DNB Bank ASA (DNBBY) Q4 FY2025 Earnings Call Transcript & Summary

Welcome to the DNB Q4 Conference Call. My name is Alan, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Rune Helland to begin today's conference. Thank you.

Thank you very much, and very welcome to the DNB's Analyst Call for the Fourth Quarter. Present here in Oslo, we have the CEO, Kjerstin Braathen; and CFO, Rasmus Figenschou; Head of Personal Customer, Maria Ervik Loevold; Head of Corporate Norway, Marianne Wik Saetre; Head of LCI, Harald Serck-Hanssen; and of course, Head of DNB Carnegie, Alex Opstad. Before we open up for question, Kjerstin will give you highlights from the quarter.

Yes. Good afternoon, everyone. Just a few highlights on the backdrop with the Norwegian economy that continues to perform well in a world where uncertainty is growing. The GDP growth this year is expected to be 1.5%, 1.6% next year. We continue to see low unemployment. And this is, after all, I think this single indicator that demonstrates financial stability and health in the Norwegian economy. Two rate cuts in '25. We believe there will be one more in '26 before the key policy rate stabilizes around 3.75% for the remainder of the forecast period. Again, uncertainty is not the same as lack of opportunities for businesses in Norway and also sectors that we are involved in outside of Norway. And this translates, amongst others into the growth that you see us delivering in the fourth quarter. But the backdrop is still positive for our business. The quarter, as such, we are pleased to see that our NII continues to grow even on the back of rate reductions that are also taking effect this quarter. 1.2% growth in NII reflects profitable lending growth across segments and as well as positive contributions from other interest-related elements offset by rate cuts as well as some mix effects on the NII segments. The real strong point in our mind is fees that grows by more than 40% this quarter. Two very strong contributors is assets under management that has a strong net inflow of NOK 20 billion in the quarter and, of course, also DNB Carnegie with a sharp uptick in investment banking and equities and a high level of activity throughout the quarter. I would even highlight more the strengthened position across asset management and investment banking, where we have received many proof points of our strengths and positions. Among them, the effect of being the institution that participated in the highest number of IPOs in Europe in '25 as well as the highest volume that was raised in the market. Costs are up, reflecting high activity seasonally in the quarter and also some one-off elements that we have talked to. And we also chose to highlight the cost development for the year, believing that this is more representative of the development. If we look at this pro forma, look at the underlying cost development, it's 2.6% for the year, slightly less than the inflation level that we have seen in Norway of 3.1% throughout the year, demonstrating that we work systematically towards delivering on the cost ambitions outlined in the Capital Markets Day. Strong capital generation in the fourth quarter. Strong earnings per share, up from third quarter, contributing to the basis on which our Board intend to recommend a cash dividend per share for -- of NOK 18 per share for the year '25. We also announced today an additional share buyback program. In aggregate, taking this to a level of 2.5% of our shares being bought back and accounted for in 2025. After deducting both the cash dividend and this last share buyback, our capital remains very strong, 17.9%, 160 basis points headroom towards the expected and required level by the FSA. So a positive backdrop, a strong capital position, supporting our ability to continue to grow and a commitment to deliver on our dividend policy as we demonstrate again by lifting the nominal level on the cash dividend from what was distributed in 2024. And from there, we'll take your questions.

Thank you. Operator, we are ready for questions.

[Operator Instructions] We will take our first question from Gulnara Saitkulova, Morgan Stanley.

I have two, please. First one on competition. Can you share your current observations on the competitive dynamics in Norway? And whether you are seeing any meaningful changes compared with the last year? Lending spreads have come down this quarter. At what level do you expect them to normalize? And how DNB is responding to the competitive environment? And what initiatives can help you to offset the pressure on margins? And maybe here you can -- maybe you can elaborate more broadly, are you prepared to match competitors' pricing actions? Or do you see digital capabilities and service quality as the primary levers to retain customers flow?

