By Agnieszka Gosciak and Jesus Calero
(Reuters) -Norway’s largest bank DNB reported an earnings miss for the second quarter on Friday despite strong lending growth, hit by a weaker than expected interest income and higher loan losses.
Its shares fell more than 8% by 1000 GMT, the biggest losers on Europe’s benchmark STOXX 600 index.
After years of tailwinds from high rates, DNB faces a shifting landscape as Norway kicks off monetary easing, signaling slimmer margins ahead amid a softer inflation and growth outlook.
At the same time, a wave of consolidation among savings banks is stirring up competition at home, challenging DNB’s dominance in the market.
“We have very strong banks operating in Norway, and bearing in mind that there is an underlying growth trend, some of the players that operate here are also seeking loan growth in the market,” DNB’s finance chief Ida Lerner told Reuters.
The domestic pressure is mainly felt on the lending side, especially mortgages, rather than deposits, she added.
DNB’s net profit fell 3% to 10.4 billion Norwegian crowns ($1.0 billion) in the second quarter. Analysts had expected 10.94 billion on average, a poll compiled by DNB showed.
Net interest income, a key metric measuring banks’ income from lending and deposits, rose to 16.15 billion crowns, but missed analysts’ forecast of 16.48 billion.
Aside from the softer net interest income, equity analysts at Norne Securities and Jefferies attributed the weaker than expected results to higher loan losses, with the latter also pointing to slightly elevated costs.
Norway’s central bank cut interest rates in June from a 17-year high to 4.25% and it expects to make further cuts during the year based on the more benign inflation outlook.
Despite the expected negative effect on interest income, DNB said that activity in the lending market was particularly high as many customers had been waiting for the rate cut.
DNB expects Norway’s policy rate to settle at 3.75% after two more cuts this year, a “very healthy” level that supports the bank’s return target through 2027, Lerner said.
($1 = 10.0864 Norwegian crowns)
(Reporting by Jesus Calero and Agnieszka Gosciak-Rabalska in Gdansk, editing by Milla Nissi-Prussak)
