Nordea Bank Abp

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

Good morning. Today we have published our half year and second quarter results for 2023. During the first half of the year, the geopolitical landscape has remained fragile. Moreover, macroeconomic uncertainty and persistently high inflation have put pressure on both private individuals and corporates. We have also seen turbulence in the financial markets. In this challenging environment, banks are expected to be solid and trustworthy corporate citizens in society. Nordea is one of the most stable and profitable banks in Europe. Our role and aim are the same as always. We are here to support our customers while delivering stable and predictable financial performance. Our franchise is resilient. We are the only Nordic bank with a very well diversified pan-Nordic business model and we have a sound financial risk position and a strong balance sheet. On top of that, the Nordic region is a very stable and profitable banking market. All this gives us a unique position and makes us a safe and strong partner for customers, shareholders and broader society. Over the past four years, we have consistently improved our performance and are pleased to report yet another strong set of results in the second quarter. We continued to drive high levels of customer activity and strong results. This led to a return on equity of 18.4%. Let me go through some other highlights in Q2. Total income increased by 22%, mainly driven by a 40% increase in net interest income, despite significant negative effects from the weaker Norwegian and Swedish currencies. Net fee and commission income decreased by 6%, mainly due to subdued capital markets activity and lower savings income. Net fair value result and net insurance result were up 14% and 28% respectively. Costs are developing according to plan, and the cost-income ratio improved to 40% from 46%. Operating profit was up 26% year on year. The economic slowdown and interest rate increases have had a negative impact on business volumes, mainly on mortgages, which were stable year on year. Corporate lending was up 4% and continues to be the main lending growth driver of 2023. Retail deposits grew by 1% year-on-year and corporate deposit decreased due to seasonal effects from dividend payouts and the normalization of deposit levels in some sectors, such as the energy sector. Asset management were up 2%. All four of our divisions and all 18 of our business units delivered a good performance and positive jaws. The overall performance shows the strength of our franchise. It is evident that the backbone of our business is strong. Our credit quality remains solid with low net loan losses. Also, our capital position continues to be among the best in Europe. Building on our current performance and assessing the business development for the rest of the year, we have upgraded our outlook for the full year. We're expecting return on equity to be comfortable above 15% this year compared with the earlier outlook of above 13%. I will get back to the target updates at the end of the presentation. Let's now look at the second quarter results in more detail, starting with the income lines. Net interest income was the main growth driver in the second quarter. The NII result reflects both the macroeconomic development and changes in customer behavior. Net interest income increased by 40% year-on-year. Monetary policy rate hikes are resulting in improved deposit margins across business areas and countries creating a tailwind for net interest income. Retail deposit grew by 1% and corporate deposits decreased by 7% year-on-year. While the deposit margins are supporting the result, it is clear that the economic slowdown and interest rate increases have had a negative impact on business volumes. Higher living costs and lower consumer confidence have been reflected in lower demand for housing loans and investment products. Mortgage lending remained stable year and year. Despite the economic slowdown, our corporate lending volumes have continued to grow, particularly in Norway and Sweden. Corporate lending grew by 4% and continues to be the main lending growth driver of 2023. Lending margins have come down, mainly driven by lower mortgage margins, particularly in Sweden. It is also worth noting that the weaker Norwegian and Swedish currencies had an impact of approximately 145 million euro on our net interest income. Rising rates are understandable, putting pressure on our customers. However, I am glad to see that our customers have, in general, adapted well to the new interest rate environment. We have maintained proactive support for our customers and have delivered relevant advice and services. We have also further developed our deposit offering for both retail and corporate customers. The picture for net fee and commission income was mixed during the first half of the year. Net fee and commission income was down 6% year-on-year. Payment and card income increased by 2% in local currencies year-on-year due to higher customer activity. Brokerage and advisory fee income was impacted by lower customer activity in a subdued market and was flat. However, we are seeing signs of recovery in this area. As management fee income slightly improved