DNB Bank ASA

everyone, and welcome to the presentation of the fourth quarter results for DMB. And also welcome to everyone watching the stream. And as the new finance minister of Norway said yesterday, it's good to see you all again. We don't have planned any fire drills today, but if the fire alarm should go off, please use the exits in the back and in the front to your left. Our CEO, Kerstin Brotten, is ready to present the highlights from the quarter, and our CFO, Ida Lerne, will go into the details thereafter. Kerstin, the floor is yours.

Thank you, Even, and a very good morning to all of you, and welcome to this fourth quarter results, but it's also the delivery of the full year results for 2024. 2024 and the fourth quarter was yet another year and period where the Norwegian economy continued to show its resilience. And we are both grateful and I would say humbled by the increasing trust that customers put in us. And I am very proud of the team and their relentless efforts to work to deliver customer value every day, which in aggregate results in the very strong numbers that we deliver today. The return on equity for the quarter comes in at 19%. Needless to say, well above our minimum target of 14%, also well above if we deduct for the extraordinary impact by taxes. It still stands at 16.1%, representing profitable growth in all areas, driven by stable margins and an increased activity across product areas. NII is up by 3.7% from the previous quarter. Again, growth across all customer areas and stable margins to customers in the quarter. Commission and fees, an all-time high delivery in a fourth quarter this period behind us. A particular strong performance in investment banking division and D&B markets, but a positive contribution from all product areas across that category. Asset quality remains robust. We take impairments of 157 million in the quarter, a very low number, and this represents a robust portfolio that remains well diversified. capital is a rock solid with 19.4 core equity tier one ratio earnings per share are up more a little more than 18 compared to the previous year the capital and earnings per share in combination provides the foundation for the board to propose a dividend per share of 16.75 kroner per share, which is an increase of 75 cents, or öre, if you will, per share compared to last year, and fully in line with our dividend policy. The Norwegian economy remains solid, as do the outlook. We do expect a higher growth this year to come in GDP in the area of 1.5%. Increasing activity in construction of houses as well as increasing consumption are expected to be the key drivers. And increased consumption comes on the back of an expectation that most people will have an increase in their disposable income this year. Unemployment is expected to remain low. It has remained around 2%, might move to 2.2%, but in that area, all in all, most people will have a job in Norway. Inflation has come down. We do expect it to continue to come down gradually, but, however, at a slower pace than we have seen in the previous year. DNB Markets has made a revision to its economic forecasts with regards to the path for the interest rate that they published last week. They have maintained their expectation that there will be three rate cuts during 2025, which will take the key policy rate to 3.75. But thereafter, they expect the key policy rate to remain at 3.75 throughout the remainder of the forecasting period. I guess it's no surprise to you that we will also signal that the uncertainty level is higher than normal, given the geoeconomic situation, given ongoing discussions on trade and the changing situation globally on security, and remind you that the Norwegian economy is a small and open economy and that we will be impacted by the development that happens outside of Norway. A few highlights on the customer areas for the full year that I would like to share. All customer area shows a growth in activity throughout the year in combination with profitable growth both on lending and deposits, which leads to an increase in pre-tax profits across the three segments. Lending growth for the full year stands at 5.1% and growth in deposits by 4.3%. A few things that stand out from each area. Personal customers, after a slower start to the year, we've seen a tremendous increase in activity, taken a lot of steps to improve the customer offering, and we ended in the best mortgage growth quarter in the fourth quarter that we have seen in seven years. Activity level has been high, in particular on the savings side, where 51 out of 52 weeks in 2024, Norwegians saved more, and we saw an increasing number of savings agreements. We continue to drive innovation and launched two new offerings to Pay, both Vips to Pay and Apple Pay in the fourth quarter, as a continued improvement of the customer offering. Corporate customers in Norway, I would like to highlight