On Friday, Barclays upgraded DNB ASA (OTC:DNBBY) (DNB:NO) (OTC: DNHBY) stock, a major Norwegian financial services group, from Underweight to Overweight, while also increasing the price target to NOK240.00 from NOK202.00. The revision comes amid expectations of the bank's ability to manage interest rate cuts favorably.
The upgrade reflects Barclays' analysis of DNB's deposit pass-through activities, which showed a more aggressive stance during the latter part of the interest rate hiking cycle. As interest rates are anticipated to be reduced, the bank is expected to mirror this approach to safeguard its net interest income (NII).
DNB's NII, a measure of the difference between the revenue generated from a bank's assets and the expenses associated with paying out its liabilities, has shown sensitivity to interest rate changes throughout the rate hike cycle. Barclays' analysis indicated that for every 25 basis points (bps) movement in rates, DNB's NII fluctuated between NOK0.7 billion and NOK1.5 billion.
Looking ahead, Barclays forecasts a series of rate cuts totaling 150bps in Norway, beginning in December 2024 and extending to the end of December 2026. Despite these expected reductions, the analyst projects a more modest decline in DNB's NII, anticipating a decrease of only NOK0.9 billion for each of the first three anticipated rate cuts of 25bps.
The revised outlook from Barclays suggests a positive view on DNB's financial resilience and ability to navigate the changing interest rate environment. The bank's strategic management of its deposit pass-through and rate sensitivity are key factors contributing to the upgraded rating and increased price target.
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