ABN Amro Earnings: Solid Results; Net Interest Margin Expansion Is Peaking

Narrow-moat ABN Amro ABN reported EPS of EUR 0.56 for the first quarter of 2023, nearly double what it recorded a year earlier and 52% higher than the final quarter of 2022. Higher net interest margins were the main driver. The base for the rest of the year is more challenging, but we still expect robust growth. However, NIM expansion will slow as competitive pressures on deposit and lending margins intensify. The future drivers of top-line growth for ABN Amro are less evident. That said, it mystifies us that shares continues to trade nearly 20% below their peak in March. The ongoing turmoil in the U.S. regional banking sector has not hit ABN Amro’s operations, with very sound liquidity and no sign of asset-quality issues. We expect to increase our fair value estimate of EUR 17 by around 10%.

Revenue grew by 11% year on year, mainly due to NIMs expanding by 0.4% to 1.6%. NIMs for the fourth quarter of 2022 were already at 1.5%, which confirms that the benefit from higher interest rates is decreasing. While interest-rate hedges rolling off will continue to support margins, competitive pressure on lending and deposit margins will reduce this benefit. However, we do not anticipate a decline in NIMs.

Flat fee income growth compared with the last quarter was disappointing. ABN Amro’s long-term ambition is for an average annual fee income of around 5%-7%. Delivering on this ambition will become more critical as the tailwind from higher interest rates subsides.