Half-year results 2021
Nordea Bank Abp
Half year financial report
21 July 2021 at 7:30 EET
Summary of the quarter:
Strong result, with high income growth. Operating profit increased to EUR 1,338m from EUR 306m in the same period last year, driven by a significant increase in total operating income, strong cost control and low loan losses. Net interest income grew by 13% and net fee and commission income increased by 30%. Net fair value result was solid and at a more normalised level than in the first quarter.
Continued strong growth in customer business volumes across Nordics. Nordea drove high levels of business activity and gained market shares across the Nordics. Mortgage volumes continued to grow significantly, increasing by 6%, year on year, and SME lending increased by 8%. Assets under management increased by 24% to an all-time high of EUR 387bn, driven by strong performance and continued solid net inflows, especially into retail funds and Private Banking.
Underlying costs unchanged – outlook updated due to significantly higher business activity. Total costs excluding resolution fees increased by 9% due to the inclusion of Nordea Finance Equipment, higher variable pay linked to strong performance and exchange rate effects. Adjusted for these items, costs were unchanged. Given this, costs for 2021 are now expected to be around EUR 4.6bn (previously below EUR 4.6bn).
Strong credit quality with net loan loss reversals. Net loan losses and similar net result amounted to net reversals of EUR 51m or 6bp in the quarter, compared with a 85bp charge in the same quarter last year. Realised net loan losses remained at low levels. Net loan losses in 2021 are expected to be significantly below the 2020 level.
Cost-to-income ratio and profitability improving. Nordea's cost-to-income ratio improved to 49% from 52% a year ago, supported by strong income growth and improved cost efficiency. Return on equity increased to 11.4%, despite the very high equity base arising from undistributed dividends and excess capital. Earnings per share increased to EUR 0.25 from EUR 0.06.
Strong capital generation – capital position among best in Europe. Nordea’s CET1 ratio increased to 18.0% from 15.8% a year ago, even after the deduction of the unpaid dividends for 2019-20 and the accrued 2021 dividend. As previously disclosed, Nordea is ready to distribute the unpaid 2019-20 dividends (totalling EUR 0.72 per share) in October, after the current restrictions are repealed. Nordea also plans to start share buy-backs and has commenced the application process.
On track to meet 2022 financial targets. Nordea continues to focus on its three key priorities: to create great customer experiences, drive income growth initiatives and optimise operational efficiency. Nordea is progressing well towards consistent delivery of its financial targets: a cost-to-income ratio of 50% and a return on equity above 10%.
(For further viewpoints, see the CEO comment on page 2. For definitions, see page 54 in the Half-Year Financial Report 2021)
Group quarterly results and key ratios, Q2 2021
| Q2 2021 | Q2 2020 | Chg % |
Q1 2021 | Chg % |
Jan-Jun 2021 |
Jan-Jun 2020 |
Chg % |
|
|---|---|---|---|---|---|---|---|---|
| EURm | ||||||||
| Net interest income | 1,232 | 1,091 | 13 | 1,212 | 2 | 2,444 | 2,200 | 11 |
| Net fee and commission income | 878 | 673 | 30 | 827 | 6 | 1,705 | 1,438 | 19 |
| Net fair value result | 278 | 316 | -12 | 370 | -25 | 648 | 426 | 52 |
| Other income | 30 | 10 | 11 | 41 | 28 | 46 | ||
| Total operating income | 2,418 | 2,090 | 16 | 2,420 | 0 | 4,838 | 4,092 | 18 |
| Total operating expenses excluding resolution fees | -1,131 | -1,039 | 9 | -1,095 | 3 | -2,226 | -2,134 | 4 |
| Total operating expenses | -1,131 | -1,088 | 4 | -1,319 | -14 | -2,450 | -2,336 | 5 |
| Profit before loan losses | 1,287 | 1,002 | 28 | 1,101 | 17 | 2,388 | 1,756 | 36 |
| Net loan losses and similar net result | 51 | -696 | -52 | -1 | -851 | |||
| Operating profit | 1,338 | 306 | 1,049 | 28 | 2,387 | 905 | ||
| Cost-to-income ratio with amortised resolution fees, % | 49 | 52 | 48 | 48 | 55 | |||
| Return on equity with amortised resolution fees, % | 11.4 | 3.0 | 11.0 | 11.2 | 5.0 | |||
| Diluted earnings per share, EUR | 0.25 | 0.06 | 0.19 | 0.44 | 0.17 |
CEO comment
“Over the past few months we have witnessed Nordic societies gradually start to open up. Restrictions are easing, vaccination programmes are progressing well, and a return to more normal activity is under way. However, we still need to be mindful of potential setbacks due to unpredictable virus variants. At Nordea we continue to support our customers in transitioning to a post-pandemic environment. The fundamentals of our business are constant: everything we do starts and ends with our customers.
