Jyske Bank A/S

CSE:JYSK

Q3-2025 Earnings Call

[Simon Falk, executive]

Hi, everyone. Thank you for joining us on Jyske Bank's conference call for the financial results for the third quarter of 2025. This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Morch; and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we will open up for questions. I will now hand over to Lars.

[Lars Stensgaard Morch, executive]

Thank you, Simon. I would also like to welcome you to our conference call for Q3 2025. I know that our figures have been awaited with somewhat less anticipation than normally. And in that light, I'm extra pleased that you've decided to spend time with us here.

We've had a strong 2025 so far, reaching our highest earnings per share for the first 3 quarters of the year. This builds on the positive momentum from recent quarters with earnings per share growing 7% year-on-year in Q3 despite the backdrop of significantly lower short-term interest rates. Based on this positive development, we've upgraded our earnings outlook for 2025, now targeting a net profit of between DKK 4.9 billion and DKK 5.3 billion.

We're also making progress on key initiatives with focused cost management while improving both personal business and corporate customer satisfaction significantly. Higher customer satisfaction affects customer flows and the number of personal private banking and business clients have improved during the last year. The outlook is for a balanced development for the Danish economy and a stabilization of short-term interest rates.

Additionally, credit quality remains very solid with a continued low level of loan losses and a significant post-model adjustments in place in order to mitigate potential repercussions of the elevated geopolitical uncertainty. Overall, our results puts us in a healthy position as we look to further strengthen our momentum.

With that, let me hand over to you, Birger, for a walk-through of our financial results.

[Birger Krogh Nielsen, executive]

Thank you, Lars. And as you can see, the strongest quarter we've delivered in the last 7 quarters was here in Q3 with an earnings per share of DKK 23 and simultaneously with lower short-term interest rates, as already mentioned. If I look at Jyske Bank at a glance here, return on tangible equity, 12%, well above the 10% mark in the long term. Cost-income ratio well below 50% and cost of risk, just around 0 basis points actually for several quarters now in a row.

And the CET1 ratio at 16.2%, a small dip from Q2 due to higher market risk, operational risk and credit risk, the latter due to higher mortgage lending and property lending. And so inclusive of a reservation for capital distribution of 71%, we end up at 16.2% this quarter, still well above our long-term targets.

If you look at the bottom in the middle, you can see that the P&L statement demonstrates that the NII line is now only dropping 1% from Q2 to Q3. So actually a bit more stable now than we have seen in the former quarters. The fee and commission income continuously grow and remains strong, both over the quarter and over the year. We still see strong value adjustments. Cost is under control, and we deliver, as we say, as we mentioned, DKK 1.455 billion net profit in the quarter.

At the right-hand side, you can see that business volumes is somewhat -- well, it differs a bit because the AUM is on the rise, steadily going quarter-by-quarter, whereas property lending is also rising steadily on a quarterly basis around 1% and bank lending is a bit more subdued with a drop of 1% here in the quarter. Deposits stable going from Q2 to Q3.

Looking at the expectations, we lifted our expectations on the 9th of October and 2025 actually could end up being the second strongest year in history. And we now expect DKK 77 to DKK 84 per share. And we also adjust our expectations for core expenses where we now state that they will be approximately stable in '24 versus '25 due to slightly lower cost here after Q3 relative to last year.

Moving on to the AUM development. As I said, steady going. We have seen net inflow of customers and positive financial markets again this quarter, leading to a 2% lift quarter-over-quarter, 7% over the year, and that is inclusive of the market setback we saw back in Q1 of this year.

Looking at the underlying deposit base, we have been able over the last year also to grow the stable part of deposits with now 5% higher level here in Q3 versus last year, which is more in line with our market share. And now more than 90% of our deposit base is what is characterized as stable deposits. If we take a glance at the Danish economy, we are operating in a Danish economy that is very resilient, strong labor market, historically high employment, stable inflation. And actually, we have, since 2019, outpaced the EU growth. And if you take the layoffs in Novo as an example, it is less than 0.2% of Danish employment. So we are in a very steady environment and also despite the geopolitical uncertainty that we still see around us.

Moving on to short-term interest rates. We now expect no further rate cuts from the ECB. And our net interest income expects to bottom out within the next couple of quarters. And the reason for that is primarily due to some bond issuances, both liquidity and capital issuances here also in Q3. And of course, if we look into and when we look into '26, much depends upon the volume development in that year.

When we see on the next slide, the development in value adjustments, you can see that over several years, we have been able to actually lift the level of value adjustments in average to a level around DKK 900 million per annum. And that actually includes the sharpest interest rate increase in decades in '22, '23, but also the sharpest -- a very sharp rebound in '24, '25. And if we look at the composition of the value adjustments, approximately 80% is customer-driven and the rest is placing of excess liquidity and our sector shares that are needed to support our business.

