Nordea Bank Abp (NDAFI) Earnings Call Transcript & Summary

Good morning. and welcome to Nordea's Second Quarter 2026 Results. I'm Ilkka Ottoila, Head of Investor Relations. As usual, we'll start with the presentation by Group CEO, Frank Vang-Jensen followed by a Q&A session with Frank and Group CFO, Ian Smith. [Operator Instructions] With that, Frank, please go ahead.

Good morning. Today, we have published our results for the second quarter of 2026. This was again a strong quarter for Nordea. We drove good momentum across business. We attracted new customers and deepened existing relationships and we achieved strong growth in savings and investments. All of this ensured we were firmly back to year-on-year income growth for the quarter. In fact, total income exceeded EUR 3 billion, and we are -- we were last there in 2024 at the peak of the higher rate environment. This highlights not only the strength of our diversified business model, but also our focused growth-oriented 2030 strategy. We generated strong fee income and other ancillary income. And importantly, net interest income has now started to move in the right direction. Moreover, this quarter, we also grew with income faster than cost which is always our aim. It's good to be back to positive yields. We're now 6 months into implementing our 2030 strategy, and our progress is starting to show through in our performance. I'll touch on some examples during the call. Of course, the world around us remains uncertain. The conflict in the Middle East continues to raise risks for the global economy, European countries in general and the Nordics, in particular, have so far navigated higher energy costs and other challenges remarkably well. Perhaps most in currency, we are seeing a greater willingness among companies to invest. The structural changes on the way in Europe's economy are creating significant opportunities and Nordic corporates are well positioned to capture them at technology, energy, defense and infrastructure as well as in the industries that have long been a mainstay of the Nordic economies like forestry, mining and steel. Equally, Nordea is unique placed to help our customers address the opportunities using our large balance sheet, Nordic scale and sector expertise and customer offering. We did just that in the second quarter, supporting high levels of customer activity and driving strong growth in business volumes. Let's take a look at the highlights. Beginning with our return on equity, which was very strong at 15.9%. Earnings per share were up 3% year-on-year at EUR 0.36. Total income was up 4%, supported by a 11% increase in net fee and commission income and a very strong net fair value result. Strong demand for our savings and investment products, along with excellent performance of our funds help us increase assets under management by 16% and to a record high EUR 505 billion. Net interest income development was also positive in the second quarter. We increased corporate lending and deposits both by 9% and building on the strong start to the year. In households, mortgage volumes increased by 2% year-on-year and retail deposits were up 4%, while down 1% year-on-year, NII was up 1% quarter-on-quarter, increasing for the first time since policy rates started coming down 2 years ago. Net fair value result was up 11%, a very strong result. Costs were flat year-on-year, excluding foreign exchange effects. Our credit quality remains very strong. Net loan losses and similar net result amounted to EUR 61 million or 6 basis points, well below our long-term expectation of around 10 basis points. Likewise, our capital position is strong, and we continue to deploy capital to drive profitable growth. Our CET1 ratio was 15.7%, and at the end of the quarter, which is 1.9 percentage points above the current regulatory requirement. Our strong performance and position is reflected in the improved full year 2026 guidance we are publishing today. We reaffirm our ROE guidance of greater than 15%, but expect an improved cost-to-income ratio of 44% to 45%. Let's then look at the results in more detail, starting with the income lines. As mentioned, net interest income development was positive in Q2, supported by the higher business volumes, the effects of earlier rate cuts now appear to have worked their way through. During Q2, lending and deposit growth was strongest among corporates both up 9% from a year ago. We are pleased with the strong first half across our corporate businesses. The higher activity shows confidence among Nordic businesses but it is also a direct outcome of our strategy. We have built strong relationships with our customers, which means we are almost always at the table when opportunities arise. At the same time, we continue to invest to ensure we have a strong capacity to support our customers. Household customers are also increasing their activity across the Nordics, more broadly, households remained focused on strengthening the savings and investments and that contributed to higher retail deposits, which were up 4%. Mortgage volumes in Q2 were up 2% in the market that were still autos slow and only gradually picking up. In Sweden, our fastest-growing market, we increased mortgage lending by 5%. While the move broadly remains cautious, there are clear signs that consumer confidence is on the rise. Finland, in particular, showed some encouraging signs this quarter with confidence reaching the highest level since early 2022. Our net interest margin for the quarter was 1.54% compared with 1.57% in Q1. Net fee and commission income was up 11% year-on-year, with growth in all fee categories. This is encouraging as growing cross sales, especially in savings is a key part of our 2030 strategy. Demand for our savings and investment products remains strong, and our expanded advisory coverage is delivering good results. During