Nordea posts small profit beat as rate cuts weigh on interest income

By Elviira Luoma

(Reuters) -Nordea Bank, the Nordic region's biggest lender, reported second-quarter operating earnings just above market expectations on Thursday, even as its net interest income fell due to lower interest rates.

The results landed alongside stronger profit beats from Swedish rivals Swedbank and SEB, whose interest incomes were also affected by central banks' rate cuts.

Both the European Central Bank and Sweden's Riksbank have cut their key interest rates over the past year. Sweden is Helsinki-listed Nordea's biggest market.

Its operating profit fell 5% to 1.60 billion euros ($1.86 billion) in the second quarter, ahead of the average estimate of 1.58 billion euros from analysts polled by LSEG.

Net interest income, a key metric measuring banks' income from lending and deposits, fell 6% to 1.80 billion euros, below analysts' forecast of 1.81 billion euros.

Nordea said that while the interest income was impacted by the rate cuts, it was otherwise resilient, supported by higher lending and deposit volumes and its deposit hedge contribution.

Its shares fell 3.7% by 0910 GMT in Helsinki, while Swedbank's shares were flat in Stockholm. SEB, which reported its results a day earlier, closed 1% lower on Wednesday.

"The earnings beat came from the reversal of earlier provisions, so that should not be given too much weight," Inderes analyst Kasper Mellas told Reuters, adding that operationally the result was in line with expectations and did not explain the negative share reaction.

Nordea's CEO Frank Vang-Jensen said in a statement that the global trade volatility clearly carried risks, but the Nordic economies were better positioned than many to manage through periods of turmoil.

"We also expect the lower inflation and interest rates to further support increasing activity levels as confidence returns," he added.

($1 = 0.8605 euros)

(Reporting by Elviira Luoma in Gdansk, editing by Milla Nissi-Prussak)