Nordea Bank Abp

Good morning and welcome to Nordea's first quarter 2023 result presentation. Here in Helsinki, we have our CEO, Frank van Jensen, our CFO, Ian Smith, and my name is Matti August from Investor Relations. As usual, we'll start with a presentation by Frank, and after that, you will get a chance to ask questions. To ask a question, please remember to dial into the teleconference. And with that, I'll leave the floor to our CEO, Frank Van Jensen.

Good morning. Today, we have published our first quarter result for 2023. In the quarter, we witnessed turbulence in the financial markets, and continued high macroeconomic uncertainty. Recent developments, including problems faced by a few specific banks in other countries, have reminded us all of the importance of a safe and trusted banking sector. Nordea is one of the most stable and profitable banks in Europe. A resilient and diversified business model, sound financial risk position, strong balance sheet and high profitability makes us a safe and trusted partner for customers, employees, shareholders and broader society. Despite the weaker economic environment, we are pleased to report yet another strong set of results in the first quarter. We continued to drive a solid business performance underpinned by our financial strength. Our position of strength is evident in the trust and confidence our Nordic customers continue to show in us. This trust and confidence has been reflected in improved external customer ratings, higher market shares in prioritized segments, and increased deposits in particular. Some of the highlights in Q1. Operating profit was up 34% year-on-year despite negative exchange rate effects. Our return on equity improved to 17.1% from 12.6%. This was the highest return on equity since 2007. Due to the weaker economic environment, lending growth slowed, but continued to develop positively. Corporate lending was up 5%, and mortgage volumes were up 1%. Deposits were up 5% year-on-year, and asset management slightly improved, increasing by 1% quarter-on-quarter. Net interest income increased, supported by deposits in particular. NII was up 35% year-on-year. Net commission income decreased by 8%, mainly due to lower lending activity, subdued capital markets activity, and lower savings income. Net fair value result and net insurance result were up 27% and 31% respectively. The cost-to-income ratio, including regulatory fees, improved to 40% from 45%. In all our businesses, income has grown faster than costs. Our aim is to continue to deliver these positive jobs. Let's now look at the first quarter results in more detail, starting with the income lines. Net interest income development reflects current trends when it comes to both customer behavior and the macro economy. On the one hand, monetary policy hikes are resulting in improved deposit margins, creating a tailwind for NRI growth. As I said previously, this is a healthy normalization of the highly unusual prolonged period of negative rates. On the other hand, We are facing a headwind due to the uncertain environment. In addition, the high interest rates and slowdown in economic activity have caused our lending growth to slow. This development is visible across the Nordic countries. We are naturally pleased to see that our Nordic customers continue to show trust and confidence at us at a time when some banks elsewhere were facing problems. This was visible in our deposit growth in particular. Deposits grew by 5% year-on-year, with strong growth in corporate deposits in particular. As mentioned, lending growth has decreased following the slowdown in economic activity. However, our productivity towards our customers has helped to drive positive business volume growth. Corporate lending grew by 5% and mortgage lending by 1%. The depreciations of the Swedish and Norwegian krona had a clear negative impact on the figures during the quarter. Deposit volumes and margins increased. This increase was partly offset by lower lending margins driven by higher funding costs. Overall, net interest income increased by 35%. The picture for net fee and commission income remained mixed in the first quarter following weaker markets. Net fee and commission income was down 8% year-on-year. Payment and card income increased by 3% year-on-year due to higher transaction volumes. Brokerhood and advisory fee income remained muted due to lower customer activity in a subdued market. We expect this area to recover when market confidence increases. Our savings fee income continued to decrease following a 7% decrease in asset under management. Net flows from internal challenges remained positive, demonstrating the strength of our franchise. We continue to support our Nordic customers in meeting their financing and risk management needs in turbulent markets. This activity led to a strong net fair value result in the quarter. Growth in customer areas amounted to 21% year-on-year, a substantial contribution. FX and interest rate hedging products continued to be in high demand, Market making operations were also up, driven by FX and rates trading. Net fair value result increased by 27%. The higher inflation affecting our customers and society in general is leading to increased cost pressure in our business. We also continue to make substantial investments in strategically prioritized areas such as digital, technology, and risk management to strengthen our business and resilience even further. Costs, excluding regulatory fees, increased by 6% in the first quarter. This is in line with our plan. When it comes to cost, our approach is unchanged. We remain focused on maintaining strict cost control and growing revenues faster than costs. We aim to continue to improve our profitability while investing to strengthen the bank even further in the long term. Our credit quality is strong and realized net loan losses remain low. We have a well-diversified loan portfolio across the countries and sectors. Net loan losses and similar net result for the first quarter was 19 million euro, or two basis points. Despite the continued economic uncertainty, we had relatively few new individual and collective provisions in the quarter. These amounted to 21 million euro in total. The management judgment buffer was kept unchanged at €585 million. In this way, we continue to ensure a strong reserve to cover potential loan losses. Looking ahead, macroeconomic uncertainty remains high. We expect the challenging environment with lower consumption and lower growth tightened financial conditions, continued higher inflation and higher interest rates to persist in the coming quarters. However, our risk position is sound. The Nordic economies are strong and well positioned to better the challenging conditions. And our customers are in good shape overall with solid financial positions. Our capital position is among the best in Europe. The quarter-end CET1 ratio was 15.7%. This is four percentage points above the current regulatory requirement. With our high profitability and strong capital generation, we have been able to deliver market-leading shareholder returns. It's a result of a successful implementation of our strategy. At