Danske Bank A/S (DANSKE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Danske Bank Q3 2026 Pre-Close Call. My name is Claus Ingar Jensen, and I'm Head of Investor Relations. In addition, Olav Jorgensen and Nicolai Tverno from our IR team are also on the call. Please note that this call is being recorded for compliance reasons, and the script used for this call will be published on the Investor Relations website after the call. Given that we conduct this call by our Teams, please be aware that if you want to ask questions, you must log on via the Teams app or your browser. If you participate via telephone line, the IR team will be available for questions after the call. In today's call, I will highlight relevant public data and macroeconomic trends in our markets. I will go through the major P&L lines and comment on capital at the end. Afterwards, we will open for a Q&A session. For the sake of good order, I would also like to highlight the following. I will only answer questions related to already disclosed information as well as publicly available information, unless otherwise noted. In connection with this, I wish to highlight that developments in specific indices may not always have the same effect on our performance. Firstly, I would like to give a brief comment on the most recent macroeconomic development in our markets based on the Nordic outlook published in early September by our macro research team. The economies have proved resilient with solid labor markets despite higher uncertainty and as higher energy prices have led to inflationary pressure. In our house view from Danske Bank macro research we expect the ECB and the Danish Central Bank to hike by a total of 100 basis points in 2026, including the hikes in June and September that have already been done and then to additional hikes of 25 basis points in October and December. Focusing on the Danish economy, the solid economic development is expected to continue with around 4% GDP growth in 2026 with continued strong support from the pharmaceutical sector. Employment levels and growing disposable incomes is supporting household finances However, consumer sentiment continues to be low. Housing market activity continues to be solid, although there are signs that the activity and house prices in the Copenhagen area are slowly. Now let's have a look at net interest income. The hikes from ECB in June and September were included as part of our full year NII guidance of slightly above DKK 38 billion. and the hike that occurred in September is not expected to have an impact on our Q3 number. Keep in mind that the contribution to deposit margins in Q3 from the June hike will be partly countered by effects from our deposit hedge given the higher short-term rates. As a reminder, the deposit hedge was increased gradually during last year such that our bond and derivatives portfolio account for around DKK 190 billion, in addition to our [ load ] hedge. The effects I just highlighted are included in our overall sensitivity guidance. While the majority of our sensitivities related to euro and Danish kroner we don't see policy rate tailwinds for NOK and SEK in the third quarter. Keep that in mind when applying our overall group sensitivity, which we reiterated at our Q2 release and is estimated as a positive effect of around DKK 450 million per 25 basis points hike. However, note that there are typical price lags in the few months after a rate hike. In addition, we estimate a year 2 and year 3 up and down effect of DKK 300 million and DKK 100 million, respectively. Regarding recent volume development, we refer to public sector statistics released on the 25th of September. The sector data showed solid Danish volume trends continuing. Please keep in mind that sector development is not an indication of how our volumes necessarily have developed with the retail lending growth typically more muted when we look at our lending growth overall. When it comes to deposits, we are starting to see a gradual shift to higher saving rate products where we passed through more of the rate hikes to customers. All else equal, this churn will have an impact on deposit margins. Please note that the third quarter has 1 more interest day compared to the second the day effect is estimated to be around DKK 75 million. As always, please be mindful of currency fluctuations in the markets where we operate during the third quarter and as of last Friday, SEK has depreciated by around 2% against the Danish kroner, whereas NOK has appreciated more than 3.5%. Pound sterling has been roughly flat. Looking at funding costs, we note that the 3-month CIBOR has increased by almost 25 basis points, NIBOR with almost 10 basis points, while STIBOR has been roughly flat. All based on quarterly averages. This will all else equal, add some pressure to lend in margins until facilities are fully reset. And with respect to our wholesale funding costs, we expect an increase relative to Q2 with the transactions we have executed in the third quarter. We have now issued a total of DKK 85 billion so far during 2026 and well in line with our full year funding plan of DKK 90 billion to DKK 110 billion of debt issuance across instruments. This includes a multi-tranche Scandi currency AT1 in the middle of August equivalent to DKK 5 billion. Please visit Danskebank.com, the debt section for further details on terms and pricing for our issuance. And then turning to fee income. In respect to fee income, we will start by noting that the development is, as always, subject to conditions in the financial markets. refinancing activity and the general activity level among our customers. Furthermore, please be mindful that Q3 always has an impact from seasonally lower activity during the summer. Forward activity is generally solid, and recent PMI statistics also encouraging and consumer spending is also improving slightly despite the bearish consumer sentiment according to recent data from Statistics Denmark. Growth factors are continuing to underpin our everyday banking fees. With respect to investment fees, we know that this line is naturally impacted by the development in asset under management as well as the investment activity among our customers. In respect of fees generated from refinancing or from financing, we note that most Realkredit Danmark refinancing auctions for adjustable rate mortgages does not take place in the third quarter. Therefore, we expect income from refinancing fees in Q3 to be immaterial and lower relative to Q2. Finally, concerning fee income from capital markets activity, we note that primary market activity has seen some impact from the recent volatility. ECM activity has been subdued and similar to activity fields, this will all else equal, be affected by lower seasonal activity. Now turning our focus to trading income. Please note that customer-driven trading income primarily in LC&I is impacted by a continued reduced level of customer activity and the market sentiment, which has been cautious and seasonally slower summer activity. Danica's results are always subject to developments in the financial markets and in the health and excellent business. We have no specific comments to other income. And we -- and while we reiterate our outlook on cost for full year expenses, of up to SEK 26 million to SEK 26.5 million in 2026, we expect the Q3 cost level to be in line with Q2, reflecting commercial activity and investment spend. We have no specific comments to credit quality in the third quarter. As such, we reiterate full year loan impairment guidance of around SEK 1 billion. We have no any comments in respect to tax, and we have no one-offs relevant for the third quarter. And then capital -- in respect to Real, we expect credit risk will actually reflect the trend in lending volumes. We also note that market risk remain subject to the volatility, which we have seen in the financial markets, including changing interest rate expectations. Also, please note that the anticipated Pillar 2 relief related to resolved legacy case has been formally reviewed as part as the supervisory review and evaluation process. As previously guided, this will reduce our CET1 requirements by around 40 basis points and will be reflected in the third quarter on this. This concludes our initial comments. Before we move to the Q&A session, I would like to highlight that we begin our signing period on Thursday 8th of October. We will shortly start to collect consensus estimates with a contribution deadline on Thursday, the 8th of October. Please note that we publish our Q3 interim report on the 29th of October at 7:30 a.m. CET and at the Q3 conference call for investors and analysts will take place at 8:30 a.m. We are now ready for the Q&A session. [Operator Instructions].

