DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to DNB's pre-close call for the second quarter. As we always say and start to say that to remind you that the reason why we are holding this call is to remind you of the information and communication that we have given the market, which could affect the second quarter results. We will also give you some market statistics, which is, of course, public available. I will start with the NII and the capital and Anne, will continue with the rest of the P&L. Lets start with NII, and we start with the number of interest days, which this year the number of interest days in the second quarter is the same number as it was in the first quarter. The reported volumes in the first quarter, which was the loan growth was 0.7%. FX adjusted, it was minus 0.2%. The statistics of Norway, it continues to report lower credit demand in the market. And as we have said in the past 2 quarters, we expect to see muted loan growth in the first half this year, and then a pickup in the second half. Obviously, for DNB, profitable growth remains the focus. On the FX side, we have seen actually a weakening of the average Norwegian kroner, which will have a small positive volume effect. On the margin side, we still have a small tailwind from quarterly effects from the last repricing, which have an effect from the 20th of February. As we said in Q1, it's a continuation of the trend whereby customers move deposits to higher-yielding alternatives, causing a negative mix effect on the margin. And additionally, we saw a negative mix effect from higher margin SME deposit volume being replaced by lower margin public sector deposits. The Central Bank updated the rate path. And now with the rate -- the Central Bank rate at 4.5%, expected to stay flat until the beginning or the first half of 2025. And then a gradual decrease to about 3% by the end of 2026. On the capital side, in Q1, we reported a CET1 ratio of 19% with an SSA expectations of [ 16.8 ]%, meaning we had a buffer of [ 220 ] bps. Last week, we announced 1% share buyback program, and this will have a negative effect on the CET1 ratio of minus 30 basis points. And as you know, we did receive an authorization from the general assembly of 3.5% for the year. On the FX side, we actually had a strengthening of the Norwegian kroner when we look at the end-to-end change and a slightly positive effect on the CET1 ratio. The sensitivity here is 10% change in exchange rate or the 10% of the change in the NOK will give approximately 20 basis points in CET1. Also worth mentioning is the [indiscernible] recently sent out a hearing memo with a proposal of increasing the risk weight for mortgages from 20% to 25% and a CRE from 35% to 45%. This is exactly the same proposal as was given in 2022. And 2 years ago, the Ministry of Finance declined this proposal. If this proposal, this time will be approved by the Ministry of Finance. This means a negative effect of 80 basis points on the CET1 ratio. The hearing deadline for the bank's response is September [ 4th ]. And then over to you, Anne.

Yes. Sure. Thanks. We'll start with commission and fees and other operating income. Investment Banking services, as I'm sure you recall sees a seasonally higher activity level in the second quarter compared to the first. And we continue to see high market activity, especially in debt capital markets. Real estate brokerage sees a similar seasonal trend in the sense that they have also typically a higher activity level in the second quarter compared to the first. And we see a positive market development, both in terms of price levels and the number of transactions in the market for residential housing. That said, the sale of new builds is still at record low levels. Asset Management, we see a positive market development -- we see that positive market development drives AUM higher per public market statistics available from the month of May. And a quick note on net insurance result. This, of course, is materially negatively impacted in the first quarter of every year after the introduction of IFRS 17 due to the fact that we have to book or recognize expected losses arising from loss-making or onerous contracts in the first quarter of every year. So that's a first quarter effect every year. Moving on to net gains on financial instruments at fair value. Customer revenues in DNB markets or FICC typically sees a higher activity level in the second quarter compared to the first. The mark-to-market effects on the AT1s and the basis swaps will be announced shortly after quarter end, as we usually do. And a reminder on the outstanding AT1, we have for U.S. dollars, we have $1.55 billion outstanding. And for Swedish kroner, we have SEK 4.95 billion outstanding. Moving on to costs. A seasonally higher activity level as we typically see in the second quarter, all else equal, leads to a higher cost level. Market expectations for solid inflation in Norway for 2024 is now at 5.2%. The annual centralized wage negotiations were concluded in April with a frame agreement of 5.2%. This will have a partial effect from May 1 and the remaining effect from July 1 as in previous years. And finally, on cost, a reminder on pension expenses. As we've said before, normalized pension expenses are expected to be slightly higher than NOK 400 million in a quarter. And the compensation scheme is primarily linked to the development in global equities, which, of course, has performed well year-to-date. Impairments and asset quality. The portfolio is still carefully monitored, and we are still generally comfortable with the risk in the portfolio. As you know, impairments will vary from quarter-to-quarter, driven both by potential changes to macro input factors in the ECL model and/or company-specific events as we've seen in past quarters. And given the elevated level of uncertainty, we are experiencing these days, given the macro picture, it would be natural to see more company specific events. But again, we do not yet see any systemic areas of concern in the portfolio. And lastly, just a heads up on changes in reporting. As you may know, we announced some reorganizations in DNB in early May. These will be reflected in reporting in the third quarter, so not this second quarter. And finally, kind request to please submit your consensus estimates to Andreas by close of business on July 3. And with that, I think we conclude the call. We thank you for your attention, and wish you a good rest of the day. Thank you.

Thank you.