the growth, 3.7% in a year where there is low to no construction activity in the housing area. A growth in deposit of 13.1% clearly signals the strengthened positions that we have towards the public sector. And a growth in non-interest-related income of 18%. illustrates the increased activity across a broad spectrum of products, but in particular, an increasing activity and cooperation with D&B markets. Large corporate and international is referred to as our growth platform, where we also originate to distribute and turn the capital quickly around. It has proven its ability to be our growth platform in 2025. We continue to scale the business outside of Norway, in particular in the Nordics, but also in the energy sector. Very high activity on cross-sell, also D&B markets to be highlighted, as well as wealth management as very active areas. For all three areas, and maybe more in particular corporate customers and large corporates, robust asset quality, decreased applications for installment deferrals in personal customers, improved grade migration across the corporate sectors signals that the asset quality is very robust. We continue to grow the business, in particular in D&B markets and wealth management that we have alluded to as the growth engines, if you will, in commission and fees. And this year, 2024, they both deliver an all-time high result. Assets under management up by 183 billion from the end of 2023, and the majority of the increase stems from retail customers, thus they also deliver very stable margins. Customer revenue from D&B markets, again at an all-time high, up 19% from the full year 2023. particularly strong contribution from IBD up more than 40% compared to the prior year as well as FIC up 13.6% where equity is a more stable category but still well performing. We do maintain a clear clear lead position across many sectors, parts of the markets that is important to us. Corporate finance is one of them, as well as advisory services, both in ECM and M&A. We do look forward to the opportunities that we are still excited to see to offer our customers a broader and better service specter. Once we joined forces with Carnegie, we have received several approvals and are closing in on closing the Carnegie transaction in the near future. This shows the development for the past five years. We have highlighted our unique position in a very attractive environment. And we do like to run our business focusing primarily on organic growth while also increasing our non-interest related activity faster than our balance sheet. The year 2024, we have delivered yet again on that, and this results in a growth in pre-tax profit of 16% compared to the prior year. As you can see, cost income is a flat development compared to the prior year. Efficiency is important for us, not only to deliver on our return on equity target, but also to deliver a competitive offering to customers. Share buyback further enhances the development in earnings per share, which are up slightly more than pre-tax profit of 18.2% from the previous year. Daily, we are driven by the ambition to innovate to customers and scale customer value, as well as by the opportunity to provide a positive impact to society. Approximately 50% of the dividend that the board proposes to pay for the year 2024 goes back to the Norwegian society at large, and we are particularly motivated by the 2.2 billion that we are proposing to pay to the DNB Savings Foundation for them to distribute to release good powers into society. We also strongly believe in the driving of customer loyalty through data and understanding their needs. And this is why we're also pleased to see that 46% of Norwegians use our digital interfaces in some way to service their needs in finance. And we relentlessly continue to focus on combating financial crime, where we've also said that we do see an increase in attempts to commit fraud. But we are stopping the vast majority of these attempts, and we stopped an aggregate 2.1 billion of our customers' money from being stolen during the year 2024. And again, yes, we're much about technology, but even more about people, and that will remain so even in the age of AI. And we are continuously working to be an attractive employer and are motivated to see that both economists and technologists as well as legal students continue to prefer and choose DNV as their employer. Lastly, but not leastly, we remain strongly committed to our dividend policy that remains unchanged. The proposal of the board to pay 16.75 is fully in line with our dividend policy of increasing the nominal amount per share per year. expect the board to apply for an approval in general from the General Assembly to increase share buybacks, and we'll continue to consider using this as a tool to optimize around the desired capital position. And with that, I'd like to hand over to Ida to take you through more of the details.

