Copenhagen, Helsinki, Oslo, Stockholm, 23 October 2020


Third quarter results 2020

Nordea Bank Abp
Stock exchange release - Interim report (Q1 and Q3)
23 October 2020 at 7:30 EET

Summary of the quarter:

• Strong result - continuing positive trend seen in previous quarters. Operating profit increased by 24% compared with the third quarter of 2019, with record high operating profits in most business areas. Total income increased by 4%, with net interest income increasing by 6%, the highest growth rate since 2012, and net fair value result increasing by 30% due to high levels of business activity in Markets. However, net fee and commission income decreased by 4%, as card and payment fee income in particular continued to be negatively impacted by the lower levels of economic activity related to COVID-19.

 

• High levels of activity and increasing business volumes. Income growth was driven by increased levels of customer activity. Mortgage lending volumes and market shares increased, and SME lending also increased. Furthermore, assets under management grew by 4% to a record high of EUR 326bn, supported by the ongoing recovery of the financial markets and solid net inflows. Savings income increased by 4%.

 

• Cost efficiency efforts generating expected results. Total operating expenses (excluding items affecting comparability) were down 6%. Full-year 2020 costs are expected to be below EUR 4.7bn, including the costs from SG Finans.

 

• Good progress towards financial targets. Nordea's cost-to-income ratio is decreasing in line with its 2022 target of 50%, improving to 52%, down from 58% in the same quarter last year. Return on equity was 10.1% for the quarter, demonstrating good progress towards the target of above 10% in 2022.

 

• Credit quality still strong and credit outlook unchanged. Net loan losses amounted to a reversal of EUR 2m. The total management judgement buffer of EUR 650m has been retained, as the full economic impact of the pandemic remains uncertain. The credit outlook is unchanged: total full-year 2020 net loan losses are projected to be below EUR 1bn.

 

• Capital position top of the class in Europe - well positioned to pay out dividends. Nordea's CET1 ratio is 16.4%, 6.2%-points above the regulatory requirement. Nordea's financial strength means that it is well positioned to both support its customers and pay dividends to its shareholders. Nordea intends to pay out a dividend for the financial year 2019. The Board of Directors will refrain from deciding on the 2019 dividend payment before 1 January 2021. Nordea will review the situation in the fourth quarter of 2020 in the light of any further European Central Bank communication.

 

• Continued commitment to 2022 financial targets. One year after its Capital Markets Day, Nordea remains fully committed to delivering on its business plan and financial targets for 2022. All business areas have improved their cost-to-income ratios over the past year. The progress is clear, driven by focused execution, but further improvements are still needed.

(For further viewpoints, see the CEO comment on page 4. For definitions, see page 56 in the Q3 2020 Report)

Third quarter 2020 vs. third quarter 2019 results

(excluding items affecting comparability¹)

Net interest income EUR 1,146m, 6%

Total operating income EUR 2,172m, 4%

Total operating expense EUR -1,089m, -6%

Net loan losses EUR 2m vs EUR -49m

Operating profit EUR 1,085m, 24%

Common Equity Tier 1 capital ratio^2,3 16.4% vs.15.4%

Cost/income ratio 50% vs. 56%

Cost/income ratio⁴ 52% vs. 58%

Net loan loss ratio, amortised cost 0bp vs. 55bp

Return on equity 10.6% vs 8.9%

Return on equity⁴ 10.1% vs 8.4%

 

 

Third quarter 2020 vs. second quarter 2020 results

Net interest income EUR 1,146m, 5%

Total operating income EUR 2,172m, 4%

Total operating expense EUR -1,089m, 0%

Net loan losses EUR 2m vs EUR -698m

Operating profit EUR 1,085m, 255%

Common Equity Tier 1 capital ratio^2,3 16.4% vs.15.8%

Cost/income ratio 50% vs. 52%

Cost/income ratio⁴ 52% vs. 52%

Net loan loss ratio, amortised cost 0bp vs. 115bp

Return on equity 10.6% vs 3.1%

Return on equity⁴ 10.1% vs 3.0%

1 See page 6 in the Q3 2020 Report for further details
2 End of period
3 Including the result for the period
4 With amortised resolution fees

