August 30, 2017 / 2:11 PM / a year ago

Fitch: 1H17 One-offs Give NORD/LB Room to Continue Restructuring

(The following statement was released by the rating agency) FRANKFURT/LONDON, August 30 (Fitch) Positive one-off items from the sale of securities and participations boosted Norddeutsche Landesbank Girozentrale's (NORD/LB) 1H17 pre-tax profit, providing the bank with scope to continue its restructuring by reducing immediate pressure on capitalisation, says Fitch Ratings. NORD/LB reported EUR409 million pre-tax profit for 1H17, compared with a EUR364 million loss in 1H16. Excluding the positive one-off items, operating profit continued to be burdened by weakening net interest and provision income and high impairment charges related to an under-performing shipping segment. The bank expects pre-tax profit in 2H17 to be lower than in the first half because of non-recurrence of gains on securities sales, as well as continued pressure on revenue and on operating expenses due to IT and regulatory costs. In addition, we expect front-loaded restructuring expenses related to the 'one-bank' transformation programme to increase in the medium term. Loan impairment charges (LICs) in the shipping segment of EUR409 million in 1H17 declined considerably from a record EUR3 billion in 2016, but at 604bp of average gross shipping non-performing loans (NPLs; annualised) remain high compared with historical levels. For the remainder of 2017 we still see downside risk if the current modest recovery in container and bulker markets seen in 1H17 proves unsustainable and puts further pressure on the bank's already high shipping NPL ratio of 63% or on its slightly reduced NPL coverage (45% at end-1H17 versus 48% at end-2016). The bank's overall exposure to the shipping segment has declined to EUR14.5billion from over EUR19 billion since the EUR12 billion-EUR14 billion target was set in spring 2016. The decline was driven by active management but also a positive effect of nearly EUR1 billion from a weaker US dollar in 1H17. We expect the bank to reach its stated target at latest in 2018, but even at this level we continue to view the shipping exposure a material risk. NORD/LB's other segments continue to benefit from low risk costs due to strong local economy rates. Although current levels are unsustainable in the longer term, we do not expect a substantial deterioration in 2H17. Despite a modest improvement in 2Q17, capitalisation remains a weakness compared with peers and relative to NORD/LB's vulnerable asset quality and internal capital generation. Nevertheless, stronger capital ratios have removed the immediate pressure on its capitalisation. NORD/LB's fully loaded regulatory CET1 ratio improved to 11.2% in 1H17 as it benefitted from significantly lower risk-weighted assets (RWAs). The bank in May 2017 placed a EUR103 million tranche in a multi-asset class securitisation, which reduced RWAs, and the bank's collateralised assets provide further scope for such transactions, which we expect the bank will pursue in 2H17. The merger of Bremer Landesbank Kreditanstalt Oldenburg - Girozentrale (BremerLB) into NORD/LB, effective from the beginning of September, should boost group regulatory capital ratios through BremerLB's external AT1 and Tier 2 instruments. In addition, the bank is still evaluating adjustments to its portfolio, which could result in a further capital benefit. Contact: Roger Schneider Director +49 69 768076 242 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 D-60325 Frankfurt am Main Ioana Sima Associate Director +44 20 3530 1736 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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