUR 1bn.  

We continue to be among the best capitalised banks in Europe, with a CET1 ratio of 16.4%, which is 6.2%-points above the regulatory requirement. Our strong financial position means that we are well positioned to both support our customers and pay out dividends. We intend to pay a dividend for the financial year 2019. The Board of Directors will refrain from deciding on the 2019 dividend payment before 1 January 2021, and we will review the situation in the fourth quarter of 2020 in the light of any further European Central Bank communication. Moreover, we continue to deduct the 2020 dividend from our capital according to our dividend policy and have the financial strength to distribute it. 

In the third quarter all four business areas made progress towards their 2022 targets. In Personal Banking we saw strong momentum in mortgages, with volumes and market shares increasing. Total lending volumes grew by 4% in local currencies. We also added new digital services to our mobile bank app and saw an increase in customer satisfaction compared with a year ago. Costs decreased by 13%, resulting in a cost-to-income ratio of 54%. Operating profit increased by 7% compared with the third quarter of last year. 

In Business Banking we witnessed increasing business activity towards the end of the quarter. Lending volumes grew by 4% and deposit volume growth was very strong at 20% in local currencies. We also arranged an increasing number of bond issues for our customers during the quarter. Total income increased by 5% and costs decreased by 4%, leading to a cost-to-income ratio of 47%, down from 52% a year ago. Operating profit was at its highest ever level in the quarter. On 1 October we completed the acquisition of SG Finans, further strengthening our position in the Nordic market.

In Large Corporates & Institutions operating profit was at its highest level since the fourth quarter of 2016, with improvements across all income and cost lines. Total income increased by 21%, costs decreased by 11% and the cost-to-income ratio improved to 42%. Economic capital decreased by 13%, driven by lower market risk and a reduction in low-yielding assets. Return on capital at risk increased to 12%. Overall, we are progressing with the repositioning of Large Corporates and Institutions as a focused and more profitable business area.  

In Asset & Wealth Management net inflows of EUR 4.6bn in the quarter and the ongoing recovery of the financial markets led to a 4% year-on-year increase in assets under management, which now total EUR 326bn. Customer satisfaction in Private Banking continued on a positive trajectory. Total income increased by 4% compared with the third quarter of 2019, while costs continued to decrease, resulting in a cost-to-income ratio of 50%, down from 62% a year ago.  

In the third quarter of 2019 we published our financial targets for 2022 and updated our business plan. A year later we are seeing clear performance improvements. We have retaken lost ground in business, improved customer experience and increased efficiency. This will also be our direction for the coming years. We are committed to delivering on our plan and targets for 2022.

Our strategy for meeting our targets is clear. We will continue focusing on our three key priorities: to optimise operational efficiency, drive income growth initiatives and create great customer experiences. In doing so, we will continue to fulfil our responsibility towards our customers, employees and shareholders. This benefits both society and our business.”  

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