Thank you for these questions. In general, on the competitive environment in Norway, we qualify that as strong. I think we have seen and we have said for some quarters that the aggregate capacity and appetite to grow is larger than that of the demand. Our focus on growth is always profitability. And that is why we're also pleased to say that even in this environment, we are able to deliver profitable growth across all sectors. The strongest contributor in the fourth quarter being corporate customers in Norway and large corporates. And on large corporates, we are, of course, also leveraging our platform to grow outside of Norway and half of the growth delivered in the quarter and for the year stems from our activities outside of Norway. And again, we often talk about this platform and our ability to leverage these positions. And this is typically a year where you see that being demonstrated. We always advise you to look at the volume-weighted margins rather than the individual spreads, in particular, in periods where the key policy rates and prices are moving. And there, for the group, you see a decrease of 6 basis points in the fourth quarter. This represents materially the impact of the repricing that has been implemented throughout the quarter. It does also represent in part a mix change, different growth between lending and deposits and also some margin pressure related to the competition we have talked about. We are, I would say, offsetting margin pressure by leveraging our platform, our presence, our capability across Norway to grow also in times of strong competition. We would not match any price points. There is no need to match any price points as long as we can grow profitably. And we are working on initiatives that we have talked about to reduce time to pay out on mortgages. We have reduced the time for mortgage application and processes by 24% during '25. This is important to customers. We have facilitated much easier registration of businesses for new companies and onboarding into the bank and reduce the timing of this by 37%. And of course, we actively use our distribution, both digital and physical in order to market and proactively seek growth. So this will be our strategy going forward. We do not guide particularly on margins as such. I did mention that we do expect to see another cut in the key policy rates towards the summer. And this is likely to believe to have an effective banks continue to also change prices when key policy rates are priced, but we're confident in our ability to, over time, deliver growth and reiterate the ambition to grow 3% to 4% for the group. It's not a max. We did grow by 4.9% in '25. And as long as growth is profitable, there is some flex to this. But the main plan and sort of ambition is the 3% to 4% rhythm, I would say, on the back of the platforms that we command.

Very clear. And just second question, can I follow-up on these other impacts on NII. How should we think about this item going forward? And what are the key underlying drivers for other NII? And should we assume for the next quarters that this benefit is non-recurring?

Well, it's a harder element to give you, sort of, guiding on in relation to other elements related to volume and margins. Because other NII tends to be more volatile from quarter-to-quarter. It's a bucket consisting of many different elements. If you look at the previous three quarters, it has been a negative delta from quarter-to-quarter. This quarter, we are in a situation where all of these major elements they come into positive territory. Among the categories that are represented in other NII is interest-bearing activity that is not directly linked to lending and deposits. One of the examples being securities finance, another being short-term management of liquidity. It is also a bucket where any differences that stems from intercompany elimination in the accounting will be visible. And it also bears elements of the non-performing portfolio that can impact the numbers from quarter-to-quarter. So there's no real, sort of, ground rule for indicating the direction or which level it should be at. If you do, however, look at this over a longer period of time, I think you would find that more often than not, there is a stronger contribution in the fourth quarter than in other quarters.

We will take our next question from Sofie Peterzens, Goldman Sachs.

Here is Sofie from Goldman Sachs. So just on the fees, the investment banking fees were very impressive, up over 100% year-on-year and over 60% quarter-on-quarter. How should we think about the sustainability of this fee income line? Is it fair to assume that it could be, kind of, that this was a normalized Q4 level? Or should we expect, kind of, the level we saw this quarter to be a normalized level? And then my second question would be on the Polish mortgage provisions. Could you please just remind us what the outstanding exposure is? Third, did you take any additional provisions this quarter for that book? And how much the debt provisioning or coverage is?

Sofie, it's Alex here. So, referring to the investment banking fees and the growth that you mentioned in Q4. Well, first of all, Q4 is, of course, a seasonally strong quarter for investment banking normally. And we saw that also this year. But I would say that the activity level was very broad-based. And while we also have some large significant transactions, it was broad based enough to say that we expect that to be a, sort of, normalized level for Q4.

