DNB Bank ASA

Welcome everyone to the presentation of the second quarter results for D&B. It's good to see so many of you here in the audience and that there are still people working while everybody else seems to be on holiday already. Our CEO Kerstin Bråten and CFO Ida Lerner will shortly present the results. First a few safety announcements. The emergency exits are in the front to the left of you and in the back. And there are no planned fire drills today. We will take questions after this session. There will also be available questions for you who follow us online. And members of the press will be able to meet management afterwards, as usual. Kerstin, the floor is yours.

Thank you so much, Evan, and a very good morning to all of you with a warm welcome to these second quarter results 2024. I was looking out the window before coming down here today and it felt like what I was seeing outside was mirroring a little bit what we have felt during this quarter. The sun fighting its way through a cloudy sky and seeming to be winning, and that is actually what we feel during this quarter and what we are talking about today, that there seems to be a shift in sentiment if we judge by the conversation that we have with our customers towards a more positive environment and outlook. Before diving into the quarterly figures, I would like to start a bit differently today by honoring one of our colleagues who is present here today and who is closing in on her very last day as a colleague in D&B. Anne, I believe you've done more than 140 quarterly reportings together. And I think the quality that you represent and the team in DNB is worth mentioning and noting because we're nothing without our people and our team. And I would invite you to join me in giving Anne a warm applause. With that, I start as usual by sharing a few highlights from the quarterly figures. Profitability is solid with a return on equity that comes in at 16.6% for the quarter, well above our minimum targeted return on equity of 13%. This is driven by a healthy economic environment, a healthy to strong activity across the group throughout the quarter. Activity and volumes grew throughout the quarter, and then with stable margins towards customers, we see a growth in net interest income by 1.9% compared to previous quarter, and close to 4% from the same quarter last year. Fees and commissions is a definite strong point this quarter, 22% increase compared to the same quarter last year. last year, this is by far an all-time high delivery on fee and commission income. We continue thus to reap the benefits from having built a broader and more diversified fee base over time. All areas are practically solid on fee and commission this quarter, but a couple of areas that stands out is investment banking and asset management, both which are areas that we have strategically worked to develop over time. In our costs, you can also see the increased activity level in the quarter. We continue to see positive draws both towards previous quarter and last year, meaning that our revenues continue to grow faster than our cost. Portfolio is solid, well diversified, and impairments come in at 560 million for the quarter. Profit before tax also up compared to last quarter and same quarter last year. All this contributes to a very solid development in capital and a rock-solid capital position, 19% core equity tier one, and this is after having deducted the share buyback of 1% that was initiated earlier this quarter. Earnings per share, 6.83 for the quarter. Year-to-date, 13.3 kroner per share. Strongly supporting our ability to pay dividend and grow our business. As usual, I'll also share a couple of comments on the Norwegian macro environment. All in all, it's very much a continued story and development, the same as we shared last quarter. There is a strengthened expectation for a soft landing in the economy, and maybe the point to highlight is the higher-for-longer scenario, as now the first expected rate cut in Norway seems to have been pushed out to March next year. This differentiates the Norwegian economy from some of our surrounding neighbours in Europe and Sweden, where rate cuts have already started. In aggregate, there is an expectation of five rate hikes altogether, with rates bottoming out around 3.25%, down from the 4.5% where they are today. Inflation numbers for June came out yesterday, and inflation was lower than expected by the central bank. But inflation continues to remain above the targeted level, and we do expect inflation to continue to reduce in the coming months and quarters. The general view is that more businesses expect a more positive development going forward. This is seen from the regional business survey that the central bank did a few weeks ago. More business leaders are pointing to a more positive development and expect their business