NOBA Bank Group AB (publ) (NOBA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the NOBA Q2 Report 2026 Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Jacob Lundblad, CEO. Please go ahead, sir.

Thank you so much. Welcome to the presentation of our Q2 report. My name is Jacob Lundblad. I'm the CEO. And with me today, I have, as per usual, Patrick MacArthur, our CFO. Q2 showed stable financial development with good progress towards our targets. Adjusted core operating profit came in at SEK 1.5 billion, up 21% year-on-year. Core RoTE of 27% and actually 29% on core capital employed. On totality, we saw an 11% year-on-year organic growth in local currencies reported early strong growth from credit cards in Germany and mortgages in Sweden and Norway and especially glad to see that the secured space continues to deliver following the recovery last year. Speaking about growth, I think it's also worth highlighting that we have a number of product launches in the pipeline, equity release in Norway, mortgages in Finland, corporate deposits, micro-SME lending adjacent to the scale-up of DBT, obviously, all scheduled for 2027. So quite a lot of activity in the business right now. In terms of NIM, we saw stable development quarter-on-quarter with underlying NIM coming in at 8.2%. Cost/income ratio came in at 23%, flat quarter-on-quarter. We expect to have impact on our cost takeout initiatives towards the end of the year, and that will reduce cost growth, but we remain confident that we will achieve our medium-term cost to income target of below 20% during 2027. In terms of cost of risk, we see a strong underlying trend came in at 2.5% in Q2 despite SEK 42 million of macro provisions. This is the ninth consecutive quarter with year-on-year improvement. We're now at the lower end of the normalized range of 2.5% to 3%. And at this point in time, we see that the positive development predominantly is driven by our continuous improvements in underwriting, particularly within the Bank Norwegian operations. Funding, we issued AT1 senior preferred bonds during the quarter, yet again at lower spreads compared to earlier transactions. Strong capital position and capital generation, CET1 of 13.4%, which is a 3.2 percentage points above regulatory requirements after deduction of anticipated dividend. Capital generation is strong, and we also communicate that the Board are evaluating a potential share buyback program as an option to ensure optimal capital level and managed surplus capital generation going forward. So that was the summary. We'll jump into the segments. So flip page, please. Private loans now a rounding error from SEK 100 billion. Segment grew with 11% in local currencies year-on-year and quarter-on-quarter, some tailwind from FX in the reported numbers. Very happy with the development. Sweden and Denmark continues to deliver. Finland carries its weight and with increased commercial focus on Norway, we're starting to see a pickup there as well. NIM performance is stable at this point in time, some slight headwind from delayed pass-through of high rates. Cost of risk continues to improve, came in at 2.9%, which is an improvement both quarter-on-quarter and year-on-year. We're flipping page to credit cards. Year-on-year growth of 11% in local currencies, taken from FX in reported numbers. Portfolio now at SEK 21.1 billion, solid growth in the Nordics and Germany continues with a high growth trajectory. NIM is stable, cost of risk stable. Let's flip to secured. Very glad to see that secured has picked up over the last year following a slower period. Year-on-year growth at 12% in local currencies, 11% quarter-on-quarter, again, slightly higher in the quarter due to FX. Growth is driven by high demand for our mortgage products, both in Sweden and Norway, which in turn is driven by high demand for near-prime mortgages. At the same time, we see somewhat slower activity in the equity release product. NIM is stable quarter-on-quarter, but slightly negative year-on-year, driven by the near-prime mortgages. It should be noted that although NIM is slightly lower in that segment, risk-adjusted margins are attractive. Cost of risk at 0.2%, down year-on-year, up quarter-on-quarter, very much normal fluctuations. And finally, worth highlighting that we're working on expansion of equity release to Norway and mortgages to Finland expected to launch in 2027. So that was a wrap-up of the totality in the segment. Then I'll hand over to Patrick for more financials.

