Pareto Bank ASA

Velkommen alle sammen til en gjennomgang av delårsregnskapet for andre kvartal. Vi starter med hovedtrekkene i regnskapet, deretter vil Bankens CFO Vegard Toverud gi oss flere detaljer. Så vil jeg kommentere på forretningsområder og markedsutsikter. Vi svarer gjerne på spørsmål, og da til slutt. For de av dere som deltar digitalt, er det bare å sende spørsmål inn i chatten til møtet. Resultatet etter skatt for andre kvartal ble 37 millioner. Det tilsvarte en egenkapitalkastning etter skatt på 2%. De samlede lånetapsavsetningene utgjorde 201 millioner, det høyeste nivået i bankens historie, og årsaken til det lave resultatet og den svake lønnsomheten. The work to end the difficult projects and limit losses continues with high priority, but takes time as a result of both project-specific conditions and a constantly demanding new housing market. The declines are linked to some major commitments, where the customer's ability to implement and financial ability have proved to be too weak. Mange boligutviklere har det nå veldig krevende og får ikke solgt nye boliger. Disse forholdene betyr at vi kan forvente at nedskrivningene også blir liggende på et forhøyet nivå i kommende kvartaler. De samme forholdene betyr også at vår tilnærming til finansiering av boligutvikling nå virkelig utfordres. Vi sier at vi på dette området står i en ekstrem situasjon, og vi erfarer at tilnærmingen har vist svakheter. Vi vil derfor gjøre en grunnleggende og grundig gjennomgang av hvordan vi gjør dette fremover. We have also further incorporated credit practice in the area in the second quarter. In spite of the difficulties we are experiencing in Norway in housing development, we got an expected growth in expenses in the second quarter. And that growth came in Sweden on company and ship financing. Sum of loan increased netto with 157 million in the quarter to 19.4 billion. So that was the introduction to the second quarter's annual report, and now Vegard will give more details.

