Interest margins were squeezed in the competitive market, but with the continued fall in operating costs, profit before tax climbed to DKK 85m for the first six months of 2014 from DKK 77m in the same period of 2013.
DKK 40m of the DKK 85m profit derived from banking operations outside the Faroe Islands.
Loan impairment charges were only half the amount recorded last year.
The BankNordik Group had total operating income of DKK 395m in the first six months of 2014, compared with DKK 436m in H1 2013. The fall in income was mainly due to the still extremely competitive market for lending, which is squeezing interest margins, especially in the Faroese market.
The Bank is seeing growing demand for loans and credit and an inflow of new customers. However, the improvements are not yet sufficiently strong to offset the reduction in the existing loan base. On the other hand, the growing activity has lifted fee income relative to the year-earlier period.
Efficiency improvements have reduced the Group's operating costs, which fell by 5% to DKK 268m in H1 2014 from DKK 282m in H1 2013. In the banking operations, operating costs and operating income both fell by 8%. Higher claims expenses in the Faroese operations in the second quarter relative to last year and lower investment income in the Icelandic insurance company drove insurance income lower.
Impairment charges on loans and advances amounted to DKK 40m (net), against DKK 75m in H1 2013. This is consistent with the expectations expressed at the beginning of the year for lower impairment charges in 2014.
Profit before tax and after impairment charges, non-recurring items and value adjustments was DKK 85m, as against DKK 77m in the first half of 2013.
“Considering the challenging conditions of weaker lending and a more competitive market, we have every reason to be pleased with our first-half results, which were in line with the guidance we provided at the beginning of the year,” said BankNordik CEO Janus Petersen, and he continued: “I'm particularly pleased to see that operations in Denmark and Greenland now account for almost half of our profits.”
Solvency and liquidity requirement buffers
BankNordik maintains a controlled risk profile as reflected in its solvency need of 8.9%, which is among the lowest in the Danish banking sector and very close to the statutory minimum of 8%. The Bank's solvency ratio of 14.6% at 30 June 2014 leaves a buffer of 5.7 percentage points relative to the solvency need.
The Faroese government announced in August 2014 that the planned implementation of SIFI and Solvency II rules in the Faroe Islands will not be take place until in the second half of 2015 or in 2016, but that the phase-in period is still expected to follow the timetable for Denmark.
BankNordik also had a solid liquidity buffer at 30 June 2014, at 2.6 times the statutory requirement.
Outlook for 2014
Management maintains the full-year guidance provided at the beginning of the year. BankNordik is expected to generate profit before impairment charges, non-recurring items, value adjustments and tax of DKK 200-240m for the full year 2014. For the first six months of 2014, the Group generated profit before impairment charges, non-recurring items, value adjustments and tax of DKK 114m.
Impairment write-downs on loans are expected to be lower in 2014 than in 2013.
Appendix: Q2 2014 financial highlights are provided on the next page.
For further information, please contact:
Janus Petersen, CEO, tel. (+298) 330 340
Árni Ellefsen, CFO, tel. (+298) 230 348
Johnny í Grótinum, Investor Relations, tel. (+298) 230 380, ir@banknordik.fo
BankNordik has banking activities in Denmark, Greenland and the Faroe Islands and insurance activities in the Faroe Islands and Iceland. Founded in the Faroe Islands more than a century ago, the Group has 170,000 customers, total assets of DKK 16bn and 510 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and is listed on NASDAQ OMX. www.banknordik.dk.
Financial highlights
| DKKm |
Q2 2014 |
Q1 2014 |
Q4 2013 |
Q3 2013 |
Q2 2013 |
H1 2014 |
H1 2013 |
2013 |
| Net interest income | 126 | 133 | 133 | 143 | 151 | 258 | 298 | 574 |
| Net fee income | 54 | 46 | 53 | 43 | 48 | 101 | 92 | 188 |
| Income from insurance operations | 20 | 8 | 14 | 15 | 29 | 28 | 40 | 69 |
| Other operating income | 4 | 3 | 5 | 3 | 4 | 8 | 6 | 14 |
| Operating income* | 205 | 190 | 206 | 204 | 231 | 395 | 436 | 845 |
| Operating costs* | -136 | -132 | -139 | -136 | -142 | -268 | -282 | -558 |
| Sector costs, etc. | -6 | -6 | -4 | -4 | -8 | -12 | -16 | -26 |
| Profit before impairment charges * | 62 | 52 | 62 | 63 | 82 | 114 | 137 | 261 |
| Loan impairment charges, net | -19 | -21 | -42 | -32 | -20 | -40 | -75 | -147 |
| Operating profit* | 44 | 31 | 20 | 31 | 62 | 75 | 62 | 114 |
| Non-recurring items | 1 | -2 | -19 | 0 | 17 | -1 | 8 | -11 |
| Operating profit before value adjustments and tax | 45 | 29 | 1 | 31 | 79 | 74 | 70 | 103 |
| Value adjustments | 9 | 2 | -10 | 16 | -16 | 11 | 6 | 11 |
| Profit/Loss before tax | 54 | 31 | -9 | 47 | 63 | 85 | 77 | 114 |
| Deposits, etc. DKKbn | 12.4 | 12.1 | 12.2 | 12.0 | 12.3 | 12.4 | 12.3 | 12.2 |
| Loans and advances, etc. DKKbn | 10.2 | 10.4 | 10.5 | 10.6 | 10.7 | 10.2 | 10.7 | 10.5 |
| Total assets, DKKbn | 16.1 | 16.6 | 17.1 | 16.9 | 17.4 | 16.1 | 17.4 | 17.1 |
| Equity, DKKbn | 2.2 | 2.1 | 2.1 | 2.2 | 2.1 | 2.2 | 2.1 | 2.2 |
| Solvency ratio | 14.6% | 14.7% | 14.7% | 14.5% | 15.4% | 14.6% | 15.4% | 14.7% |
| Liquidity relative to statutory requirement | 2.6 x | 2.6 x | 2.8 x | 2.6 x | 2.8 x | 2.6 x | 2.8 x | 2.8 x |
| Costs / Operating profit | 66% | 70% | 68% | 67% | 61% | 68% | 62% | 66% |
| Number of employees (FTE) at end of period | 510 | 512 | 523 | 530 | 538 | 510 | 538 | 523 |
* Excluding non-recurring items and value adjustments.
Further details are available in the interim report.