Thank you, Jacob. I will now go through the financials. And starting off, I think we have overall a very good trend among the key drivers this quarter. We have an organic loan growth of 11%. We then have a good conversion of that growth into P&L with stable margins and solid income growth and continued very positive P&L pass-through as credit losses are continuing down. These trends have also come through very clearly on the page. We have 12% reported loan growth, which we converted to 13% revenue growth and 21% operating profit growth. And with that introduction, I will move into going through the page in more detail. Starting off at the top with loan development. We had a loan growth of 12% in the quarter, including the effect of the DBT acquisition. If we look at organic constant currency growth, the growth rate is 11% versus our target of 10%. And similarly as last quarter, we see all 3 segments at about 10% growth. So good business momentum across all areas. And moving on to the P&L. NIM came in at 8.1% reported and adjusted for day count and FX led to 8.2%. Overall, we continue to see very stable underlying NIM with the headline numbers in Q2, also having some negative effect of delayed pass-through as we have seen rate increases in NOK and DKK in Q2. Moving on to fee and commission income. We came in at SEK 219 million which was a 10% growth year-over-year. So we continue to see a positive trend here, the growth largely in line with loan growth. In total, we have operating income growth of 13% for the quarter. So as I mentioned, converting the loan growth well into the P&L. Then moving on to costs. We have a cost-income ratio of 23% in the quarter, which was in line with Q1. It is slightly up compared to the 22% we had in Q2 '25, and we have reported growth of 20%, including DBT year-over-year and 17% excluding DBT. This growth is driven by a combination of transitionally higher cost growth as we've outlined before as well as temporary factors as Q2 '25 had an unusually low cost base, and there's also a negative FX effect of circa 2% result here year-over-year. But as mentioned, we expect to see cost takeout having effect towards the end of the year and remain confident with reaching our target of 20% during 2027. Moving on to credit losses. We have 2.5% cost of risk in the quarter. This was negatively impacted by SEK 42 million in macro due to change forecast from our external data suppliers. So it would have been 2.4%, excluding that impact. This is our ninth straight quarter with year-over-year fall in cost of risk, and we continue to see a very strong underlying trend here, primarily driven by continuous underwriting improvements and also some continued positive effects from macro normalization. This all takes us to a core operating profit of SEK 1.5 billion for the quarter, which is up 21% year-over-year. And from a return perspective, we have a very solid return in the quarter with core RoTE of 27% and core return on capital employed, excluding accrued dividends of 29%. And lastly, continued well capitalized with a CET1 ratio of 13.4%. Next page, please. So double-clicking on loan book development by segment. Private loans, we have an FX-adjusted growth of 11%, both on a year-over-year and quarter-over-quarter basis. In the quarter, we see all countries contributing positively here, strongest growth in Sweden and Denmark. But after a few quarters of weak growth in Norway, we also see Norway doing better following the increased commercial focus there. On credit cards, we see good growth across both Nordics and Germany with a total FX adjusted year-over-year growth of 10.6%. Quarter-over-quarter growth dropped slightly lower at 9.8%, which is as expected as the seasonality in growth for credit cards in Q3 being the strongest growth quarter. And on secured, we continue to see strong growth here, mainly from the nonstandard mortgage segment across both Norway and Sweden. Moving to next page, please. So looking at NIM and NII, we have a reported NIM of 8.12% in the quarter. Adjusted for FX and day count, we had 8.16%. That is slightly down versus 8.23% in Q1 on a like-for-like basis, and this reduction is due to some temporary negative effects of delayed pass-through following rate increases in Q2 in NOK and in DKK. Underlying, we continue to see a very stable NIM around the LTM level of 8.2% with front and back book margins at same levels. Next page, please. Moving on to costs. In Q2, we had a cost/income ratio of 23% and cost growth of 17%, excluding the effect of DBT. This development is largely in line with our expectations, expectations were transitionally with higher growth in 2026, driven by business investments and the cost takeouts are only expected to come towards the end of the year. In addition, the year-over-year growth in Q2 is impacted by temporary effects as the cost base in Q2 '25 was unusually low, and we also have some negative impact from FX with circa 2% of the growth coming from FX. And as mentioned, we have ongoing initiatives for cost takeout and have a clear plan for getting down to 20% cost/income ratio during 2027. Moving on to cost of risk. Next page, please. Reported cost of risk in the quarter is 2.5%, including SEK 42 million negative macro and was 2.4%, excluding the macro. However, Q2 is seasonally strong in the LTM, we had 2.7% cost of risk. We continue to see very strong developments within credit losses as we see the positive effect of both normalizing macro and our continuous underwriting improvements, in particular on the Bank Norwegian platform having effect. And overall, we see positive trend of credit losses continuing, and we see that there's potential for the cost of risk to continue down from the current LTM level. However, as we mentioned before, the forward-looking nature of ECL may give us a bit more volatility in the coming quarters given macro volatility. Next page, please. We continue to have a strong capital position with a CET1 ratio of 13.4%, which is a 3.2% margin to requirements and well within our range of 13% to 15%. The AT1 level is relatively high as we have included 2 new issuances of -- in total SEK 1.5 billion this quarter, one done in Q2 this year and one done in Q4 last year. We have also -- we also have 2 quite sizable calls coming up in Q4 with a call of SEK 1.4 billion AT1 and SEK 650 million Tier 2. And As Jacob mentioned, the Board is actively evaluating buybacks as a tool for optimizing capital and managing excess capital going forward, and we will provide further updates on that as and when relevant. On the liquidity side, LCR and NSFR remained strong at 193% and 110%, respectively. So next page, please. Lastly, a page from the return perspective, we have a core RoTE of 26.3% LTM, and we have a quite clear path for taking the last debt from the current level to our target of 30%. And as we outlined on the page, we have 3 key levers to work with here, 2 related to financial performance and then also a third potential lever from capital efficiency. So let me go through the 2 financial performance levers we have. First, risk-adjusted margins. We currently have a risk-adjusted margin of 5.5%, and we see potential for this to improve further. While the NIM is stable, we have a clear positive trend on cost of risk and see good potential to reduce it further from the current LTM level of 2.7%. The other financial lever we have is really operational efficiency. And this is really about taking down our cost to income ratio from the current level of 23% to our target of 20%. And as we outlined on the page, every 0.1% improve core RoTE by 0.7% and every 1% improvement calls by 13.7%, never even 1% improvement in cost-income ratio gives us 0.6% on return on tangible equity. Lastly, in addition to the financial performance, we also see further potential for improved capital efficiency through our capital stack. So with that, I hand over to Jacob.

