UPDATE 2-Norwegian bank DNB rules out share issue in capital drive
* CEO rules out share issue and dividend cuts
* Says bank's margins must rise further to meet rules
* Offers 2012 dividend of NOK 2.1/shr vs forecast 2.0
* Profit NOK 3.81 bln vs forecast NOK 3.32 bln
* Shares up 7 pct (Adds comments by CEO, analyst, share, background)
By Gwladys Fouche and Ole Petter Skonnord
OSLO, Feb 7 (Reuters) - Norwegian bank DNB, which is building up reserves to meet new capital rules, delivered the dividend it had promised on Thursday and ruled out an issue of new shares, sending its shares up 7 percent.
The new rules, expected later this year, will affect both how Norwegian banks raise funds and the amount of capital they must hold. Some analysts had speculated that DNB would cut its planned dividend and issue new stock to meet the rules.
"There are no plans to cut dividends or to issue new shares," said Chief Executive Rune Bjerke as he presented forecast-beating quarterly core earnings.
Shares in DNB were up 6.4 percent at 80.65 crowns by 1239 GMT, outperforming an Oslo benchmark index up 1.3 percent.
"The numbers are solid, the dividend is good and we see a good development when it comes to capital coverage," said Bengt Kirkoen, an analyst at Swedbank First Securities. "The share is going up a lot because expectations were very moderate." ž
DNB is offering a dividend of 2.1 crowns per share for 2012, slightly up on the 2.0 crowns per share offered in 2011 and a median analyst forecast of 2.0 crowns in a Reuters poll.
"A dividend of 2.10 crowns per share signals that they can manage without having to get more capital to meet the new, tougher regulations," said the analyst.
Fourth-quarter net profit was 3.81 billion crowns ($694.09 million), down from 4.09 billion a year ago but above a consensus forecast of 3.32 billion.
MARGINS MUST INCREASE
Norway's banking regulator wants to cap the use of mortgage-backed bonds to stop the country's banks becoming too reliant on them as a source of funding.
It is also expected to raise the overall capital that banks must hold against home loans to help prevent a housing bubble.
To comply with the capital requirements, DNB's profit margins must keep growing, Bjerke said, indicating that the bank's mortgage interest rates would rise.
"It is impossible to meet capital requirements without the customers contributing ... with less attractive mortgage rates for them," he said.
Bjerke was particularly scathing that foreign banks active in Norway, such as Nordea or Handelsbanken, would be more competitive than DNB under the new regulation.
"It sounds nice that Norwegian banks should be solid. But how solid and at what cost? Some of our foreign competitors, with sister companies in Norway, will be avoiding the requirements," he said.
Soon after, Norwegian finance minister Sigbjoern Johnsen countered Bjerke's comments by arguing that solid banks with a good capital base were an advantage rather than an inconvenience.
"When Norwegian banks are going to borrow on the international financial markets, I believe - and I haven't heard anyone say the opposite - that a bank that is solid and safe gets the best (lending) conditions."
Banks that offer loans in Norway would have to face the same regulatory requirements, regardless of their provenance, added Johnsen. ($1 = 5.4892 Norwegian kroner) (Additional reporting by Camilla Knudsen; Editing by Tom Pfeiffer)
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