OSLO, July 10 (Reuters) – Norwegian energy businesses are coping with a weaker oil price and slowing economy better than expected, the country's biggest bank said on Friday, cutting its estimate for loan losses this year.
Shares in DNB, a big lender to Norway's oil and gas industry which generates about a fifth of the country's gross domestic product (GDP), rose more than 5 percent after it also beat second-quarter profit expectations.
However, the bank remained cautious about 2016, saying it expected the Norwegian economy to slow further. Though oil prices have climbed almost 30 percent from six-year lows in January, they remain at about half of their June 2014 peak.
"DNB still does not exclude the possibility of a certain increase in impairment losses linked to oil-related activities from 2016 onwards," it said.
So far, though, the bank said energy businesses were coping well, thanks to a broad portfolio of contracts and strong cash generation.
It said it now expected impairment losses on loans to total just under 3 billion Norwegian crowns ($372 million) this year, down from its previous assumption of 3-4 billion crowns.
Second-quarter operating profit before impairment charges rose 10 percent year-on-year to 7.40 billion crowns, ahead of an average forecast of 7.17 billion in a Reuters poll of analysts.
Net interest income was up 11 percent to a record 8.73 billion crowns, also beating expectations.
DNB kept its forecast for annual growth in lending volumes of 3-4 percent, provided exchange rates remain stable, and said it still aimed to return to a dividend payout ratio of above 50 percent of earnings in 2017, based on 2016 profits.
The ratio was 30 percent this year, based on 2014 earnings, with DNB retaining cash in recent years to meet Norway's capital requirements. Its common equity Tier 1 capital ratio -- a key measure of financial strength -- has increased to 13.0 percent from 12.1 per cent at the end of June 2014.
"Now that they show they can build capital faster, the dividend case should make a comeback," said Swedbank analyst Bengt Kirkoen, who has a 'buy' rating on DNB shares.
At 1000 GMT, the shares were up 5.1 percent at 133.9 crowns, the second-biggest rise by a European blue-chip stock.
The stock trades at less than 10 times forecast earnings, a discount to Nordic peers such as Nordea, Swedbank , Danske Bank and Handelsbanken in part because of concerns about its exposure to energy firms.
($1 = 8.0722 Norwegian crowns)
(Additional reporting by Joachim Dagenborg; Editing by Terje Solsvik and Mark Potter)
Copyright 2017 Thomson Reuters. Click for Restrictions.
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