So I'll try to wrap this up on this slide that you've seen before, looking at the goals. So we have a goal of 10% organic growth and the additional target of reaching SEK 250 million by 2030. Happy about where we stand, 11% growth in constant currency, 12% reported, all segments contributing. And additionally, as outlined, we have a number of new product initiatives underway. Cost-to-income ratio, medium-term target of 20% for quarter 3 came in at 23%, expect to see effect of cost takeout programs during the end of the year, and we remain committed to reach our target during 2027. Core RoTE, we're at 27% or actually 29%. If looking at capital employed, clear runway to reach our medium term target of 30%. CET1 and dividends, we're at 13.4% within our range of 13% to 15%. We have a 3.2 percentage point headroom to requirement, focus now on efficient capital deployment and distribution of excess capital. Ordinary interim dividend equal to 40% of Q1 to Q3 profit will be paid in connection with the Q4 EGM. And lastly, we're putting in place a share buyback as a tool, something that the Board of Directors will evaluate in due course. I think that wraps it up, and we will open up for questions.

[Operator Instructions] And the questions come from the line of Bjorn Olsson from SEB.

The first question from my side is on the cost side. You're mentioning that you're planning cost takeouts by the later part of this year. Could you give any sort of ballpark guidance on the size of these takeouts? And then second, you're also guiding to reach a sub 20% cost income by '27. Should we expect this to come by the later part of '27? Or do you have any indication of sort of when during the coming year, we can expect this target to reached?

Yes. I'll start off with the second part of the question, which is when in 2027, we should reach the cost/income ratio of 20%. And it should be during 2027, and I think it will probably be towards the second half of that year or in the second half of that year. And with regards to the specific amount of cost takeouts, I mean, I think it's pretty -- kind of how our cost base has to develop over the next 18 months for us to reach the target of below 20% by during next year. So we're not going to communicate a specific number of cost takeout, but clearly, we need to have a very disciplined cost growth in 2027 to reach our target of 20%.

Okay. So we should rather view it as that the trend of growth will stop and then it will sort of flatten out. That's the plan basically.