We are making good progress in developing our omnichannel banking model. The mobile bank app now has more than one billion logins annually and we are continually adding new functionalities. For example, customers can apply for a mortgage via the app and receive a digital loan promise within minutes. They can also sign mortgage agreements digitally and switch between variable and fixed interest periods with a few taps. Savings product sales through digital channels now correspond to 65% of all retail savings. On the corporate side, we have rolled out our new netbank to over 50% of customers and will consistently add new functionalities going forward.
In the second quarter we continued to grow business and customer activity significantly, and further increased market shares across the Nordics. Mortgage volumes increased by 6%, year on year, and lending to small and medium-sized enterprises increased by 8%. Assets under management (AuM) increased by 24% to EUR 387bn, supported by quarterly net inflows of EUR 1.8bn into retail funds and EUR 2.0bn into Private Banking, and solid market performance.
These positive developments led to strong quarterly results. Operating profit increased to EUR 1,338m from EUR 306m in the same period last year due to strong income growth, firm cost control and a significant decrease in net loan losses. Return on equity increased to 11.4%. Income grew by 16%, year on year, and net interest income increased by 13%, the highest growth rate in ten years. Net fee and commission income increased by 30%, mainly driven by higher savings and advisory commission income. Net fair value result was solid, supported by high levels of customer activity and valuation gains.
We remain focused on continuously growing revenues faster than costs. In the second quarter we made further progress, improving our cost-to-income ratio to 49% from 52% a year ago. The significantly higher business activity in the quarter led to higher revenues and profits, but also somewhat higher operating costs, including provisions for variable pay. Our full-year 2021 cost outlook is therefore now around, rather than below, EUR 4.6bn. Our prime focus is, and will remain, not on absolute costs but on costs relative to income.
Our credit quality remained strong in the second quarter. Realised loan losses were low and we recorded EUR 51m in net loan loss reversals. We expect net loan losses in 2021 to be significantly below the 2020 level. However, we have kept our management judgement buffer largely unchanged while the full impact of the pandemic on Nordea’s customers remains uncertain.
We continue to implement our new sustainability strategy across the bank. Customer demand for sustainable banking services remains very strong. Drawing on our expertise as a leading bank for sustainability, we are advising and supporting our customers in transitioning to a more sustainable future. In particular, we are working with customers in sectors especially vulnerable to climate-related risks, developing detailed and time-bound transition plans.
All of our business areas are delivering strong performances. In Personal Banking we had high levels of business activity. Mortgage volumes continued to increase and market shares increased in all countries. Savings income grew by 24% due to very high customer activity and retail fund net inflows. The cost-to-income ratio improved to 49% from 54%.
In Business Banking customer lending volumes grew by 8%, year on year. Business activity was high, with particularly strong momentum in Norway and Sweden. We continued to develop our sustainability offering. Overall, our sustainability-linked lending grew by 20% in the second quarter of 2021. The ESG part of our portfolio now amounts to EUR 3bn. The cost-to-income ratio improved to 44% from 50%, its best level to date.
In Large Corporates & Institutions we are progressing well towards creating a more focused and profitable business area. We continued to see very high levels of customer activity across our focus segments, especially in our brokerage and advisory business. Return on capital at risk was 16%.
In Asset & Wealth Management customer activity remained at very high levels – especially in our internal channels. Net inflows into retail funds were strong, particularly in Denmark and Finland. In Private Banking we gained new customers and saw record-high net inflows, which amounted to EUR 2.0bn in the quarter. Interest in sustainability products was high among all customer groups. The cost-to-income ratio improved to 41% from 57%.
Capital generation continues to be strong. Our Group CET1 ratio increased by 220bp, year on year, to 18.0%. We have a buffer of 7.8 percentage points above the current regulatory requirement, even after having deducted the 2019-20 dividends and the accrued 2021 dividend, making us one of the best capitalised banks in Europe.