Income statement
	Q3	Q3		Q2		Jan-Sep	Jan-Sep
	2020	2019	Chg %	2020	Chg %	2020	2019	Chg %
EURm
Net interest income	1,146	1,083	6	1,091	5	3,346	3,210	4
Net fee and commission income	729	756	-4	673	8	2,167	2,236	-3
Net result from items at fair value	274	211	30	318	-14	701	758	-8
Profit from associated undertakings and joint
ventures accounted for under the equity method	6	13	-54	-10		-6	51
Other operating income	17	22	-23	20	-15	57	86	-34
Total operating income	2,172	2,085	4	2,092	4	6,265	6,341	-1
Staff costs	-686	-924	-26	-645	6	-2,030	-2,369	-14
Other expenses	-245	-366	-33	-303	-19	-967	-1,264	-23
Depreciation, amortisation and impairment
charges of tangible and intangible assets	-158	-885	-82	-140	13	-428	-1,174	-64
Total operating expenses	-1,089	-2,175	-50	-1,088	0	-3,425	-4,807	-29
Profit before loan losses	1,083	-90		1,004	8	2,840	1,534	85
Net loan losses	2	-331		-698		-850	-434	96
Operating profit	1,085	-421		306		1,990	1,100	81
Income tax expense	-248	89		-63		-450	-308	46
Net profit for the period	837	-332		243		1,540	792	94
Business volumes, key items1
	30 Sep	30 Sep		30 Jun
	2020	2019	Chg %	2020	Chg %
EURbn
Loans to the public	320.2	328.3	-2	327.7	-2
Loans to the public, excl. repos	302.4	299.5	1	304.4	-1
Deposits and borrowings from the public	190.0	168.3	13	188.5	1
Deposits from the public, excl. repos	184.9	161.9	14	180.7	2
Total assets	574.8	585.9	-2	587.3	-2
Assets under management	326.2	314.3	4	311.4	5
Equity	32.6	30.5	7	31.8	3
Ratios and key figures2
	Q3	Q3		Q2		Jan-Sep	Jan-Sep
	2020	2019	Chg %	2020	Chg %	2020	2019	Chg %
Diluted earnings per share, EUR	0.21	-0.08		0.06		0.37	0.19	95
EPS, rolling 12 months up to period end, EUR	0.56	0.32	75	0.27		0.56	0.32	75
Share price1, EUR	6.49	6.50	0	6.15	6	6.49	6.50	0
Equity per share1, EUR	8.06	7.55	7	7.86	3	8.06	7.55	7
Potential shares outstanding1, million	4,050	4,050	0	4,050	0	4,050	4,050	0
Weighted average number of diluted shares, million	4,040	4,036	0	4,039	0	4,039	4,034	0
Return on equity, %	10.6	-4.4		3.1		6.5	3.4
Return on tangible equity, %	12.0	-5.0		3.5		7.4	3.9
Return on risk exposure amount, %	2.2	-0.9		0.6		1.3	0.7
Return on equity with amortised resolution fees, %	10.1	-5.0		3.0		6.7	3.6
Cost-to-income ratio, %	50	104		52		55	76
Cost-to-income ratio with amortised resolution fees, %	52	107		52		54	75
Net loan loss ratio, amortised cost, bp	0	55		115		47	24
Common Equity Tier 1 capital ratio1,3, %	16.4	15.4		15.8		16.4	15.4
Tier 1 capital ratio1,3, %	18.2	17.4		17.6		18.2	17.4
Total capital ratio1,3, %	19.9	20.0		20.1		19.9	20.0
Tier 1 capital1,3, EURbn	27.4	27.3	1	27.2	1	27.4	27.3	1
Risk exposure amount1, EURbn	151	156	-4	155	-3	151	156	-4
Number of employees (FTEs)1	27,880	29,469	-5	27,954	0	27,880	29,469	-5
Economic capital1, EURbn	23.7	26.5	-11	24.2	-2	23.7	26.5	-11

 

1 End of period.
2 For more detailed information regarding ratios and key figures defined as alternative performance measures,
see https://www.nordea.com/en/investor-relations/reports-and-presentations/group-interim-reports.
3 Including the result for the period.

CEO comment

"Over the past few quarters we have witnessed how individuals, businesses and societies have adapted to a new way of living due to the COVID-19 pandemic. We have seen a gradual recovery, but have also faced some setbacks. Although uncertainty remains, the risk of a renewed severe downturn has decreased. Thanks to our dedicated employees, strong balance sheet and high quality digital services, we have been able to support our customers and the societies around us, and will continue to do so.

We have seen clear performance improvements in all main areas in the third quarter. Our customer satisfaction levels are higher now than prior to the outbreak. We have launched new products and services for our customers. For example, we now offer green mortgages in our mobile bank app. Our business volumes have continued to increase in a range of areas, particularly in mortgages and savings. We have continuously taken steps in the right direction.

Consequently, the results in the quarter were strong. Operating profit increased by 24% compared with the third quarter of 2019, with income increasing by 4% and costs declining by 6%, which means we have taken a decisive step towards our cost-to-income target. Return on equity was 10.1%. Our return on equity was supported by very low net loan losses in the third quarter, but the underlying development is clearly positive.

Our income growth was driven by high customer activity. Our assessment is that we are growing faster than the market in several areas. Net interest income was 6% higher than in the third quarter of 2019, the highest growth rate since 2012, due to increased mortgage lending volumes and higher market shares, as well as increased SME lending. Net fee and commission income declined by 4%. This was mainly due to card and payment fee income continuing to be negatively impacted by the lower levels of economic activity related to COVID-19. Assets under management reached a record high of EUR 326bn and net inflows from all business areas were solid. Savings income increased by 4%. Typically, net fair value result is seasonally low in the third quarter, but our result increased by 30% compared with last year, mainly due to an improving performance in Markets.

