Large Nordic Banks Q2 Results: Manageable Levels of Provisions; Offshore Oil Outlook Remains Challenging

DBRS Morningstar published a commentary reviewing large Nordic banks Q2 2020 results. DBRS Morningstar considers that the large Nordic banks have continued to report manageable levels of loan loss provisions (LLPs) in Q2 2020 and, despite some revenue pressure, are generating sufficient profitability to absorb their credit costs. However, we note that oil price volatility is still an important driver of LLPs for some banks.

Key highlights from DBRS Morningstar’ commentary discussing large Nordic banks’ Q2 2020 earnings include:

• Loan Loss Provisions (LLPs) in Q2 2020 are still manageable for the large Nordic banks with LLPs as a proportion of income before provisions and taxes (IBPT) down to 28.7% on an aggregate basis from 53.7% in Q1 2020.

• Despite some pressure on core revenues, especially net interest income partly due to low interest rates, and net fee and commission income generally affected by lower transaction volumes due to lockdowns, large Nordic banks are generating sufficient profitability to absorb their credit costs.

• However, those that have oil-related exposures, in particular in the offshore segment, have been affected by oil price volatility which has been a driver for LLPs both in Q1 2020 and Q2 2020.

“DBRS Morningstar will continue to monitor the large Nordic banks’ ability to generate earnings in a context of low interest rates, and their capacity to absorb credit costs that are likely to increase amid a less favorable macro-environment, and oil price volatility” said Vitaline Yeterian from DBRS Morningstar’ Financial Institutions team.

This commentary “Large Nordic Banks Q2 Results: Manageable Levels of Provisions; Offshore Oil Outlook Remains Challenging” is available at http://dbrsmorningstar.com/research/364366.