* Pre-tax profits below expectations
* Low interest rates and higher costs remain a challenge
* Second-quarter lending grew by 2%(Adds CEO comment, details, bullets)
July 18 (Reuters) - Danske Bank's second-quarterpre-tax profit came in below expectations on Thursday, hit bylow interest rates and higher costs associated with compliancefollowing a money-laundering scandal at its Estonian branch.
Second-quarter pre-tax profits fell to 4.76 billion Danishcrowns ($716.6 million) from 5.49 billions the previous year,missing a mean forecast of 5.06 billion by analysts according toRefinitiv data.
"In the first half of 2019, we faced a challenging rates andmargin environment as well as increased costs for compliancemeasures. But we also saw continued growth in lending and solidcredit quality," Danske's newly-appointed chief executive ChrisVogelzang said on Thursday.
Danske Bank, whose shares have dropped more than 40% overthe last year, cut its profit outlook July 8, partly due tohigher costs related to compliance and anti-money launderingactivities.
In a scandal that has rocked the Nordic banking sector,Danske said last year it had channelled 200 billion euros ofsuspicious payments through its Estonian branch between 2007 and2015.
Danske said it expected to have to add to its capitalreserves after retail clients had been overcharged fees inrelation to an investment product called Flexinvest Fri and alsobecause of an inspection into its IT governance structure. Thebank said this would be in the mid-single-digit billion Danishcrown range.
Danske said in June it would compensate around 87,000Flexinvest Fri clients who had been overcharged, which wouldcost the bank approximately 400 million Danish crowns this yearand further weighing on costs this quarter.
The bank has already increased its capital requirements by10 billion Danish crowns earmarked for "increased compliance andreputational risks" after the Estonia money laundering case inresponse to orders from the Danish financial regulator.($1 = 6.6426 Danish crowns)(Reporting by Nikolaj Skydsgaard and Stine Jacobsen. Editing byJane Merriman)