Norwegian lender DNB has revealed falling loan impairment levels in the third quarter, but the offshore sector is still proving costly.
The Oslo-listed bank said it made provisions of NOK 776m ($84.26m) in the three-month period, which is NOK 471m lower than in the corresponding quarter last year.
However, impairments for oil-related industries ended at NOK 1.04bn. This was down NOK 826m from the second quarter and was partly offset by NOK 360m in reversals in the personal customers market in the third period.
"The situation remains challenging in parts of the oil-related industry," chief executive Kjerstin Braathen said.
"The oil, gas and offshore segment has accounted for more than 60% of the group's impairment provisions so far this year."
Shipping portfolio reduced
The shipping loan book stood at NOK 47.33bn by 30 September, with NOK 315m in stage three of restructuring — the highest before a default.
The portfolio was NOK 48.9bn at the end of the second quarter, which means NOK 1.57bn has been shed since then.
A year ago, the total amount loaned out to shipowners was NOK 52.11bn, with NOK 438m in stage three.
Oil, gas and offshore lending totalled NOK 68.42bn, but with NOK 9.25bn in stage three.
This compares to NOK 64.52bn and NOK 4.12bn a year ago, as the Covid-19 pandemic hit the sector this year.
DNB's overall impairments across 2020 stand at NOK 8.68bn, up NOK 6.65bn from the same period in 2019.
Virus and oil price spell trouble
The lender said the pandemic had hit the domestic and global economy, and the situation had been worsened by falls in the oil price.
Around 90% of the 2020 impairment provisions were related to corporate clients, with "well over half" of this coming in oil-related industries, DNB said.
As stage three lending increased due to deteriorating collateral values, there were reversals at stages one and two.
The bank said this reflected the fact that the economy is closer to the expected recovery in 2021 and 2022, and another quarter has passed since the initial outbreak of Covid-19.
Shipping saw net provision reversals of NOK 32m.
"The overall portfolio quality and the development in relevant macro drivers for the shipping portfolio were stable in the third quarter," the bank said.
Profit falls
Net profit for the quarter was NOK 5.5bn, a decline from NOK 6.1bn a year ago. Net interest income dipped to NOK 9.29bn against NOK 9.98bn in 2019.
Danske Bank analyst Andreas Hakansson said loan losses were lower than expected, beating street expectations by 54%, and the pre-provision profit was 5% ahead of consensus.
"Asset quality was very strong, with loan losses only seen in the corporate customers division," he said.
Braathen said there is still considerable uncertainty about how both the pandemic and the economy will develop.
"Our job is to support our customers by providing capital and sound advice, and we are well-equipped to do just that in the future as well," she said.
The lender added that its financial position is rock solid, while the recovery of the Norwegian economy has, in a number of areas, progressed at a faster pace than many had feared.
