Satisfactory H1 2018 financial results - another quarter of reversed impairment charges and raised guidance

Announcement no. 26/2018

“We are pleased with our financial results for the first six months of 2018. Modest growth in lending volumes was persistently challenged by tighter interest margins, while customer activity remained intact. The reversal of impairment charges continued for yet another quarter, mirroring not only the current market environment but also the sound credit quality of our low-risk portfolio.” said BankNordik CEO, Árni Ellefsen.

“Placing the customer at the centre of business has been our top priority in 2018 and our employees are working hard to strengthen the quality of our customer relationships, especially in the Danish market. Accordingly, several initiatives have been launched to improve the customer experience, most notably an extensive campaign to engage more directly with our customers and establish closer personal contacts with the peripheral part of our customer base in Denmark,” said Mr Ellefsen.

Highlights of BankNordik's interim report for the first six months of 2018:

(The Group’s adjusted income statement figures have been retrospectively adjusted in accordance with the methodology announced in the Financial Review section of the 2017 Annual Report.)

H1 2018 vs. H1 2017

BankNordik reported operating profit of DKK 142m for H1 2018, an increase of DKK 44m compared to H1 2017 (+45%).
- Net interest income was down by DKK 7m year-on-year, primarily due to tighter interest margins
- Fee and commission income was down by DKK 18m, offset by a near proportional increase in other operating income, which related to the restructuring of asset management activity (MiFID II).
- Net insurance income was flat in H1 2018 compared to H1 2017
- Other operating income amounted to DKK 27m compared to DKK 12m in the same period of last year.

- Operating costs were down by DKK 5m to DKK 231m, consistent with the Group’s efforts to curb expenditure growth.

Profit before tax was DKK 207m in H1 2018 compared to DKK 112m in H1 2017
- Non-recurring items amounted to an income of DKK 88m in H1 2018 owing to the sale and leaseback of the Group’s head office and a revaluation gain on BI Holding A/S
- Value adjustments amounted to a loss of DKK 23m in H1 2018 compared to a gain of DKK 15m in H1 2017.
Lending volumes were up by DKK 314m from DKK 9,428m at 30 June 2017 to DKK 9,742m at 30 June 2018
Deposits fell by DKK 325m from DKK 13,472m at 30 June 2017 to DKK 13,147m at 30 June 2018.
- BankNordik reversed DKK 54m in net impairment charges in H1 2018.

“At BankNordik we place great emphasis on maintaining sound credit policy guidelines to ensure that growth in lending does not come at the expense of sustainability. Two thirds of our loan portfolio is allocated to personal lending, while the remaining third is allocated to a well-diversified corporate segment with limited exposure towards historically riskier industries. We believe that this low-risk approach will enable BankNordik to sustain below-average impairment charges in the years to come.” said Mr Ellefsen.

Q2 2018 vs. Q1 2018

Operating profit fell to DKK 65m in Q2 2018 from DKK 77m in Q1 2018.
- Net interest income was down by DKK 1m in Q2 2018 compared to Q1 2018, due to the continued pressure on interest margins.
- Fee and commission income was down by DKK 1m compared to Q1 2018.
- Net insurance income was DKK 6m in Q2 2018, down from DKK 12m in Q1 2018 as claims were higher.
- Other operating income was up DKK 3m from DKK 12m in Q1 2018 to DKK 15m in Q2 2018 due to periodic dividend income.
- Operating costs were flat in Q2 2018 compared to the previous quarter.
- Net impairment charges were a DKK 23m reversal in Q2 2018 compared to a reversal of DKK 31m in Q1 2018.
BankNordik recorded profit before tax of DKK 59m in Q2 2018 compared to a profit of DKK 148m in Q1 2018.
- DKK 12m related to the sale and leaseback of the Group’s head office was recognised as a non-recurring gain in Q2 2018, compared to a gain of DKK 76m in Q1 2018 related to both the sale and leaseback agreement and the revaluation gain on BI Holding A/S
- Value adjustments amounted to a loss of DKK 17m in Q2 2018 compared to a loss of DKK 6m in Q1 2018.

