Increased business volumes – continued margin pressure

Announcement no. 23/2019

Increased business volumes – continued margin pressure

“The first half of 2019 progressed well and we delivered satisfactory financial results. Pressure on interest margins continued to cause a drag on net interest income, but was countered by high customer activity and growing business volumes. In July, we raised our net profit guidance in response to a significant reversal of impairment charges, mirroring not only the current economic environment but also the sound credit quality of our loan portfolio,” said BankNordik CEO, Árni Ellefsen.

“In Q2 2019, BankNordik partnered with the European Investment Fund to provide financing to innovative enterprises in the Faroe Islands and Greenland under the InnovFin programme – an EU initiative of which BankNordik is the first and currently sole partner bank covering the Faroese and the Greenlandic markets. Apple Pay was also introduced to our customers, enabling contactless purchases through the use of Apple devices,” said Mr. Ellefsen.

Highlights of BankNordik's interim report for the first six months of 2019:

H1 2019 vs. H1 2018

• BankNordik reported operating profit of DKK 153m in H1 2019, DKK 11m higher than in H1 2018 (+8%).
  • Net interest income was down by DKK 6m year-on-year, due to tighter interest margins.
  • Fee and commission income was up by DKK 6m in H1 2019 due to greater customer activity.
  • Net insurance income was up by DKK 6m in H1 2019 due to fewer claims and increased sales.

• Operating costs were up by DKK 9m to DKK 240m, due to higher staff-related costs as well as higher IT and marketing expenditures.

• • BankNordik reversed DKK 72m in net impairment charges in H1 2019.
• Profit before tax was DKK 151m in H1 2019 compared to DKK 207m in H1 2018.
  • Zero non-recurring items were recognised in H1 2019 compared to DKK 88m in the same period of last year.
  • Value adjustments amounted to a loss of DKK 2m in H1 2019 compared to a loss of DKK 23m in H1 2018.
• Bank lending volumes were up by DKK 311m (+3%) from DKK 9,742m at 30 June 2018 to DKK 10,052m at 30 June 2019.
• Mortgage lending volumes were up by DKK 754m (+6%) from DKK 11,890m at 30 June 2018 to DKK 12,644m at 30 June 2019.
• Deposits increased by DKK 984m (+7%) from DKK 13,147m at 30 June 2018 to DKK 14,131m at 30 June 2019.

Q2 2019 vs. Q1 2019

• Operating profit was up by DKK 39m to 96m in Q2 2019 from DKK 57m in Q1 2019.
  • Net interest income was down by DKK 1m in Q2 2019 compared to Q1 2019, due to margin pressure.
  • Fee and commission income was DKK 45m in Q2 2019, down DKK 2m from Q1 2019.
  • Net insurance income was DKK 15m in Q2 2019, up DKK 7m compared to the previous quarter due to lower claims and increased sales.
  • Other operating income was flat at DKK 11m in Q2 2019.
  • Operating costs fell by DKK 1m QoQ
  • Net impairment charges were a DKK 53m reversal in Q2 2019 compared to a reversal of DKK 19m in Q1 2019.
• BankNordik recorded profit before tax of DKK 86m in Q2 2019 compared to a profit of DKK 65m in Q1 2019.
  • There were zero non-recurring items in both Q2 2019 and Q1 2019.
  • Value adjustments amounted to a loss of DKK 10m in Q2 2019 compared to a gain of DKK 8m in Q1 2019.

Capital ratios

The Group’s CET1 capital ratio was 17.5% and the total capital ratio was 19.6%, both on 30 June 2019.

Net income in 2019 will not be recognised in the capital and solvency statement until the annual report is released in audited form.

Outlook

Management reconfirms the FY2019 guidance of operating profit before impairment charges in the range of DKK 160–200m (H1 2019: DKK 81m).
On 22 July 2019, BankNordik raised its guidance for the FY2019 net profit from DKK 100–150m as previously guided to DKK 150–200m (H1 2019: DKK 118m), driven by the reversal of impairment charges.
This guidance is generally subject to uncertainty and will, amongst other things, 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 17.7bn 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 2019	H1 2018	Q2 2019	Q1 2019	Q4 2018	Q3 2018	Q2 2018
Net interest income	181	188	90	91	92	94	93
Net fee and commission income	93	87	45	48	42	43	43
Income from insurance operations	24	18	15	9	13	13	6
Other operating income	22	27	11	11	9	10	15
Operating income	321	319	163	158	156	160	157
Operating costs	-240	-231	-119	-120	-115	-111	-116
Operating profit before impairment charges	81	88	43	38	42	49	42
Impairment charges, net	72	54	53	19	18	39	23
Operating profit	153	142	96	57	60	88	65
Non-recurring items	0	88	0	0	-10	-6	12
Profit before value adjustments and tax	153	230	96	57	50	81	76
Value adjustments	-2	-23	-10	8	-12	-3	-17
Profit before tax	151	207	86	65	38	78	59
Loans and advances	10.1	9.7	10.1	10.0	10.0	10.0	9.7
Deposits and other debt	14.1	13.1	14.1	14.0	13.4	13.2	13.1
Mortgage lending	12.6	11.9	12.6	12.5	12.2	12.1	11.9
Equity	2.0	1.9	2.0	2.0	2.0	1.9	1.9
Solvency ratio	19.6	18.5	19.6	19.2	19.8	17.6	18.5
Operating cost/income, %	75	72	73	76	73	69	73
Number of FTE, end of period	390	390	390	393	393	385	390

* Excluding non-recurring items and value adjustments.

Further details are available from the interim report.

Attachments

• BankNordik H1 Interim Report 2019
• H1 2019 IR presentation