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DNB upbeat on SMEs, but oil exposures continue to pose challenge

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DNB upbeat on SMEs, but oil exposures continue to pose challenge

DNB ASA CEO Rune Bjerke has an upbeat outlook for lending to smaller firms thanks to a buoyant Norwegian economy, but conceded that oil-related exposures will continue to be a challenge for the bank through 2018 and 2019.

"You can clearly see that we are growing market share in [the small and medium-sized enterprises], and we grew significantly higher than the market in 2017," Bjerke told analysts during a call for the bank's 2017 full-year earnings. He said the bank's SME loan portfolio increased by 10% over the course of the year.

"You have everything from commercial real estate to seafood to manufacturing in the SME lending portfolio," he said. "Investments are picking up in most segments, maybe with the exception of commercial real estate. But we are involved in profitable exposures in all segments. The portfolio is very diverse, with low loan losses."

While the bank may not be able to match the 10% SME lending growth again in 2018, it still expects a high level of activity in this segment, he said.

DNB's market share of lending to the smallest startups is around 40%, the CEO said. In other areas of SME lending it is closer to 50%, but in some sub-segments of the market it is closer to 25%.

The bank's SME lending business made a profit of 1.15 billion kroner during the fourth quarter of 2017, a 13.2% increase on the same period in 2016.

There is "continued optimism" among both businesses and consumers in Norway, which bodes well for continued loan growth in 2018, he said. "We see a clear shift towards more investment in retail, services and industries."

GDP for mainland Norway is estimated to have grown by 1.8% in 2017, compared with 1% in 2016, a rise that is attributed to higher consumption, an increase in housing investment and a slightly more benign environment in the oil and offshore sector, according to DNB's earnings report. The economy is predicted to grow by 2% in 2018.

Low oil prices have weighed heavily on some of DNB's clients in recent years and have been a major source of impaired loans. However, impairments in this segment have started to fall, standing at 2.77 billion kroner for the 2017 full year, compared with 3.63 billion kroner at the end of 2016.

Lower impairments shored up the bank's fourth-quarter profit, which totaled 6.13 billion kroner, compared with 5.14 billion kroner for the same period a year previously.

However, there will be "challenges" in the oil and gas portfolio in 2018 despite improving conditions, he said.

As of Jan. 31, US$1 was equivalent to 7.70 Norwegian kroner.