Q2, customers continued to invest through our retail funds and pension products. And we welcome a significant number of new private banking customers, which led to solid net flows. Assets under management were up 16% in surpassing EUR 500 billion for the first time. Our focus is on offering customers products that are relevant to their needs. Nordea's Empower Europe Fund is a good example. We identified a long-term investment opportunity in Europe's transformation and create a solution that brings together expertise across Nordea. A year on from its launch, the fund has now reached over EUR 860 million in assets under management, making it one of our most successful launches ever and reflecting strong customer interest in themes such as energy resilience, reshoring and defense. Savings fee income was up 13% and driven by the higher AUM and positive net flows in investment products. Our international channels, which have generally performed well since last summer, saw some outflows during quarter amid geopolitical uncertainty and increasing rates. Q2 net fair value results was very strong, up 11% year-on-year and a clear improvement on Q1 when conditions were more difficult. Customer activity was high through most of the quarter, especially in foreign exchange and interest rate products. Activity in equities and securities financing was also at a good level. Market Making was much stronger this quarter as the interest rates environment normalized. So with customer activity back to normal. We continue to expect net fair value to generate roughly EUR 1 billion in annual income. Costs were flat year-on-year, excluding foreign exchange effects. The stable cost development reflects the structural improvements we have made in recent years. These continue to support productivity and efficiency across the group. And we are, of course, not stopping here. Under our 2030 strategy, we are continuing to simplify processes, improve productivity and make better use of our Nordic scale, while also making focused investments towards our strategic growth priorities. The realized savings give us the capacity to absorb inflation and continue investing significantly in the business while keeping overall costs under control as we did in Q2. We're in a strong position to continue delivering positive jaws also in the second half when year-on-year cost growth will likely slightly pick up against a very strong second half last year. The Q2 cost-to-income ratio improved to 44% from 45.1%. And that keeps us nicely on the path to where we want to be in 2030. And with our target of 40% to 42%. Credit and asset quality remains very strong. The resilience of the Nordic economies continues to be reflected in our customer base. Households remain financially solid, while large corporates are generally well positioned, prudently funded and well capitalized. At the same time, we continue to grow in a disciplined way in supported by a diversified portfolio. Our underwriting and credit management approach has made us proud over the years and remains consistent also in this environment with higher corporate activity. Our loan losses are very low and are expected to be contained within our long-term expectation of 10 basis points. For Q2, net loan losses and similar net results amounted to EUR 61 million, or 6 basis points driven by a small number of corporate exposures. Our capital position remains strong and is comfortable in supporting our good lending growth. At the end of the quarter, our CET1 ratio was 15.7%, 1.9 percentage points above our current regulatory requirement. As previously communicated, we will pay dividends twice a year going forward. Our Board of Directors has decided to pay a midyear dividend in August of EUR 0.34 per share amounting to approximately 50% of our net profit for the first half of 2026. The midyear dividend is the first part of the total dividend distribution under our dividend policy which stimulates a 60% to 70% payout ratio on full year profit. And now turning to our business areas. In Personal Banking, we delivered solid lending growth and generated strong fee income. Our mortgage growth, 2% in the second quarter was led by Sweden and Norway, 2 of our strategic growth areas. In Sweden, where we again increased our mortgage market share, we are clearly maintaining good momentum. We do not take that growth for granted. However, we remain focused on attracting customers through better service, higher availability and a stronger customer experience. Across the Nordics, housing markets are recovering naturally. Customer caution remains but further increased applications for loan promises suggest demand is building beneath the surface. Competition for mortgages remains high, which creates some margin pressure. This is not new to us, and we continue to manage it carefully, while capturing opportunities to grow. Total lending volumes increased by 1% in local currencies year-on-year. Deposits were up 4%. More customers are choosing Nordea for a broader range of the financial needs, which is supporting our deposit growth and enabling cross-selling opportunities across the group. During the quarter, we launched the new Nordic index fund designed to broaden our savings offering. The fund offers a simple and cost-effective way for customers to invest in Nordic companies and gain exposure to the long-term growth potential of the Nordic region. We believe products like [ lease ] will help us attract, in particular, young and self-directed savers and over time, support a stickier and more resilient fee income base. The share of customers with recurring savings has been increasing over the past 3 years. And during the quarter, recurring savings inflows were up 8% year-on-year. Net fee and commission income increased by 11%, mainly driven by the higher savings payments and card fee income. Total