Thank you, Kerstin, and a warm welcome to everyone. So I would now like to go through the fourth quarter in a bit more details. There were increased activity across all customer segments in the quarter, and we saw volume loan volumes coming up 2.5% or 1.9% currency adjusted. We note a good momentum in the personal customer segment, where lending volumes grew by 0.8%. In corporate customer Norway, we also saw a very positive development in the quarter, with developments of volumes with 1.4%. In large corporate, we noted another quarter with strong activity level and volumes were up 7% or 4.7% currency adjusted. Also, when looking at deposit volumes, we saw positive development in the quarter, up 4.7%, personal customers up 1.3%, and corporate customers up 7.3%, driven both by small and medium-sized enterprises, but also, more importantly, also public sector. Volumes in LCI were up 7% in the quarter. We continue to maintain a strong deposit to loan ratio within the customer segments at 74.3% in the quarter. The net interest margin was up by four basis points, now amounting to 194 basis points. This is driven by increased volume, high financing activity, and positive contribution from treasury effects in the quarter. Please keep in mind that there is some seasonal variability here in the quarter, where refinancing activity tends to be higher in the fourth quarter compared to the first quarter and the third quarter. As you can see from the right hand side of this slide, the combined spreads in the customer segments are stable, affected by lower money market rates, some mixed effects on deposits account, as well as strong and but still rational competition in the market. NII increased by $589 million, up 3.7% in the quarter. We see effects from spreads, volumes, and currency, increasing NII by $193 million in the quarter. And as mentioned on the previous slide, we saw high refinancing activity in the quarter, increasing NII by $182 million from amortization effects and fees. Treasury effect related to liquidity management was high in the quarter, increasing NII by 173 million. In addition, NII increased by 41 million from interest on equity, reflecting a stable key policy rate environment. Our fee platform, as Kerstin pointed to in her presentation, remains strong and well diversified, reflected in the solid performance across all product areas in the quarter. In addition to what you can see on the slide behind me, there is continued strong contribution from FICC, found under financial instruments, and D&B Life, also found under other income. When turning more specifically into commission and fees, we note an all-time high fourth quarter with an increase of 12.3% from the corresponding quarter last year. Real estate broking was up 10%. We noted increased income from residential real estate broking, reflecting the higher market activity overall. Investment banking was up 31.7%, the strong results driven by high activity across the board, but I would particularly point to investment banking and debt capital markets as being specifically strong this quarter. Asset management and custodial services was up by 3.4%, but this is compared with an extraordinary strong fourth quarter in 2023. There is a continued growth in asset under management, up 183 billion over the year, and we noted positive net inflow from both retail as well as institutional customers, and further positive development in the number of savings schemes from our personal customers. We also continue to see a positive trend when it comes to trade finance, and therefore guarantee commissions are up by 11.7%. Money transfer and banking services was up 4.1%, supported by a high international travel activity among our customers. Sale of insurance products was up by 12.2%, so continued positive development in the defined contribution pensions. Now moving on to costs, which were impacted by one-off expenses as we announced also around capital market stay related to the reduction of full-time employees. This in the quarter amounts to 427 million. There was also a seasonally high activity reflecting the 222 million in increased costs associated with variable salaries, travel, as well as training expenses. Over to the portfolio quality, which remains robust and well diversified, with 99.3% of the portfolio in stage one and two. In the personal customer portfolio, which accounts for approximately 50% of exposure at default, we see no negative developments to speak of. For the corporate customers in Norway, as well as large corporate and international, impairment provisions amounted to 44 million and 58 million, respectively. The portfolios remain solid and well diversified. We remain very comfortable with the credit quality in the portfolio, but please bear in mind that losses will vary from quarter to quarter. Let's move on to capital. Our core tier one capital ratio remains strong at 19.4%, 280 basis points above the regulatory expectation at 16.6. The board proposes a cash dividend of 16.75 kroner up from 16 kroner in 2023. As the dividend payout ratio is somewhat lower than the average over the past three years, which has been deducted throughout the year, you will see a restatement in the fourth quarter, meaning that you have a positive impact on the quarter one capital ratio of 20 basis points in the fourth quarter, similar to what we saw last year. The core T1 capital ratio was also positively impacted by profit generation in the quarter, repayment of excess capital from the D&B life insurance business of 1.5 billion, and also positive development in risk exposure amounts. This is somewhat offset by an AT1 redemption, as well as the increase in operational risk, which comes as a consequence of increased average income over the past three years. Leverage ratio remains strong at 6.9%, well above the regulatory requirement of 3%. With a core tier one capital ratio of 19.4%, a leverage ratio of 6.9%, our capital positions remains strong. We are well positioned to meet upcoming regulatory headwinds, such as CRR3, estimated to have a negative effect on the core tier one capital ratio of 20 basis points, as well as the increased risk weight floors on the mortgage lending, estimated to have a negative effect of approximately 70 basis points. And on top of that, the expectation and estimated effect of around 120 basis points related to the Carnegie acquisition. When taking all of these elements into account, we are still at a very comfortable level when it comes to our core tier one capital ratio or capital position and remains committed to our dividend policy. With that, I would like to thank you for your attention and open up for questions.

