DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the DNB's pre-close call for the first quarter in 2023. And thank you all for participating. First of all, I would like to tell you again the objective of this call is to remind you of what we have communicated that might have an effect on the first quarter results. We will also give you some public available statistics and expectations from Norges Bank. I will go through the NII and the capital, and then Ida will go through the rest of P&L. Before I start on the NII, I would just like to remind you of what we have communicated around DNB and the situation in the banking industry that we have been developed over the last 2, 3 weeks. First of all, DNB Bank has no call to maturity portfolio. DNB bank bond portfolio, our market to market and no material interest rate risk, fixed trade bonds are hedged through derivatives. We have also said in the fourth quarter that we have a diversified deposit base, and we had a stable development in volume in the fourth quarter. Okay. Over to the NII. First of all, I remind you that there are 2 days fewer than interest days than in the fourth quarter. And that is equally in minus $250 million for the quarter, minus $250 million due to interest rates. Looking at the FX, we have seen that the average Norwegian kroner development has weakened by approximately 2%. So we will have a small positive effect on the FX. Let remind you that is the average FX change that we use. On the volume side, we see that on the household credit volume that we see a gradual lower demand for household credit. We show that the 12 months growth rate in February 2022 was 4.9%. While in February 2023, the 12-month rate was 4%, down from 4.9%. We also from Norwegian statistics here that from December to February 2023, we have had a growth of plus 0.3%. The expectations from Norges Bank regards the household credit growth for the year 2023 is 3.7%. On the corporate side, activity level is holding up well and statistics on Norway said that the year-over-year from the 12 months growth rate in February was 9%, and the month-over-month from January to February was 1% tell us a little bit about the volume in the market in total. Going to the market dividends and the expected rate hikes and effects of the expected rate hikes, we will see tailwind from the rate hikes we had in the second half of 2022. In Q4, we saw approximately 2/3 of these effects. So that means that approximately 1/3 of effects we will see now in Q1. In addition, we had a rate hike in December with effect from the 30th of January of 25 basis points. So 2 months effective in Q1, and we had communicated that the annual effect is expected to be $1.2 billion. We also had Norges Bank rate in March with 25 basis points and where we are increasing our rates with effect from the 11th of May. Going forward, Norges Bank is expected 2 more rate hikes of 25 basis points, one in May and one in June and reached the top of 3.5%. We see also that the Norges Bank is seeing a decline when we get into the end of 2024. Over to capital. In Q4, we had a CET1 ratio of 18.3%. FSA's expectation end of March is 17%. That includes the full account as we go buffer. Also just to remind you that we bought back 0.5% of the share buybacks that we announced from the 10th of March. And we will -- you can expect us recently believe that we will ask the AGM for another 3.5% also this year. For -- back to the share buybacks that we had in -- that we bought after the reporting of the fourth quarter was amounted to -- remember that I'll go back to that to that. Okay. Let's go over to the remaining part of the P&L, Ida?

Starting with commission and fees. Investment banking services, as I'm sure you remember, typically sees a seasonally lower activity level in the first quarter compared to the fourth. Real estate brokerage, we see some market statistics that activity is holding up better year-to-date than what we expected and what the market overall expected in the second half of last year. In Asset Management, we see from market statistics in Norway that there was a positive market inflow per February statistic, which is the most recently available statistics. As you all know, there has been significant volatility in the market after end February. So please keep that in mind. On the money transfer side, we see that we have stabilized at a higher post pandemic level, but we might see some seasonal effect in the first quarter, given that both Q3 and Q4 are high activity quarters with regards to money transfers. Moving on to the table titled net gains on financial instruments at fair value in our fact book. First, customer revenues in DNB markets or FICC income. We see that activity levels are holding up very well. With regards to the mark-to-market effects on the AT1 and the basis swaps, we will announce those shortly after quarter end, as we usually do. So you should have them in time before submitting your pre-consensus estimates. And just a reminder, the outstanding AT1 dollar amount is $850 million. Moving on to costs. Keep in mind that we typically see somewhat lower activity in the first quarter compared to the fourth. So all else equal, this implies a somewhat lower cost level. And as stated with our Q4 release, approximately NOK 500 million of Q4 costs were activity-driven and constituted some recurring items. The market expectations to salary inflation in Norway for 2023 is now at 5.1%. This was the most recent expectations from release from Norges Bank recently. As we've said previously, we expect to come in somewhat higher than this due to the composition of our staff. And we're still awaiting the central wage negotiations in Norway, which are expected to conclude in the month of April. Even though our cost base is primarily exposed to the Norwegian economy, we do have some exposure to international inflation levels through third-party contracts. And finally, a reminder on pension expenses, the normalized level for pension expenses in the quarter is around -- and the closed defined benefit -- the compensation scheme is primarily linked to the development in global equities. Impairments and asset quality, we generally are comfortable with our portfolio still. For the fourth quarter, we have not yet seen signs of stress. We still had low request levels for installment holidays and no significant drawdowns on deposits in the fourth quarter. But obviously, we continue to monitor this very closely. And impairments, as you well know, will vary from quarter-to-quarter, depending both on ECL model adjustments and/or company-specific events, as you've seen in the past quarters. We clearly see more uncertainty going forward given the macroeconomic outlook, and it would be natural to see some more company-specific events. But again, we do not yet see any systemic areas of concerns in our portfolio. Do you have anything to add to that?

Yes. Just a couple of more things on the capital side. Just to remind you of the FX sensitivity, we have seen a weakening of the Norwegian kroner if you look at end-to-end period of approximately 7%, and we say that the sensitivity of a 10% change in FX will have an effect on the CET ratio of somewhere between 20 to 25 basis points. In addition, we expect that the dividend from DNB Life will be effective in the first quarter and will have an effect of around 6 to 7 basis points.

Good. I think that was it. Just a kind of request at the end, do please submit your consensus estimates to Julie by close of business on April 13. So with that, happy Easter to those who celebrate, and we'll speak soon.

Thank you.