Thank you, Tiril. I start again with this picture, which gives a good overview of the development in the last five quarters, and also the negative development in the bank. If we look to the top left, and to the top in the middle, the profitability has fallen to a calm of 2.0%. This is driven by the loan losses, which unfortunately reach a higher level in the quarter at over 4% on an annual basis. If we look down to the left, we see a pressure on the net income quarter by quarter. This is mainly due to pressure or lower spending on the liquidity portfolio and some higher funding costs. If we look at the interest rate net in relation to Q2 last year, to the left of the figure, this is driven by lower loan volumes and activity-driven dividends. Banken har en overskuddsmodell som plasserer de ansatte og eierne i samme båt. Med så lav avkastning som vi har hatt dette kvartalet blir vi ikke avsatt til bonus for andre gang i bankens historie og for andre kvartal på rad. Dette gjør at kostnadsgraden holder seg lav på 17,7% i kvartalet. On the top right, we see the capital coverage. The bank is robust, and the capital coverage is very strong. It is not significantly affected by the low profitability, and I will come back to that later. If we look at Q2 this year versus Q2 last year, net interest rates fell by 47 million, or 14%. This is primarily driven by lower revenues on average, margins and activity-driven revenues. Despite relatively similar balance on the balance sheet at the start of Q2, the average volume is down by 5% on the foreign side. The profits in the bank's liquidity portfolio were 6.8 million, and the total value changes were positive with 7.4 million. That is 3 million up from the corresponding quarter last year. Our costs are low, and down 16% compared to Q2 last year. This is due to the bonus order. In this quarter, the bonus is not deducted, while in Q2 last year it was deducted 11.6 million. Therefore, we also have the low cost of income at 17.7% versus 18.3% last year. The losses in the quarter come in at 201 million, which is the highest in the bank's history and contributes to a low income per share of 32 euros and a very low interest rate of 2%. I will come back to the losses later, but let's first look at net and interest rates. In the quarter, the average income was down by 0.3%, which reduces the interest rates by 1 million. We also have a reduction in the income volumes by 5%, which contributes to 5% in reduced interest rates. The opposite of this is a need for higher market funding. The total of this is still 4.6 million negative. Of these 4.6 million, it is 2.9 million that are blamed for us paying higher spread on our market funding. The liquidity portfolio is down by 9% in the quarter and continues down after around 30% in the previous quarter. This reduces net and interest income by another 5.9 million. In the quarter we paid 614 million in exchange, which reduces the liquidity portfolio. Debt is relatively the same quarter over quarter, while margins, if we look at the 5 million in reduced margins on outlay, Up to the 3.3 million in reduced contribution to interest compensation, we are about 2 million down in margin pressure in the quarter. This is accompanied by an extra interest rate of 2.5 million. If we try to sum up, we can say that despite 0.8% growth in the quarter, we have not received any contribution or effect from the interest income. We have 2 million from lower margins, which is compensated with an extra day of interest. We still have 3 million in increased funding costs on our market funding, and 6 million in lower deductions on a lower liquidity portfolio, which explains most of the decline in the 11 million. If we look at our margins, measured up against Nibor, the loan margin is declining by around 50 points per quarter. 10-20 basis points of this are explained by Høyre Nibor. The 5.2 million that we showed on the previous slide in the reduction of foreign margin explains about 10 more basis points. Over time on this figure, we see the falling margin on the foreign side. But that is also connected to the fact that we do more trading in Sweden. And Stibor is 2.5% lower than Nibor. So to measure the Swedish loans up against the Norwegian loans is a bit misleading. So I think we will show our margins on the foreign loan side in a slightly better way than this figure does. Those of the bank's foreign loans that are not linked to a reference interest were repriced with effect from June 18. This should strengthen the exit margin in Q3, of course depending on how Nibor moves. But we also expect a responsible effect on the investment side and a permanent pressure on margins. The loss cost in the quarter is unfortunately up to the highest level ever. I kvartalet så konstaterer vi 28 millioner i tap. Det er cirka det samme nivået som i Q4, da vi konstaterte 30 millioner, og det er noe opp fra forrige kvartal, da vi konstaterte 19. Vi har tiltrått pant i kvartalet, og vi har investert i oppgradering av allerede overtatt eiendom, slik at balanseverdien på disse har økt med 58 millioner opp til 126 millioner. I fjor konstaterte vi 20 basispunkter i tap. Hittil i år har vi konstatert 23 basispunkter. Vi ligger dermed an til i år å konstatere mer tap enn banken noen gang har gjort tidligere. En forverring i utsiktene til boligpriser i Norge og nøkkeliindikatorer for norske bedrifter gjør at vi tar ytterligere 15,8 millioner i makroavsetninger i kvartalet. If we look at the development in Trinn 3, it increases by 97 million, or 6% in the quarter. This is lower than the 18% we had in growth last quarter. The volume changes in the quarter are mainly due to one company engagement. The increase in revenues to 130 million, or 158 million before statements, is mainly due to further damage to the bank's equity portfolio. This increases our revenues to 36% from 30% last quarter and 25% a year ago. Banken er svært godt kapitalisert. Ser vi på endringen i ren kjernekapital fra forrige kvartal, bygger lønnsomhet minimalt med organisk vekstkapacitet. Dette er fordi lønnsomheten er svært lav, men også fordi vi bare setter av 1,6% av lønnsomheten underveis på grunn av utbytte i 2025. The growth in loans in the quarter was 0.8%, and the growth in the calculation basis was 0.5%. This reduces our capital debt by 10 basis points in the quarter. In addition, there are limited effects on the capital in the quarter, and we end up at 19.7. If we look at the unbalanced capital debt, it is down by 5 basis points to 18.8. The growth in the quarter continues to come in Sweden, and as a result, our demand is down to 14.8%. We want to keep a buffer of 1% above that, and therefore our demand is now at 15.8%. And we therefore have almost 4% points still in the buffer to the capital demand. Banken er altså ubestritt solid og har god vekstkapacitet til tross for utfordringene på kreditkvalitet. Så vil jeg gi ordet tilbake til Tiril som skal gå gjennom de ulike forretningsområdene.

