Norway's DNB Q1 profit surges on low lending losses

OSLO: DNB ASA, Norway's biggest bank, reported first-quarter earnings well ahead of expectations on Thursday as lending losses fell and the bank said loan impairment would be below normal levels this year.

State-controlled DNB said operating profit rose 69 percent to 7.30 billion crowns ($1.23 billion) on rising net interest income, a close to 90 percent decline in loan loss writedowns and falling costs following a restructuring over the past year.

"A cautious recovery is expected in both the Norwegian and the international economy during the remainder of 2014," DNB said.

"Credit quality is expected to improve, while losses are expected to be below the normalised level in 2014."

DNB shares have underperformed the market so far this year on concerns that Norway's economy will be dragged down by slowing oil investment growth and lower house prices, adding to DNB's troubles from a soft shipping market, a key focus for its lending activities.

The stock has fallen 4.5 percent in the past three months, trailing a 6.9 percent rise in the Oslo benchmark.

That left the shares with a 35 percent discount to Swedish peers, based on its price to expected 2015 earnings ratio, brokerage Fondsfinans said before the earnings were released.

Analysts said the stock could rebound once lending growth picks up, the mortgage market gathers strength and DNB moves closer to building the needed buffers.

Although some analysts said DNB could cut its lending growth forecast, the bank said it still expects an annual rate of 3 to 4 percent.

The bank cut mortgage rates in the first quarter, a potential drag on its margins later this year, but the housing market has unexpectedly rebounded, improving the bank's outlook as it relies heavily on mortgage lending for growth.

DNB is one the best capitalised banks in Europe but still needs to save more cash to meet the government's strict rules.

The bank earlier said it would pay out just 25 percent of its profits through 2016 before returning to a 50 percent payout.

Common equity Tier 1 capital ratio, the key measure watched by regulators, was 11.9 percent at the end of the quarter, up from 11.8 percent at the end of last year. It needs to reach 13.5-14 percent by 2016.