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DNB sees positive impairment trends as it eyes restart of share buyback

Norway's largest bank, DNB ASA, said it sees positive trends in impairments and write-downs as it delivered its 2016 results in Oslo on Feb. 2, preparing the way for the bank's return to the share buyback trail.

Outgoing CFO Bjørn Erik Næss reiterated in a presentation to journalists that impairment losses for the 2016-2018 period remained at 18 billion kroner, adding these had been "front-loaded." For the full year 2016, the bank said net nonperforming loans stood at 25.7 billion kroner, up from 22.6 billion kroner at the end of the third quarter. This translated into 1.49% of the bank's net loans.

"The challenge is still the oil-related portfolio and offshore in particular," said Næss, who also pointed to stress in the shipping area. DNB said its exposure at default in this offshore portfolio stood at 53 billion kroner, or 2.8% of its total exposure at default, with most coming in the offshore supply vessel area. The bank did not see any spillover effects into the wider portfolio, including its small-business book, adding that an increase in troubled single names was also entirely down to the oil-related sector.

The bank went on to highlight its "robust balance sheet," noting that it had delivered on all its key ratios. Net loans to customers declined by 34 billion kroner to 1.509 trillion kroner as the bank stepped back from uneconomic business with large corporate customers. "We are trying to price risk more correctly and get the return we need on capital allocated," said CEO Rune Bjerke, who noted the bank was still posting growth in lending to small firms. "We are reallocating capital from less profitable segments," he told journalists.

The step back from large corporates did not impact the investment bank, which recorded strong activity in the last quarter, especially in equity capital markets and M&A, the bank added. "They are delivering not only from Oslo and Stockholm but from London and New York," Bjerke said.

DNB highlighted that it had reached its CET1 ratio requirement of 16% one year ahead of plan and a leverage ratio of 7.3% which is "well above the upcoming requirement and peer ratios." The dividend, at 5.70 kroner per share, was also in line with targets and the bank confirmed its plan to restart a share buyback program. This was likely to be presented after the first quarter and be implemented in the second.

The bank did caution, however, that its ROE, at 10.1%, was still below its target of 12%. The bank further warned that the impact of political events were hard to assess. "We should expect more volatility and less certainty," Bjerke said.

Overall the bank reported fourth-quarter 2016 profit attributable to shareholders of 5.14 billion kroner, down from 6.66 billion kroner earned in the year-ago period. Its EPS amounted to 3.16 kroner, down from 4.11 kroner in the fourth quarter of 2015.

In response to the earnings announcement, investors marked its Olso-traded shares down 3 kroner by midday London time to 135.70 kroner, although they still remained close to yearly highs.

As of Feb. 1, US$1 was equivalent to 8.25 Norwegian kroner.