Moving on to costs. As you can see, since the acquisition of Handelsbanken Denmark and PFA Bank, we have had very steady costs. The costs are actually down 2% year-over-year in the last 4 quarters, but the underlying, we see an increase of below 1% adjusted for one-offs -- we still, of course, see inflation present in all areas of the group. Wage agreements are up 2.5%. And please bear in mind that Q3 was a slim quarter when we look at cost, and we expect slightly higher Q4 numbers. And therefore, we state now that '25 is expected to be approximately at the same level as '24.

Then moving to the last slide I will comment upon now is our credit quality. And actually, the story is very much the same as we have seen in former quarters, a very stable portfolio. Stage 3 exposures are up from -- or sorry, are down from 1.2% to 1.0% over the year. Stage 1 exposures, the very strong part of the portfolio has grown from 95% to 95.8% over the year and management estimates or post-model adjustments are at DKK 1.9 billion, unchanged from Q2. And still, we see a very low level of write-offs. So all in all, a very strong portfolio, low impairments and very low write-offs in the book. And I think that concludes our initial remarks.

[Simon Falk, executive]

And we will now open up for questions. The first one in line comes from the line of Mathias Nielsen from Nordea.

[Mathias Nielsen, analyst]

So on the first one, I know you can't comment much on the -- or you probably won't comment much on the AL Sydbank merger. However, I find it quite interesting that if memory serves me right, you actually had an acquisition of Handelsbanken, which was on the BEC platform versus you being on the bank data platform. So I guess you have some run rate cost comparison, like how does that look like when you acquired Handelsbanken, the BEC run rate cost, how does that look compared to the Bankdata run rate cost when you take it from a high-level perspective?

[Lars Stensgaard Morch, executive]

Yes. Mathias, Lars here. And thanks a lot for your question. As you rightly say, there are things that I can comment on and things that would not be appropriate for me to comment on. The situation with Handelsbanken was a situation where we got quite a bit of synergies of moving it to Bankdata. And in our view, Bankdata is a very strong suitable platform for the business model that we have with quite a bit of business and SME clients and the markets operation. So we actually had quite a bit of synergies moving in that direction.

[Mathias Nielsen, analyst]

Okay. That was my first question. And then the second question on the capital distribution side, like you seem to be a bit overcapitalized. Some would argue probably, especially among the equity investors. So when thinking about capital distribution for this year, is there anything holding you back from a 100% payout ratio? Is there anything on timing of buyback applications, something like that, that could hold you below 100%, let's say, 90% or something like that. Is there anything we should -- any details that we need to keep in mind when looking at such things?

[Lars Stensgaard Morch, executive]

Yes, that's a very good question, a very appropriate question to ask. I'm happy that our capital buildup is strong at the moment. We stick to our plan of 30% cash payout and the rest within our possibilities and still keeping a strong capital position, we will have share buybacks. The share buybacks will normally be done based on an application to the FSA quite a bit earlier than the yearly result. And for that reason, it's not possible for us to apply based on the full year result. So that could hold us back.

[Mathias Nielsen, analyst]

Okay. In terms of Q3, is that included or now it's almost getting too detailed. But like given the strong result on trading income, I think it's probably relevant to ask if, if we should assume the Q3 results to be reflected in the application or we should assume that will be not reflected in the application that you may have said or may not have said?

[Lars Stensgaard Morch, executive]

It's difficult for us to get into a lot more details on this one here, Mathias, because we're doing our application according to the rules here, and that's quite a bit earlier than the yearly result.

[Mathias Nielsen, analyst]

Okay. And then the last question that I have on cost. You also highlight that Q3 was a slip quarter on cost and now maybe a bit less on the year-on-year improvement versus last year in Q4. What should we think about '26? Is it fair to assume that you can keep this stable cost trend into '26? Or is there anything that we should be particularly aware of? I guess you had some one-off related to the new premises that we can easily take out of next year. So how should we think about it?

[Birger Krogh Nielsen, executive]

Yes. Thank you very much, Mathias. The cost base in '25 will approximately be the same level as '24, all inclusive that, i.e., one-off items as well. And you're quite right that there were some one-off items both in '22, '23, '24 and also this year that will run off and not be part of the equation in '26. We have said that we will try to the extent possible to keep cost as flattish as possible given the market conditions according to our strategy, and that still applies. But also, please be aware that we have inflation pressure present, as I said before, in all areas of the group that still applies, and we expect that also to be the case in '26.

[Simon Falk, executive]

Next question in line comes from the line of Martin Birk from SEB.

[Martin Birk, analyst]

Lars, you also happen to be the -- you also happen to sit at the Board in Bankdata. And if Jyske Bank manages to bring AL Bank and Investors to Bankdata, would revenues in Bankdata still need to be DKK 2 billion?

[Lars Stensgaard Morch, executive]

I think if we get more -- or if we get benefit of more volume at the Bankdata, we would be able to run that more efficiently. There's not a lot of extra cost adding an extra bank to...

[Martin Birk, analyst]

Okay. And revenues will also need to be DKK 2 billion if we assume that -- or if we play with the scenario that Jyske Bank is going to BEC...

