Nordea Bank Abp

Good morning and welcome to Nordea's third quarter 2023 result presentation. Today 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. Please remember to dial into the teleconference to ask questions. And now I'll leave the floor to our CEO, Frank Van Jensen.

A very good morning to you. Today we have published our Q3 results. This quarter was once again characterized by ongoing uncertainty in the financial markets. The macroeconomic and geopolitical environment remained fragile. Here in the Nordic region, we have so far coped well with the macro uncertainty. However, economic activity has slowed down. We are all learning to operate in a new environment after many years of low, zero and even negative interest rates. We are seeing the normalization of positive interest rates now. Now we must be prepared for higher interest rates for a longer period of time. Asset prices and investment opportunities will also need to adapt to this reality. While employment rates have held up well, we are currently seeing lower economic growth estimates for the coming 12 to 18 months. We need to live with the prolonged uncertainty, but I am encouraged to think that the Nordic economies are in a good position to stand the test of time. In the new positive interest rate environment, banks in Europe have improved their profitability. This has attracted the attention of different stakeholders. But it should be recognized that societies, markets and the financial industry are learning to adjust rates that are now more in line with historical norms. It is also important to note that the ability of banks to support the needs of society requires them to enjoy investor confidence. Debt, the average European bank, is still valued below its invested capital. This is due to concerns about political and regulatory intervention as well as the potential economic risks from lower growth. Let's not forget that the transition away from a zero-rate environment to these more historical normal levels is a big shift. It has many impacts, including tough ones, and it doesn't happen overnight. The change is taking place, but it will require some time. The banking sector turbulence last spring showed that the financial industry is not untouched by these changes. we saw how crucial it is to have a strong, safe and profitable banking sector. This supports customers, economic growth and societies in all economic cycles. In this environment, we at Nordea continue to fulfill our role and responsibility as a bank. We ensure that credit is provided to viable business projects and households with the right balance between savings and borrowings. We are also investing to further strengthen the bank and drive growth. Our market position in the Nordic banking sector is strong and is supported by a strong balance sheet. Our broad product offering and prudent approach to interest rate risk management will also help us to sustain our leading position. You can see the strength of our franchise at work in the third quarter. We perform strongly with an active customer approach, high quality earnings growth and steady business volumes. Some highlights. Operating profit grew by 34% and EPS by 41% year on year. Total income increased by 19% despite significant weaker Norwegian and Swedish currencies in the quarter. The growth was mainly driven by a 36% increase in net interest income. Net commission income decreased by 4% year-on-year, while net insurance income increased by 66%. Mortgage lending was stable in a market with very low activity overall. Growth in corporate lending was 2%, asset on the management grew by 5%, and return on equity improved to 17.9%. Our cost to income ratio improved to 42 or 40% excluding regulatory fees. Credit quality remained very high with low levels of loan losses. Also, our capital position was very strong. Finally, our actions within the area of sustainability were acknowledged as we received a low risk rating for ESG risk from Morningstar Sustainalytics in its latest annual ranking. We improved our position and were ranked best among our Nordic peers. Let me now go deeper into the numbers, starting with the income lines. Net interest income increased by 36%. The main driver was improved margins due to policy rate hikes in all countries. This was partly offset by our deposit hedging and currency effects as we faced headwinds from the weak Swedes and, to a lesser degree, Norwegian currencies. Many economists expect rate hikes to peak this year and the central bank's policy rates to begin to fall in 2024. If this happens, our interest rate risk management through deposit hedging will help to mitigate negative effects on income. Naturally, the interest rate environment has led to more subdued market activity, dampening the demand for new loans. Despite the very low market activity, our mortgage volumes remained stable in the quarter. Corporate lending increased by 2%. Mortgage lending margins remained pressured in line with the general market trends. Net commission income was stable in local currencies. However, due to negative FX effects, the result in years decreased by 4%, excluding FX impacts, NCI was up 1%. Brokered and advisory fee income increased on the back of higher customer activity, and payment and car fee income was up due to higher volumes. We also continued to generate positive flows within our internal channels, but due to lower average asset under management, savings fee income decreased slightly. At the same time, net insurance results increased by 66%. Net fair value result decreased by 5% due to somewhat slower customer activity. We saw lower cost of risk management activity with the drop off mainly driven by FX products. Market making operations were stable during the quarter. Cost increased by 6% year on year. And this was driven by inflation as well as continued significant investments to further strengthen our technology and risk management capabilities. All cost development is in line with our plan. Our risk position and credit quality remain sound. Realized loan losses were low. Net loan losses and similar net result for the third quarter amounted to 33 million euros or four basis points. Our credit portfolio is well diversified and supported by prudent credit policies. that diversification is serving us well. Our loan portfolio is spread across multiple sectors in four home markets. This continues to provide considerable resilience. Naturally, the environment is becoming more challenging And we are following the impact of macro developments on our customers very closely. We kept our management judgment buffer unchanged and local currencies translating to 577 million euros. Our overall capital position remains very strong, and we continue to take actions to drive an efficient capital structure. At the end of Q3, our CET1 ratio was 