Our efforts to improve cost efficiency continue to pay off. We have lowered our cost-to-income ratio to 52% from 58% within a year. There have been some temporary COVID-19-related effects, but the main driver was structural cost reductions: we have reduced levels of complexity in our operations and processes, and now have lower numbers of employees. We continue to expect that total costs for 2020 will be below EUR 4.7bn, including the costs from SG Finans.

Our credit quality remains strong. Net loan losses amounted to a reversal of EUR 2m. We have maintained our EUR 650m total management judgement, as the full economic impact of the pandemic remains uncertain. As previously stated, we project that total full-year 2020 net loan losses will be below EUR 1bn.

We continue to be among the best capitalised banks in Europe, with a CET1 ratio of 16.4%, which is 6.2%-points above the regulatory requirement. Our strong financial position means that we are well positioned to both support our customers and pay out dividends. We intend to pay a dividend for the financial year 2019. The Board of



Directors will refrain from deciding on the 2019 dividend payment before 1 January 2021, and we will review the situation in the fourth quarter of 2020 in the light of any further European Central Bank communication. Moreover, we continue to deduct the 2020 dividend from our capital according to our dividend policy and have the financial strength to distribute it.

In the third quarter all four business areas made progress towards their 2022 targets. In Personal Banking we saw strong momentum in mortgages, with volumes and market shares increasing. Total lending volumes grew by 4% in local currencies. We also added new digital services to our mobile bank app and saw an increase in customer satisfaction compared with a year ago. Costs decreased by 13%, resulting in a cost-to-income ratio of 54%. Operating profit increased by 7% compared with the third quarter of last year.

In Business Banking we witnessed increasing business activity towards the end of the quarter. Lending volumes grew by 4% and deposit volume growth was very strong at 20% in local currencies. We also arranged an increasing number of bond issues for our customers during the quarter. Total income increased by 5% and costs decreased by 4%, leading to a cost-to-income ratio of 47%, down from 52% a year ago. Operating profit was at its highest ever level in the quarter. On 1 October we completed the acquisition of SG Finans, further strengthening our position in the Nordic market.

In Large Corporates & Institutions operating profit was at its highest level since the fourth quarter of 2016, with improvements across all income and cost lines. Total income increased by 21%, costs decreased by 11% and the cost-to-income ratio improved to 42%. Economic capital decreased by 13%, driven by lower market risk and a reduction in low-yielding assets. Return on capital at risk increased to 12%. Overall, we are progressing with the repositioning of Large Corporates and Institutions as a focused and more profitable business area.

In Asset & Wealth Management net inflows of EUR 4.6bn in the quarter and the ongoing recovery of the financial markets led to a 4% year-on-year increase in assets under management, which now total EUR 326bn. Customer satisfaction in Private Banking continued on a positive trajectory. Total income increased by 4% compared with the third quarter of 2019, while costs continued to decrease, resulting in a cost-to-income ratio of 50%, down from 62% a year ago.

In the third quarter of 2019 we published our financial targets for 2022 and updated our business plan. A year later we are seeing clear performance improvements. We have retaken lost ground in business, improved customer experience and increased efficiency. This will also be our direction for the coming years. We are committed to delivering on our plan and targets for 2022.

Our strategy for meeting our targets is clear. We will continue focusing on our three key priorities: to optimise operational efficiency, drive income growth initiatives and create great customer experiences. In doing so, we will continue to fulfil our responsibility towards our customers, employees and shareholders. This benefits both society and our business."


Frank Vang-Jensen
President and Group CEO

Outlook

Key priorities to succeed and meet the financial targets
Nordea's business plan focuses on three key priorities to deliver on our 2022 financial targets: 1) to optimise operational efficiency, 2) to drive income growth initiatives, and 3) to create great customer experiences.


Financial targets 2022
Nordea's financial targets for 2022 are:

• a return on equity above 10%
• a cost-to-income ratio of 50%

Costs (operating expenses)
In 2020, Nordea expects to reach a cost base of below EUR 4.7bn, with planned continued net cost reductions beyond 2020.

Capital policy
A management buffer of 150-200bp above the regulatory CET1 requirement, from 1 January 2020.

Dividend policy
Our dividend policy stipulates a dividend payout ratio of 60-70%, applicable to profit generated from 1 January 2020. Nordea will continuously assess the opportunity to use share buy-backs as a tool to distribute excess capital.

Credit quality

For the full year 2020, our projections point to total net loan losses below EUR 1bn, corresponding to a loan loss level of less than 41bp.



The entire report can be found on the below link on our website.
Nordea Group Q3 2020 Report


http://www.rns-pdf.londonstockexchange.com/rns/0312D_1-2020-10-23.pdf


For further information:

Frank Vang-Jensen, President and Group CEO, +358 503 821 391 Mark Kandborg, acting Group CFO, +45 5547 8372
Matti Ahokas, Head of Investor Relations, +358 405 759 178 Sara Helweg-Larsen, Head of Group Communications, +45 2214 0000


The information provided in this stock exchange release was submitted for publication, through the agency of the contact persons set out above, at 07.30 EET (06.30 CET) on 23 October 2020.

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