Thank you, Vegard. We will start with an overview picture. After a smooth development in the credit exposure in the first quarter, the credit exposure increased to 24.4 billion by the beginning of June. This gave a growth of 310 million in the second quarter. Sum exposure was still 2 billion lower than one year ago, and the decline has particularly come within housing development. Housing development now accounts for 32% of the bank's total credit exposure, against 45% a year ago. In this picture, we show the development in credit exposure per area from quarter to quarter. We see here that we had a further decline in housing development in the second quarter. From the peak one year ago, where the exposure was 11 billion, the decline is now 3.1 billion to 7.9 billion by the end of the year. 1 billion kroner of the decline of 3.1 million kroner is due to a re-categorization of outlay, where some volume is moved from housing development to finished housing. The remaining 2.1 billion kroner is also a real decline, when projects have been completed and loans in the bank have been approved, and we have given fewer loans within this area. We expected a relatively flat volume development within the categories of finished housing and business ownership. We also expected a strong growth in company and ship financing, with a total of 623 million in company and 337 million in ship financing. I would like to link some comments to each business area, and I will start with ship financing this time. There has been good activity and deal flow throughout the first half year. The growth materialized as expected in the second quarter. The volume was up by 337 million and came in for offshore. Vi forventer fortsatt bra aktivitet i tredje kvartal, men har også kjent med noen låneinnfrielser. Det betyr at vi ser for oss noen oppgang i eksponering på dette området i tredje kvartal. There is still great insecurity within the shipping markets, when arms trade between Iran and the USA is already over. This also means that ship traffic in and out of Hormuz Strede does not normalize as expected. Many shipping segments are high in the cycle and benefit well from good rates, but there is also expected supply side growth or fleet growth in several of these segments, so this can affect the development negatively in the future. When it comes to offshore, the outlook is still good. Here there is little fleet growth, and there is also good fleet utilization. So summarized some exposure growth in the third quarter on shipping financing. We had a good growth in business in the second quarter, and that was also expected. Here the exposure was up by 623 million, and in the first half of the year the exposure was up by 1.1 billion in this area. So now the total exposure in the business area is almost 7.7 billion, and corresponds to 31% of the bank's total loan. Dealforloven holder seg bra, og vi jobber med flere prosesser som ventelig vil materialisere seg i tredje kvartal. Det betyr at vi venter videre vekst på bedrift i tredje kvartal. Boligutvikling. Her vil jeg knytte noen kommentarer til henholdsvis Norge og Sverige. Som vi har vært inne på allerede, forblir nyboligmarkedet i Norge veldig krevende. Strong cost inflation of more than 30% has led to increased building costs and a higher price difference between new and used homes. We still expect a high number of unsold new homes. We read in D1 this week that the number of unsold homes in Oslo has doubled over the past year. So this and prospects for further cost growth and interest rates leads to low activity and projects being postponed. Vi viderefører en stram kreditpraksi som har skjerpet inn ytterligere i andre kvartal, yter nå ikke lån til tomter i Randson til Oslo eller i mindre sentrale strøk i Storbynet. Ei heller til prosjekter hvor prosjektrealisering ligger lenge fremme i tid enn rundt 12 måneder. The housing size is now also taken into account when it comes to the requirements, and that is because large animal units are now selling difficultly. When it comes to Sweden, the activity within the new housing sector has risen somewhat from low levels. This is due, among other things, to a relatively low interest rate level and also to a slump in the amortization requirements for the housing loan in April this year. There is also increased willingness to invest in what is called rental housing, and that has given us a little increased demand for credit. But a possible interest rate will of course be able to dampen activity in Sweden. The volume of business units was relatively flat in the second quarter, as expected. In the third quarter, we expect a flat to weak falling volume of business units. In Norway, the transaction activity is low due to general uncertainty and interest rates, and we still have a low risk appetite in this area. I Sverige var transaksjonsaktiviteten bra gjennom fjoråret. Det har også vært et bra første halvår. Her er det størst interesse innenfor logistikk, lager, og vi har gjort litt forretninger der, men vi er svært forsiktige med kontor, fordi det er høy kontorledighet. En mulig renteoppgang vil selvfølgelig også kunne påvirke negativt i dette markedet. I want to show you a picture of Sweden in particular. The growth continued in the second quarter in Sweden, with a lot of power. More than 100% of the growth came from Sweden. The deal flow was strong, and already eligible loans were withdrawn as expected. So in the first half year, the exposure has increased from 1.8 billion to a total of 5.9 billion in Sweden. So Sweden now accounts for 23% of the total credit exposure the bank has. So the exposure is divided by 3.3 billion on loans secured with Pant in property, and the remaining 2.6 billion is in the business area. So about 38% of the business exposure will also be linked to property, and that is also in line with how it is in the bank in total. So that means that around 73% of the exposure in Sweden is property-related. We increased our efforts in the business sector in Sweden earlier this year, and we see that this gives good results. For the third quarter, we expect a relatively flat development. The deal flow is good, but we are also familiar with some easing. Towards the end of the year, we expect further growth in Sweden. We are long-term, building stone by stone, and the ambition is to build a diversified, robust loan portfolio, where each loan gives a one-capital transfer after tax of more than 15%. Finally, we are building a bank for both up and down times, and now we and our main market are in an extreme situation where many negative conditions have occurred. and work to end the difficult projects and limit the losses, continue with high priority, but take time as a result of project-specific conditions and also the ongoing negative development within new housing. In spite of the difficulties in housing development in Norway, we see good growth opportunities in Sweden in business and in shipping financing. And we are, as we have shown, undisputed, solid, and we have a long-term perspective. And all this gives us a platform to handle the challenges we now experience in Norway in terms of housing development. We have gone through the forecast and updated the business areas and market views. As always, we are ready for questions, either in the room or in the chat. Let's start in the room.