to grow. The one sector that we see lagging still a little bit behind is cars and mobility. But on the other hand, all export sectors remain very strong and the sale of new homes seems to have bottomed out as we see more constructors now testing new projects into the market. And we do experience a higher demand for new housing loans and building financing. Overall, we find this to be a very healthy picture, but as always, we ask you to keep in mind that the Norwegian economy is a small and open economy and impacted by what happens around us. The highlights outlined on the previous slide supports a very healthy development also for Norwegian households. Unemployment remains low, and it will remain low despite some expected increase in the months and quarters to come. This year, we have for the second year in a row, a wage development north of 5% for employees. And we are coming from a few years with little to no growth in real wage and purchasing power for most households. This now is turning and an average more household will have an increased purchasing power, which supports expectations of increased consumption as we move ahead. The house prices has also turned from a very flat development last year to a strong start to this year. where prices on houses has grown by 8% so far this year, and we expect a positive development in house prices also in the years to come. Now a couple of remarks on the largest business areas. Personal customers deliver yet another quarter with very strong results. It is on par with the previous quarter, which was then an all-time high result. The stable volumes that we report on lending in the personal customer area somewhat disguise the movement within the quarter that is important with a weaker start to the quarter and then a turning point in May from which we gradually saw an increased activity and number of transactions. Deposits were seasonally up in the quarter for personal customers. Non-interest-related revenue show a strong pickup and activity from previous quarter, and we see an increase by 15.7%. The strongest driver here is what I pointed to, the residential property market. And if you look at our activity in brokerage activity, it's more than doubled compared to the previous quarter, and it's also up by close to 10% if we compare to the same quarter last year. The strong trend in savings continue and we have a net inflow across all individual customers of 5 billion kroner for the quarter. This quarter we also highlight how we continue to capitalize on our leading position in the private banking area. We show the development in total assets that we hold for these customers and the growth of more than 10% compound annually that we've seen in this area over the past seven years. We do note that our customers increasingly choose us for their capital light business and the activities within investments and placements in the capital markets outgrow the pace of lending and deposits in this area. We further note a high level of satisfaction due to an ability to cooperate across the group to deliver good services and advice to customers who again provides very attractive return to our customers in this area. Portfolio is robust and losses remain low in this area in the quarter. In the corporate banking business, we see a high activity level and strong performance in the quarter where pre-tax profits continue to grow from very strong levels, both last quarter and the previous year. Not unlike the personal customer segment, we see activity and volumes grow throughout the quarter. We report this quarter a growth in lending of 1.1% for corporate customers. This should be seen in combination with higher revenue from amortization and fees, indicating a higher level of transactions and refinancings in the quarter, and also by acknowledging that there's been a higher pace of prepayment from several customers having excess cash due to their business doing very well. Deposits are somewhat down, which in its entirety is due to seasonal effects within the energy sector. Aside from this, deposits are stable to slightly growing. Fees and commissions, as already pointed to, are an all-time high for the group this quarter, and activity from DNB markets related to corporate customers is one of the key drivers. A record number of companies have raised capital in the Norwegian bond market, often followed also by swap transactions, leading to strong results in the FIC area, particularly we've seen a strong market with DCM increasing activity in ECM with still a relatively slow market for IPO, but by far the strongest quarter on capital revenue we have ever seen from this area. Pre-tax profit for DMV markets came in at 1.6 billion for the quarter. And also in corporate banking, the portfolio and business remains very robust and well diversified. And with this, I'll leave the floor to Ida.