income decreased by 2% year-on-year but was up 2% quarter-on-quarter. Return on allocated equity was 14%, and the cost-to-income ratio was 51%. In Asset & Wealth Management, we continue to drive robust growth in income and assets under management. We had another strong quarter in Private Banking, 1 of our 6 strategic growth areas. Here, we attracted many more new customers and drove net flows of EUR 1 billion. We continue to invest in our advisory capabilities and have now completed the Nordic rollout of our direct advisory service, which was first developed in Norway and has delivered encouraging results. We're also implementing our plan of hiring advisers the teams that bring in and take care of our customers every day. Their onboarding is progressing well, and they are getting up to speed in the new roles. Investment products AUM was up 17% year-on-year. Our international channels saw some outflow as uncertainty in the Middle East and increasing interest rates. It is mainly related to a single client reducing its holding in sustainability products. Wholesale net flows remained broadly resilient, and we're marginally negative for the quarter, but showed a pickup in June. Life & Pension is a not very important strategic growth area for us, and we continue to make good progress. Here, we are supporting customers with their long-term savings, pension and protection needs while making the solution a natural part of the broader Nordea relationship. We maintain good momentum across all 4 home markets. Life & Pension assets under management increased 23% year-on-year, while gross written premiums in the quarter amounted to EUR 3.6 billion, up from EUR 3 billion a year ago. Total income was up 12% year-on-year. Return on allocated equity was 38%. The cost-to-income ratio improved by 1 percentage points to 44%. In Business Banking, we performed very well, delivering strong fee income and volume growth across all home markets. Lending volumes increased by 6% in local currencies year-on-year, led by Denmark, Norway and Sweden, while growth also picked up in Finland. Deposit volumes grew by 3% and we're also up in all markets. We have seen increased intensity with -- in capital markets, and we supported several customers in executing successful IPOs. During the quarter, we continued to invest in our digital capabilities to make Nordea the leading digital bank for small and midsized businesses. We are seeing good traction. Customer growth accelerated this quarter. A big part of that came from the improvements we have made this year to our onboarding process. It is more user-friendly, leaner and more automated and helps entrepreneurs and small businesses get up and running with us more quickly. In addition, our Nordea Business mobile app reached an all-time-high Nordic rating with a number of users up by more than 10% from a year ago. Total income in the second quarter increased by 4% year-on-year, driven by volume growth and higher ancillary income, while AUM were up 23%. Return on allocated equity was up 60%. That was up -- was 16%, and the cost-to-income ratio improved to 43% from 45% a year ago. In Large Corporates & Institutions, we continued to proactively support customers with their growth plans, delivering strong results while building out our capabilities that will support future growth. During the quarter, we launched a new supply chain financing solution, continued to increase AI adoption and made further upgrades to our markets platform. Together, these investments are helping us serve customers better and win a larger share of the business. We could see that in the quarter with solid ancillary income growth across product lines. Lending growth, which was strong in the first quarter, stayed strong, increasing by 14% year-on-year, Denmark, Norway and Sweden all contributed to the growth. Deposits were up 17%. Activity in our capital markets business likewise remained strong. In debt capital markets, we arranged more than 200 transactions during the quarter for a broad range of issuers. Our capabilities are also increasingly earning us the right to support customers on the most important strategic moves, including a number of significant transactions in our markets. For example, we acted as sole financial adviser and bookrunner in the acquisition by Kesko, the Finnish Retail Group, of [ Singer ] Bank's specialist distribution business in the Nordics. Overall, sentiment in the equity capital market also improved. With Nordea facilitating several high-profile transactions and securing a leading position in the Nordic initial public offering league table year-to-date. Nordic companies are getting firmly into growth mode, and we are pleased to be supporting them across a broad range of financing and advisory needs. Total income was up 15% year-on-year, driven by strong net results from items at fair value and improving net interest income. Return on allocated equity was 16%. The cost-to-income ratio improved to 38% from 42%. To sum up, this was again a strong quarter with high business activity and income flat costs and a very good result, all in line with our 2030 strategy ambitions. We go into the second half of the year with confidence. The business is performing well and our strategy execution is on course with visible progress across all key initiatives. The Nordic economies are also showing their strength, and we are well placed to support customers as they pursue new growth opportunities. Our strong performance and position are reflected in our full year 2026 guidance. We continue to expect a return on equity of greater than 15% and while we now expect a cost-to-income ratio of 44% to 45%. Our ambition is to become the undisputed best performing financial services group in the Nordics. The progress we made in the second quarter shows that we are moving steadily in that direction.