Thank you, Ida. Thank you, Kerstin. We will open up for questions. Please wait for the microphone to be handed to you so the stream followers also can hear your questions. There's also possibilities for asking questions online. We'll start with you, Jan-Erik, from ABG. Please hand him a microphone.

Thank you, from ABG. Two questions, if I may. The first one on the CET1 ratio. 19.4 is very good, as you said, and you have some headwind ahead. Will the headwind of 2.1 be sort of then to 17.3 versus your 16.65 ratio? Are you happy then with your sort of margin to your management target levels? Or is it so that that could be decreased further with some buybacks in the second half of this year? Or how should we think about that sort of margin to your sort of own target? On the lending side, if I may, the volume is very good in the corporate area, and it was also last time around. You mentioned the organize and distribute model. How could we read this when it comes to the growth in the large corporate versus the other areas? And then finally, on the lending side, what really happened in the second half versus the first half for personal customers? If you can shed more light into that so we can understand the growth into this 2025.

Thank you. Thank you, Jan-Erik. I'll do the two-letter and Ida can answer on capital. But I think we've talked about large corporates on several occasions as a growth platform, but also as an area where we turn the capital quickly around. I think the average duration of capital is now less than two years in this area, which means that we're doing a lot of business. And we're underwriting, and we're syndicating, and we're working with expert credit agencies and other type institutions. Which means that it's harder to see a growth on a quarter by quarter basis. It's more of a lumpy activity. So it's difficult to, and we do not sort of give you indications as to how much this area will grow compared to the others. But we still continue to prioritize the capital that is needed to grow in personal customers as closely as we can to market growth, to grow in SME business because they're more gradual business and should be more consistent on a quarter by quarter basis. And then for large corporates, it's all about competing for the capital and deliver the best returns and about scaling the activity with the NB markets to do as much business as we can. I think one example on how we do this is we've talked to you about the limited exposure we have in commercial real estate. For instance, in Sweden, we were still on the lead position for the largest stock listing in the fourth quarter with Svea Fasteter, where we've had an activity, but more on less capital consuming products that leads to activity. So there are many ways to manage that and to work on that. Now, what happened in personal customers? I think the first answer is that the market happened. The second answer is that the integration of S-Banken happened. And the third answer is that in coming into the market, there was a lot of focus on bank swapping. And typically, we have a stronger brand for buying houses and heavier advisory services. So we have picked up and benefited from an increasing amount of activity, but we've also taken a lot of steps during the year to improve our offering to customers on the digital side by refocusing our sales force and our advisor to work on house acquisitions and advisory in the process. Thirdly, we doubled our commitment to young people to help them entering the housing market once the changes were made to the to the, what do we call it, boliglånsforskriften? The lending regulation. The lending regulation. And this has yielded results also ending, as I stated, in a very good quarter on the mortgage side. We continue to see high activity going into the year and have an increase in financial certificates in the area of 40% coming into the year compared to last year.

Good. And in terms of the core tier one capital ratio, with a buffer of 280 basis points, we are very well capitalized. And as you know, in the 16.6 expectation from the regulators, there is also a pillar two guidance of 125 basis points, which is significantly higher than what our Nordic peers has, at least those that we are aware of. I think what's important to look at, even when looking at the deduction of 210 basis points related to the both regulatory headwinds and also the effects from Carnegie, we are very well capitalized also at that point. But you also need to take into account that what Kerstin pointed to in her presentation, we have an ordinary dividend coming from D&B Life of 1.5 billion. going to be booked or going to be in the numbers in the first quarter. In addition to that, we have a profitability, a strong profitability in the underlying business, which means that we are also on average building capital over time with a very strong foundation going forward. So I think even without looking at those positive elements, we are very well capitalised, but then you need also to look at the underlying business and the positive effect from the D&B Life business on ordinary distribution, but also the extraordinary distribution that we've seen in the past two years. And as I pointed to in the capital market state, there's also potential to see that continuing in the years to come. I think, so what we will continue to remain committed to our dividend policy in terms of focusing on a nominal cash dividend that is increasing year over year, as you can see in this year as well, in addition to using share buybacks as the flexibility tool. We expect the board to ask for the same authority from the General Assembly as they have done before. And we then expect to be able to use that if we see the need also from a capital optimization perspective later in the year.

