BofA cuts DNB to “neutral” after earnings miss on weaker NII, higher loan losses

Investing.com -- BofA Securities downgraded DNB Bank ASA (OTC:DNBBY) to “neutral” from “buy” after Norway’s largest lender missed expectations in the third quarter, citing lower net interest income and higher loan losses as rate cuts strain margins, in a note dated Thursday. 

The price objective was reduced to NOK 300 from NOK 326, with DNB shares last trading at NOK 259.60.

The analysts, Tarik El Mejjad and Ilija Novosselsky of Merrill Lynch International, said the downgrade follows weaker-than-expected performance in net interest income, fees, and cost of risk. “Following disappointing 3Q25 results (misses vs cons. in NII, fees and CoR), we cut our 2025-27E EPS by 2-5%,” the brokerage said.

The analysts noted that DNB is finding it “tougher than expected to navigate the rate cycle,” with its spreads declining even before the full effect of recent rate reductions. 

The bank’s customer spreads were down NOK 131 million quarter-on-quarter, despite only one month of repricing since Aug. 25. 

Another 25-basis-point repricing is scheduled for Nov. 18, and an additional rate cut is likely in 2026, according to BofA.

Net interest income estimates were cut by 1-2% for 2025-2027, and loan growth was described as “flat” in the quarter, with slight declines in corporate and large-client segments.

The brokerage cited slower expected GDP growth and peaking oil and gas investment in 2025 as factors likely to weigh on lending in 2026.

BofA  raised DNB’s loan loss estimates by 11-16% for 2025-2027, pointing to greater cost-of-risk volatility. The bank’s third-quarter loan losses came in 29% above consensus, driven by a NOK 150 million model update and additional provisions on Polish loans. 

“We have less confidence it can sustain low CoR in 2026E,” the analysts said, adding that they now expect slower household consumption and reduced oil and gas investments to pressure credit metrics next year.

For 2025, adjusted earnings per share were revised to NOK 28.27 from NOK 28.76, with 2026 earnings lowered to NOK 27.43 and 2027 to NOK 28.54. 

The dividend forecast for 2025 was cut to NOK 17.53 from NOK 19.85, while total net profit is projected at NOK 40.96 billion. Return on equity is expected at 14.3% in 2025, compared with 15.7% in 2024.

The analysts said the shares now appear fairly valued, trading at 9.5x price-to-earnings and 1.5x price-to-tangible-book value, versus an estimated 16% return on tangible equity and 10% total yield in 2026. 

“We still appreciate its long-term prospects, underpinned by a shallow policy rate cutting cycle and the Carnegie deal” the analysts said. 

“However, we have less confidence that DNB can protect NII from rate cuts, slowing GDP growth and increased competition.”