BankNordik P/F
Half Year financial report

Satisfactory performance in first half of 2017

- Financial results in line with guidance

Announcement no. 7/2017

Highlights of BankNordik's interim report for the first six months of 2017:

(The figures below have been adjusted for divested activities in 2016 related to insurance company Vörður, unless otherwise indicated)

H1 2017 vs. H1 2016

• BankNordik reported operating profit of DKK 94m for first half of 2017, a decrease of DKK 7m (6%) compared to the first half of 2016.
  • Net interest income was down by DKK 15m year-on-year primarily due to the controlled run-off of corporate lending in Denmark, but also due to a tighter interest margin.
  • Fee and commission income was up by DKK 15m due to higher income from asset management activity during the period. Asset management income is expected to normalise at a lower level in upcoming quarters.
  • Net insurance income was down DKK 3m compared to H1 2016.
  • Operating costs were up by DKK 4m to DKK 236m, mostly due to higher IT costs.
  • BankNordik reversed DKK 5m in net impairment charges compared to reversed impairment charges of DKK 4m for the same period of last year.
• BankNordik generated profit before tax of DKK 112m in the first six months of 2017 compared to a profit of DKK 86m for the same period of last year.
  • There were no non-recurring items in H1 2017 compared to an expense of DKK 12m in H1 2016.
  • Value adjustments amounted to a gain of DKK 18m compared to a gain of DKK 7m in H1 2016.
  • There were no discontinued activities relating to Vörður in H1 2017 compared to a loss before tax of DKK 9m in H1 2016.
• Lending volumes were up slightly, increasing by DKK 33m from DKK 9,395m at 30 June 2016 to DKK 9,428m at 30 June 2017 despite having wound-up Danish corporate loans in the amount of DKK 269m during the period.
• Deposits increased by a total of DKK 523m from DKK 12,949m in H1 2016 to DKK 13,472m in H1 2017. The increase was mainly due to a transitional period, where a part of the Group’s assets under management were undergoing a transfer to deposits under pooled schemes.

“We are pleased with our financial results for the first half 2017, which were fully in line with our guidance. The Group’s strategic adjustments in 2016 have contributed to a more focused and low-risk financial institution and our profitability has improved despite the divestment of Vørður and the winding up corporate activities in Denmark,” said BankNordik CEO, Árni Ellefsen.

“Despite the continued pressure on interest margins, we are pleased to announce a modest increase in both corporate and personal lending volumes during recent months,” said Mr. Ellefsen. 

Q2 2017 vs. Q1 2017

• Q2 2017 operating profit was up by DKK 8m on Q1 2017.
  • Net interest income was down by DKK 1m compared to Q1 2017, primarily due to pressure on interest margins.
  • Fee and commission income was up by DKK 6m compared to Q1 2017, mainly due to higher income from asset management activity during the period. This income is expected to normalise at a lower level in upcoming quarters.
  • Net insurance income was DKK 9m, flat compared to Q1 2017.
  • Operating costs were DKK 4m higher in Q2 2017 compared to the previous quarter, primarily due to higher IT expenditures.
  • Net impairment charges were a reversal of DKK 5m in Q2 2017 compared to zero in Q1 2017.
• BankNordik recorded profit before tax of DKK 55m in Q2 2017 compared to a profit of DKK 57m in Q1 2017.
• Value adjustments were a gain of DKK 4m in Q2 2017 compared to a gain of DKK 14m in Q1 2017.
• Lending volumes were up by DKK 269m from DKK 9,159m in Q1 2017 to DKK 9,428m in Q2 2017.
• Deposits increased by DKK 794m from DKK 12,679m in Q1 2017 to DKK 13,472m in Q2 2017. The increase was partially due to a transitional period, where a part of the Group’s assets under management were undergoing a transfer to deposits under pooled schemes.

Capital ratios

The Group’s CET1 capital ratio fell by 0.4 percentage point quarter-on-quarter to stand at 15.7% at 30 June 2017. Likewise, the solvency ratio decreased to 17.9% at 30 June 2017 from 18.4% at 31 March 2017.

In conjunction with an increase in risk-weighted assets, the fall in capital adequacy was attributable to changes in accounting guidelines for interim financial reporting. As such, BankNordik has chosen not to recognise net profit within a given year in shareholders’ equity in the capital and solvency statements until the annual report is released in audited form.

In May 2017, the government announced a systemic risk buffer of 1% of all Faroese exposures based on recommendations from the Systemic Risk Counsil. The requirement will take effect from January 2018. In addition to the systemic risk buffer, the impending MREL capital requirements are expected to be announced by the end of 2017. BankNordik is continuously monitoring the regulatory environment to anticipate and adapt to the upcoming requirements.

Outlook

Management reconfirms the FY2017 guidance of profit before impairment charges, value adjustments and tax in the range of DKK 150-190m (H1 2017: DKK 89m).

Impairment charges on loans for 2017 are expected to be less than DKK 20m (H1 2017: Reversal of DKK 5m).

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 16.1bn and 407 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.