DNB Bank ASA (DNBBY) Earnings Call Transcript & Summary

Good afternoon, and welcome to DNB's pre-close call for the fourth quarter. Just to remind you, the reason for this call is to remind you of what we have already shared with the market and some relevant public data, which could possibly affect the fourth quarter results. There will be no new information during this call, and this script for the call will be published on our IR website. I will start going through the NII and capital, and Anna will go through the rest of the P&L. Starting with the NII, there are the same number of interest days in the fourth quarter as in the third. So there will be no impact of day counts in the Q4 NII. On the lending side, on the lending volume side, the Q3 growth was plus 0.3% FX adjusted. Statistics Norway reports a fairly stable development in credit demand since the end of Q3 for both household and corporate. For November, last 12 months household growth was 4.5% and the corporate growth was 1.8%. In the fourth quarter, we've seen only small FX developments on the average FX, so we expect to see minor effects on the NII. The FX split in the loan portfolio for third quarter was 8% U.S. dollars, 7% euro and 6% Swedish kroner. The policy rate was cut by 25 basis points from 4.50 to 4.25 in June, and our corresponding customer repricing of a cut of up to 25 basis points on loans and deposits, took effect from -- took effect from August 25. Meaning that it will have full effect in the fourth quarter. Furthermore, the Central Bank cut the key policy rate by another 25 basis points in September and our corresponding customer repricing of a cut of up to 25 basis points on loans and deposits, take effect from November 18. Meaning that it will have partial effect in the fourth quarter. DNB Carnegie expect one additional 25 basis points cut to the key policy rate in June this year. To end at the terminal level of 3.75. With its latest policy rate decision in December, the Central Bank published and updated monetary policy report, which included only very minor adjustments to the expected policy rate cut. We continue to see a fiercely competitive environment. One one-off, we will book at technical collection of other NII of approximately negative NOK 80 million in Q4. As we inform the market in November, we expect NII to be negatively impacted by a regulatory change related to tax accounts in Norway, which became effective on January 1, 2026. The loss of deposit volumes as a result of this change, is expected to have a negative annual NII impact effect for DNB of approximately NOK 300 million. So on the capital. In the third quarter, we reported a CET1 ratio of 17.9%, well above the NFSA's expected level of 16.6%. Based on the end of period FX development in the fourth quarter, there will be only a minor positive effects on the CET1 ratio. We repeat the FX sensitivity on CET1 where there is a 10% change in FX, there is an approximately 20 bps change in CET1 ratio. Just as a reminder, the capital costs of the 1% share buyback program that we announced in October was taken in Q3. And so far, we have completed more than 70% of the current program. As you know, we received the NFSA annual SREP decision in mid-November. The Pillar 2 requirement remains unchanged, but the Pillar 2 guidance was reduced by 25 basis points from 1.25% to 1%. The decision took effect from December 31, 2025. As we did last year, we expect higher REA volume for operational risk, as a result of higher income in the last years. REA volumes for operational risk is adjusted once a year as a calculation of average income over the last 3 years. So in Q4 2024, the CET1 effect was negative 32 basis points. Year-to-date, we have reserved 60% of retained profits, reflecting the average of the last 3 years' payout ratio. This will, in Q4, be adjusted to reflect the actual proposed payout ratio for 2025. And then over to net commission and fees. [indiscernible].

Sure. Thanks, Rune. Starting with net commission and fees. Generally, activity levels tend to be higher in the fourth quarter compared to the third, impacting fee levels positively. Moving on to financial instruments at fair value. Customer revenues in DNB Carnegie, FICC typically sees a seasonally higher activity level in the fourth quarter compared to the third quarter, but is, of course, also impacted by market volatility. The mark-to-market effects on the AT1s and the basis swaps have already been announced. The basis swaps were a positive NOK 83 million, and the FX AT1 were a positive NOK 248 million. And a reminder on the outstanding FX AT1 amounts, we have USD 700 million outstanding and SEK 4.95 billion outstanding. Moving on to costs. A seasonally higher activity level that we typically see in the fourth quarter compared to the third, all else equal, typically leads to somewhat higher costs in the fourth quarter. DNB Carnegie's macro team expects salary inflation in Norway to come in at 4.8% for the year 2025. As communicated previously, we expect to incur nonrecurring integration costs related to Carnegie of NOK 250 million for the full year 2025. And year-to-date for the third quarter, we've seen such nonrecurring costs of approximately NOK 200 million. Keep in mind that we had seasonally low holiday paid disbursements in Sweden in the third quarter of approximately NOK 45 million. And finally, on cost, a reminder on pension expenses. As previously mentioned, normalized pension expenses are expected to be approximately NOK 500 million per quarter and the closed defined benefit compensation scheme is primarily linked to the development in global equities. Moving on to asset quality. There's really no change in our message on 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 you've seen in past quarters. And as we've said previously, given the elevated level of uncertainty driven by the global macro picture, it would be natural to see more company-specific events. But again, we do not see any systemic areas of concern in our portfolio. And finally, a kind request or a reminder to please submit your consensus estimates to Rune by close of business this coming Friday, January 9. That marks the end of our call. We thank you very much for attending, and we wish you a nice day ahead. Thank you so much.

Thank you.