Thank you.

Yes, next question. Thomas Svensson from SB.

First on the NII, you point to the expected lowering of central bank rates ahead. So what is your guidance for the NII impact per quarter or lowering? And the second question on... loan losses or given your comfort in the loan book what do you expect is the new normalized level here compared to what you have communicated as the historical average in the past and final question on Carnegie when do you expect the transaction to close

Thank you, Thomas. On NII, as we have stated previously, the impact on our earnings stems from the decisions we make to change the prices, which makes it difficult or even illegal for us to comment very specifically. But I think in general, it's easy to say that we need to expect as much as there was an increase in The NII, when rates went up, there is likely to be a decrease when rates start moving downward. The interest that we make on our equity is just one of the examples of that, and also revenue related to the treasury activity will be somewhat impacted by rates going lower. Keep in mind now that the expectation from our economists is an aggregate of three rate cuts this year, and then for rates to stay stable. Also keep in mind, as Ida pointed out, that there was a high activity-related NII also in the fourth quarter this year. As for the Carnegie transaction, we have received all the approvals we need from the competitive authorities in the Nordics. We have received from the FSA in Denmark, Sweden and Sweden. So we are still then awaiting for the Norwegian FSA to approve. And if that should come sometime prior to mid-February, it might be 1st of March. Otherwise, it's likely to be 1st of April, but we're talking that time range most probably.

And in terms of loan losses, we haven't guided or normalized loan losses and will not do so going forward either. But we are very comfortable with the composition of the portfolio and also the underlying development there. We don't see a negative development from quarter on quarter.

Thank you. Yeah, Roy Tilly from Arctic on the right.

Thank you. Just to follow up on the growth outlook for 2025. So you said that the market happened and it seems it's still happening if you look at the January housing prices. So first of all, how did January go for you guys? How was activity? Secondly, you mentioned the lending regulations. So obviously the impact of lowering the equity requirement is positive. But there's also a positive impact, I assume, from the new fixed rate, how they treat fixed rate mortgages. Have you seen any uptick in interest on those? And then lastly, CRR3, that will have a negative impact for you guys and a very positive impact for the smaller banks. How do you see that dynamic playing out in 2025 in terms of pricing?

Thank you, Roy. I've already indicated that we had a strong start to the year, given the 40% increase now also in financing certificates. But you also give me an opportunity to remind you that our outlook for growth and our guiding remains the same. We are saying 3% to 4%. within a normal year. As we've proven yet again this year, it might be slightly higher. It was 5.1% this year. But the main principles we run by is growing personal customers, SMEs, as much as we can. We even take market share, we believe, in the SME area. and then optimizing around the activity in large corporate using our capital to generate a broad specter of activities. So that guiding and expectation remains the same. And given the fourth quarter that we deliver and my comment as to the start of the year, you also see that we have a high pace coming into the year compared to where we started both the second half and the fourth quarter. As for lending regulation, that has positively impacted the market, but I think it's a dynamic that also is responding to a large period of lack of activity and somewhat also a lack of supply, which is why we're hoping that construction activity will start again as soon as possible. With regards to fixed rates, it's been more of a volatile market, and you've shown that we're quite dynamic in terms of adjusting prices and maintaining a competitive offering. There is some increased interest, but not in any material way. Shifting the combination of our book would be my comment to that. CRR3 will alter and impact the competitive position between standard banks and larger banks. I wouldn't say it's of a character that we believe will alter the competitive dynamics overall in this market regardless. We still feel confident that we have an attractive offering, that we are able to scale from a market lead position, and that we have strength through our ability to offer a broad spectrum of products and a variety, whether you would like to be digital, whether you would like to be hybrid, whether you would like to be more served also manually.

Thank you very much.

Nice try to ask for January numbers, Roy. Next question from Jan-Markus Karoliusen from Sparbank 1.

I also have a question related to CRR3, because under the new risk rate floors, mortgage risk rate floors, you will have all else equal less of an incentive to compete for the lower LTV loans and perhaps more of an incentive to increase the average LTV on your mortgage loan books. Could we see D&B increase their LTV and perhaps move out on the risk scale as a result of this?