Operator, we are now ready to take questions.

[Operator Instructions] The next question comes from Magnus Andersson from ABGSC.

Yes. The first one on capital. Just I think that there's more deviation you had versus consensus in terms of the common equity 1 ratio is probably because many of us had included share buyback approval in Q2, which didn't materialize. So I'm just a bit curious, Ian, you said at the Q1 conference call that you thought the consensus expectations were at a reasonable place, which I think back then was around EUR 1 billion for this year. Could you please tell us how you look at this now, if it has changed, if you see, for example, larger growth opportunities or any inorganic growth opportunities? Because also, when I look at your target, it's 150 basis points, but it seems like you are steering closer to 2% rather than 1.5%. That's the first question. And secondly, just on your volumes still very strong, obviously, on the corporate side. when I look at quarter-on-quarter development, FX adjusted, it looks like your largest market in Sweden is clearly the store performer here. Norway is doing well, although it's abating a bit on a quarterly level. Denmark looks like a runner up and Finland, #4, as usual. August looks a bit better here. How do you think in a year's time, do you see any potential change in this pattern? Or is it still Sweden that will lead the way?

You -- so yes, first of all, let's start with capital and the share buyback position. And when we exited Q1. We'd had a strong quarter in terms of growth. I think I did indicate that our priority remains supporting growth with capital. But at that point, it did look like that we would have a good -- both good prospects of growth and the ability to meet expectations on share buybacks. Nothing has changed in terms of our priorities. So first of all, we look to deploy capital to support growth. And we had a really good Q2, I think, as you've acknowledged, in terms of growth opportunities across the business, and particularly in terms of delivering growth in corporate lending. And you know that we have strong capital generation. We always prioritize growth and then after that, any access we would think about distributing to shareholders. I would not get too focused on that we carry -- we operated a little bit higher than our 150 basis points management buffer. Generally speaking, the way we think about this is we look at what's our capital generation for the year, how do we deploy that into growth and then what is left over for other things. And as you say, both organic and inorganic growth is always on our mind. We're very -- our primary focus is on growing EPS. And when we think about the trade-off, for example, between deploying capital into supporting profitable growth versus other uses such as buybacks. I think if we can deliver profitable growth, we still see a better contribution to EPS, particularly at today's share price levels from versus buybacks. So we're always thinking about balance there. For the rest of the year, we go into the second half with a really strong pipeline and high levels of activity. So we feel pretty good about growth, particularly in our corporate business. But I think that we're always open to trimming excess capital when we generate it. And so you can rest assured that if we do see the capital start to build we'll be looking at the opportunities to trim that. So buyback is still an important tool in the armory. I think the outside world understood that equation when we spoke last time and in fact, lowered expectations a little bit on buybacks for the second half of the year. Whether or not we hit those levels, you can be sure that we are deploying our capital into spaces that will improve EPS, whether that be growth or whether that be managing down the capital base. So I think we're still in a good balance. But we're really pleased to see the growth, and that's why we prioritize deploying our capital.

And just if I may follow up there. For modeling purposes, then we should probably expect you to be -- remain at the management buffer somewhat above 150 basis points rather than trimming it down to EUR 150 basis points.