the beginning of March, we received regulatory approval for our fourth share-by-back program. Our Board has decided to launch the €1 billion program, which will commence tomorrow, 28 April, or as soon as possible thereafter. In addition, our Annual General Meeting in March approved a dividend of €2.9 billion or €80 per share for 2022. This is up 16% compared with 2021. It is a pleasure to see our dividend payments to our 560,000 shareholders supporting economic activity, driving growth and challenging funding towards innovation, education, healthcare and other forms of support for society. Let's now move on to our business area results. All our business areas delivered solid performances once again. In personal banking, we grew volumes in line with the market and continued to build strong relationships with our customers. In the tougher economic environment, investment activity and demand for new loan promises remained lower than a year ago. Mortgage lending slowed and stood at 1%. Deposit growth contributed positively to our net interest income development. Deposit volumes grew by 2% in this quarter. We continue to support our customers proactively and draw a 32% year-on-year increase in personalized interactions in our digital bank. In Sweden, leads generated for mortgage and saving advisors through our digital channels increased by 38% year-on-year. Digital customer engagement remains high with private mobile app users and logins up 7% and 8% respectively year on year. In February, we were rated the best digital performer among European retail banks by the well-known rating agency D-Rating. The income was up 22%, driven by strong NRI growth. Return on capital at risk improved to 25% compared with 18% a year ago, and the cost-to-income ratio improved to 44% from 50%. In business banking, the strong business momentum and volume growth continued. Total income in the first quarter increased by 20% year-on-year, driven by higher lending and deposit volumes, improved deposit margins and higher net result from items at fair value. We grew lending volumes by 4% in local currencies year-on-year. The increase was primarily driven by Sweden and Norway. Deposit volumes increased by 3% year-on-year, with strong growth in fixed-term deposits. We maintained close dialogues with our customers, increased our proactive engagement, and delivered strong sales in risk management products. The risk picture remained very stable, with net loan losses amounting to two basis points. We continue to stay close to our customers and monitor the situation, especially in sectors under significant pressure from inflation and higher interest rates. Reflecting our proactive customer approach, Swiss SMEs, for the first time ever, ranked us highest for both small and mid-corp banking in the annual Prospera survey. In addition, we also ranked first for cash management in the Nordics in the annual Prosperous Transaction Banking Survey. To fulfill our ambition to be the leading digital bank for SMEs, we continue to develop the Nordea Business NetBank and mobile app. We added new products to our product store, which is currently available to customers in Denmark, in Finland and Sweden. Customer service ratings further improved for both the NetBank and mobile app. We also remain focused on driving the transition to a more sustainable future. During the quarter, our sustainable financing portfolio increased to 9% of total lending, and our green business loans, granted under the European Investment Fund framework, exceeded €100 million. Return on capital risk in business banking increased to 23% compared with 18% a year ago. And the cost-to-income ratio improved to 38% from 33%. In large corporates and institutions, the strong income development continued. We advised and supported customers on their financing and risk management needs in the turbulent markets. Total income was up 23% year-on-year, driven by strong growth in net interest income and net result from items at fair value. We grew lending volumes by 1% in euro year-on-year. In local currency, the lending growth was 8%. Our pan-Nordic diversification, high credit quality, and market-leading position enabled us to grow our deposit volumes by 4% during the quarter. Net interest income increased by 29% year-on-year. Net fee and commission income was down 9% due to continued weak capital markets as investor risk appetite remained low. Net interest or net result from items at fair value increased by 41% due to high custom activity and strong risk management. Credit quality continued to be very strong, and we actually saw some net reversals during the quarter. Our capital discipline resulted in economic capital remaining stable year-on-year and return on capital at risk increased to 25% compared with 19% a year ago. The cost-to-income ratio improved to 33% from 38%. In assets and wealth management, we were able to achieve solid income even in weaker markets. Operating profit increased by 29% and total income was up 19% year-on-year. We maintained strong momentum in our private banking business and continued to generate positive net flows from internal channels, €1.3 billion in this quarter. We attracted high numbers of new customers across the Nordics and increased lending and deposit volumes by 4% and 11% respectively. Deposit margins also continued to improve. Asset management increased by 1% quarter and quarter to €362 billion. Looking at sustainability, net sales of sustainability-linked products continued to follow the positive monthly trend of the past two years. Approximately 66% of total AUM were in ESG products at the end of the quarter. In life and pension, we are progressing as planned with the integration after Denmark Life and we have now launched our first product under the new Nordea pension name. Return on capital at risk was 53% and the cost to income ratio improved to 39% from 44%. To sum up, The first quarter of the year was strong for Nordea. We were able to drive profitability or profitable growth in our uncertain environment. Against this backdrop, we remain committed to delivering on our key priorities and 25 financial targets. We aim to continue improving our profitability and expect return on equity to remain above 13% in 2023. This is already in line with our financial target for 2025. We plan to provide a target update by the end of 2023, when the economic environment will hopefully be clear. Meeting our financial target requires us to keep delivering on our three key priorities, creating the best omnichannel customer experience, driving focused and profitable growth, and increasing operational and capital efficiency. In an uncertain environment, safety and trustworthiness are features that are highly appreciated from various businesses. not leased banks. A strong and profitable bank like Nordea promotes stability and predictability. We are able to support and deliver attractive services to customers and society. And that is also how we are going to continue in both good and challenging times. Thank you.

Operator, we're now ready for the Q&A session. Thanks. The next question comes from Magnus Anderson from ABGSC. Please go ahead.