Danske Bank: Sydbank (OW) – Q2 21

Sydbank (OW) has published its Q2 results this morning. Net income amounted to DKK354m, up 22% q/q and marking a slight beat (4%) vs Bloomberg consensus. However this was driven by loan loss reversals and the details look somewhat soft with core income lower by 2% q/q reflecting lower net interest income (-1% q/q) despite the technical support from one extra interest day as lower lending and margin pressure pulled in the opposite direction. Sydbank has in connection with the Q2 results lowered the interest rate paid on corporate deposits to -95bp which could provide support going forward. Also, fee and commission income was also lower at DKK657m (-2% q/q) but remains at a relatively high level. Trading income was also slightly lower (-7%) to DKK68m. Costs were lower by 2% q/q and core earnings before loan losses was thus only 1% lower q/q amounting to DKK342m. In Q2, Sydbank booked net loan impairment reversals for another quarter, amounting to DKK125m (c.15bp) in Q2 (Q1: DKK81m), mainly due to reversals within the corporate segment (DKK113m), of which mink accounted for circa half. Asset quality also showed signs of improvement with Sydbank reporting a lower amount of Stage 3 exposures (problem loans ratio down c.35bp according to our calculations). Capital ratios declined in Q2 with the CET1 falling to 17.7% from 18.1% reflecting a rise in REA on the back of higher credit and market risk. Sydbank has maintained the 2021 guidance following the upgrade in July (see our comment here: https://danske.link/vjj ). Conclusion at first read: credit neutral.