FILE PHOTO: Danske Bank flag flutters at the bank's Estonian branch in Tallinn, Estonia August 3, 2018. REUTERS/Ints Kalnins/File Photo

(Reuters) - Danske Bank's DANSKE.CO second-quarter pre-tax profit came in below expectations on Thursday, hit by low interest rates and higher costs associated with compliance following a money-laundering scandal at its Estonian branch.

Second-quarter pre-tax profits fell to 4.76 billion Danish crowns ($716.6 million) from 5.49 billions the previous year, missing a mean forecast of 5.06 billion by analysts according to Refinitiv data.

“In the first half of 2019, we faced a challenging rates and margin environment as well as increased costs for compliance measures. But we also saw continued growth in lending and solid credit quality,” Danske’s newly-appointed chief executive Chris Vogelzang said on Thursday.

Danske Bank, whose shares have dropped more than 40% over the last year, cut its profit outlook July 8, partly due to higher costs related to compliance and anti-money laundering activities.

In a scandal that has rocked the Nordic banking sector, Danske said last year it had channeled 200 billion euros of suspicious payments through its Estonian branch between 2007 and 2015.

Danske said it expected to have to add to its capital reserves after retail clients had been overcharged fees in relation to an investment product called Flexinvest Fri and also because of an inspection into its IT governance structure. The bank said this would be in the mid-single-digit billion Danish crown range.

Danske said in June it would compensate around 87,000 Flexinvest Fri clients who had been overcharged, which would cost the bank approximately 400 million Danish crowns this year and further weighing on costs this quarter.

The bank has already increased its capital requirements by 10 billion Danish crowns earmarked for “increased compliance and reputational risks” after the Estonia money laundering case in response to orders from the Danish financial regulator.