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2020-10-23

Nordea: Third quarter results 2020

Nordea Bank Abp
Stock exchange release - Interim report (Q1 and Q3)
23 October 2020 at 7:30 EET

Summary of the quarter: 

Strong result - continuing positive trend seen in previous quarters. Operating profit increased by 24% compared with the third quarter of 2019, with record high operating profits in most business areas. Total income increased by 4%, with net interest income increasing by 6%, the highest growth rate since 2012, and net fair value result increasing by 30% due to high levels of business activity in Markets. However, net fee and commission income decreased by 4%, as card and payment fee income in particular continued to be negatively impacted by the lower levels of economic activity related to COVID-19.

  • High levels of activity and increasing business volumes. Income growth was driven by increased levels of customer activity. Mortgage lending volumes and market shares increased, and SME lending also increased. Furthermore, assets under management grew by 4% to a record high of EUR 326bn, supported by the ongoing recovery of the financial markets and solid net inflows. Savings income increased by 4%.

  • Cost efficiency efforts generating expected results. Total operating expenses (excluding items affecting comparability) were down 6%. Full-year 2020 costs are expected to be below EUR 4.7bn, including the costs from SG Finans.

  • Good progress towards financial targets. Nordea's cost-to-income ratio is decreasing in line with its 2022 target of 50%, improving to 52%, down from 58% in the same quarter last year. Return on equity was 10.1% for the quarter, demonstrating good progress towards the target of above 10% in 2022.

 

  • Credit quality still strong and credit outlook unchanged. Net loan losses amounted to a reversal of EUR 2m. The total management judgement buffer of EUR 650m has been retained, as the full economic impact of the pandemic remains uncertain. The credit outlook is unchanged: total full-year 2020 net loan losses are projected to be below EUR 1bn.

  • Capital position top of the class in Europe - well positioned to pay out dividends. Nordea's CET1 ratio is 16.4%, 6.2%-points above the regulatory requirement. Nordea's financial strength means that it is well positioned to both support its customers and pay dividends to its shareholders. Nordea intends to pay out a dividend for the financial year 2019. The Board of Directors will refrain from deciding on the 2019 dividend payment before 1 January 2021. Nordea will review the situation in the fourth quarter of 2020 in the light of any further European Central Bank communication.

  • Continued commitment to 2022 financial targets. One year after its Capital Markets Day, Nordea remains fully committed to delivering on its business plan and financial targets for 2022. All business areas have improved their cost-to-income ratios over the past year. The progress is clear, driven by focused execution, but further improvements are still needed.

(For further viewpoints, see the CEO comment on page 4. For definitions, see page 56 in the Q3 2020 Report)

 

Third quarter 2020 vs. third quarter 2019 results
(excluding items affecting comparability[1])

  • Net interest income EUR 1,146m, 6%
  • Total operating income EUR 2,172m, 4%
  • Total operating expense EUR -1,089m, -6%
  • Net loan losses EUR 2m vs EUR -49m
  • Operating profit EUR 1,085m, 24%
  • Common Equity Tier 1 capital ratio[2,3] 16.4% vs.15.4%
  • Cost/income ratio 50% vs. 56%
  • Cost/income ratio[4] 52% vs. 58%
  • Net loan loss ratio, amortised cost 0bp vs. 55bp
  • Return on equity 10.6% vs 8.9%
  • Return on equity[4] 10.1% vs 8.4%

Third quarter 2020 vs. second quarter 2020 results

  • Net interest income EUR 1,146m, 5%
  • Total operating income EUR 2,172m, 4%
  • Total operating expense EUR -1,089m, 0%
  • Net loan losses EUR 2m vs EUR -698m
  • Operating profit EUR 1,085m, 255%
  • Common Equity Tier 1 capital ratio[2,3] 16.4% vs.15.8% 
  • Cost/income ratio 50% vs. 52%
  • Cost/income ratio[4] 52% vs. 52%
  • Net loan loss ratio, amortised cost 0bp vs. 115bp
  • Return on equity 10.6% vs 3.1%
  • Return on equity[4] 10.1% vs 3.0%

1 See page 6 in the Q3 2020 Report for further details
2 End of period
3 Including the result for the period
4 With amortised resolution fees