Yes. And when it comes to the Polish portfolio, this quarter provisions is NOK 34 million, which is much lower than last quarter, but this is what we see sufficient for the situation. Currently, the size of the portfolio is NOK 3.4 billion, which -- where the competition is 89% in euro, 1% in Swiss francs, and 10% in zloty denominated.

And sorry, just a clarification. On the Polish portfolio, what was the original, like the max exposure of this, back?

The max exposure, back in time?

Yes.

I don't think -- I don't think we have those numbers. We need to come back with that. But yes, I'm not sure why that would be relevant. I mean, what we're outlining now is the current exposure and the spread across currencies.

Okay. No, because some of the other European banks with Polish exposures are saying -- I mean, if you look at the Polish banks, they have like closer to 200% coverage because they are saying that you basically also going to get claims for loans that have already been repaid. So I was just curious to understand what the size of this exposure at the peak was?

Okay. Yes. No, I think what we can say is that the aggregates that we have taken now is, sort of, our best estimate as to the representative level of impairments.

We will take our next question from Riccardo Rovere, Mediobanca.

A couple, if I may. The first one is, if I remember correctly, and if I understood it correctly, this morning, Kjerstin, you mentioned that in Q4, you somehow experienced some lower margin pressure than in Q3, if I got your comments right this morning. I was wondering if you could elaborate a little bit on what exactly that means? And the other question I wanted to ask you is, if the loan book is supposed to grow, kind of, 4%, because this is more or less what you have delivered in 2025. This is a fairly elevated number, at least in Western European countries. Doesn't this mean that the pie is large enough for everyone to have a profitable growth without particular margin pressure? 4%, it's fairly, fairly high for Western European standards. So I was wondering whether that comment to you makes sense or not. And the very, very last one, sorry to get back to what Sofie just asked on Poland. But it's not clear to me if you actually charge some provision in this quarter related to the Polish portfolio. And if that is the case, how much that was?

We charged another NOK 34 million on the Polish portfolio this quarter. You are correct. I did mention an observation that we had seen somewhat lower margin pressure in Q4 than Q3. I would qualify this as a comment related to the fact that we are not seeing the pressure spiraling and rapidly increasing rather than indicating what we expect to see in the future. My reference was also pointing to the fact that it's not as binary as just thinking about growth versus pricing. I'm quite happy to see the work that Maria and her team is doing in order to leverage our position, our products and our channels, both in terms of physical distribution and digital in order to generate new customers and attract across the services and products we are offering. 3% to 4% growth has been, sort of, our marching rhythm, so to say, some years slightly above, some years slightly below. It speaks to our growth platform more than to the pace of economic growth in Western Europe. And you know that we have more of a challenger position in other Nordic countries than Norway, which means that we are not as dependent on the growth in the economy overall, and we feel that our offering and capabilities towards clients, it's much improved with onboarding Carnegie across investment banking as well as wealth management. And this is well received by our customers. Beyond that, we continue to have a very strong brand and offering across energy, across the maritime sector, across healthcare. And these are all industries that are driven by some of the mega trends that we see evolving. And this is the reason why we think we can detach a little bit and deliver profitable growth. If this means that everyone can deliver profitable growth, I'll leave it up to others to judge. But I think we have highlighted that we believe it's the fact that our growth platform is, in fact, a competitive advantage that gives us room and flexibility that others may or may not have.

Okay. Just a quick follow-up on this. Still 3% to 4%, it would be at least, for Norway, less than the nominal GDP. Why should that be the case? Because inflation is 3%, real GDP growth expected to be 1.5%, kind of, is one of your slides, if I'm not mistaken. So we land in 4.5%. Why the largest bank in the country should be growing less than the nominal GDP?