That is basically the plan, yes.

Okay. Great. Second, on buybacks. I mean, could you give any sort of -- I understand that it's the BoD question and not for you, but still, could you give any nation on the timing of announcing this now versus previously? And second, in terms of your buffer level, I mean, you're at the lower end of your CET1 buffer range while talking about capital efficiency. Should we view this that you might review your CET1 target range as well in conjunction to this?

In terms of -- well, I can start with timing. In terms of that, it's important for us to ensure equal information to all stakeholders. And obviously, getting a share buyback program in place entails a number of applications. And we need to submit the applications to SMA, et cetera, et cetera. So we just want to ensure that no one picks that up and makes a flash of it. It's better to be open about that this is a tool we want to have in the box.

And I think on our -- where we are in our CET1 target level. So we communicated a target level of 13% to 15%. I think we've stated historically and consistently that we are very happy to be at the lower end of that range given the operating profitability that we have and that we have a 0% PTG. So we are very happy to be towards the lower end of that range. And then I think the other part of that story is clearly that we -- given that with a 40% payout ratio, we generate quite a lot of additional CET1 every quarter. So the kind of 13.4%, that's a static position we have right now, but it's clearly grows every quarter from organic capital generation at the 40% payout ratio.

And the questions come from the line of Patrick Bratigges from ED.

Two questions from my side. The first one is on net commission income. So it grew by 10%, I think I saw in the presentation there. And last quarter, it was quite low growth rate year-over-year. And we have previously talked about it can be lumpy, but over time, it should grow above the growth rate of the loan book. So can you talk about expectations here if we should see a trend shift in the second half or how we should think about this income line looking into the coming quarters?

I think over time, I think it's fair to have the kind of slightly above loan book growth perspective on it. That's kind of the over time perspective. Then I think 2025 was a very strong year for fee and commission income. And 2026, we have a good development on it, but we should really -- you should look at it on a longer-term trend and the longer-term trend, there we are above loan book growth in the drivers, but it is -- each individual quarter, we're not going to get that kind of specifically at that level and look at it at the trend level.

Okay. Fair enough. And I note that credit cards and secured both delivered double-digit loan growth in the quarter. However, year-over-year, it looks like adjusted operating profit is lower. So what needs to change for these segments to generate stronger operating leverage?

I think it's slightly -- there's different stories in those 2 segments. I think credit cards is very much driven by very, very strong comparator. If you look at that trend on kind of any form of trend basis, you're not going to say the same case there that it's kind of -- you have a stable NIM, stable cost of risk in credit cards and 11% growth. So clearly, the drivers are there. And the reason it's down year-over-year on a quarterly basis is that Q2 '25 was an extremely strong quarter, both on the fee income and the cost side. So the comparative quarter was extremely strong. And then secured, I think there, we have had a bit of a shift in the business there where we've had NIM is clearly down year-over-year, which is the reason that operating profit does not have the growth rate there. But now what we said on secured is that given post this change in NIM that we saw over the last few quarters, we expect a stable NIM level there. So we also expect growth to result in operating profit growth there, but at a low -- kind of stable NIM level from where we are now. So credit cards, very much driven off a very strong cost and fee quarter last year. And secured, we are seeing strong growth there at a stable NIM level from the current level.

If I might squeeze in a third question. I note that the lending growth is progressing according to plan, while deposits only have grown by 1.5% year-over-year. So is this an ongoing shift in the funding mix that we see? Or should we expect to see a reversal and that you should ramp up deposits further looking ahead? And should this impact the NIM going forward? How should we think about that?

I mean I start off with the last question is that we don't expect -- we don't foresee any changes in the funding mix that will impact our NIM, but we will always optimize across our funding sources which is kind of secured, doing well on funding, it's doing senior unsecured. It is doing deposits. We're always going to optimize across those 3 on what gives us the most kind of effective funding cost on a total basis. And we've guided for no significant shifts in our funding mix. So that's what we continue to see. We don't foresee any big shifts there, but it's always going to be a little bit different quarter-to-quarter based on where we think the optimal funding is.

The questions come from the line of Johan Ekblom from UBS.