Thank you, Kerstin, and welcome, everyone. I would now like to move over to dig a bit deeper into the quarterly results that we've seen this quarter. Currency-adjusted loan growth are up 0.6%, with corporate customers up 1.1% and personal customers with stable volumes. Competition remains strong, both in personal customers as well as in corporate customers. We noted, as Kerstin pointed to, an increased activity in the personal customer segment during the quarter, supported by a higher activity related to the real estate market. The activity level in the corporate customer segment was high, with growth in corporate banking Norway, ocean industries, as well as energy. This was, as Kerstin pointed out, somewhat counteracted by earlier prepayments and repayments from corporates enjoying excess liquidity. Deposit volumes was up by 0.4%. Deposits from personal customers were seasonally up 2.9%, supported by the holiday payment being made in June. Corporate customers noted a decrease of 1.2%, well in line with the ordinary seasonal effect from dividend payments across industries, as well as one extra payment on tax related to the petroleum industry this quarter. We continue to maintain a strong deposit to loan ratio of 77.1% in the customer segments. And as communicated before, we anticipated lower growth or muted growth in the first half of this year and continue to anticipate increased activity during the second half, supported by a strong Norwegian economy, increased real wages and increased market activity as we also see this quarter. The net interest margin was up by two basis points in the quarter, now at 189 basis points, driven by increased NII. The combined spreads in the customer segments was down by three basis points. This is, however, impacted by a change in internal principles related to how we calculate the short-term deposits, with a negative effect on reported spreads on corporate customers, But this is neutral for NII as well as on NIM, as you can see from the slide here, but impacts deposit spreads in the corporate customers. Adjusted for the change of internal reallocation, the combined spreads are stable compared to the first quarter, and we see a deposit spreads decreased by five basis points. Net interest income increased by 1.9% or 290 million in the quarter. The impacts of repricing mix effects funding and interest on equity, reduced NII by 53 million in the quarter. Volumes and FX effects increased NII by 71 million. Amortisation effects and fees increased NII by another 86 million. Interest on impaired loans added 58 million. And in addition to that, NII was positively impacted by a number of other items, totalling 128 million in the quarter. We continue to note a strong contribution from our customer-related fee income stemming from a diversified product platform and higher activity overall. We deliver an all-time high result stemming from commission and fees and continue to see strong contribution from FICC and our life insurance business where the latter two can be found under other income. Net commission and fees comes in at 3.4 billion, up 22% from a solid quarter, the same quarter last year, which was actually an all-time high second quarter then. The results from real estate broking was up 5.3%, supported by higher activity level in the market. Investment banking was up by 60% and delivered an all-time high result. We note in particular a high delivery from debt capital markets, as well as increased activity in M&A and equity capital markets. Asset management and custodial services were up by 20.6%. Asset under management was up 165 billion, driven by positive market development, but also net inflows from both institutional as well as retail customers. The results on the activity level shows that our customers increases their long-term savings, and we note continued positive development in number of savings schemes also this quarter. Guarantee commissions was up 10.4%, reflecting continuous increased demand for trade finance products, also then adding to the activity level that we're pointing to in the corporate customer segment. Money transfer and banking services was up 12.1%, and it particularly positively impacted by increased volumes within corporate customers. Sale of insurance products were down by 1.4%. There is continued positive developments in the life insurance business, where the largest contribution can be found under other items, other income. In commission and fees, there is still a positive contribution from the non-guaranteed pension side, but this is somewhat offset by a decrease in non-life insurance this quarter. Moving on to cost, where we see an impact of the higher activity level in the quarter. Operating expenses are up by 221 million compared to the first quarter. The strong commission and fee income, higher activity overall, and some extraordinary costs related to the technical migration of S-Banken impacts the cost base this quarter. Now over to the portfolio quality, which remains robust and well diversified with 99.2% of the portfolio in stage one and two. The personal customer portfolio, which accounts for approximately 50% of our total exposure at default, remains strong. We're not seeing any negative developments to note in the portfolio. For the corporate customers, impairment provisions totaled 480 million. The portfolio remains robust and well diversified, and there are no structural changes in the portfolio to note, and there are customer-specific situations that we point to in stage three in large corporates, as well as in smaller medium-sized enterprises. We remain comfortable with our portfolio quality, but remind you that losses will vary from quarter to quarter. Now moving on to capital. Our capital position remains solid and strong with a 19% core tier one capital ratio with a 210 basis points headroom to the NFSA's expectation. The core tier one capital ratio is positively impacted by the profit generation this quarter and is somewhat offset by, as Kerstin pointed to, the announced share buyback programme of 1%, which was initiated in June. Leverage ratio remains strong at 6.5%, well above the regulatory target. And with a core T1 capital ratio of 90%, 19%, a leverage ratio of 6.5, we remain very committed to our dividend policy also in the future. We deliver a strong set of results across the board. Return on equity came in at 16.6%, earnings per share at 6.83, an increase of 5.4% from the previous quarter, cost income ratio at 34.8%. And with that, we would like to thank you for your attention and would also like to take the opportunity to invite you to our Capital Markets Day on the 19th of November held in London.

