Nordic region's main bank Nordea's profit jumps on higher rates

STOCKHOLM (Reuters) -Nordea, the Nordic region's biggest bank, on Monday reported a slightly bigger than expected increase in second-quarter operating profit as rising interest rates outweighed negative currency translation effects.

Soaring inflation over the past year has seen central banks drastically raise key rates, boosting interest income for banks in the region.

Operating profit at Finnish lender Nordea grew year-on-year for a tenth straight quarter, by 26% to 1.72 billion euros ($1.93 billion), against a mean forecast of 1.70 billion euros in a Refinitiv poll of analysts.

Net interest income jumped 40% to 1.83 billion euros.

"However, it is clear that the economic slowdown and interest rate increases have had a negative impact on our business volume growth, mainly in mortgages," Nordea said in a statement.

"Higher living costs and lower consumer confidence have been reflected in lower demand for housing loans and investment products."

Corporate lending volumes, however, continued to grow despite slower economic growth, particularly in Norway and Sweden.

"Corporate lending grew by 4% and continues to be the main lending growth driver of 2023," Nordea said.

The bank said net commission income decreased by 6%, mainly due to subdued capital markets activity and lower savings income. Negative effects from the weak Norwegian and Swedish currencies also capped profit growth.

Nordea, which does business across Sweden, Norway, Finland and Denmark, raised its guidance for return on equity this year to above 15% from a previous forecast of above 13%. In the second quarter, it was 18.4%.

"Slightly better-than-expected net interest income print is a positive read across for the Nordic peers yet to report, although we note that Nordea is most rate sensitive in Finland, which is a smaller market for the other banks," analysts at JPM said in a note.

Last week Norway's DNB was first of the main Nordic banks to report second-quarter results, also posting rising profits helped by higher interest rates to customers.

Denmark's Danske Bank last month raised its return on equity target to 13% from 8.5-9%.

Sweden's SEB, Swedbank and Handelsbanken are scheduled to unveil quarterly results this week.

($1 = 0.8909 euros)

(Reporting by Anna Ringstrom; Editing by Edmund Klamann, Eileen Soreng and Kim COghill)