quarter-on-quarter, shows the net flows turned positive in Q2 with a continued strong inflow from internal channels. Also, we have seen a positive development with regard to our pension offering. As such, products are being prioritized in these rather volatile markets. Net fair value results. We're supported by continued high levels of customer activity. We continue to support our Nordic customers in meeting their financing and risk management needs in a volatile environment. FX and interest rate hedging products remained in solid demand. Market making operations were up during the quarter and treasury result supported the NFV development. Overall, net fair value result increased by 14%. The high inflation continues to affect our customers and society in general. Our cost increased by 7% year-on-year as we continue to manage strong inflationary pressure, while at the same time making further additional investments. These investments are related to protecting us and our customers against financial crime, strengthening cybersecurity and enhancing our technological capabilities even further. All this is in line with our plan. In the second quarter, we improved our cost-to-income ratio to 40% from 46%. Our risk position is strong and credit quality remains solid. Our pan-Nordic loan portfolio is well diversified and spread evenly across the Nordic region and across different sectors. This is a unique structural advantage, which enables us to avoid larger concentrations. We see no signs of stress in any parts of our portfolio. For instance, in the commercial real estate segment, we have a high quality portfolio with relatively low levels of risk exposure and no concentration in any specific country. Naturally, we are following the impact of Macri developments on all our customers very closely. In the second quarter, individual net loan losses remained low at €25 million or three basis points, despite the Nordic economies slowing. Overall, net loan losses and similar net results for the second quarter was €32 million or four basis points. The increase compared with previous quarters is explained by lower reversals rather than increasing new provisions. We have kept our management judgment buffer unchanged in local currencies, which translates to 572 million euro. In this way, we continue to ensure a strong reserve to cover potential future loan losses in the continued uncertain environment. Our capital position is among the best in Europe and we continue to deliver market leading returns for our shareholders. Our CET1 ratio increased to 16% from 15.7% during the quarter. This is four percentage points higher than the current regulatory requirement. Our capital position demonstrates our strong capacity to support customers and society. We also remain focused on capital excellency in accordance with our strategy. As a part of this, we launched our fourth share-by-back program of €1 billion at the end of April. Let's now move on to our business area results. During the first half of the year, in all our divisions, income grew faster than costs, and our aim is to continue to deliver positive jobs. In personal banking, we grew our business volumes in line with the market and continued to build strong digital relationships with our customers. We are clearly being impacted by the economic slowdown and rate increases, mainly in terms of mortgage business volumes. Mortgage volume growth followed the slowing housing market. Total lending volumes were stable in local currencies year on year, while deposit volumes increased by 1% due to savings deposit growth across the countries. Customer investment activity and demand for new loan promises remained lower than a year ago. We continued to see increased interest in deposits and further expanded our deposit product offering across the markets. For example, customers in Sweden can now make recurring transfers into both savings deposits and investment funds through Digital Challenge. Meeting activity and traffic to our customer advisors remained at high levels. driven by high customer demand for advice related to personal finances. Digital customer activity further increased, with private mobile app users up 7% and logins up 9% year-on-year. In Sweden, we drew a 21% year-on-year increase in digitally generated leads for markets and savings advisors, supporting our continued market share growth. By consistently adding new products and services and increasing our use of data analytics and automation, we have attracted 1.2 billion logins to our mobile bank in the past year alone. We also continue to expand our sustainability product offering. The ESG share of gross inflows into funds remained high at 31%. Total income was up 29%, driven by strong NII growth. Return on capital at risk improved to 27%, and the cost-to-income ratio improved to 45% from 51%. In business banking, we maintained the solid business momentum and continued to grow our volumes. Total income was up 25%. Lending volumes increased by 4% in local currencies year on year. We grew our SME lending volumes, especially in Norway and Sweden. This clearly demonstrates our relevance and strengthened position in the SME segment across the Nordics. Net interest income was up 41%, driven by lending volumes and higher deposit margins. The