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Nordea CEO says end in sight to net interest income attrition

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Nordea CEO says end in sight to net interest income attrition

Nordea Bank AB (publ) is coming out of a period of decline in net interest income despite central bank base rates staying negative, CEO Casper von Koskull told a press conference Jan. 26.

"We do see that we are now in a position to curtail the decline in net interest income. We have operated in a negative rate environment for two years and now we actually can say that the fourth quarter year on year actually was flat to last year," von Koskull said while presenting the Swedish lender's final results of 2016.

Net interest income for the quarter stood at approximately €1.21 billion, compared to €1.20 billion in the same period of 2015. The bank's net interest margin was 90 basis points in the quarter, a year-over-year decline of 1 basis point, but it rose for the third straight quarter after bottoming out at 84 basis points in the first quarter of 2016.

Net fee and commission income rose to €867 million from €821 million. The bank's fourth-quarter 2016 net profit was €1.10 billion, up on the €848 million booked in the year-ago period, while full-year profit rose to €3.77 billion from €3.66 billion in 2015.

The bank also upped its proposed full-year dividend by 1 cent per share to 65 cents per share, von Koskull noted.

The CEO also said that although costs will rise 2% to 3% in 2017, they should fall back to 2016 levels by 2018. Overall fourth-quarter costs, excluding nonrecurring items, rose 10% year over year in local-currency terms to €1.32 billion, fueled mainly by expenses related to regulatory requirements and group projects.

"Costs are growing somewhat, according to plan at 5%," said von Koskull. "We are investing today more in the bank than we have ever done, really — in the transformation and also in beefing up areas such as compliance, operational risk, IT and so on."

The bank has embarked on a costly process of upgrading its electronic services and computer infrastructure, known as the core banking system. It also centralized its legal structure, bringing its Norwegian, Danish and Finnish subsidiaries under the Swedish parent company, a change that took effect at the start of 2017.

Nordea aims to get its cost-to-income ratio down to around 40% by 2020, von Koskull said. The ratio stood at 50% in 2016 as a whole, up from 47% in 2015.