I have a question about losses. Last quarter we got the impression that there were a lot of big engagements that led to losses in the property segment. Is it possible to say something about this customer that was moved to Step 3, if I understood correctly, that it was a single large customer that ran the operation there? Is it related to ownership?

I can answer that.

Yes, please do. So what I said was that the volume change, the 97 million, is largely driven by one customer, one corporate engagement, while the increase in revenues in Trinn 3 On the other hand, there is another increase in the amount of already existing 3-in-3 engagement within the development of the association.

Is the increase in the amount of engagement the same as in the previous quarter?

Both yes and no. That's what we can say.

And then on the extra higher deductions on step 2, which are not macro driven, is it possible to explain to the executors what makes you see them more, what you see, or how the dynamics are?

Yes, there is a large volume increase in Trinn 2 as the first point. And then there is a credit disruption also among the volumes that are in Trinn 2, which in total accounts for 25 million in increased revenue roughly.

I think we can say that there is a project in Oslo that is almost finished, but where a little under half of the unit is sold, and where the motherhood has economic challenges, and there are cost exaggerations. So the further handling is dependent on sales, and what things are sold to, and how fast things are sold.

As you showed, the exposure has fallen quite a bit on the development of the company, especially when you look at how much it is up in Sweden, it looks like it is down at the edge of 400 million in Norway quarter by quarter. Are there any new engagements that are in detail, or is it almost just influences?

We are doing a little bit of new things in Norway. We have had an enhanced policy over time, and the quality of what we are being asked about is therefore too poor, and the activity is low. We have never built as few homes as we have since 1946. So I will answer that.

