DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to DNB's Pre Close for the Third Quarter. The objective of this precall is to remind you of what we have communicated, which could have an effect on the third quarter. We will also give you some statistics. That is, of course, public that might help you for the third quarter. As usual, I will go through the NII and the capital and then Anne will do the remaining of the P&L. I remind you that there is 1 interest day or 1 day of interest more in the third quarter than in the second quarter, which we have said is approximately NOK 125 million. On the volume side, we have some updated statistics from Statistics of Norway. For August, the growth was 3.7% year-over-year. This is down from 4.4% in August 2022. So the trend is a gradual, lower demand for credit in the household. The Central Bank is expecting credit growth for the year as a whole of about 3.7%. We have not seen any significant changes in the competitive landscape for the quarter. On the corporate banking side, Statistics of Norway has seen credit growth for August of 4%, and that is down from July, which was 5.2%. On the margin side, we see -- we have some tailwinds from rate increases in the second quarter and also in the third quarter. We would have a full quarterly effect in Q3 from the price change that was effective from May 11. That was a 25 basis points, which we said will translate into approximately NOK 1.1 billion in annual effects. We will have partly a quarterly effect from the price change, which is effective from August 7. That was 50 basis points. And we have estimated approximately NII annual effect of NOK 2.2 billion. We also have a very small effect, of course, from the price change, which was effective from October 22. That will -- no, we will not have any effects in the third quarter. That will have an effect in the fourth quarter and that was a 25 basis points. And also, we had a rate hike, which will have an effect also 25 basis points on November 26. The rate part that the Norwegian Central Bank is expecting if they are expecting another hike in December. So that means that we will see the interest rate topping out at 4.5%. In 2024, they expect the interest rate to be very stable. From 2025, you will see a gradual decrease down to 3.25% from beginning of 2027. We will have some FX effects, which is different this quarter. The average NOK has strengthened by about 3% when we take into account our exposure, which is approximately 10% U.S. dollars, 5% euro and 5% Swedish kroner. This will give a negative effect in Q3. And remember that we did see a positive FX effect in the second quarter of approximately -- of NOK 132 million and that was due to a weakening of Norwegian kroner of approximately 5%. On the capital side, we reported in Q2, you probably remember that CET1 ratio 18.9%. We received the approval from the Norwegian FSA a couple of days later. So if you adjust for this announcement, the CET1 ratio was 18.6%. We will have also some minor FX effect, only minor. We can also say that the share buyback program of 1.5% that was announced after the quarter is expecting to finish by October 18. And now over to you, Anne.

Sure. Starting with commission and fees. Investment banking services, of course, typically sees a lower activity level in the third quarter compared to the second due to the holiday season. We have seen a pickup in market activity, however, in September in both ECM and DCM. On real estate brokerage, we have seen a slowdown in the market for residential real estate or housing throughout the summer really, with a lower number of properties sold and purchased as well as a slight decline in [indiscernible]. We also see that the sale of newbuilds is at a record low level. And of course, the third quarter is typically a slower quarter for real estate broking due to the holiday -- summer holiday season. Asset management, according to market statistics for August, there has been a positive AUM development driven by both net inflow and market development. And finally, money transfers. We continue to see a high level of card use, including international card use through travel activity this summer. And as you know, Q3 is typically high activity quarter for card use exactly because of the summer holidays. Moving on to the table titled Net Gains on Financial Instruments at Fair Value starting with customer revenues in DNB markets or FICC, it continues to see 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. And a reminder on the outstanding USD AT1 that is still at 850 million. Moving on to costs. Market expectations to salary inflation in Norway is now at 5.5% for this year and a reminder that the central wage negotiations in early Q2 came in at 5.2%. And even though our cost base is primarily exposed to the Norwegian economy, we have some exposure to higher inflation levels through our third-party contracts. And a brief comment on pension expenses. Normalized pension expenses are expected to be slightly higher going forward, driven primarily by wage inflation development. Lastly, impairments and asset quality. The portfolio is still, of course, carefully monitored. And we are generally comfortable with the risk in the portfolio still. As you know, impairments will vary from quarter to quarter driven by both potential changes to macro input factors in the ECL model and/or company-specific events as you've seen in past quarters. And as we have stated before, there is more uncertainty going forward given the macroeconomic outlook. And it would be natural to see more company specific events. But again, we do not yet see any systemic areas of concern in our portfolio. Lastly, a kind request or reminder to please submit your consensus estimates to Johanna by close of business on October 6. So with that, we thank you for your attention and wish you a good rest of the day. Thank you.

Thank you.