Thank you so much, Ida, Kerstin. We will open up for questions from the audience and we will start with Jan-Erik and then Roy.

Thank you. Jan-Erik Erland from ABG. Very strong numbers today. Congratulations. The fees seem to be very strong from the investment banking side. Which countries is it coming from? And you mentioned the product being fixed income more than the ECM side, if I understood your comments correctly. Is it mainly Norway or is also Sweden contributing well? That's my first question. The second one is on the lending side. You pointed to a turn in May for the household sector. Could you be a little bit more concrete on what kind of turn it is? Is it so that the flattish development, or minus 10 on average, should be more flattish to positive into the second half, as you alluded to? And secondly, on the growth side, where is the growth coming in the SME side and the corporate business? Finally, on cost, how could you turn your sort of 5% to 6% cost growth a little bit less steep? What's your sort of take on that cost growth going forward from wages and other costs? I'll stop there. Thank you.

Thank you, Jan-Erik, for many good questions. Activity in IBD is roughly 50-50 split Norway and outside of Norway. So I think we see the whole platform increasingly contributing and we also see a more diversified revenue across sectors in addition to geography. You are right, and we pointed out that debt capital markets is particularly strong this quarter, a high level of activity with transactions being facilitated within the Norwegian bond market framework. We also see international customers seeking our advice and capabilities to execute on that. ECM, slightly higher activity, still not so active in the IPO market. M&A, increasingly active as well. So there is a broad representation of both sectors and geography in the numbers. Personal customers, what we speak about is a shift in sentiment and an increasing activity throughout the quarter. The shift in sentiment is also judged by the communication and discussions that we have with our customers. You can see it in the brokerage numbers for properties. We see it in the number of applications coming in in terms of what customers are looking for. It's increasingly applications for new loans and new businesses. What to expect forward has to be based on the outlook that we see and a gradual more positive sentiment I would say both across SMEs and that is seen from the regional survey and personal customers in combination with the fact that there will be real wage growth for the majority of Norwegian households, we believe supports both the expectations for increased consumptions and the more active housing market in the second half of the year. Growth in SMEs is having a healthy development in the area between 0.7% and 1%, I believe, so far this year, diversified across sectors. One area that has been weak in the first half, where volumes have been running off the book, is volumes related to construction finance for new housing. Now we see that there is a tendency of a turn here with more builders, as I commented on during the presentation, that are testing new projects in the market, more customers seeking financing also for buying new homes. So we do expect that this also gradually will come back and be a growth source for SME. This quarter, we have again split the activities and separated out business banking Norway as a separate business. They are doing well. They have an increased pre-tax profit so far this year by 6-7% compared to last year, and we look forward to giving even more flavor and detail on this very important piece of the business as from next quarter.

And on the cost side, I think it's first of all important to say that this quarter, the growth that you're seeing in cost is highly related to increased activity as well. And as you know, when we increase activity and income stemming from commission and fee, that also increases the cost base related to that. Having said that, you're right in saying that we have a wage growth that is expected to be around 5.2%. That means that we need to continue working on our cost base, increasing our focus on automating some of the processes that we now have as more manual. and also looking at how we can take out costs going forward. But we do this structurally in the way that we've always worked with costs long-term, and we will continue to focus on streamlining the business and also ensuring that we decrease costs if and when that's necessary.

Thank you. Roy Tilly from Arctic.