We remain committed to our capital and dividend policy, which includes pursuing an efficient capital structure. The Board is ready to decide on a dividend payment of a maximum of EUR 0.72 per share, to be distributed in October, after the current restrictions are repealed. Regarding share buy-backs, we intend to start the programme in the fourth quarter, and have commenced the application process.
Nordea is entering the post-pandemic environment in a position of strength. We are well on track to meet our financial targets for 2022. We are delivering smoother and better customer experiences, developing advanced digital capabilities, and keeping sustainability at the centre of our customer offerings and operations.
Our focus remains on our three key priorities: to create great customer experiences, drive income growth initiatives and optimise operational efficiency. We are determined to continuously improve our performance and do things a bit better every single day. That is our way forward. For the benefit of our customers, business, shareholders and society at large.”
Frank Vang-Jensen
President and Group CEO
Income statement
| Q2 2021 | Q2 2020 | Chg % |
Q1 2021 | Chg % |
Jan-Jun 2021 | Jan-Jun 2020 | Chg % |
|
|---|---|---|---|---|---|---|---|---|
| EURm | ||||||||
| Net interest income | 1,232 | 1,091 | 13 | 1,212 | 2 | 2,444 | 2,200 | 11 |
| Net fee and commission income | 878 | 673 | 30 | 827 | 6 | 1,705 | 1,438 | 19 |
| Net result from items at fair value | 278 | 316 | -12 | 370 | -25 | 648 | 426 | 52 |
| Profit from associated undertakings and joint ventures accounted for under the equity method | 3 | -10 | -14 | -11 | -12 | -8 | ||
| Other operating income | 27 | 20 | 35 | 25 | 8 | 52 | 40 | 30 |
| Total operating income | 2,418 | 2,090 | 16 | 2,420 | 0 | 4,838 | 4,092 | 18 |
| Staff costs | -705 | -645 | 9 | -682 | 3 | -1,387 | -1,344 | 3 |
| Other expenses | -262 | -303 | -14 | -486 | -46 | -748 | -722 | 4 |
| Depreciation, amortisation and impairment charges of tangible and intangible assets | -164 | -140 | 17 | -151 | 9 | -315 | -270 | 17 |
| Total operating expenses | -1,131 | -1,088 | 4 | -1,319 | -14 | -2,450 | -2,336 | 5 |
| Profit before loan losses | 1,287 | 1,002 | 28 | 1,101 | 17 | 2,388 | 1,756 | 36 |
| Net loan losses and similar net result | 51 | -696 | -52 | -1 | -851 | |||
| Operating profit | 1,338 | 306 | 1,049 | 28 | 2,387 | 905 | ||
| Income tax expense | -313 | -63 | -261 | 20 | -574 | -202 | ||
| Net profit for the period | 1,025 | 243 | 788 | 30 | 1,813 | 703 |
Business volumes, key items1
| 30 Jun 2021 | 30 Jun 2020 | Chg % |
31 Mar 2021 | Chg % |
|
|---|---|---|---|---|---|
| EURbn | |||||
| Loans to the public | 338.4 | 328.0 | 3 | 333.6 | 1 |
| Loans to the public, excl. repos/securities borrowing | 317.2 | 299.0 | 6 | 314.5 | 1 |
| Deposits and borrowings from the public | 204.6 | 188.5 | 9 | 198.2 | 3 |
| Deposits from the public, excl. repos/securities lending | 196.2 | 179.6 | 9 | 191.5 | 2 |
| Total assets | 586.8 | 587.3 | 0 | 591.1 | -1 |
| Assets under management | 387.4 | 311.4 | 24 | 371.7 | 4 |
| Equity | 35.5 | 31.8 | 12 | 34.5 | 3 |
Ratios and key figures2
| Q2 2021 | Q2 2020 | Chg % |
Q1 2021 | Chg % |
Jan-Jun 2021 | Jan-Jun 2020 | Chg % |
|
|---|---|---|---|---|---|---|---|---|
| Diluted earnings per share, EUR | 0.25 | 0.06 | 317 | 0.19 | 32 | 0.44 | 0.17 | 159 |
| EPS, rolling 12 months up to period end, EUR | 0.83 | 0.27 | 207 | 0.64 | 30 | 0.83 | 0.27 | 207 |
| Share price1, EUR | 9.40 | 6.15 | 53 | 8.41 | 12 | 9.40 | 6.15 | 53 |
| Equity per share1, EUR | 8.79 | 7.86 | 12 | 8.53 | 3 | 8.79 | 7.86 | 12 |
