Sydbank H1 2025 presentation slides: Profit down 25% as costs rise and interest income falls

Introduction & Market Context

Sydbank (CPH:SYDB) released its interim report for the first half of 2025 on August 27, showing a 25% year-over-year decline in profit amid rising costs and falling interest income. The Danish bank reported profit of DKK 1,212 million with a return on equity (ROE) of 16.7% after tax, down from 22.4% in the same period last year. The bank’s share price has declined 2.41% to DKK 527.5 following the release.

Despite the challenging interest rate environment, Sydbank maintained loan growth and strengthened its capital position while continuing its share buyback program. The bank cited moderate growth projections for the Danish economy while acknowledging ongoing macroeconomic uncertainties related to geopolitical tensions and potential trade wars.

Quarterly Performance Highlights

Sydbank’s core income fell 9% to DKK 3,335 million in H1 2025 compared to H1 2024, primarily driven by an 18% decline in net interest income. This was partially offset by growth in other areas, with mortgage credit up 8%, commission and brokerage up 9%, and asset management showing strong performance with a 20% increase.

As shown in the following chart of core income components over time, net interest income has been on a declining trend while other core income has shown resilience:

Trading income also declined by 17% to DKK 127 million in H1 2025. Meanwhile, costs increased by 6% to DKK 1,765 million compared to H1 2024, partly due to the integration of Coop Bank which added DKK 63 million to costs. The bank did achieve some savings of DKK 23 million during the period.

The following chart illustrates the cost development and contributing factors:

Core earnings before impairment charges fell 21% to DKK 1,697 million, reflecting the combined impact of lower income and higher costs. The cost-to-income ratio deteriorated to 0.51 from 0.44 in H1 2024.

Detailed Financial Analysis

Net interest income continued its downward trend in Q2 2025, decreasing by 5% compared to Q1 2025. This decline was primarily attributed to lower lending and deposit rates, as illustrated in this breakdown:

Impairment charges for loans and advances increased significantly to DKK 97 million in H1 2025, compared to DKK 24 million in H1 2024. The Q2 2025 impairment charge was DKK 62 million, following DKK 35 million in Q1. The bank maintains a management estimate of DKK 500 million to hedge against macroeconomic uncertainty, with DKK 400 million allocated to corporate clients and DKK 100 million to retail clients.

The following chart shows the trend in impairment charges, with a notable spike in Q4 2024:

A sector breakdown reveals that impairment charges were primarily related to corporate exposures, which represented an expense of DKK 121 million in H1 2025, while retail exposures actually contributed an income of DKK 24 million:

The comprehensive income statement shows the overall financial performance:

Strategic Initiatives

Despite the challenging environment, Sydbank continued to grow its loan book, with bank loans increasing by DKK 1.4 billion in Q2 2025. Total credit intermediation, including distributed mortgage loans, increased by DKK 1.9 billion during the quarter.

The bank’s capital position strengthened in Q2 2025, with the CET1 ratio at 16.7% (up 0.4 percentage points) and the total capital ratio at 21.5% (up 1.5 percentage points). This improvement was driven by the inclusion of 50% of the profit for the period and the issuance of AT1 capital of SEK 1,000 million and NOK 250 million.

The following table provides a detailed view of the capital position:

Sydbank continued its capital distribution strategy, with DKK 490 million in shares purchased by the end of Q2 2025 as part of the current share buyback program of DKK 1,350 million.

Forward-Looking Statements

Looking ahead, Sydbank expects profit after tax for the full year 2025 to be in the range of DKK 2,200-2,600 million. This outlook assumes moderate growth for the Danish economy but acknowledges significant uncertainty related to financial market developments and macroeconomic factors that could affect impairment charges.

The bank’s performance will likely continue to be challenged by the interest rate environment, but growth in asset management, mortgage credit, and commission income may help offset some of the pressure on net interest income. Management’s focus on cost control and capital management will be crucial in maintaining profitability and shareholder returns in the coming quarters.

Full presentation:

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