I can see that we have a question from Andreas. Please go ahead.

Sorry, I missed the first couple of minutes. But just on the NII, I was a bit interested in hearing that 1 of your peers talked about an impact of negative impact on NII in the upcoming quarter from repricing of Danish mortgages. And today, I was looking at some news in Denmark, where you have this new campaign, you call it top [indiscernible], which seems like you are hiking deposit rates a fair bit in various durations. Could you tell us a little bit on what we should expect on both an asset and liability side from these movements that we've seen in media?

I think when it comes to pricing of the traditional mortgage loans, the big players in Denmark have adopted a different pricing policy at least for now. I know that there are some banks who have been repricing their back book and some banks, including us, have repriced the front book for certain products and for certain customer segments. So that explains why I didn't have the same comment as the bank you are referring to. Secondly, on deposit pricing, as I also mentioned during the call, we have seen a shift starting towards products with high interest rates, term deposits and other saving products. And this is an area where we have also done some repricing I mean if you go back in a couple of quarters, the maximum interest rate you could get on the so-called Danske [indiscernible] which is our prime term deposit loan was 1.85%, now it's 2.35%. So that's an area where we have passed through some or all of the rate increases we have seen so far. But there are no rate hikes on other products. We have a product called Danske [ Inloan ], which is a kind of hybrid saving products where we have maintained the interest rates, but there are also products within private banking segment, where we have -- where there is an automatic reset when interest rates are going up, and this customers have, of course, also benefited from from higher rates. I think that's the short answer, Andreas.

And just a follow-up on the first question. You said that you repriced your front book? And can you tell us how much lower would the front book margin be compared to the back book? And how quickly would that reprice?

Well, I think that we have repriced the front book of specific products, and that has happened gradually over the first half of the year. So we are probably now in a situation where there isn't that much of a difference between front book pricing for the different mortgage banks in Denmark. But I'm not able to provide you with any indication on how that will migrate into the back book over time. Then I think we have a question from Sofie. Please go ahead, Sofie.

Yes. So just going back on on the shift in the savings products, is there -- like could you give us any magnitude how do you think about like like how -- what share of your deposits potentially move the risk product?

I'm not able to give you any third quarter numbers, as you probably can imagine. But if you look at the fact book, we have a table there called 175, where you will see term deposits for our personal customers business unit. And there, you will see that already from from the first quarter into the second quarter, it went up by around DKK 3 billion, and I would expect that to go up even further in the third quarter. That is the total of term deposits we have. So it also includes what we have in Sweden and in Finland. However, the vast majority will be the product that I referred to before.

Okay. That's very clear. And then you mentioned that the refinancing mortgage fees are going to be material this quarter. Could you just remind us.

Not material.

Yes, not material. Could you just remind us how much the refinancing fees or in the second quarter?

I think the refinancing fee in the second quarter were close to DKK 100 million.