Nordea expects up to €1.3B net interest income boost in 2023 from higher rates

Central bank rate hikes across the Nordic countries will boost Nordea Bank Abp's net interest income by between €1.0 billion and €1.3 billion in 2023, the Finland-headquartered bank said.

By 2024, Nordea expects rising policy rates to add between €1.5 billion and €2 billion to its net interest income, or NII, on an annual basis.

The figures show only the gross impact of policy rate hikes, with other drivers such as volumes, asset pricing and funding costs also affecting NII, CFO Ian Smith said on an Oct. 20 earnings call. The pan-Nordic lender anticipates a positive impact from growing volumes to outweigh headwinds from higher wholesale funding costs and the rolling off of deposit hedges, Smith said. The "big unknown" is asset pricing, he added.

"The one that is very difficult to call is what happens on the pricing side, on lending, and particularly the impact of competition," Smith said. "And so it's difficult to understand where that will end up."

Nordea's NII rose 15% year over year to €1.41 billion in the third quarter as central bank policy rate hikes bolstered the bank's deposit margins.

The lender estimates the gross impact of rate hikes on its annual NII to reach between €300 million and €400 million this year, and between €200 million and €400 million in 2024.

Nordea, the largest lender in the Nordic region, now guides for NII sensitivity of between €350 million and €400 million to a 50 basis point parallel policy rate hike across its home markets of Finland, Sweden, Denmark and Norway. The bank had in the previous quarter estimated this figure at €350 million.

The key driver of the upgraded guidance was the movement of policy rates in Denmark and Finland into positive territory, which means hikes have a bigger impact on Nordea's earnings, said Smith. The CFO added that deposit volumes are also stronger than when the bank made its previous NII sensitivity estimate.

The European Central Bank introduced a positive interest rate in July and the Danish central bank followed in September. Benchmark rates for the eurozone and Denmark now stand at 1.25% and 0.65%, respectively. The Swedish central bank in September raised its rate by a full percentage point to 1.75%, while the Norwegian central bank increased its rate by 50 basis points to 2.25%.