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DNB shares drop as interest income misses forecast

A DNB bank sign is seen on the bank's branch in Stavanger

OSLO (Reuters) -Shares in DNB, Norway's largest bank, fell 3% in early trade on Tuesday after it reported weaker than expected revenue from its core banking operation, even though the group's bottom line beat forecasts.

Net interest income, showing DNB's income from lending and deposits, rose 6.3% year-on-year in the January to March quarter to 15.5 billion crowns ($1.41 billion), lagging analysts' expectation of 16.0 billion in a poll compiled by the bank.

While rising interest rates have boosted profits at Nordic banks over the past two years, loan losses have also risen and central banks in the region are expected to start easing monetary policy in 2024, dampening the earnings outlook.

In Norway, the central bank has said the first rate cut is currently expected in September, although some economists believe it may take longer before the cost of borrowing is reduced.

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DNB's shares traded down 3.0% at 204.2 crowns by 0730 GMT.

The miss on net interest income was a sign of rising competition and could signal pressure also on rival banks, JPMorgan said in a note to clients.

DNB's net profit declined to 10.2 billion crowns in the January to March period from 10.5 billion a year earlier. Analysts had on average expected 9.69 billion crowns, according to a poll compiled by the bank.

"A stronger than expected start to the year adds weight to the belief that the Norwegian economy is heading for a soft landing," DNB CEO Kjerstin Braathen said in a statement.

Loan losses for the first quarter reached 323 million crowns, while analysts had expected a loss of 897 million. This compared with a year-ago reversal of losses that added 79 million to DNB's profits.

DNB's shares are up 1.7% over the past 12 months, lagging a rise of 10% in the Oslo benchmark index.

($1 = 10.9923 Norwegian crowns)

(Reporting by Gwladys Fouche and Terje Solsvik; editing by Anna Ringstrom and Jan Harvey)