At the same time, it is dynamic. We have invested in loans of over 3 billion kvartals.

Yes, and we don't have a breakdown of exactly how they are distributed.

No, but when we have an exposure growth of over 300 million, you understand a little.

And then in Sweden, I'm sure you've communicated this before, but is it possible to make an update on occupations, if any locals or planners have been employed to do so, and also a little bit on funding in Sweden over time?

Ja, vi har jo et eiendomsteam i Sverige bestående av tre personer, og de har jobbet der nå over ganske lang tid. Og så økte vi innsatsen gjennom at vi har tre på bedriftsteamet som også jobber i Sverige, men også har en fot i Norge. Og så har vi akkurat rekruttert en lokalt, altså en svenske, som kommer til å starte opp i august. And that is important for us, because it is something with both local knowledge, competence, network and cultural understanding that a Swede has in a different way than a Norwegian, even though we think we are very similar. Nevertheless, we take it step by step, because this is the first time we are working locally, and it is important for us to see how he, because it is a he, fits into the team and how this develops before we possibly increase the team further.

Theodor Wåhlen, Nydal med Carnegie. With regard to Sweden, you seem to have quite good speed in the exposure section. How is the security in new loans? Are you comfortable with LTVR and so on? Or how do you see credit practices in Sweden against Norway? Do you work in some other way? Or are you comfortable with the growth rate in relation to what credit risk you take?

Generally, we take it step by step and grow organically and build customer base and network and competence gradually. We have always had a stricter policy in Sweden and directly towards larger, more professional customers. I would also say that there is a market with larger customers. More professional customers, several listed shareholders, larger shareholders, so there is another professionalism. We are in a higher category, I would say, and have been from the start in Sweden, and we have always had higher demands for one-capital contributions, the ability to act there, and it is also We are more conservative than stricter practices and are comfortable with the risk there. Hmm.

Thank you very much. And on the part of business financing in Sweden that is not property-related, can you say something about which industries, how is the security in those loans?

There would be more business needs, shareholding, maybe a little technology-oriented. So that differs a little from Norway. Yes, I think that's it. Thank you very much.

I think Simen has some questions.

Yes, we have received some questions on the chat. Also health-related. From Simen, also from DNB Carnegie. Can you say something about the changes you are making in practice on housing development?

Yes, I was a little bit into it in my presentation. So it is about an even more restrictive attitude towards empty spaces, where we do not lend to empty spaces in the Randsom to Oslo. For example, the axis towards Gjessheim has been a big drop in empty spaces values, and we are also careful with empty spaces in smaller central areas in the big cities. We are also more restrictive in setting requirements for project realization not to be too long in time, i.e. around 12 months in time, and no longer than that. This with housing size and prerequisites, We have outlined that it is difficult to sell expensive units now. This means that the pre-sale requirements will be lifted, or maybe explicit requirements will be made if there is a housing mix for us to sell large units. These are the three very concrete guidelines we have made in the second quarter.

Simen is also wondering if we can give an update on a potentially new IT system in Sweden.

What can we say, Vegard? It's a long run, but things are happening.

There is a lot going on, but we are not going to give any special update there, apart from the fact that there is a lot of focus in the bank, and that is something we are working on closing. Simen is also wondering if we can say anything about where the losses are coming from. Are you mainly talking about Norwegian volumes, or do you also have losses in Sweden?

There are Norwegian volumes within boligutvikling.

And Rolf has a slightly corresponding question. He wonders if it is only in project financing that you experience problems. Is profitability in the other segments on a normal level? Project financing is a lot of what we do, but if the question is about housing development, So this is where we experience credit-related problems, and the profitability in the other sectors is at a high level. Petter wonders what the average running time for housing financing is in Norway. This is to understand how long you have to fear larger losses.

