Nordea’s revenue rises amid rate increase

Nordea, the largest bank in the Nordic region, has announced its second-quarter operating profit, which surpassed expectations due to the positive impact of rising interest rates despite negative currency translation effects.

With central banks raising key rates in response to soaring inflation, banks in the region, including Nordea, have experienced a boost in interest income. Nordea reported a year-on-year increase in operating profit for the tenth consecutive quarter, reaching €1.72 billion ($1.93 billion). Analysts surveyed by Refinitiv had anticipated a mean forecast of €1.70 billion.

Net interest income also saw significant growth, rising by 40% to €1.83 billion. However, Nordea acknowledged that the economic slowdown and the impact of interest rate hikes had adversely affected business volume growth, particularly in the mortgage sector. Reduced demand for housing loans and investment products was attributed to higher living costs and lower consumer confidence.

Despite slower economic growth, corporate lending volumes continued to increase, particularly in Norway and Sweden, where corporate lending saw a 4% growth. Nordea identified corporate lending as the primary driver of lending growth in 2023.

However, net commission income declined by 6% due to subdued capital markets activity and lower savings income. Negative effects resulting from weak Norwegian and Swedish currencies also constrained profit growth.

Nordea revised its guidance for return on equity for this year to above 15%, up from the previous forecast of above 13%. The second-quarter return on equity stood at 18.4%. JPM analysts noted that Nordea’s slightly better-than-expected net interest income is positive news for other Nordic banks yet to report their results. However, they highlighted that Nordea’s sensitivity to rates is more significant in the smaller Finnish market compared to other banks.

DNB, Norway’s main Nordic bank, also reported rising profits in the second quarter due to higher interest rates. Danske Bank, based in Denmark, increased its return on equity target to 13% from the previous range of 8.5%-9%.

Quarterly results from SEB, Swedbank, and Handelsbanken, Swedish banks, are expected to be revealed later this week.