  [][][][][][][][][][][][]
Income
statement

Q3 Q3 Q2 Jan Jan
-Sep -Sep
2020 2019 Chg 2020 Chg 2020 2019 Chg
% % %
EURm
Net interest 1,146 1,083 6 1,091 5 3,346 3,210 4
income
Net fee and 729 756 -4 673 8 2,167 2,236 -3
commission
income
Net result from 274 211 30 318 -14 701 758 -8
items at
fair value
Profit from
associated
undertakings
and joint
ventures 6 13 -54 -10 -6 51
accounted for
under the
equity method
Other operating 17 22 -23 20 -15 57 86 -34
income
Total operating 2,172 2,085 4 2,092 4 6,265 6,341 -1
income

Staff costs -686 -924 -26 -645 6 -2,030 -2,369 -14
Other expenses -245 -366 -33 -303 -19 -967 -1,264 -23
Depreciation,
amortisation
and impairment
charges of -158 -885 -82 -140 13 -428 -1,174 -64
tangible and
intangible
assets
Total operating -1,089 -2,175 -50 -1,088 0 -3,425 -4,807 -29
expenses

Profit before 1,083 -90 1,004 8 2,840 1,534 85
loan losses

Net loan losses 2 -331 -698 -850 -434 96
Operating 1,085 -421 306 1,990 1,100 81
profit

Income tax -248 89 -63 -450 -308 46
expense
Net profit for 837 -332 243 1,540 792 94
the period

Business
volumes, key
items[1]

30 Sep 30 Sep 30 Jun
2020 2019 Chg 2020 Chg
% %
EURbn
Loans to the 320.2 328.3 -2 327.7 -2
public
Loans to the 302.4 299.5 1 304.4 -1
public, excl.
repos
Deposits and 190.0 168.3 13 188.5 1
borrowings
from the public
Deposits from 184.9 161.9 14 180.7 2
the public,
excl. repos
Total assets 574.8 585.9 -2 587.3 -2
Assets under 326.2 314.3 4 311.4 5
management
Equity 32.6 30.5 7 31.8 3

Ratios and key
figures[2]

Q3 Q3 Q2 Jan Jan
-Sep -Sep
2020 2019 Chg 2020 Chg 2020 2019 Chg
% % %
Diluted 0.21 -0.08 0.06 0.37 0.19 95
earnings per
share,
EUR
EPS, rolling 12 0.56 0.32 75 0.27 0.56 0.32 75
months up
to period end,
EUR
Share price[1], 6.49 6.50 0 6.15 6 6.49 6.50 0
EUR
Equity per 8.06 7.55 7 7.86 3 8.06 7.55 7
share[1], EUR
Potential 4,050 4,050 0 4,050 0 4,050 4,050 0
shares
outstanding[1],
million
Weighted 4,040 4,036 0 4,039 0 4,039 4,034 0
average number
of
diluted shares,
million
Return on 10.6 -4.4 3.1 6.5 3.4
equity, %
Return on 12.0 -5.0 3.5 7.4 3.9
tangible
equity,
%
Return on risk 2.2 -0.9 0.6 1.3 0.7
exposure
amount, %
Return on 10.1 -5.0 3.0 6.7 3.6
equity with
amortised
resolution
fees,
%
Cost-to-income 50 104 52 55 76
ratio, %
Cost-to-income 52 107 52 54 75
ratio with
amortised
resolution
fees,
%
Net loan loss 0 55 115 47 24
ratio,
amortised cost,
bp
Common Equity 16.4 15.4 15.8 16.4 15.4
Tier 1
capital
ratio[1,3], %
Tier 1 capital 18.2 17.4 17.6 18.2 17.4
ratio[1,3],
%
Total capital 19.9 20.0 20.1 19.9 20.0
ratio[1,3], %
Tier 1 27.4 27.3 1 27.2 1 27.4 27.3 1
capital[1,3],
EURbn
Risk exposure 151 156 -4 155 -3 151 156 -4
amount[1],
EURbn
Number of 27,880 29,469 -5 27,954 0 27,880 29,469 -5
employees
(FTEs)[1]
Economic 23.7 26.5 -11 24.2 -2 23.7 26.5 -11
capital[1],
EURbn

1 End of period.
2 For more detailed information regarding ratios and key figures defined as alternative performance measures,
see https://www.nordea.com/en/investor-relations/reports-and-presentations/group-interim-reports.
3 Including the result for the period.
   

CEO comment

"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 t...

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