The turnover rate in that portfolio is at 30-35%. And when it comes to the length or how long it takes to work through the losses, it will be project-specific, and a little depending on what stage the project is in. There is a difference between empty and finished housing, or a project that should... This will depend on the market and the strategy we choose. We can choose to force sell, or we can choose to sit with Tomten or the project that is halfway built or is to be built. There will be variations.

Yes, and it is also possible to think that problem engagements quickly have a longer duration than the usual, so that you do not necessarily get answers to part questions 2, Petter, and answers to question 1.

Because the projects that are normal and go well, they roll with normal speed, while the projects that are difficult, they take time to work through.

Petter is also wondering if the sinking out-of-pocket housing development affects the need for capital, and how you view the need for capital integration versus additional exchange. And for question number one, it will of course affect the need for capital, but we have growth in other areas, as we show in the quarter, so we use the capital for growth in other areas. And in relation to the question of capital binding versus extra exchange, it is up to the board, because at the moment we have a very messy capital Our policy on paying 50% or more is unchanged. I have a few questions for them, but we can take a question from the audience in between.

I came to think of this group that you sat down with earlier this year, or maybe later last year, who were going to work with problem engagement. How do you feel the work is going? Have you made any changes or further strengthening there? That's the first question. And then, as you mentioned, Tiril, On the strategy for recovery, now you have taken over a little more PAMP this quarter, or have you changed your view on that in the last six months?

I would say that the practice has perhaps changed a little, because historically we have chosen to cooperate with customers. I think it has been logical, and it could be in certain situations as well, but we have largely taken over control, taken over control, and are taking control ourselves. So it has probably been a change in the course of this half year. The restructuring group continues as it is, and it works well to concentrate the effort in such a working group. At the same time, we are working to create a framework for the units we take over, and it may happen that we need some other competence or some more capacity to handle the operation of taken units. We haven't completely concluded on that. It will be done after the summer, and there are different models, either employment, or moving people internally, or renting, or buying services, so there will probably be several of these things we do. And then the other measures are about learning, so we have to learn through The number of experiences we build and develop, our model tools, risk classification models, stress tests, that type of thing. These are also measures and activities that we work with. and an even better routine work that covers both taking over units and managing or operating taken over units.

This is constantly changing. Yes, we are doing things differently now than only last quarter. As we show in the calculations, we get a lot of new information. Just in the course of the second quarter, in terms of how things can develop for the misused engagements. Thank you. Rolf was wondering if we use AET now? Yes.

Maybe you, Vare, who is part of the AI group?

Yes, we use AI for something, but we haven't quite figured out how to use AI in the future. Gro Anette is wondering how much discount Can unsold units in housing projects be sold without the bank losing money on the projects?

That's a very good question. We have a pre-sale requirement that says The remaining exposure we have to unsolved units should be at a maximum of 50%, i.e. a halving of the price, and then a sales sum should be collected within the bank. But, and we have reflected on this quite a lot over time now, it is clear that since the customer's ability to implement decreases and the costs are higher, For example, in an entrepreneurial competition, in combination with growing building costs, and the customer has a financially weak property and cannot cover it with their own capital, the bank will quickly have to increase the credit to complete the project. Banken kan bli utsatt i en sånn situasjon. Beskyttelsen gjennom forhåndssalget er ikke så god som den var initielt. Det er noe vi må ta inn over oss. REF også det jeg sa innledningsvis, om at vi må gjøre en grunnleggende vurdering av vår tilnærming til finansiering av boligutvikling. Thank you.

So, summing up, it's individually from case to case, to answer roughly. And if everything is within policy and everything goes according to plan, then it's 50% that's the answer. And if it's not within, if things don't go according to plan and start to go wrong, then it can be from 50% to 0. There will be no more questions on the chat, I think. Are there any more questions in the room?

Good. We got a lot of questions, and that's good. It's important for us to try to explain the situation we're in as best we can. So I'm very happy for good questions and dialogue. We always appreciate that. With that, I wish you all a really good summer, and thank you for the engagement and the meeting.