quality of the loan book is sound. Net loan losses of 37 million euro were driven by a small number of customers, mainly in the construction and retail sectors. Customer satisfaction improved during the quarter. We increased our proactive support for customers to help them tackle the current macroeconomic challenges. To support our aim to be the leading digital bank for SMEs, we continued to develop the Nordea Business Net Bank and mobile app. The digital customer experience is getting a positive response from our customers. For example, customer feedback on the net bank improved and mobile bank ratings averaged above 4.4 out of 5 for the quarter. We are committed to accelerating the transition to a more sustainable economy. In May, we introduced a new sustainability guarantee, which makes it easier for customers to obtain financing for sustainable investments, such as solar panels and energy renovations. Return on capital at risk in business banking increased to 23% compared with 19% a year ago, and the cost-to-income ratio improved to 37% from 43%. In large corporate institutions, we made further progress with our strategy execution. We grew lending volumes by 3% year-on-year, excluding FX impacts. We are seeing solid demand for credit among large corporate customers, and with our strong balance sheet, we are able to meet the demand. Deposits returned to more normal levels following the dividend season and the exceptional events in the first quarter. In debt capital markets, the activity level normalized, but in equity capital markets and mergers and acquisitions, the uncertainty remained. However, activity levels somewhat improved and our deal pipeline strengthened during the quarter. Credit quality continued to be very strong and we saw net reversals during the quarter. Global Finance magazine named us the best bank for sustainable finance in Denmark, in Finland and in Norway. We remain a leading platform for sustainable advisory services and are on track to facilitate €200 billion in sustainable financing by 2025. Return on capital at risk increased to 19% in the quarter. In asset and wealth management, we were able to remain on the growth track, even in challenging markets. Total income was up 14% year-on-year. We maintained strong momentum in private banking and continued to support our customers with high-quality investment advice. In line with our growth plans, we attracted further new customers and secured positive net flows of €1.8 billion. In life and pension, we continued to execute our growth plans. Cross-written premium in the quarter amounted to €2.2 billion, upfront €1.4 billion a year ago. The strength of our franchise is visible in the positive net flows of €2.6 billion from our internal channels. Asset owner management were up 2% year on year. The net total inflow was also slightly positive during the quarter. Our long-standing focus on ESG was recognized by the 2023 Responsible Investment Brand Index, which awarded us a top ranking in the Nordics. To support our strategic objective to be a digital leader, we launched several enhanced functionalities for savings and investments in the mobile app. We also introduced features to facility closer customer advisor interaction and reduce time to market. Return on capital at risk was 60% and the cost to income ratio improved to 39% from 40%. To sum up, the first half of the year has been strong for Nordea. The second quarter was actually the 10th quarter in a row for which we are able to grow our analyzed operating profit. Since we launched the repositioning of the bank in 2019, we have consistently improved our business performance in different economic circumstances. We have established a new sustainable higher level of profitability and are now among the best performing banks in Europe. And let me emphasize that all our four business areas across the countries are performing very well and contributing to the strong group result. With a unique business mix, we are running 18 well-performing business units and we will continue to improve on this journey. Our pan Nordic business model is resilient and enable us to support and advise our customers and perform well in the current macroeconomic uncertainty and volatile financial markets. Our assessment is that we will continue in this direction during the second half of the year. To reflect this, we have upgraded our outlook for the full year. We expect return on equity to be comfortable above 15% in 2023. In addition, we are reassessing our long-term financial target for 2025. We will provide a target update in connection with the release of our fourth quarter report. Building a successful business is a marathon rather than a sprint. That is also our mindset. We are happy with the progress made so far, but at the same time, we are consistently striving to improve our performance further. We remain committed to delivering the best omnichannel customer experience, driving focused and profitable growth improving operational and capital efficiency, and maintaining positive jaws. Most importantly, we aim for nothing less than to serve our customers to the best of our ability and be the preferred partner for them, now and in the future. Thank you.

Thank you, operator. We're now ready for the questions.