(Bloomberg) -- Norway’s largest lender, DNB Bank ASA, posted record net interest income in the third quarter as lending volumes increased in all customer segments.
The key income line grew 2.6% from a year earlier, to 16.13 billion Norwegian kroner ($1.5 billion). The development was underpinned by increased loan demand, according to the Oslo-based bank. Analysts tracked by Bloomberg had expected 15.87 billion kroner.
“There has been a clear shift in customer behavior through the summer and into the autumn,” Chief Executive Officer Kjerstin Braathen said in a statement. The CEO cited an increase of 10% in the number of home loan applications as an example of one driver.
The bank’s stock rose as much as 5.1% after the report to a record 235.20 kroner, and was up 4.7% as of 9:34 a.m. in Oslo.
Banks have earlier benefited from cheap funding by keeping deposit rates relatively steady while client borrowing costs gradually increased in response to higher central bank rates. That tailwind has faded as policy rates have begun to retreat in Europe outside of DNB’s home market.
Yet in Norway, the central bank signaled it will keep the key rate at an almost 16-year high until early next year due to concerns over the impact of high wage growth and the weak currency. Still, DNB is bracing for tougher times ahead with plans to eliminate about 500 jobs, or about 5% of its headcount, given the prospect of lower interest rates and tougher competition to win customers.
DNB reported net income of 11.63 billion kroner comparing to analysts’ forecast of 9.92 billion kroner.
The results were “impressive” and are likely to lead to low-single digit consensus earnings upgrades, Shrey Srivastava, an analyst at Citigroup Inc., said in a note. The lack of new share buyback announcement reflects prudence in light of the Carnegie acquisition and a regulator proposal on real estate risk-weight floors, the analyst added.
The Norwegian bank announced Monday that it will buy Swedish financial services group Carnegie Holding AB for about 12 billion kronor ($1.1 billion) in cash from Altor Equity Partners and minority shareholders. Braathen has ruled out job cuts at Carnegie as a result of the acquisition.
The deal will help grow income from areas beyond lending and deposits for a bank whose net interest income is second only to Nordea Bank Abp among its Nordic peer group. Commission and fee income in the third quarter gained 11% from a year earlier, as investment banking benefited from high activity in the bond market.
The bank’s common equity tier 1 capital ratio totaled 19.0%, in line with analyst estimates for the quarter, while the cost ratio dropped to 32.5% from 32.7% a year earlier.
“We would have liked to have seen some capital build ahead of the upcoming Carnegie acquisition,” credit analysts at Danske Bank said in a note to clients.
--With assistance from Thomas Hall and Macarena Muñoz.
(Updates with share price in fourth paragraph, analyst comment in eighth.)
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