Capital requirements
In June 2018, the Minister for Industry, Business and Financial Affairs announced an increase in the systemic risk buffer related to Faroese exposures from 1% to 2% effective from 1 January 2019 and to 3% from 1 January 2020. When fully phased-in, the 3% systemic risk buffer will have a weighting of around 1.8% of the Group’s total exposures.

Moreover, the Danish FSA published a set of preliminary principles for the MREL add-on related to Faroese institutions. With regards to BankNordik as a Faroese SIFI-institution, the FSA indicates that it is expecting to exclude the systemic risk buffer related to domestic Faroese exposures as well as the countercyclical buffer in applying the MREL add-on. The MREL add-on for Faroese institutions will be phased in during 2020-2025.

Capital ratios

The Group’s CET1 capital ratio fell by 0.4 percentage point quarter-on-quarter to stand at 16.3% at 30 June 2018. The total capital ratio decreased to 18.5% at 30 June 2018 from 18.9% at 31 March 2018.

The decrease in capital ratios was partly attributable to an increase in risk-weighted assets and partly due to changes in accounting guidelines for which BankNordik has chosen not to recognise net income within a given year in the capital and solvency statement until the annual report is released in audited form.

Outlook

(The below guidance figures are provided in accordance with the announced changes to the adjusted income statement methodology)

Management reconfirms the FY2018 guidance of profit before impairment charges, non-recurring items, value adjustments and tax in the range of DKK 160-200m in 2018 (H1 2018: DKK 88m).

However, the Group is raising its FY2018 net profit guidance from DKK 175-225m as previously guided to DKK 190-240m (H1 2018: DKK 169m).

This guidance is generally subject to uncertainty and will depend on economic conditions, loan impairments and market value adjustments.

For additional information, please contact:
Árni Ellefsen, CEO, tel. (+298) 230 348

BankNordik has banking activities in Denmark, Greenland and the Faroe Islands and insurance activities in the Faroe Islands. Founded in the Faroe Islands more than a century ago, the Group has total assets of DKK 16.7bn and 390 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and is listed on Nasdaq Copenhagen.

Appendix: Financial highlights and comparative figures are provided below.

Financial highlights

DKK million	H1 2018	H1 2017	Q2 2018	Q1 2018	Q4 2017	Q3 2017	Q2 2017

Net interest income	188	195	93	94	95	97	97
Net fee and commission income	87	105	43	44	47	35	53
Income from insurance operations	18	18	6	12	12	13	9
Other operating income	27	12	15	12	8	11	7
Operating income*	319	330	157	162	162	159	166
Operating costs*	-231	-236	-116	-115	-112	-114	-120
Sector costs, etc.	0	-1	0	0	2	-1	-1
Operating profit before impairment charges*	88	93	42	47	52	42	46
Loan impairment charges, net	54	5	23	31	51	4	5
Operating profit*	142	98	65	77	103	46	51
Non-recurring items	88	0	12	76	-1	-17	0
Profit before value adjustments and tax	230	98	76	154	101	29	51
Value adjustments	-23	15	-17	-6	-10	1	4
Profit/loss before tax	207	112	59	148	92	30	55

Deposits, etc. DKKbn	13.1	13.5	13.1	13.1	12.6	13.0	13.5
Loans and advances, etc. DKKbn	9.7	9.4	9.7	9.6	9.5	9.5	9.4
Equity, DKKbn	1.9	1.7	1.9	1.9	1.8	1.7	1.7
Solvency ratio	18.5%	17.9%	18.5%	18.9%	19.7%	18.2%	17.9%
Excess liquidity relative to statutory requirement	225%	245%	225%	218%	205%	219%	246%
Operating cost/income	72%	71%	73%	71%	69%	73%	72%
Number of FTE, end of period	390	407	390	387	400	407	407

* Excluding non-recurring items and value adjustments.

Further details are available in the interim report.

Attachments

Attachments

Interim Report_H1-2018.pdf
IR Presentation_H1-2018.pdf