It was a hot summer in the Nordic banking sector – at least figuratively speaking – as we saw major M&A activity and other significant strategic moves made by the largest Nordic banks. In this edition of Nordic Banking Sector Insights, we’ll briefly cover the financial performance of the large Nordic banks in Q2/2023 and then move on to the big news announced by Danske and Nordea during the summer.
In the second quarter of 2023, the large Nordic banks continued to have a high level of profitability with an average return-on-equity above 15%. Driven by strong income growth, the banks also maintained an excellent level of efficiency with an average cost-to-income ratio below 40%. In short, all the banks in our analysis performed excellently.
Chart 1: The key financial figures for Q2/2023. Source: The sample banks’ Q2/2023 interim reports. FX rates as of 30 June 2023.
Source: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/html/index.en.html
The biggest factor behind the strong results continued to be net interest income, up by double digits compared with the same period last year. While the global macroeconomic uncertainties acted as a headwind for the banks, the Nordic economies showed resilience; the recovery of the equity market supported the banks’ asset management businesses, resulting in higher assets under management (AuM) and associated savings-fee income.
Danske sells its Norwegian business to Nordea
The biggest news in the sector came right after the quarter when Danske announced the sale of its Norwegian personal customer business to Nordea. This was done according to Danske’s new Forward ’28 strategy, whereby Danske will increasingly focus on its Danish and Nordic large corporate businesses in the future. The business being sold comprises of 285,000 customers, EUR 18 bn of loans, EUR 4 bn of deposits and EUR 2 bn of AuM.
The transaction is well aligned with Nordea’s Nordic banking strategy and reinforces their dominant position as the Nordic champion in the financial sector. It will increase Nordea’s Norwegian mortgage market share from 11% to 16%, which is significant. Also, the terms of the deal seem favourable to Nordea as they will not pay any goodwill to Danske. All in all, we think this is a great move, especially for Nordea.
Danske turns a page
Another major event in the quarter was Danske’s strategy update in June. As mentioned above, their new strategy is titled ’Forward ’28’, which follows their previous, risk and compliance-focused ‘Better Bank’ strategy. As part of the new strategy, Danske will significantly increase their investments in selected areas, including digital development and sustainability. We are pleased with this development as it increases competition in the market and allows Danske to finally look beyond its financial-crime woes and look at its business agenda.
Finally, in a series of major strategic moves, Danske announced a strategic partnership with Infosys that includes the sale of Danske’s IT subsidiary to Infosys. As part of the deal, 1,400 people will be transferred from Danske to Infosys. Effectively, this means that Danske is outsourcing its IT development and operations to Infosys in the belief that Infosys is better positioned to drive Danske’s digital development and technology modernisation agenda.
While it’s too early to conclude if all of Danske’s actions will be the right ones, we do like their determination in executing their new vision and are hopeful to see further improvements in Danske’s business performance, which has already improved significantly compared with the previous years.
We recognise the high level of uncertainty in the current environment and encourage the banks to prepare for a vast variety of different scenarios in the near future.
In conclusion
In contrast to most other summers, 2023 turned out to be hot (again, figuratively speaking) and very eventful thanks to Danske and their strategic shifts. In terms of the financial performance of the large Nordic banks, we witnessed another stellar quarter with high profitability and low loan losses, demonstrating stable business models and prudent risk management. As a great example of this, Swedbank was the first large Nordic bank to reach a ROE of +20% in the quarter. This is a level of profitability last seen before the Global Financial Crisis of 2007–2009. When adding to the above our recent view on the modest recovery expected in the Eurozone in 2023, we are optimistic about the outlook for the sector.
At the same time, we recognise the high level of uncertainty in the current environment – as do all the banks themselves – and hence encourage the banks to prepare for a vast variety of different scenarios in the near future. In other words, don’t rest on your laurels quite yet!
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[1] Nordea Bank, Danske Bank, Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken (SHB), Swedbank, DNB, Nykredit, OP Financial Group (OP)
[2] https://danskebank.com/news-and-insights/news-archive/press-releases/2023/pr19072023
[3] Based on end-2022 figures.
[4] Based on end-2022 figures.
[5] https://danskebank.com/news-and-insights/news-archive/company-announcements/2023/ca07062023
[6] https://danskebank.com/news-and-insights/news-archive/press-releases/2023/pr26062023
[7] https://www2.deloitte.com/us/en/insights/economy/emea/eurozone-economic-outlook.html
Contacts
Mikko Leinonen
Mikko is a Partner and leader of Deloitte’s Banking Consulting practice in Finland. Mikko has +15 of experience in the Nordic banking sector as a leader and business advisor. He is specialised in people, business and technology transformations, including e.g., organisational change, new technology implementations and strategy design. Mikko has deep knowledge of the end-to-end operations of universal banks ranging from the back-end technologies to the front-end customer solutions. Mikko toimii partnerina johtaen Deloitten pankkialan konsultointipalveluita Suomessa. Hänellä on yli 15 vuoden kokemus Pohjoismaisesta pankkisektorista johtavana asiantuntijana ja yritysneuvojana. Mikko on erikoistunut ihmisten, liiketoiminnan ja teknologian muutoksiin, mukaan lukien organisaatiomuutokset, uuden teknologian toteutukset ja strateginen suunnittelu. Hänellä on syvä, kokonaisvaltainen tuntemus yleispankkien toiminnasta aina taustateknologioista asiakasratkaisuihin asti.