Well, I think you can also add the factor of development of house prices and refinancing activity that fluctuates. And I think if you go back and look at the historic development, it has not been very representative to just combine GDP as well as inflation. I mean, there are other factors that are impacting it. You need to look at credit demand. For one, this has come down somewhat, but credit demand, for example, among corporate customers, Norway in the SME sector, grew by 2.9% last year. We are growing more or less exactly in that rhythm. If home construction, as an example, does pick up, we don't expect that really to materialize in '26, maybe towards the end and into '27. We wouldn't expect it to materially impact the GDP growth, but we would expect it to impact our growth numbers. So it's a little bit different than just combining the inflation and GDP. And again, I'm pointing to the international platform. And the rapid turnover we have in the portfolio, meaning that if you took the gross amount that we are underwriting, if we were only looking to add volume we could add much more. But we are very focused on profitability. And the larger looking the clients, the larger the holdings, the more actively, we will also look to syndicate, originate and distribute. So the gross level of business that we're doing where -- which involves also a lot of refinancings of existing commitments is again much higher than the GDP growth.

[Operator Instructions] We will take our next question from Jacob Kruse, Autonomous.

So two questions. First, could I ask on Carnegie. What would be the areas where you found greater success than you had expected in your plan and conversely other areas where challenges were greater? And secondly, on the NII, just to understand, when we look at this other effect and thinking about 2026 and I guess, Q1. Do you think it makes more sense to start at the Q3 as a base level? Or is Q4 kind of a better starting point? I realize that maybe some, sort of, mix if you can elaborate on that.

I'll hand it over to Alex to answer Carnegie, on the other NII. I'm afraid I won't be able to give you much assistance. You will see that it is a line that fluctuates. I would just reiterate that not having gone back and looked at this quarter, but over time, if you look at several years, it tends to be a lower contribution in first quarter than the fourth quarter, typically because of more eliminations happening also towards the end of the year. And you need to keep in mind that there is also a non-recurring element in the fourth quarter number of NOK 171 million.

Jacob, it's Alex here. So, your first question was what sort of areas have we had greater successes than we maybe foresaw at the outset. And I say we went into this believing really in two things, that the two businesses were a great fit in terms of capabilities. And secondly, of course, that all integrations are difficult and time consuming. And maybe start by highlighting that we are only really two full quarters in combined operations in. So, if we go back to May of last year, really, the focus point has been to bring the organizations together and bring our combined products to our clients and really focus on market position. If I were to summarize them both Q4 and '25 in that context, we have made very good progress, I think, in terms of market position and the areas that are most affected in a sense by changes in equities and in investment banking. In equities, we are a very, very clear market leader in the Nordic region, and we do see that the scale benefit that we are achieving is -- will result in more efficiency and a more attractive offer to our clients. I think at the moment, we are ranked #1 in three of the four Nordic countries in that respect. And in investment banking, we really see that the products capabilities for the two organizations really complement each other. I think I've mentioned before that from the DNB side, we do have a DNA in DCM that Carnegie didn't have and Carnegie have a strong DNA in ECM that we've, for instance, benefited from during the fourth quarter, where Sweden was an active IPO market. So altogether, we are I think very, very happy in where we've gotten on the client position and the client feedback that we are receiving and then highlight then that it's still early days, and we believe the better opportunities are actually still ahead of us. And maybe following up on that, Harald, the work together with LCI is -- has been progressing well throughout the year. But I really feel that, that's accelerating at the moment. And in terms of challenges, I think it is a significant amount of work to bring two organizations together, and that process is very much ongoing. But I think we're making good progress.

We will take our next question from Riccardo Rovere, Mediobanca.

A couple of follow-ups, if I may. The first one is on something that I always ask you, and I always get the answer, is on DNB Liv, the Solvency II ratio is again 260%, around 260%. It was supposed to come down, but it remains -- it always remains 260%. So I was wondering what is the level that you target over the medium term, not 10 years? And is it supposed to be upstream in a faster way the capital that is generated in insurance operations? The second question is on SRT. I just wanted to have an idea if that have been active and what you have done? If it's an instrument you are actually using at the moment, you have been using in the past. Just a little bit of color on that. And then maybe just a curiosity, given the NOK 171 million one-off in NII, I was wondering what is -- would this refers to? Just a curiosity.

