Healthy profits strengthen Tier 1 capital

DNB recorded profits of NOK 3 798 million in the second quarter of 2013, down NOK 816 million from the second quarter of 2012. The bank continued to strengthen its Tier 1 capital and capital adequacy.

“DNB recorded a significant underlying increase in profits, in spite of somewhat lower lending growth, which reflected both weaker market developments and the fact that several of our large customers use the bond market for financing. There was continued strong demand for home mortgages, with an average growth of 7.0 per cent from the second quarter of 2012,” says Rune Bjerke, group chief executive.

In order to strengthen capital adequacy and meet current and future capital requirements, DNB
has raised lending rates. This contributed to a NOK 846 million increase in net interest income for the quarter. New capital requirements introduced by the authories had to be met by DNB by 1 July 2013, and the Group has also been informed that an additional significant increase in Tier 1 capital will be necessary to ensure compliance with the new regulations. DNB has already built up capital of
NOK 53 billion over the past five years to meet existing capital requirements.

“Some people maintain that Norwegian banks have not yet been presented with strict capital adequacy regulations. This is wrong. We have received written marching orders from the authorities to build far more capital through 2013 and to give this our highest priority. DNB’s common equity Tier 1 capital has been increased by approximately NOK 11 billion over the past 12 months, which corresponds to more than NOK 200 million each week. This capital build-up increases the financial strength of the bank, though stricter capital requirements come at a cost for both employees, shareholders and customers,” says Bjerke.

Rise in income, but lower return on equity

In spite of higher income, DNB’s return on equity has been reduced. The reasons for this are that the Group has higher capital yielding returns and that the increased Tier 1 capital must be deposited in central banks at low interest rates. Return on equity was 11.6 per cent, down from 15.9 per cent in
the second quarter of 2012. Adjusted for the effect of basis swaps, return on equity was reduced from 13.3 to 11.8 per cent.

Impairment losses on loans and guarantees totalled NOK 937 million, up NOK 252 million from the second quarter of 2012 and NOK 199 million from the first quarter of 2013.

“The Norwegian economy remains strong, though there was a rise in impairment in a number of segments, which could indicate a certain weakening of the Norwegian economy. Impairment losses within shipping were still relatively high compared with other segments served by the bank, but significantly lower than in the preceding quarters. We still believe that impairment losses in 2013 will remain within the guided level, which is NOK 3-4 billion,” says Bjerke.

The common equity Tier 1 capital ratio was 10.8 per cent, while the capital adequacy ratio was 12.4 per cent, both including 50 per cent of interim profits.

Group staff reduced by 1 000 full-time positions

The number of full-time positions in DNB has been reduced by more than 1 000 since the second quarter of 2012. This is an important contribution to bringing down costs and meeting the capital requirements through an increase in profits. The downsizing will continue as planned, with an aim to reduce staff by an additional 500 full-time positions by 2015. During the second quarter, provisions for restructuring measures affecting employees totalled NOK 459 million. Restructuring costs totalled NOK 569 million for the quarter.

Operating expenses rose by NOK 558 million from the second quarter of 2012. Adjusted for restructuring expenses and other non-recurring effects, operating expenses were reduced by
NOK 71 million or 1.4 per cent.

Key figures for the second quarter of 2013

• Pre-tax operating profits before impairment were NOK 6.1 billion (6.7)
• Profit for the period was NOK 3.8 billion (4.6)
• Earnings per share were NOK 2.33 (2.84)
• Return on equity was 11.6 per cent (15.9)
• The ordinary cost/income ratio was 48.0 per cent (43.1)

Comparable figures for the second quarter of 2012 in parentheses.

Contact person:

Thomas Midteide, group executive vice president, Corporate Communications, tel.: + 47 962 32 017

The quarterly report, presentation and Fact Book can be downloaded from www.dnb.no/investor-relations