Thank you. I think Jan-Erik covered a lot, so anything else? I have two questions. Firstly on deposits, specifically in the personal customer segment. We've seen for a while now flowing deposits from transaction accounts to fixed rate accounts, savings accounts. How's that trend looking now? Is it kind of leveled off a little bit? I see your margins are holding up pretty well in quarter. And secondly, the FSA proposed CRR3 implementation in Norway, including some risk weight floors on mortgages and commercial real estate. So just a question, do you see what's the kind of likelihood of that passing? Will the Minister of Finance say no again? And given that we won't know yet, have you seen any change in behavior from peers that perhaps would see a bigger negative impact from if this passes? Thank you.

Thank you, Roy. I'll address the first one. And you are quite right by saying that we have shared our observation that there has been what we would call asset mix effects, both in the personal customers and in the SME area with deposits flowing from low yielding accounts to higher yielding accounts, which is rational. And we like that our customers care about the returns that they're getting on their savings and their capital. We do see this movement tapering off throughout the quarter. And we also, again, would like to reiterate that we are not seeing movements to speak of from accounts to money market funds and other types of products. It seems like the quite attractive growth that we have for new savings agreements comes from monthly salaries and additional savings from inflow rather than being account money being invested elsewhere.

And on the NFSA proposal in terms of new risk weight floors on both mortgages and commercial real estate, the hearing process ends in the beginning of September, but we don't have a date when the Ministry of Finance will make a final decision. So that's everything that we know in connection to that. Apart from that, it's difficult for us to say what the probability is. I think you're just as good as we are in terms of looking at that. But from our point of view, there's very little that has changed since this was proposed in November 2022. Last time. When looking at competitive behaviour, I wouldn't say that that has changed the competitive behaviour. Competition continues to be strong in Norway, and that has been the same in the first quarter, continuously so in the second quarter. All banks operating in Norway are very solid and have ample of liquidity or ample capital. But I wouldn't say that this has changed the behaviour, not from the standard banks or from the RB banks operating here.

Thank you very much.

Thank you. Moving on to Vegard Toverud, who I believe is covering his last D&B quarter before turning CFO and answering questions yourself.

Thank you. And thank you for hosting this Q&A now and over the last 14 years. It's very, very helpful. I have then one final question that relates to the quarter. In your report, you write that you have a changed organizational structure to meet changes in the market, which also have involved some changes to management. So could you discuss what changes you see to the market? and also if this and the change of management also comes with the change of mandate, specifically if you are evaluating or giving some different mandates on the private market side. Thank you.

A very broad question, Vegard, and I'll give a few comments on it to further develop it. It merits a longer discussion that we could have at a later stage. But yes, we have done some changes to the organisation, which I wouldn't say that we continuously evaluate to do so, but we are in a business with a rapidly changing dynamic and environment. And moving the organisation around, shifting competence around, is one of the ways to initiate a higher pace of change, we also believe, in the organisation. So it's important to say that this is for all its sake about what we see in the future. So what has changed? I think a lot of things have changed in the world. It's a tougher environment around us. Well, that you can say it's more cyclical. But if we look at banking more specifically, we continue to see technology facilitating new players, new scenarios, new brands entering in the markets with a slight different approach than previously. We continue to see competition moving more intelligently, I would say, within markets. within segments and competition intensifying. We still should focus on tech companies and their offerings potentially in the future, setting the bar for how good we need to be to make sure that customers want to interact on our digital interfaces. We continue to see the regulatory wave coming in over banking, a lot so in the digital and technical space. fiercely and intensively focusing on security and investments that we do there of a three-numbered million kroner every year to protect our customers' funds and activity and also to fight financial crime in broader society. These are a few of the changes that we see So we need to focus we need to To do more in the most important areas this is why we have Increased our focus on customers by dividing large corporate again lifting SME up in group management. This is why I We see this as a new phase in the consumer personal company or personal customers oriented part of the business Shifting around competence that we have from the tech and earlier product side into that area that is also why we are where we're changing mandate would be more on the technology business side where we have products, data, and innovation that is now a more targeted engine to facilitate the foster movement across business and tech, which can't be divided. You can't look at business on one side and tech on the other. This is a continuous journey where they work together to deliver the best services to our customers. People, as a last, combining that with communication, culture, the attractiveness as an employer, I can end there where I started. DNB is about our people. The more it's about technology, the more important our people and competence are. So we are one of, and in certain areas, the most attractive employer in Norway. We are working hard every day to remain that and believe that is one of the keys for the future.