I will hand the SRT question over Rasmus, but I'll briefly respond on DNB Liv. We haven't specified a target specifically for solvency. We have said that if solvency ratio is above 140%, we will distribute up to 100% of the annual results as a dividend. We are very pleased that DNB Liv has managed to quite substantially reduce the volatility in the solvency ratio towards rate changes. So it's vastly more robust than it was. We had a strong result this year from Liv. Pretax profit of NOK 1 billion for the fourth quarter. And of course, the solvency of 2.6, means that we will stream the 100% -- we are likely to upstream 100% of the results in dividend. In addition to that, you know that we are in a process where we are gradually paying back capital up to the parent, which strengthens our core equity Tier-1 ratio and our ability, again, to pay dividend to our shareholders. And that amount, I think it was for the third time that we did this in the fourth quarter last year. Now NOK 1.5 billion. You are asking the question, could we do this faster? I think what we have told you on the Capital Markets Day is that we look to upstream NOK 10 billion -- NOK 30 billion, sorry, in the coming 10-year period. I think that still stands firm. This is a process where we need approval from the FSA when we pay more than 100% of the results. And our focus is really to do this sustainably in a gradual manner that enables us to continue. But I think you're clearly seeing our intention and that is to repay excess capital, and we are now in a situation where the guaranteed portfolio is gradually diminishing. NOK 171 million, it's non-recurring because you can't expect to see it every quarter. It's still real revenue, but it should have been spread out differently across the year. I think that is what I can tell you, but it's related to real interest income, but you shouldn't expect to see the same kind of delta in the next quarter.

Yes. In terms of significant risk transfer, so we have done one large securitization within the transport area, green transport, in the past. And we are looking at further potential in securitization and other important areas of the bank going forward. In addition to that, we also, and as mentioned during this morning's call or presentation, we use insurance actively to strengthen our originate and distribute on the large corporate side, which this year also became visible on our money transfer and banking fees area. So in terms of SRTs, both on the securitization and on the insurance side.

And Rasmus, do you think you could do -- there will be more room to offload to reduce capital absorption on the back of these? Or you think you are doing what you can do?

We believe there is more potential within securitization, and we are further pursuing that.

We will take our next question from Shrey Srivastava, Citigroup.

Two from me, please. The first is the NOK 200 million non-recurring costs that you saw in the quarter. Could you be a little bit more specific about what these relate to? Is it sort of variable comp or something else? And the second one is, could you provide a bit more color on the growth, particularly in corporate costs in Norway? And specifically a breakdown between what sort of underlying and what might be shorter term, for example, bridging facilities or something like that would be very much appreciated.

I'll do the corporate customers in Norway, and I'll hand the question on costs to Rasmus. If we look at the growth for the year, because I think that makes more sense. The growth in corporate customers Norway was 5.2%. Important to highlight that commercial real estate is also part of corporate customers in Norway as well as our regional business with SMEs. And of course, they differ when it comes to pattern and growth. I think what is important for us with SMEs is to continue to see profitable growth. For the year we see a credit growth demand of 2.9%, and our growth is 2.8% in the SME area throughout the year. And we are pleased also to see that a higher number of customers are choosing us as their bank, and we have a material uptick in terms of new customers selecting DNB. So this also means that the larger part of the growth or approximately half of the growth come in commercial real estate. Several large transactions was closed in the fourth quarter. These are transactions that were composed of underwriting elements with a view to syndicate. And for the major part, these syndications have already been completed after New Year, that is towards the end of this year. This is normal for commercial real estate. So I'm not sure I would qualify it as recurring or non-recurring. We have an attractive book of commercial real estate where we turn the capital around more rapidly than you would typically see in an SME book. But of course, what this means is that the tailwind that you can see from the quite material growth that came in towards the end of the fourth quarter is not necessarily, sort of, lasting through the first quarter as we are distributing material amounts into the market.