I don't think you should expect us to move out on the risk scale. We have a mortgage book of 950 billion or so. And yes, we do a lot of business. We've done 7 billion net in the fourth quarter. But still, I mean, it's a vast and large portfolio where loan-to-values today, I think they're 54%, 55%. And we generally work across the spectrum on all LTVs as long as the debt service capability is satisfactory. And we will not sort of try to angle in any direction. We offer in accordance with what the customer needs. Risk has in general not been a concern, I would say, in the Norwegian mortgage market and is not a concern going forward either.

Thank you.

And a follow-up question from Mr. Gjerland.

Yes, just two, if I may. Just follow up on the questions on the level. Do you think with a new finance minister that this risk floor will actually go? So it means that you will go back to the 20 level? And secondly, if we look at D&B's risk rates trend, it has been moving upwards from, let's say, 19% to roughly 22%. So you're approaching the 25 level, if you can say. different than the savings bank. So are you actually adding a little bit on risks and then taking higher margins loans versus the other one, just to think about that?

I think I was at the two, yeah.

And the question on IT cost, it was by 3% or something. I thought actually the IT consultants or IT software was sort of more expensive than that. So what have you shut down?

We try to increase efficiency everywhere, Jan-Erik, and I think the team is doing a very good job, but I'll leave that one to Ida. And to say your second question with regards to risk weights and trends, there has been no change in principle in the way we run our business. And we look for profitable growth that is correct risk pricing relative to the risk that we are taking. And then there will be risk migration may be related to growth. It may be related to migration in the portfolio as such. And as you probably have seen or will see from the fourth quarter number, it's quite an efficient growth also overall that we have delivered in this quarter. As to the future finance minister, I think it's a question for him and not for me or us. But in general, I think we are just complying with the decisions that are being made and think this is still a very attractive environment to operate within.

And I'll come back to cost, but just adding to what Justin said on the risk weights, I think it's important to also look at the S-Banken portfolio is still on standard models and therefore impacts the overall risk weights in the personal customer segments. I wouldn't say that we haven't shut down anything when it comes to IT. We're continuously looking at further investments in further technology, making sure that we have the best possibilities to service our customers both digitally but also in terms of an advisory perspective, but then looking at it from a technology perspective. We continuously work with our cost base, continuously work with renegotiations and also ensure that we have the best purchasing power. I think that's a good testament to the work that is being done in technology and services in terms of actually working with the best partners and also negotiate contracts as well as use the flexibility that we have there in terms of both consultants as well as full-time employees that you know that we've invested in over the past few years.

Thank you. Then we have questions from our online viewers. Rune.

We have a question from Johannes Thorman from HSBC. You remain comfortable with credit quality, but which industries or regions do you worry, do worry you and are source of major attention in the next quarters?

I think we have not highlighted any industries in particular that worry us. And we've also communicated to a positive risk migration in the large corporate area and low losses, low impairments in the quarter is a testament to the high and robust quality. I think from an economy perspective, we have seen a period in the Norwegian economy where sports, consumer goods, clothing, things to refurbish your house have been slower in the period after the pandemic. Now, the message from the team is that part of that is also gradually picking up. and it's a very small part of our portfolio, and we see it's more customer-specific who is performing well and who is struggling, but there are no traces of any negative development in our book in the quarter in that sector. Another area that we follow for interest very closely is the car industry, where we are seeing structural changes. But again, also, they are very comfortable with our exposure. Beyond that, exporting industries in Norway are doing very well with the weaker Norwegian kroner. And internationally, we are mostly engaged in industries that are driven by the transition and the larger trends. So nothing of large concern to point out.

Okay, no further questions from the stream, and also no... Okay, Roy, one last question.

Just one quick one. Since you mentioned S-Banken on the standard model, would it make sense to keep it there, given the 25% risk rate for it? I'm just leafing through, and it seems to have an average LTV around 55 in S-Banken. That should be lower than 25% risk rate.

Well, I think we still see a positive element related to having IRB models, also from a risk management perspective, and therefore believe that that's also going to be the best way forward for S-Banken.

Okay, thank you. Short and sweet answer. Thank you so much for following the presentation. Management will be available for the press in the press zone afterwards, and have a very nice Wednesday, everyone. Thank you. Thank you.