| Potential shares outstanding1, million | 4,050 | 4,050 | 0 | 4,050 | 0 | 4,050 | 4,050 | 0 |
| Weighted average number of diluted shares, million | 4,041 | 4,039 | 0 | 4,040 | 0 | 4,040 | 4,038 | 0 |
| Return on equity, % | 11.9 | 3.1 | 9.4 | 10.7 | 4.5 | |||
| Return on tangible equity, % | 13.4 | 3.5 | 10.6 | 12.0 | 5.1 | |||
| Return on risk exposure amount, % | 2.7 | 0.6 | 2.0 | 2.4 | 0.9 | |||
| Return on equity with amortised resolution fees, % | 11.4 | 3.0 | 11.0 | 11.2 | 5.0 | |||
| Cost-to-income ratio, % | 47 | 52 | 55 | 51 | 57 | |||
| Cost-to-income ratio with amortised resolution fees, % | 49 | 52 | 48 | 48 | 55 | |||
| Net loan loss ratio, incl. loans held at fair value, bp | -6 | 85 | 6 | 0 | 52 | |||
| Common Equity Tier 1 capital ratio1,3, % | 18.0 | 15.8 | 17.5 | 18.0 | 15.8 | |||
| Tier 1 capital ratio1,3, % | 19.5 | 17.6 | 19.2 | 19.5 | 17.6 | |||
| Total capital ratio1,3, % | 21.3 | 20.1 | 20.9 | 21.3 | 20.1 | |||
| Tier 1 capital1,3, EURbn | 29.6 | 27.2 | 9 | 29.6 | 0 | 29.6 | 27.2 | 9 |
| Risk exposure amount1, EURbn | 152.2 | 154.6 | -2 | 154.0 | -1 | 152.2 | 154.6 | -2 |
| Return on capital at risk, % | 17.7 | 3.8 | 13.6 | 15.7 | 5.5 | |||
| Return on capital at risk with amortised resolution fees, % | 17.0 | 3.8 | 15.8 | 16.4 | 6.1 | |||
| Number of employees (FTEs)1 | 27,510 | 27,954 | -2 | 27,800 | -1 | 27,510 | 27,954 | -2 |
| Economic capital1, EURbn | 23.2 | 24.2 | -4 | 23.4 | -1 | 23.2 | 24.2 | -4 |
1. End of period.
2. See here for more detailed information regarding ratios and key figures defined as alternative performance measures.
3. Including the result for the period.
Outlook
Key priorities to meet 2022 financial targets
Nordea’s business plan focuses on three key priorities to meet its 2022 financial targets: 1) to optimise operational efficiency, 2) to drive income growth initiatives, and 3) to create great customer experiences.
Financial targets for 2022
Nordea’s financial targets for 2022 are:
- a return on equity above 10%
- a cost-to-income ratio of 50%
Costs (operating expenses)
New: Total costs for 2021 are expected to be around EUR 4.6bn.
Previous: Total costs for 2021 are expected to be below EUR 4.6bn.
Capital policy
A management buffer of 150-200bp above the regulatory CET1 requirement, from 1 January 2021.
Dividend policy
Nordea’s dividend policy stipulates a dividend payout ratio of 60-70%, applicable to profit generated from 1 January 2021. Nordea will continuously assess the opportunity to use share buy-backs as a tool to distribute excess capital.
Credit quality
New: Net loan losses in 2021 are expected to be significantly below the 2020 level.
Previous: N/A
The entire report can be found on the below link on our website.
For further information:
Frank Vang-Jensen, President and Group CEO, +358 503 821 391
Ian Smith, Group CFO, +45 5547 8372
Matti Ahokas, Head of Investor Relations, +358 405 759 178
Ulrika Romantschuk, Head of Brand, Communication and Marketing, +358 10 416 8023
The information provided in this stock exchange release was submitted for publication, through the agency of the contact persons set out above, at 07.30 EET (06.30 CET) on 21 July 2021.
Nordea is a leading Nordic universal bank. We are helping our customers realise their dreams and aspirations – and we have done that for 200 years. We want to make a real difference for our customers and the communities where we operate – by being a strong and personal financial partner. The Nordea share is listed on the Nasdaq Helsinki, Nasdaq Copenhagen and Nasdaq Stockholm exchanges. Read more about us on nordea.com.
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