BankNordik P/F
Annual Financial Report

A milestone year for BankNordik

Highlights of BankNordik's annual financial results for 2016:

(The figures below have been adjusted for divested activities related to insurance company Vörður, unless otherwise indicated)

2016 results vs. 2015 results

• BankNordik reported operating profit of DKK 191m for 2016, a decrease of DKK 3m compared to 2015 (-1%).
  • Net interest income was down by DKK 55m year-on-year primarily due to the controlled run-off of corporate lending in Denmark, but also due to pressure on interest margins and the lower investment portfolio income.
  • Fee and commission income was DKK 34m lower, owing to a pull-back in mortgage-broking activity to normal levels, reduced income from corporate activities in Denmark and from investment activity.
  • Net insurance income was down by DKK 1m in 2016, primarily due to higher claims related to harsh weather conditions in December 2016.
  • Operating costs were down by DKK 40m to DKK 459m, consistent with the refocusing of the Group’s core activities.
  • BankNordik reversed DKK 12m in net impairment charges compared to net impairment charges of DKK 20m for the same period last year.
• BankNordik generated profit before tax, including discontinued activities from Vörður, of DKK 277m in 2016 compared to a loss of DKK 332m for the same period of last year.
• There were no goodwill impairment charges in 2016, compared to DKK 468m in 2015 
• Non-recurring items in 2016 were an expenditure of DKK 12m versus an expenditure of DKK 54m in 2015, which was due to severance costs
• Value adjustments amounted to a gain of DKK 8m against a loss of DKK 41m in 2015.
• Discontinued activities before tax relating to Vörður amounted to DKK 90m, including a gain on the sale of DKK 84m, compared to a profit of DKK 37m in 2015.

“We are pleased with our financial results in 2016, which came in at the upper end of our guidance. Operating income and costs were to a large extent affected by the winding up of corporate activities in Denmark, while exceptionally low impairment charges contributed to upholding operating profit close to last year’s level. The underlying performance of our continuing business operations was further challenged by the pressure on interest margins and muted loan demand, but we remain optimistic about the outlook for the Group’s performance in 2017,” said BankNordik CEO, Árni Ellefsen.

“Having successfully reshaped BankNordik to a more focused and low-risk banking group, we are now determined to improve the quality of our customer relationships going forward. BankNordik has emerged a stronger and financially more secure bank primed to deliver an improved customer experience and reach our long-term financial objectives,” said Mr Ellefsen.

“We strengthened the Group’s CET1 capital ratio by 2.1 percentage points in 2016, well aware of the capital requirements we face going forward. With this in mind, and including our ability to generate strong results in the years ahead, we will propose an extraordinary dividend at the upcoming 2017 Annual General Meeting to reflect the sale of Vørður and the winding up of corporate activities in Denmark. Going forward, our shareholders should bear in mind that we still need to strengthen our capital position further when calculating our dividend potential,” said Mr Ellefsen.

Q4 2016 vs. Q3 2016

• Operating profit decreased to DKK 38m in Q4 2016 from DKK 53m in Q3 2016.
  • Net interest income was down by DKK 3m in Q4 2016 compared to Q3 2016, primarily due to continued pressure on interest margins and a slight decrease in lending volumes.
  • Fee and commission income was up by DKK 5m compared to Q3 2016, supported by seasonal variations and provision income from NordikLív
  • Net insurance income fell by DKK 20m to a loss of DKK 7m in Q4 2016 compared to Q3 2016, caused by the extraordinarily high level of claims resulting from harsh weather conditions in the Faroe Islands during the period.
  • Operating costs were DKK 1m lower in Q4 2016 compared to the previous quarter.
  • Net impairment charges were a DKK 4m reversal in Q4 2016, the same as in Q3 2016.
• BankNordik recorded profit before tax, including discontinued activities from Vørður, of DKK 28m in Q4 2016 compared to profit of DKK 164m in Q3 2016.
• Value adjustments amounted to a loss of DKK 10m in Q4 2016 compared to a gain of DKK 12m in Q3 2016.
• There were no discontinued activities before tax relating to Vörður in Q4 2016 compared to a profit related to Vørður in Q3 2016 of DKK 99m.

Vørður sold and corporate activities in Denmark nearly wound-up

In September 2016, BankNordik completed the sale of Vørður to Arion Banki for a gain on the sale of DKK 84m, which amount has been recognised in the income statement as a discontinued operation related to Vørður. By year-end 2016, 85% of the Danish corporate portfolio had been successfully run-off. The remaining part of the portfolio is expected to be gradually wound-up over the coming years. 

Dividends and capital ratios

BankNordik has previously anticipated extraordinary dividends in the amount of DKK 300m related to the Group’s strategic adjustments in 2016. However, in light of the preliminary considerations recently published by the Danish FSA regarding the upcoming MREL-rules, this amount has been reduced to DKK 240m as a means to retain earnings in preparation for stronger capital requirements in the future, in particular due to BankNordik’s designation as a SIFI-institute.

Hence, at the upcoming Annual General Meeting, to be held on 31 March 2017, the Board will propose a total dividend payment of DKK 300m for 2016 (DKK 30 per share). The amount includes ordinary dividends of DKK 60m driven by regular business operations and extraordinary dividends of DKK 240m related to the sale of Vørður and the controlled run-off of corporate loans in Denmark. 

The Group’s CET1 capital ratio increased by 2.1 percentage points year-on-year to 16.0% on 31 December 2016, despite of the proposal of a total dividend payment of DKK 300m. The solvency ratio increased to 18.3% from 16.8%.

Going forward, BankNordik will continuously monitor the regulatory landscape to anticipate and adapt to impending capital requirements. As such, the Group is likely to re-evaluate its dividend policy and capital ratio targets once the requirements related to the MREL will become known.

Outlook for 2017

BankNordik expects a modest increase in private and corporate lending volumes in 2017, while the pressure on margins is expected to flatten out after a few years of tightening. Fee and commission income is also expected to increase modestly in 2017, whereas income from the investment portfolio is expected to be close to the 2016 level. Likewise, operating costs are expected to stay flat compared to 2016.

Management expects profit before impairment charges, value adjustments and tax to be in the range of DKK 150-190m in 2017 (2016: DKK 179m).

Impairment charges on loans and advances, including a reversal of acquired OEI impairments, are estimated to be less than DKK 20m in 2017 (2016: reversal of DKK 12m).

This guidance is generally subject to uncertainty and will depend on economic conditions, including possible central bank monetary policy measures.

For additional information, please contact:

Árni Ellefsen, CEO, tel. (+298) 230 348

BankNordik has banking activities in Denmark, Greenland and the Faroe Islands and insurance activities in the Faroe Islands. Founded in the Faroe Islands more than a century ago, the Group has total assets of DKK 15.6bn and 415 employees. The Bank is subject to the supervision of the Danish Financial Supervisory Authority and is listed on Nasdaq Copenhagen. 

Appendix: Financial highlights and comparative figures are provided below.

Financial highlights

* Excluding non-recurring items and value adjustments.

Further details are available in the interim report.