Norway's DNB misses forecast as loss provisions surge

OSLO (Reuters) - Norway's DNB DNB.OL reported a slump in first-quarter net profit on Thursday after booking a record provision for future loan defaults amid the COVID-19 pandemic and a plunge in oil prices.

FILE PHOTO: A DNB bank sign is seen on the bank's branch in Stavanger, Norway December 5, 2019. REUTERS/Ints Kalnins

Net profit fell to 4.0 billion crowns ($389 million) for the January-March period from 7.6 billion crowns a year earlier, lagging the average forecast of 7.74 billion crowns in a Refinitiv poll of analysts.

Loan loss provisions amounted to 5.77 billion crowns, up from 316 million a year ago, and a record for a single quarter. Nearly half the provisions were to cover loans to the oil industry.

“When the future prospects for the economy become weaker, we have a duty to set aside money for future losses straight away,” Chief Executive Kjerstin Braathen said in a statement.

“The accounting rules have recently been made more stringent on this point. That’s why impairment losses are increasing despite the fact that we haven’t seen a wave of bankruptcies,” she added.

Norway’s biggest bank had already postponed its decision on whether to pay a dividend for 2019 until later this year due to the uncertainty caused by the novel coronavirus outbreak.

“The general outlook for the Norwegian economy is also an important reason for the bank to put aside more money for covering future losses,” DNB added.

While DNB maintained its key target of a return on equity of more than 12%, it was unlikely to achieve this in 2020, the bank said.

The Norwegian central bank’s recent surprise cuts in interest rates, setting the key policy rate at a record low 0.25%, will have a negative impact on DNB’s net interest income, the bank added.

In addition, net commissions and fees will be impacted by lower revenues from money transfers and banking services due to lower business and travel activity, and fees from real estate broking will also decline, it said.

“The turbulent market situation with lower equity values is (also) expected to give lower income from asset management services and defined contribution pensions,” DNB added.

DNB’s shares fell sharply as lockdowns were announced in many countries, including Norway, in mid-March. While it has regained some lost ground, the bank’s shares are still down 24% year-to-date.

Editing by Gwladys Fouche and Carmel Crimmins