I just want to come back to the costs because when I look at consensus into next year, people are forecasting double-digit volume growth. They're forecasting revenues growing slightly faster than volumes. And to get to 20% cost income, you need to have a quarterly cost run rate that's lower than Q2. So it's essentially 0 cost growth, '27 on '26. Is that the right way to think about it that with 20% growth, a slowdown in cost growth leaves to a very, very broad range. But are we actually needing to see negative cost growth versus the Q2 level for you to hit your targets? Or are we much too bearish on revenue growth?

No, I think we should -- I think -- I mean, we can't comment exactly on consensus, but I think the case is really that we have -- we're going to have underlying cost growth at the same time as we have very clear cost takeout plans to come through during H2. So in order to hit the target of 20% next year, which we expect to hit, we are going to see very low cost growth in 2027.

Okay. So we shouldn't be surprised if the run rate is, let's call it, similar to this quarter at least next year, which will get you broadly to the 20%.

Yes. Yes.

Okay. And then you talked about a delayed pass-through of rates in the private loan business. Could you talk a bit about how big is that impact? And is this -- this will come through in the second half? Or is this -- we need to kind of wait for the whole book to roll. So it's a multiyear kind of variable?

It's a very short-term impact. It is -- we have -- I mean we have base rate increases in Norway and in the euro DKK in Q2. And then the way it works is kind of multi -- I think we have exactly -- we have the same dynamic when rates were going down 1.5, 2 years ago, but then obviously it was positive, which is that when rates go up or down, the funding side reprices quite quickly and the asset side, i.e., the loans, they are variable rate, but they have different repricing times depending on which country we are in. So that we have to notify the customer and then the repricing comes through. And in Finland, it updates every month. So it's quite expensive -- the capacity is kind of around 4 weeks. Denmark, the pass-through is 4 to 6 weeks. And in Norway, it is 8 to 10 weeks to pass through on the asset side, which means that when we saw -- when we see these rate changes, we have a little bit of basically a month where we have -- which hit us on the liability side, but not the asset side. And then I guess you can -- one can do the math around it. Around 55% of our book is in the countries that had increased rates and was probably around a month of that effect in Q2. And then that kind of comes to the number it hits on the NIM in Q2.

So a single-digit basis point impact?

Sorry?

So it will be a single-digit basis point impact on the NIM or whatever.

Yes, we see the main difference between the -- I would the -- we had 8.22% FX and day count adjusted NIM in Q1, we had 8.16% here. I would say if it wouldn't have been for the pass-through effect, they would have been very similar.

Yes. And finally, just on the -- you mentioned that you signed an NPL sale during the quarter of SEK 400 million where you expect a positive impact in Q3. Any guide for how meaningful that impact is? And I'm guessing that will be booked on the credit loss line. Is that correct?

Yes, it would be -- I mean, we typically -- I mean, the last NPL sales we've done over the last, I guess, 12, 18 months, we've typically seen meaningful profit on those sales and compared to book value. And it will be a -- we will have a profit here. We will communicate at Q3, but it will be kind of in the mid-double-digit type range.

And it's on the credit loss line, right?

Yes, credit loss line.

And when we look at DBT or the corporate loan book, it looks like there was sub-1% growth quarter-on-quarter. How should we think about the growth potential? I'm guessing you acquired something, there might be -- there's a start-up period and there might be parts of the portfolio you might choose to exit, et cetera. But what should we expect in terms of growth? I'm guessing sub-1% Q-on-Q is not the ambition.

Obviously, ambition is that it should fit our overall financial profile. So we expect more. So during the quarter was -- you're right, it was quite slow. And that relates back to the fact that DBT earlier optimized for liquidity and not profitable book growth, long-term profitable book growth. That is obviously something we're changing as we've entered this marriage. So a lot of focus in this right now right now on commercial initiatives, forward leaning, catching new ground, playing in segments that weren't available before due to high cost of funds, clearly opens up the market, but also working on book protection, i.e., working with the existing portfolio of clients.

And just finally, on the buyback discussion, I mean, do you have any preference between how you think about buybacks versus dividend? I think you said dividend, the 40% is there no matter what. But should we think of it anything above that, more likely buybacks than special dividends. Or is there any thoughts around that?