Very good. In terms of the one-off effects on costs, as NOK 200 million, as you pointed to. NOK 50 million of those are attributed to the integration costs of DNB Carnegie. There's also gear and events relating to -- an effect relating to variable salaries that have been sort of accrued differently throughout the year and then ending up in the last quarter and other operational expenses.

We will take our next question from Thomas Svendsen, SEB.

Yes. So a question to the buyback program. You now point to the fact that you buy back 2.5%, including the today's announced program. So -- the question is, how realistic is it to, sort of, manage to execute about 2%, 2.5% per year on this program from a -- or a total share buybacks from a practical point of view?

Well, I think what we can see now is that we are looking to deliver on this close to 2.5%. In terms of going forward, this depends on the total volumes and many variables. So it's hard to describe in the future years where it is. But in -- for 2025, this is what we are able to deliver.

But I think we can add that we've said all along when the Board asked general assembly for a proxy on share buybacks, it's not meant as an indication for the amount. I think we've also been quite clear that we do module, the buybacks according to the volume transacted in the market not as to interfere with the development of the shares. So at some point, there is a practical limit. And as you know, we are now splitting them up into smaller pieces where we need the approval from the FSA. FSA has been quite efficient in approving what we have required for in 2025. We think that if everything is aligned, there is probably a potential to do some more. But we are not guiding specifically on this. And again, I reiterate that the magnitude of share buybacks in '25 alongside the dividend of NOK 18 per share takes our distribution back to shareholders above 86% of the annual results.

We will take our next question from Riccardo Rovere, Mediobanca.

Thanks again. This must be my lucky day. Sorry. Sorry about that. Sorry to pester you again on DNB Liv. But the solvency capital remains NOK 33 billion, NOK 32 billion, NOK 34 billion, always. So I'm just wondering, has the capital upstreaming started, the part of this NOK 30 billion or not? Because the number is always the same. And NOK 30 billion, and what do you need eventually to -- it's not clear what you need to do it. Is it NOK 30 billion out of NOK 1.2 trillion RWA is more than 2%. It's a big number.

Yes, it's a big number, and we think it represents a great potential to support the dividend capability of the group over time. Again, as long as it's above NOK 140 million, we will repay the results. We will ask the FSA to reallocate surplus capital back to shareholders. This is a relatively new situation to be in, and we're mindful of doing that in a sustainable and systematic manner and focus on the longer term rather than optimizing at any given point in time. The development of the solvency when you look at it year-on-year, I mean, you have to appreciate that this is something that varies with the interest rate level, with the exposure under the insurance contracts, with the expected returns on the contracts in the future. So it's more complex than just, sort of, taking the capital of last year, adding the result and deducting the extraordinary dividend, if you will. So these 3 years has been a situation where the performance of Liv has improved. We also mentioned that we have a very, I would call it, solid uptick in our risk results, and the financial results this quarter, which plays into the financial instrument line in the P&L. And this, of course, is something that we will continue to work on. But the focus is to be able to do this gradually, sustainably, but capital and excess capital will be paid out over time.

Sorry, Kjerstin. But the number is always the same. It's always NOK 33 billion. So -- or the repatriation has not started or the number is larger than NOK 30 billion? Because it's quarter-by-quarter-by-quarter.

But Riccardo, I'm telling you that there are more elements that goes into the solvency calculation than the results and the capital reallocation. It depends on the interest rate level. It depends on the exposure on the insurance contracts. It depends on the future expectations of return, and these are only a few elements. I'm sure we can provide you with details as to how solvency is calculated and we'll do this following -- we will do that following this call.

There are no further questions on the line, so I will now hand you back to your host for closing remarks.

All right. Thank you so much for your participation, and we would like to wish you all a good day. Thank you.

Thank you for joining today's call. You may now disconnect.