DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to DNB's second quarter results call. And just to remind you, the objective of this call if we remind you of what we have communicated, which could be relevant for the Q2 results. So there's no new information. So we'll now give some publicly available market data related to the second quarter. We'll start with the NII and the capital and Anna will go through the rest of the P&L. Going directly to NII. First of all, there's one more interest day, which has an effect of approximately NOK 120 million. On the volume side, credit volume, we, of course, will maintain our long-term targets of 3% to 4% annual growth. On the first all banking side, we do see a gradual lower demand in Norway. And in April 2022, there was an annual growth of 4.9%. In April 2023, it was reduced to 4.1%. The Central Bank expected credit growth for household for the year 2023 is 3.7%. On the corporate banking side, statistics of Norway for April year-on-year is up 7.5%, but maybe more importantly, month-over-month, so from March to April, there was an increase of 0.3%. Just to remind you of the first quarter volume growth we saw in Personal Banking, we saw a growth of 0.5% in Q1. And in corporate, we saw an increase of 0.7% FX adjusted. More importantly, now than maybe it's all positive. In the first quarter, we saw an increased in ownership adjusted totaled 4.9% from the previous quarter. And the Personal Banking had a small negative of 0.9%, while the corporate banking side has an increase of 9.2%. On the margin side, we continue to have a tailwind from this year's rate hikes. So first, we will have a full quarterly effect from the rate hikes affected from the January. We have said that we expect an impact of approximately NOK 1.2 billion annual for rate hike. We will have a partly quarterly effect from the rate hike effective from the 11th of May. We have said that we expected that to have an annual effect of approximately NOK 1.1 billion. And there will be a small effect from the rate hike, which is effective from the 22nd of June. So we have not guided on that yet. The expected rate hike going forward. We are now the Central Bank rate is now at 3.25%. There are expected 3 additional rate hikes and end up at somewhere between 4% and 4.25%. We expect 25 or 50 bps rate hike to be announced tomorrow. Other than that on the NII, we will have a positive effect from somewhat weakening of the Norwegian kroner. Just remember that it's the average FX over the period we use for NII. On to capital. In Q1, we had a CET1 ratio of 18.6%. NFSA's expectations are above the 17%. Weakening of the Norwegian kroner will have a small negative effect from the CET1 ratio. Just restate the sensitivity for a 10% change in Norwegian kroner will have 20 to 25 bps effect on the CET1 ratio. On the share buyback, we are awaiting the NFSA's approval. And just to say that there are, of course, no changes to the dividend policy. The dividend policy is to pay out more than 50% in cash dividend and then have an increasing dividend per share every year. The goal is also to allocate excess capital back to our shareholders and most likely in the form of share buybacks. So then over to Anna and of the P&L.

Sure. Starting with the commission and fees. Investment banking services, as you know, investment banking typically sees a seasonally higher activity level in the second quarter compared to the first, but we still see somewhat challenging capital markets with the exception of investment-grade bond issuance originations. Real estate brokerage activity has held up better than what we expected in the second half of last year still, but we are perhaps starting to see some signs of tapering demand. Housing prices are, however, being supported by still very limited supply of new builds in the market. Asset Management. AUM obviously positively impacted by the positive market development. Money transfers have stabilized at a higher post-pandemic level as you've seen in the past 2 quarters. We continue to see high levels of card usage in Norway, including for international travel activity. And a reminder on the sale of insurance products, as shown in our Q1 reporting, keep in mind that the implementation of IFRS 17 resulted in a reduction in the reported contribution to commission and fees, where the difference is captured primarily in net insurance results as well as other income. Moving on to the table and our fact book titled net gains on financial instruments at fair value. Firstly, customer revenues in mid markets or FICC continues to experience high activity or a high activity level. The mark-to-market effects on the AT1 and the basis swaps will be announced shortly after quarter end, as we usually do. The outstanding amount of USD 81 million is still USD 850 million. Moving on to costs. Keep in mind that we typically see a somewhat higher activity level in the second quarter compared to the first, which all else equal implies a somewhat higher cost level in the second quarter. Market expectations for salary inflation in Norway for 2023 is now at 5.5%. And the central wage negotiation in Norway was concluded in the early part of the second quarter at 5.2% and part of this will take effect from May 1, the rest will take effect from July 1. 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 a reminder finally on pension expenses. As we've said before, normalized pension expense level in the quarter is around NOK 400 million and the closed defined benefit scheme is primarily linked to the development in global equities. Finally, impairments and asset quality. We're still generally comfortable with our portfolio. For the first quarter, we had not yet seen signs of stress, but obviously continue to monitor very closely. Impairments will vary from quarter-to-quarter. You have seen in the last few quarters, driven by ECL model adjustments and company-specific events. There's clearly more uncertainty going forward given the current macro outlook. And it would be not see more company specific events. But again, we do not yet see any systemic areas of concern in our portfolio. And finally, kind request or a reminder to please submit your pre-Q2 estimates by the close of business on June 28 to [indiscernible]. And with that, I think we'll thank you for participating, for your time, and wish you a good rest of the day. Thank you.

Thank you.