DNB Bank ASA (DNB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this pre-close for the third quarter. I would like to remind you that there will be no new information during this call. But just a reminder of what we have communicated earlier, which might have an effect on the Q3 results. As usual, I will start with the NII and capital, and then Ida will take the rest of the P&L. On the NII, one more interest day in Q3 compared to Q2, which will have an effect of plus NOK 125 million. On the volume side, in Q2, we reported growth of 0% or 0.6% FX adjusted. Statistics of Norway continues to report of low credit demand. Last 12 months was 3.7%, but we -- with a slight uptick last 2 months. As we have said in the past 2 quarters, we expect muted loan growth in the first half and a pickup during the second half. And as you know, for DNB, profitable growth remains the focus. On the margin side, in Q2, we saw customers continue to move deposits to higher-yielding accounts, but to a lesser extent than earlier in the year. Additionally, we saw mixed effects from higher margins SME deposits being replaced by sticky, but lower-margin public sector deposits. Competition in Norway -- in the Norwegian market remains fierce, but rational. The Central Bank rate is still 4.5% in Norway, and there was a small adjustment in the rate part from the Norwegian Central Bank last week. But both DNB Markets and the Norwegian Central Bank expect a key policy rate to remain stable at 4.5% until March 2025, and then gradual decrease to 3.25% by end of 2026 [indiscernible] Central bank expects it to come down to 3% by the end of 2026. There has been a small weakening of the Norwegian kroner on average, which will have a positive volume effect on NII. On to capital. In Q2, the CET1 ratio was 19% or 210 bps above the NFSA expectations of 16.9%. A very slight negative FX effect so far this quarter on CET due to weakening of the end of period NOK, 0.3%. The FX sensitivity is still a 10% change in Norwegian kroner will give 20 basis points. The 1% share buyback program announced on June 17th was completed by the September 13th. We will, of course, revert to the market with a new share buyback program, it will be announced. We are still awaiting the Ministry of Finance decisions regarding the NFSA's proposed higher risk-weighted floors for mortgages and CRE. As we have said, they proposed the same in 2022 and was then declined by the Ministry of Finance. Please note that the Central Bank did not support NFSA's proposal last week. Excluding the risk-weighted floors, the implementation of the CRR III or Basel IV is expected to have a minor negative impact. If the change of the floors should be approved by the Ministry of Finance, this will have a negative effect of 80 to 90 basis points on the CET1 ratio. We remind you that the SREP process takes place during the fall. Over to you Ida.

Yes, thanks Rune. Starting with a general comment on commission and fees. As you may recall, activity levels tend to be somewhat lower in the third quarter compared to the second due to the summer holiday season. And a specific comment to the line item titled profit from investments accounted for by the equity method. As a result of Fremtind's merger with Eika Insurance, which was announced in June, the gain of slightly more than NOK 600 million will be recognized in the third quarter. DNB's ownership share in the new entity is 28.46%. Moving on to net gains on financial instruments at fair value and starting with customer revenues in DNB Markets or FICC. Again, activity levels tend to be somewhat lower in the third quarter compared to the second. The mark-to-market effects on the AT1s in the basis swaps will be announced shortly after quarter end, as we usually do. And a reminder on the outstanding amounts on the AT1s, we have USD 1.55 billion AT1s, and SEK 4.95 billion of AT1. Moving on to costs, a seasonally lower activity level that we typically see in the third quarter compared to the second, all else equal, typically leads to a somewhat lower cost level. As announced earlier in September, we will reduce the number of FTEs by 500 over the next 6 months, and we'll revert to the market with more information on the financial impact of this during the fourth quarter. Market expectations to salary inflation in Norway for 2024 is at 5.2%. And for 2025, it's 4.6%. And as you know, the annual centralized wage negotiations were concluded in the month of April with a frame agreement of 5.2%. This had a partial effect from May 1, and we'll have a remaining effect from July 1. And finally, a reminder on pension expenses, 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. Moving on to 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 by potential changes to macro input factors in the ECL model and/or company-specific events as we've seen in the past quarters. And as we've said many times before, given the elevated level of uncertainty these days given the macro picture, it would be natural to see more company-specific events in this environment. But again, we do not see any systemic areas of concern in our portfolio. And very lastly, a kind reminder and request to please submit your pre-consensus estimates to Andreas by end of business on October 3. And with that, we thank you so much for your attention and wish you a good rest of the day. Thank you.