Just as in the first half of the year, higher impairment losses among large corporates were the main reason for the decline in profits. Parallel to this, the bank has already reached its most important capital target for 2017.

On several occasions, DNB has been characterised as one of the world’s best capitalised banks. A new example of this was presented in the third quarter, when the EBA conducted a stress test showing that DNB had the greatest resilience to economic crises among the tested banks.

The common equity Tier 1 capital ratio, calculated according to the transitional rules, is 15.7 per cent, up from 13.1 per cent a year earlier. Finanstilsynet (the Financial Supervisory Authority of Norway) has recently finalised its annual Supervisory Review and Evaluation Process, SREP, for the DNB Group. Finanstilsynet’s guidance concerning capitalisation is in line with the bank’s own ambitions.
The bank has now built up sizeable capital which can be used as a buffer in the event of an economic downturn. During the third quarter, a new milestone was already reached when the bank fulfilled its capital target for 2017.

“We are continuing to build up capital krone by krone, as we have done for several years. I am pleased that we now meet the authorities’ requirements. We are a year ahead of schedule when it comes to capitalisation. Once the capital level has been reached, it is important that we also meet the expectations of our owners by normalising our dividend payout ratio as soon as possible,” says Rune Bjerke, group chief executive.

DNB’s long-term target is to have a dividend payout ratio of more than 50 per cent of net annual profits.

Lower interest income
Net interest income was reduced by NOK 500 million from the third quarter of 2015. The main reason for this is lower lending volumes among large corporates, though narrower lending spreads in the personal customer market also had an effect on income.

Net other operating income was down NOK 544 million. Adjusted for the effect of so-called basis swaps, however, net other operating income rose by NOK 834 million from the third quarter of 2015. Increased income from trading activities in DNB Markets was among that factors that had a positive effect.

Loss estimate maintained
Impairment losses on loans and guarantees totalled NOK 2 176 million in the third quarter. During the third quarter of 2015, impairment losses of NOK 392 million were reversed. Compared with the second quarter of 2016, impairment losses were down approximately NOK 150 million.

The rise in impairment losses stemmed partly from large corporates in the oil-related and shipping industries. Both individual and collective impairment losses on loans were recorded.

“In 2016, total impairment losses will exceed NOK 6 billion. DNB nevertheless retains its estimate of total impairment losses of NOK 18 billion for the 2016-2018 period. According to our forecasts, individual losses will level off, while the need for collective impairment losses will probably be reduced in 2017 and 2018. The oil price has stabilised and has risen somewhat through 2016, and the development of the Johan Sverdrup field helps to keep up the level of oil investment. Overall, we think that there are somewhat brighter prospects for the Norwegian economy from 2017 onwards,” says Bjerke.

On 16 November this year, DNB’s updated financial targets for the entire Group will be presented on the Capital Markets Day in London.

New initiatives pay off
One of the highlights of the third quarter was the launch of Vipps Business. The payment app has been tailored to companies wishing to monitor their sales and payment streams online. DNB is in the process of launching Vipps Invoice - a simple solution for companies for sending invoices directly to customers through Vipps.
“We were serious when we said that we will make all payments more straightforward than has been the case up till now. The development of new technology and new products is being given first priority, and we have thus chosen to make Vipps and Payments a separate business area. Digitalisation and new directives will result in even tougher and more international competition in the banking industry. Our customers expect DNB, as Norway’s largest bank, to be at the forefront in this field, and so we will,” concludes Bjerke.

Key figures for the third quarter of 2016
• Pre-tax operating profits were NOK 5.2 billion (8.5)
• Profit for the period was NOK 4.1 billion (6.4)
• Earnings per share were NOK 2.43 (3.83)
• Return on equity was 8.5 per cent (14.7)
• The cost/income ratio was 40.6 per cent (39.6)
• The common equity Tier 1 capital ratio (transitional rules) was 15.7 per cent (13.1)
Comparable figures for 2015 in parentheses.