Markets News

UPDATE 3-Nordea's quarterly profit below expectations as loan losses soar

* Operating profit down 66% as pandemic bites

* Nordea expects 2020 loan losses to be below 1 billion euros

* Fee and commission income down 9%

* Shares up 0.6% (Comparison to peers, details, share price)

TALLINN/STOCKHOLM, July 17 (Reuters) - Nordea Bank on Friday reported a worse-than-expected slump in second-quarter operating profit, as the Nordic region’s biggest lender was hit by heavy coronavirus-related loan losses.

Nordea’s performance contrasted with regional peers Danske Bank and Swedbank which beat expectations earlier on Friday on the back of increased lending.

Nordea, which has been lowering its exposure to more risky markets in Russia and the Baltics, reported a 66% fall in operating profit to 306 million euros ($348 million) compared with an 885 million euros forecast by analysts and 900 million euros last year.

Loan losses, a figure closely watched for the impact from the pandemic-hit wider economy, leapt to 698 million euros compared with a 317 million euro Refinitiv forecast and a 154 million euro loss a year ago.

Industry analysts are generally expecting banks to see a jump in bad loans as the pandemic plunges economies into recession yet Swedish rival Handelsbanken on Wednesday reported lower loan losses than it had seen in many years.

Nordea’s share price was up 0.6% by 0805 GMT while Sweden’s Swedbank rose 3% and Denmark’s Danske Bank was up 1.4%.

The coronavirus lockdowns also affected net fee and commission income which fell 9% to 673 million euros from a year-ago 743 million as lockdowns crimped transactions.

Net interest income, however, increased 2% to 1.09 billion euros from a year-ago 1.07 billion, driven by an uptake in lending and lower funding costs.

Nordea said it had updated its estimated credit losses for the year to be below 1 billion euros. In 2019, the bank reported net loan losses, minus one-off items, of 254 million euros.

“We deem this proactive approach to be prudent and appropriate given the current economic uncertainty,” Chief Executive Frank Vang-Jensen said, adding that the credit quality of Nordea’s loan booked remained strong.

A 2018 accounting rule requires lenders to take expected losses from the crisis upfront, meaning banks having to factor economic forecasts into their losses.

Nordea reiterated that it would decide on a dividend of up to 0.40 euros per share after October 1.

“Clearly, our financial strength allows us to support our customers and pay a dividend,” Vang-Jensen said.

$1 = 0.8783 euros Reporting by Tarmo Virki in Tallinn, Colm Fulton in Stockholm; Editing by Tom Hogue and Elaine Hardcastle