I think that's a reasonable assumption, yes. And on volumes. So look, a strong quarter and particularly on the corporate side again. And I think you got the -- in terms of the order of performance. You picked that up correctly, with the strongest performance in Sweden and then running through our different markets with a stable performance in Finland. A year on, I mean, it's hard to tell. We're seeing opportunities in all of our markets. And so I think that's the beauty of our spread across the Nordic region, which is that we will find opportunities wherever they arise. I can't make a guess as to where we will be.

The next question comes from Martin Ekstedt from Handelsbanken. .

So first, nitty-gritty question on Personal Banking, where return on equity dropped 2% in between quarters. And it looks like loan loss provisions is the main contributor to this. So Finland looks like a consistent underperformance in terms of basis points provisions on loans. But can you share a bit more on what's going on there? And then the loan loss ratio has stepped up to 13 basis points in Finland. I guess it's not low for retail banking. And if you have a through-the-cycle group guidance of 10 basis points, I would not have guessed that mortars banking to be the one to pull in the wrong direction there. But actually also a question on Sweden in terms of loan losses. In Personal Banking Sweden jumped to 9 basis points in this quarter, which actually represents the largest swing of any country quarter-on-quarter. Could you spend some time on that market. So you've taken very strong share of net new mortgage lending there over a period, meaning your book might be more skewed towards later cohorts than what is the case with some of your peers, for example, it would be great if you could give us some more clarity there.

Yes. Martin, at the overall level, the reason for movement in loan loss ratios and things is we had a significant release of management judgment buffers in Q1. So that broadly explains the movement into this quarter or the change, if you like, rather than there is no deterioration in credit quality, absolutely not at all. And that also -- it's management judgment movements by and large, that contribute to the movement in EPS return on allocated equity. When you're focusing on Finland, across the board in our portfolio, that does attract a slightly higher net loan loss ratio. We have a slightly different mix in that market with a slightly larger proportion of consumer finance business, which tends to push up the average loss ratios. So nothing untoward in there. It's simply a question of business mix in Finland versus our other markets. And then what you saw in Sweden is related to management judgment releases in Q1. There's nothing going on in the underlying portfolio that pushes that up.

Okay. Understood. And then secondly, if I could ask around Norway NII. I mean I had a look given what your peers reported earlier this week. And on a year-on-year basis, you're up 7% in mortgage volumes that were down 25% in terms of NII, that partially seems natural Nordea Bank was cutting way last year. But the question to me is whether repricing tailwind in the Personal Banking business coming once the 8-week notice period is over in Norway, i.e. starting around now, I guess, if that can compensate for competitive pressure on margins that you've seen in the meantime. You seem to be growing the mortgage book in Norway at a rate well above systemic levels, right, which raises the question if you sacrifice some margins recently beyond what is just after the grace period effect and funding pulling in the wrong direction there. So putting some numbers on this, you dropped 30 basis points in NIM in Personal Banking in Norway, I guess, over a year. Most of this is mapping quite well to the Nordea Bank rates in 2025, but there's some compression still ongoing over recent quarters, right? So if you could add some more flavor to that one, please.