16.3%, which is 4.3 percentage points above the current regulatory requirements. Our strong capital possession and balance sheet enable us to support our customers and society and also mean we have a strong capacity to grow our business both organically and through acquisitions. The latest Bolons, Top Danmark Life and Danske Bank's personal customer business in Norway are good examples of this. Let's then look at our four business areas. During Q3, the positive George trend continued. Each of our business areas grew income faster than costs. In personal banking, lending and deposit volumes were stable year on year. Our mortgage volume growth was stable in local currencies, despite the general housing market slowing down in all countries. We are seeing a drop in demand for new loan promises compared with a year ago, and pressure on margins continues. We increased the interest on all our savings accounts during the quarter, reflecting the change in rates. This ensures that we will maintain a competitive deposit product offering. Customer investment activity has followed the current economic environment and stayed lower than a year ago. However, we saw signs of increasing demand for recurring investments and stronger customer demand for our attractive range of deposit products. Customer use of our mobile banking app reached an all-time high with the number of logins up 11% year on year. As mentioned, to strengthen our market position in Norway, we have entered into an agreement to acquire Danske Bank's personal customer business there. The transaction is expected to increase our mortgage market share in Norway to around 16% from the current 11%. Total income for personal banking grew by 24%. Year-on-year, net interest income was up 37%, driven by higher deposit margins. Return on capital at risk improved to 29% from 19% in the same quarter last year. And the cost-to-income ratio improved to 42% from 49%. In business banking, we maintained solid business momentum and customer activity despite the weakening economic outlook. We have continued our proactive approach to support our customers and provided them with sound advice to navigate a tougher economy. Lending volumes rose by 3% in local currencies driven by Norway and Sweden. Deposit volumes fell by 2% in line with the market, Improved deposit margins continued to contribute to our results. During the quarter, we launched new versions of our Nordea Business Net Bank and mobile app, which have been well received by our customers. We continue to support our customers in the green transition. During the quarter, we saw strong demand for the new sustainability guarantee, which we launched in May in collaboration with the European Investment Fund. At the end of the quarter, our sustainable finance portfolio accounted for 10% of total lending. That includes lending with beneficial terms for investments in, for example, solar panels or energy renovations of commercial buildings. Total income was up by 20% year-on-year. Net interest income grew by 32%, supported by lending volume growth and higher deposit margins. Return on capital at risk in business banking was 24% compared with 17% a year ago, and the cost-to-income ratio improved to 36% from 43%. In last corporate institutions, we had solid overall results. Lending volumes were stable year-on-year, excluding foreign exchange effects. Deposit volumes were up 5% on the second quarter, but down 16% year-on-year due to more normalized liquidity needs in the energy sector. At debt capital markets, we continued to see activity recover. There was a gradual increase in investor demand for bonds on the back of the current interest rates and spread environment. In equity capital markets and mergers and acquisition, the market remained slow, although activity levels somewhat improved during the quarter. We continue to be a leading platform for sustainability-related advisory services and remain on track to facilitate 200 billion euros in sustainable financing by 2025. And again, we ranked first for Nordic Corporate Sustainable Bonds, according to Bloomberg. Overall, our third quarter results were solid, with total income growing by 10% year-on-year, net interest income grew by 26%, return on capital at risk was 19%, up 3 percentage points on the same quarter last year. And finally to our asset and wealth management business, which also performed well in the third quarter despite volatile markets. The third quarter is a seasonal slower period, but we had positive net flows in private banking, Nordic retail funds and life and pensions. We also continue to attract many new customers. Altogether, net flows and internal channels amount to 0.6 billion euros, showing the strength of our franchise. In life and pension, gross written premiums in the quarter amount to 1.8 billion euros, up from 1.3 billion a year ago. Year-to-date, gross written premiums reached an all-time high of 6.2 billion euros. We continue to develop our internal channels. We have been integrating Top Denmark Life, now called Nordea Pension, which we acquired last December. And in the third quarter, we launched our new Nordea Advenance corporate offering in Sweden. In prior banking, the acquisition of Danske Bank's Norwegian operations strengthened our position in Norway. Net flows in external channels were negative at 1.5 billion euros driven by the third party wholesale distribution segment. As we have seen before, the recent interest rate hikes have led clients to switch from low-risk funds to traditional banking products and direct government bond investments. Total income for the third quarter for the division was up 15% year-on-year, mainly due to higher deposit income. Asset under management increased by 5% year-on-year to 360 billion euros. Return on capital at risk was 55%. And the cost-to-income ratio improved to 40% from 45%. Let me conclude. This was a good third quarter for Nordea in a climate of high volatility and low predictability. We continue to deliver on our priorities and our financial target. We expect our return on equity to be comfortable above 15% for the full year 2023. As communicated earlier, we are reassessing our long-term financial target for 2025 and plan to provide a target update in connection with the Q4 report. Over the past four years, we have consistently improved our performance and profitability, driving high-quality earnings. This demonstrates the enduring strength and resilience of our well-diversified pan-Nordic business model. We have a strong market position in the Nordic financial services industry with a strong balance sheet and capital position. All this will help us to continue to deliver outstanding support to our customers, sustainable growth, high profitability and market leading shareholder returns. Now and in the future. Thank you.

Thank you, operator.