Denmark’s biggest lender, Danske Bank A/S (DANSKE.KO), Wednesday said increasing mortgage refinancing, higher trading income and lending growth helped drive a better-than-expected 73% rise in first quarter net profit.
Net profit at the Copenhagen-based bank rose to 4.83 billion Danish kroner ($713.8 million) in the three months to March 31, up from DKK2.79 billion in the year-earlier period and above an average DKK3.97 billion forecast by analysts in a FactSet poll.
Quarterly net interest income increased to DKK8.39 billion from DKK7.99 billion, as higher lending volumes offset pressure from negative interest rates on deposit margins.
Central banks in both Denmark and Sweden earlier this year slashed their interest rates into negative territory to keep their currencies from getting stronger, effectively making banks pay to park their excess cash. Part of that cost is being passed on to large institutional and corporate customers but most banks have so far balked at the idea of charging retail customers for deposits.
Analysts have feared that the negative rates would weigh heavily on interest income, but earnings reports this week show that most of the Scandinavian banks still managed to grow their profits. This is largely a result of higher fee and commissions income from re-mortgaging and increased customer demand for currency hedging and risk management products following high market volatility.
Danske Bank’s earnings support that picture. Net fee income increased 19% as many of its customers took advantage of the ultralow interest rates and refinanced their mortgages, the bank said. Trading income soared to DKK11.44 billion from DKK2.36 billion, owing to high customer activity in the financial markets.
Loan impairment charges narrowed to DKK366 from DKK944 million.
“Although we have posted strong earnings, we maintain our guidance for the year because of considerable uncertainty about future interest rates, developments in the financial markets and the level of customer activity,” Chief Executive Thomas E. Borgen said.
For 2015, the bank expects a net profit above DKK14 billion, total income around the same level as in 2014, expenses below DKK22 billion and impairment charges in its core activities to remain at a low level.
Danske said its common equity Tier 1 capital ratio–a measure of financial strength–stood at 14.1% at the end of the quarter, a tad higher than the 14.0% a year ago.
Source: Market Watch