Yes. Thank you, Martin. So the picture in Norway, certainly from a I think you've picked up the main movements, which is related to what we've seen in terms of rates. And of course, that will change as we digest the most recent rate hike can absorb the impact of notice periods. And of course, as we see further hikes has been indicated by Nordic Bank you see that effect continue. The -- I guess the difference in relativities, you talked about 1 of our peers and what you were seeing there. A little bit is the structure of our retail business in Norway. We have -- we don't have a stronger deposit position as some of our peers. We're working very hard, and you see our deposit growth over the last couple of years. We're working very hard to eliminate that imbalance, but it's a medium- to long-term game. We're making good progress. But I think that's the key difference between us and some of our peers there. We need to strengthen our deposit base, and we're very focused on that. But that's the principal reason for the relative disadvantage, and I think you've picked up correctly the rate impact there.

Thank you. That's a good explanation. Thanks. That's all for me.

The next question comes from Sofie Caroline Peterzens from Goldman Sachs.

Here is Sofie from Goldman Sachs. So on 1 of the slides, you mentioned that SRs are kind of helping your lending phase. A couple of years ago, maybe 3 years ago, you did a lot of SRT. Could you kind of just comment on how we should think about the fee income, but also the capital impact from these SRTs. That's the fact that you're seeing better lending fees from the SRT costs mean that some of these SRDs are coming back on your balance sheet? Or how should we think about it? And then my second question would be around your capital. I know there was a previous question on share buybacks. But could you also just remind us if there are any capital tailwinds or headwinds we should be mindful of. Is there any update on the IRB corporate models that you can give us.

Thanks, Sofie. On the SRT question, hopefully, I can deal with that pretty swiftly. We simply comment that because 1 of our SRTs ended during the quarter, we're no longer paying a fee on it, and that helps with the growth in lending fee income. It's really nothing more than that. Our position on SRT is unchanged. We use them sparingly. We've got about EUR 5 billion of REA coverage from SRTs. It's not a big part of our capital management. And we're simply calling out there that 1 of the transactions closed. And as a result, that is a contributor to the year-on-year growth in lending fees. . So on capital and the various ups and downs, nothing new to report -- in terms of -- or certainly of significance. In terms of the things we see ahead of us, we've flagged for some time that we would expect to see some benefits from retail model remediations. We've previously talked about between EUR 4 billion and EUR 6 billion by the end of 2027. We've delivered a couple of billion of that so far, but that's still something that we're working on. There was a small change in Denmark in relation to their commercial real estate systemic risk buffer. They tweaked that a little bit by increasing the exempted exposures. If that's reciprocated by the finish FSA, it would reduce our CET1 requirement by a tiny amount, maybe 2 basis points. So nothing really to call out in terms of changes there. And then on non-retail, now as we said repeatedly, we don't include any benefit from nonretail models in our plan, and so neither should you. And we have no news to share at this stage. The approval process is ongoing. ECB undertakes a very detailed rigorous review when we've got something to share, of course, we'll do that.

Okay. That's very clear. And then just a final question. On M&A, how do you think about M&A opportunities in the Nordics? .

I could take that one. Thank you. So -- we welcome the opportunities when they arise. We, of course, have a view on the ones that we would like to own. Right now, they are not for sale. But of course, it's a living material. And right now, we have nothing to share. But it is on our action list, organic-first growth and then M&A if the right target appears. And of course, the Nordic brings a number of opportunities, which we actively are following.