ABN Amro Bank has said it expects to see the benefits from higher interest rates in the second half of the year, joining its European peers in cheering the end of negative rates. 

The Dutch lender on Wednesday (Aug 10) reported higher-than-expected profit as improvements in its loan book have enabled it to release provisions for bad debt. While net interest income continued to decline, ABN Amro said it expects that trend to bottom out in the second half.

Shares of the lender rose as much as 4.6 per cent in Amsterdam trading, the best performer among European banks, buoyed also by the outlook for a potential new repurchase programme, once the government reduces its stake further.

The bank’s chief executive officer Robert Swaak has overhauled the lender by pulling out of swathes of its investment banking business and is seeking to draw a line under a series of scandals. While costs to overhaul deficient money laundering controls continue to weigh on profit, he is poised to see the benefits of his pivot to retail and commercial banking after the European Central Bank ended 8 years of negative rates.

Philip Richards and Ilia Shchupko of Bloomberg Intelligence said: “ABN Amro’s 50 per cent pre-tax profit beat and new 250 million-euro (S$351.9 million) share-buyback programme for the second half offer little respite for investors, given it is driven by one-time private-equity-disposal gains and impairment releases ... Higher costs (3 per cent miss) due to investments and regulatory fees suggests ABN’s earnings woes will drag into 2023.”

Swaak said: “I am pleased that now the ECB has increased its interest rate, we can stop charging our clients negative rates on their savings as from October. In these challenging circumstances, we are well-placed to stand by our clients, while we continue to transform the bank towards a more client-focused and simplified organisation.”

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ABN Amro rose 2 per cent at 10.20 am in Amsterdam trading, paring losses this year to 19 per cent.

Operating income rose 8.8 per cent from the year before, as ABN Amro continued to see growth in its mortgage and corporate loan books, rising fees and inflows in its wealth-management business.

Net interest income, a key driver of profits at other European banks last quarter, declined to 1.27 billion euros last quarter, from 1.31 billion euros a year earlier, on higher hedging costs and lower pre-payment penalties. 

Operating expenses rose 7.6 per cent from a year earlier, reflecting costs to fix money-laundering controls that Swaak, a former PwC Netherlands chairman with experience advising organisations on anti-money-laundering initiatives, had already flagged with first-quarter results.

“We’re having to provision it all upfront,” chief financial officer Lars Kramer said in a phone interview. “And basically, what this means is we’re having to keep people on board for longer until middle to end of next year to get the remediation done.”

Headcount increased by 440 year on year, largely because of hiring for its AML unit, it said in its quarterly report. That was part of the reason why personnel expenses rose 40 million euros in the first half of the year on the same period in 2021. 

The buyback announced on Wednesday, of as much as 250 million euros worth of shares, is contingent upon the Dutch government selling down its stake in ABN Amro, which was bailed out in the financial crisis. It comes on top of a 500 million-euro plan outlined at the start of the year. BLOOMBERG