DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Hello, everyone, and a very happy new year to all of you, and welcome to DNB's pre-call for the fourth quarter. As usual, this will be a one-way call. And unfortunately, there will be no time for Q&A. The objective of this call is, as you know, to remind you of what we already have communicated that might have an effect on the fourth quarter's figures. I will go through the NII and the capital, and then [ Amal ] here, we'll take the remaining of the P&L. Starting with the NII. First of all, it's the same number of interest days as we had in Q3. On the credit volume side, we see on the personal customers. In Q3, we had a growth of 1.1%. Statistics from Norway show for November that we had somewhat slowing growth during the year. And in November compared to November, the year before, we had a growth of 4.1%, and this is compared to the growth that we had in first half, in February, beginning of the year, which was 4.9%. House prices were up 1.5% for the year. And in December, it was fairly flat or plus 0.2%. In number of transactions, we were down 10% in 2022. And for December, it was down 25%. This is from the statistics of Norway. On the corporate banking side, we have, as you remember, a very strong growth in the first half with a 17% FX-adjusted annualized growth. And we said at that time that we will not see this kind of growth in the second half. So in Q3, we came in at 0.7% growth FX adjusted. And from the statistics of Norway, we have seen that in the November statistics that there was a growth of 7.9% compared to the November of the year before. As you know, our long-term guiding for growth is 3% to 4%. And of course, due to this extraordinary growth in the first half in corporate. We will, of course, come up -- come in a little bit above the guided numbers. On the margin side, first of all, remind you of the effects of the rate hikes. And I hope you all found the table from [ Julia ] useful. And I'll just go to make sure that you have the guided effects that we have been given. So the [ repricing ] that had an effect from the 10 August with 50 bps. We set an annual -- expected annual effect of NOK 2.5 billion. The rate hike that has an effect on the 6 October with 60 bps, we said NOK 2.4 billion effective from the 7 November, another 60 bps effect of NOK 2.4 billion. And the last one, effect from the 19 December, 25 basis points with an annual expected effect of NOK 1.2 billion. Going forward, we see that we had an increase -- also a rate increase in December with an effect from the 30 January. That was a 25 bps rate hike and we -- the market also expect 1 more rate hike of a 25 basis point in March. As we have reported earlier, we have not seen any change in the competitive landscape. And we've also seen that the other banks has active rationale in raising rates. On the FX side, we have seen that the average Norwegian krone has weakened slightly for the quarter. This will have a slight positive effect on the NII. So much for the NII and going over to capital. In Q3, we had our CET1 ratio of 18.1%. As I said, expectations for the year-end is 16.5% and from the 31 March, the expectation is 17%, including the maximum full countercyclical buffer. Just remind you that the Minister of Finance announced that the risk weight floors on mortgages and CRE remain unchanged. So they ruled against the FSA's proposal. So that uncertainty has been removed. On the FX side, the period from beginning to the end of period, the NOK strengthened, and this will give a small positive effect on the CET1 ratio. Remember also that DNB, accumulate 50% of profit every quarter for dividend. So if you expect us to pay out a higher dividend at 50%, this will have to be deducted from the fourth quarter. Just to remind you again, our dividend policy, no change here. We will pay out more than 50%. We say that we have the ambition of increasing dividend per share every year and we will allocate excess capital back to our shareholders, mainly in the form of share buybacks. So with that, over to you, [ Amal ].

Sure. Thanks, [ Rune ]. And moving on to commission and fees. In investment banking services, they typically see a seasonally higher activity level in the fourth quarter. But keep in mind that Q4 last year, meaning 2021 was exceptionally strong and that ECM and DCM markets are now to a much greater extent negatively impacted by the overall negative market conditions. On real estate brokerage, As [ Rune ] mentioned, the Norwegian real estate market has seen a lower activity level in the fourth quarter compared to the same quarter last year -- shown both in the volumes sold and volumes posted for sale. In Asset Management, based on the most recent statistics in the market from November, we've seen a marginally positive market inflow in the overall Norwegian market. Money transfers, keep in mind that we saw a seasonal peak in the third quarter when international traveling picked up significantly during the summer months. Moving on to the table titled net gains on financial instruments at fair value. Firstly, customer revenues in DNB markets or FICC has seen a high activity level in the quarter. We announced the mark-to-market effects on the AT1 on the basis swap yesterday, where we're recognizing a negative effect of NOK 847 million on the AT1 and a negative NOK 604 million on the basis swap, so totaling a little more than NOK 1.4 billion negative in the quarter. On costs, we don't really have any specific Q4 remarks. Keep in mind that we typically see somewhat higher activity level in the fourth quarter, which all else equal implies a somewhat higher cost level. And a reminder on wage inflation in Norway, the market expected wage inflation for 2022 to come in around 4% and to come in around 4.8% in 2023. As we stated previously, we expect to come in somewhat higher than the national average due to the composition of our staff. And even though our cost base is primarily exposed to the Norwegian economy, we have some exposure to international inflation levels through our third-party contracts. And as we've stated numerous times previously, we continue to ensure that we don't underinvest in critical areas such as technology and compliance. Finally, a reminder on pension expense. As we've said before, a normalized pension expense in the quarter is just below NOK 400 million. And the compensation scheme under the pension expense is primarily linked to development in global equities. The final topic of impairments and asset quality. We are generally comfortable with our portfolio. As for the third quarter, we had not yet seen signs of stress but obviously continue to monitor this very closely. Impairments will vary from quarter-to-quarter, driven both by ECL model adjustments and company-specific events as you've seen in the past quarters. And there's clearly more uncertainty going forward given the macroeconomic outlook, and it would be natural to see more company-specific events going forward. Again, we have not seen any systemic areas of concern in the portfolio. And finally, a kind request to please submit your consensus contributions to Julie by the close of business on January 25. So with that, I think we round off, and thank you very much for your attention. Thank you.

Thank you.