DNB loan losses ‘shocked’ market

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Norway’s biggest bank, DNB, has been logging huge profits for years but is now feeling the effects of the dive in oil prices. The pain that sharply lower prices already have inflicted on the oil and offshore sector is now hurting DNB’s loan portfolio, with profits sliding and its share price diving.

DNB Chief Executive Rune Bjerke could report much better second-quarter results last year than he could this year. PHOTO: DNB/Stig Fiksdal

DNB Chief Executive Rune Bjerke could report much better second-quarter results last year than he could this year. PHOTO: DNB/Stig Fiksdal

By the time trading ended on the Oslo Stock Exchange Tuesday evening, DNB’s shares had fallen 7.6 percent. “With such a considerable fall, it must be allowed to say that the stock market is in shock over the numbers that were presented,” market commentator Thor Christian Jensen wrote in newspaper Dagens Næringsliv (DN) on Wednesday. “And the shock is mostly based on the loan losses that were considerably higher than what DNB management had signalled until now.”

It’s been a rough year for DNB, which already has been embarrassed over questionable operations in tax havens and various other challenges to its reputation. The bank claims its core operations remain solid, but it had to report an earnings decline this week because of write-downs on its business loans.

DN reported that 50 companies that are customers of DNB are creating so much trouble for the bank that it had to double its loan losses in the second quarter. All 50 companies are in the oil and gas industry.

Oil losses spilling over
It’s the first real sign of how the sharp downturn in Norway’s once-thriving oil and offshore industry is now hitting a major bank hard. DNB also reported that it expects loan losses over the next three years to be three-times higher than the level expected this year, which DNB’s chief executive, Rune Bjerke put at “somewhere over NOK 6 billion” when presenting the bank’s results on Tuesday. That can rise to NOK 18 billion by the end of 2018.

Analysts were not pleased, with DN also reporting that many were dissatisfied with DNB’s relatively vague estimate and failure to provide more specific “guiding” over future loan losses. The NOK 2.3 billion in write-downs revealed on Tuesday were up from less than NOK 700 million in the same quarter last year.

Bjerke insisted that bank officials are following their troubled loan customers closely, with almost “daily contact” at one level or another within the bank. “The problems are isolated to the oil and gas sector,” Bjerke said. “They haven’t spread to loans to customers in other sectors.”

DN reported that DNB has around 230,000 business customers and that the 50 having trouble making loan payments are mostly within the rig and oil supply sector. Restructuring efforts are underway but Bjerke characterized them as “complicated,” with all parties involved having to absorb losses.

Mortgage portfolio performing well
Bjerke claimed he was taking the sharp dive in his bank’s share price in stride, given market turbulence and major swings in certain quarterly reporting periods. Shares were still trading down nearly another full percentage point Wednesday morning, even though the bank did still report second-quarter earnings of NOK 4.6 billion, albeit down by NOK 512 million from the same quarter last year.

The bank could also report that its loans to private individuals are performing well, with “hardly any defaults” during the second quarter despite rising unemployment, according to one bank executive. “I don’t think we’ve ever had such a low level of defauts as we have now,” Trond Bentestuen of DNB told DN. Only NOK 30 million worth of home mortgages and NOK 76 million worth of consumer loans were in default, of a total loan portfolio of NOK 25 billion.

The ongoing price increases in the housing market in Norway have also further bolstered the security of DNB’s mortage portfolio, with 95 percent of all loans amounting to less than 85 percent of market value.

newsinenglish.no/Nina Berglund