October 25, 2012 / 6:11 AM / in 5 years

CORRECTED-UPDATE 2-Strong Nordic banks see storm clouds

(Rewrites ninth paragraph to remove comparison between Swedish and Norwegian capital regulations, as they are not comparable.)

* DNB, SEB Q3 earnings ahead of forecasts

* DNB warns about rapidly rising shipping losses

* SEB says economic turbulence will take its toll

* DNB shares rise 3.1 pct, SEB up 1.2 pct

By Balazs Koranyi and Mia Shanley

OSLO/STOCKHOLM, Oct 25 (Reuters) - Rising losses from the shipping industry and slowing growth in Sweden pose risks to Nordic banks’ ability to remain aloof from the crisis engulfing rivals elsewhere in Europe, two of Scandinavia’s top lenders said.

Norway’s DNB and Sweden’ SEB both beat quarterly earnings forecasts on Thursday, helped by falling loan losses and contrasting with the profit falls posted by mainland European rivals Credit Suisse and Santander as they grapple with the euro zone debt crisis.

However, both Nordic banks flagged challenges ahead.

“The small open Nordic economies have until now shown resilience, but will not remain unaffected by global developments,” SEB Chief Executive Annika Falkengren said.

SEB said broader economic risks were on the downside as the European banking system strives to boost capital and improve asset quality, while Sweden itself was going through an economic rough patch.

DNB, meanwhile, is making only slow progress in boosting its capital buffers and warned losses from the struggling global shipping industry would continue to rise as the sector’s recovery is still well into the future.

NORWAY‘S DNB

DNB’s third-quarter pretax profit rose 17 percent to 4.76 billion Norwegian crowns ($828 million), beating forecasts by 12 percent, as loan losses more than halved and margins held up.

However, its shipping loan book, worth around 7.5 percent of its entire loan book, will deteriorate quickly next year, generating loan losses of up to 1.5 billion crowns after this year’s 800 million to 1 billion crown loss, the bank said.

Its Tier 1 capital, a key measure of liquidity, inched up to 10 percent, above the 9 percent regulatory minimum, but analysts said even with a dividend cut it was only making slow progress compared to Swedish peers.

“We still have not seen progress in the capital ratios at DNB like we have at the Swedish banks,” Nomura analysts said.

Still, DNB should continue to benefit from Norway’s economic boom as the country, not part of the 27-nation European Union, remains the continent’s best performer.

The economy grew by an annual 5 percent in the second quarter thanks to a booming offshore oil sector, a bloated and well funded public sector, and healthy private sector.

DNB shares rose 3.1 percent to 72.55 crowns on Thursday, outperforming a 0.9 percent gain by peers as the bank is generally valued well below Swedish peers.

SWEDEN‘S SEB

SEB’s operating profit rose to 3.9 billion Swedish crowns, beating a mean forecast for 3.8 billion crowns and coming ahead of last year’s 3.7 billion crowns, mostly on lower writedowns.

The bank said its core tier one capital level - a key measure of financial strength - swelled further.

However, it warned Sweden’s small and open economy, and thus its banks, would not remain unaffected by global turbulence.

“We believe SEB’s business mix is more exposed to a slowing Sweden and as a consequence expect the bank to deliver a return on equity below peers in the near term,” Citi analysts said.

Following a strong start to the year, Sweden’s economy is seen slowing and the central bank on Thursday signalled it could ease borrowing costs later this year.

SEB, whose shares outperformed the Stockholm bourse , rising 1.2 percent, is the last of the Swedish banks to report third-quarter earnings.

Handelsbanken and Nordea both missed forecasts, weighed down by weaker deposit margins, while Swedbank beat expectations.

$1 = 5.7474 Norwegian crowns Additional reporting by Camilla Knudsen and Oskar von Bahr; Editing by Dan Lalor and Mark Potter

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