Thank you. Thank you. And a last question from Thomas Svensson in SEV.

Yes, good morning. So two questions. First on your lending mix, so it's around 47% personal customers right now. Is this the mix you would prefer within the targeted 3% to 4% annual lending growth? Or could we see a change there, you becoming more a corporate banking terms of business mix?

I think, as we've said, and you know as well, Thomas, that our target is 3-4% growth over time, and that we're not specifically setting targets for certain sectors, but it's to be expected that we grow in line with the markets, and where we have an opportunity to grow above and beyond that is in what we define as our growth platform, which is also our international activity. outside of Norway and through the sectors where we are specifically positioned. Norway is a resilient economy, growing well, but still growth is relatively low, and during a time where growth is lower in Norway, it is to be expected that a larger share of the growth will come internationally, that is of no concern to us. We focus on delivering profitable growth, three to four percent over time, and we believe we will be able to do so even also with cyclicality in Norway, even though you may see a year here and there where it will be lower or higher. Okay.

And second question. Yes, please go ahead. Second question on deposit margins and the discussion there. I don't know everything, of course, but what you see now with rates and competitive dynamics is stability on personal deposit margins. What I look at.

I'll just repeat the question in case some of those of you following us online did not hear it. The question is about deposit margins and what we see there, if stability is to be expected going forward. I think the comments that we can make, Thomas, on deposit margins is repeating some of the elements that we mentioned earlier. We look at the development where we have in previous quarters seen asset mix effects, that is volumes moving from from lower yielding accounts to higher yielding accounts, that effect is tapering. We see positive real wage growth and purchasing power for households as a change in the market supporting a more positive sentiment. There are no competition in spheres, but there are no material shifts that we have seen recently in deposits, and we are not seeing deposits from accounts moving to other products, such as money market funds. So probably the most important message is the first and the last one in terms of the deposit base, that the shift seems to be tapering throughout the second quarter.

Thank you. Thank you. Rune, any questions from the online audience? Yes. So please give the guy a microphone.

Thank you. We have a question from Johan Strøm, Carnegie. Is it fair to assume that you will not meet your long-term loan growth target for 2024, but that the commission fees growth is stronger than the target targeted this year?

I think we have six months to go this year, and it's been a more muted start to the year as communicated and expected. We do believe a more active second half, but it may be that this is a year where we will land somewhat south of the three to four for the year. as such but again we see more growth in the second quarter than than we did in the beginning as for commission and fees it's been a very strong start to the year and we comment we don't guide specifically but the areas that have been key drivers investment banking and asset management continue to show a very strong sentiment also towards the second half of the year so Norway is an open economy. Anything can happen in the markets, but from what we see now, it looks positive for the second half.

Very good. And a question from Sophie Peterson from JP Morgan. How sustainable is the current level of investment banking fees going forward?

Investment banking is seasonal. Usually the fourth quarter is the strongest quarter, which is why Ida also pointed out that we haven't seen a stronger quarter in investment banking, even when looking through the history of the fourth quarters. But fourth and second quarter are the strongest quarters. We think the important message and the important efforts that we are doing and have been communicated over time is how we invest in broadening and diversifying the product base and the fee base. And the best indication we can provide is invite you to look at the historical development in the revenue annually over time, and you will see growth pace that is way above the 4% to 5% that we target for the fee and commission base overall. And investment banking is one of the strongest driver. And there is no message from us that the potential there is in any way taken out. We will continue our work and our efforts in this area.

Thank you.

All right. Thanks a lot. I think we are at the end of the questions. So thank you for listening and for joining everyone. And then we wish everyone a very good summer holiday. Thank you.