[Lars Stensgaard Morch, executive]

I think the cost of running a bank is divided -- on an IT platform is divided into development and running the bank basically. And the development will not change a lot and a lot of the run the bank will be on JN data and for the individual bank.

[Simon Falk, executive]

Next question comes from the line of Namita Samtani from Barclays.

[Namita Samtani, analyst]

My first one, the commercial real estate systemic risk buffer, like the decrease in the proposal, how much of an impact would that be for you?

[Birger Krogh Nielsen, executive]

Yes. We see -- you're quite right, there is a relief in the CRE buffer. They have lifted the LTV ban that is excluded from the extra fee and payment. It is a small relief relative to the full exposure or the full payment that we have today and the buffer we have to reserve today.

So we expect a small relief in Q4. And then also be aware that we also in the slide deck mentioned that we could see a slight inflation in the real numbers in Q4 because when we implement new models, there is an initial conservative attitude from us and the FSA, because when we implement a new model, there are still some reservations that will gradually be taken off, but only gradually due to dialogues with the FSA on formal occasions. So there could be a slight inflation in the real numbers despite the relief from the CRE buffer in Q4.

[Namita Samtani, analyst]

Okay. And then my second question, you said net interest income will trough in the next couple of quarters and that's because there's some bond issuances. But what are these exactly? And what's the quantum of the headwind? And why is it that volume growth cannot offset these?

[Simon Falk, executive]

Yes. So we did some issuances in Q4 -- sorry, in Q3, which we'll see the full quarter effect from in Q4. It's not going to be a material headwind, but I can't remember the exact figure. We did a Tier 2 issuance of EUR 500 million. And on top of that, we also recently did a nonpreferred senior issuance of EUR 100 million. I can come back to you with the specific figures if you would like that, Namita.

[Namita Samtani, analyst]

That's helpful. And my final question, the AL Sydbank merger. I just wondered what your thoughts were on how this impacts the wider Danish banking market. Do you have any initial thoughts, like is this positive? Is this negative and particularly on corporate? Because when I read the press release, they were very specific on being competitive in the corporate space?

[Lars Stensgaard Morch, executive]

Yes. Thanks a lot for that question. I think it's fairly neutral from Jyske Bank perspective in the sense that it is a personal customer bank going together with an SME bank and a smaller local bank, 3 banks going together. It doesn't really change a lot from our perspective in the market space because basically, in cities today, we are up against 3 banks that will be 1 bank going forward.

They are -- each of them good and strong in their own areas, but we don't see a lot of new things being added in terms of capabilities or volume when it comes to the business and corporate side here. So I think it's fairly neutral from our perspective looking at the market space. We are standing with a very strong value proposition and we'll by far, still be altogether a bigger bank lending-wise in the corporate and business space.

[Namita Samtani, analyst]

Sorry, just one small question. Given that these 3 banks will be quite busy merging together, if there's any attrition, are you ready to take on any clients from that space?

[Lars Stensgaard Morch, executive]

Yes, we are running a relationship bank that we want to see solid also going forward. If there are possibilities in the market and it's on our acquisition list, the business clients who would like to talk to us, we will talk to them, obviously, no matter if they come from the one or the other bank. So we are open for business, obviously, with strong and good clients.

[Simon Falk, executive]

Next question comes from Asbjørn from Danske Bank.

[Asbjørn Mørk, analyst]

A little bit on the same topic of the last question. If I look at your strategy from last year, basically a year ago, you basically emphasized midsized businesses and selective large corporate and institutional clients as a main focus area in the new strategy period. And I guess that made a lot of sense when you were the sort of the only real alternative to the 2 largest banks in the Danish market.

I guess the market has changed quite a lot. I do appreciate your comment, Lars, on AL being more retail, but one of the things that at least Sydbank is saying is that they will double their balance sheet. They will be able to underwrite full lines. I have the same arguments for Nykredit after they acquired Spar Nord. So at least there's something from the competitor point of view that seems to indicate that the 3-bank market has become a 5-bank market. So I was just wondering if you see any changed behavior from Spar Nord -- sorry, from Nykredit at this stage? And if you have seen or will -- or if you anticipate sort of a changed behavior from Sydbank on the back of this?

[Lars Stensgaard Morch, executive]

I think they're all strong competitors today. And I think from the Nykredit perspective, we don't see a change here. So far, it's also early days. But I think Nykredit had a big and strong balance sheet also prior to this acquisition. And I don't think it changes a lot from their perspective, they were able to underwrite big credits before and normally. And I don't know the internal policies within Nykredit, obviously, -- but I think they were able to underwrite credits of a size that where you normally have a single name concentration cap in most banks. That's at least what we see across banks when we do underwrite credits for larger companies that there's a limit to how big you want a single name credit no matter how big your balance sheet is.

And then in terms of Sydbank, it will be early days. They would have a little bit bigger balance sheet. They don't have mortgage products inside in-house now, which is basically where the other banks have been growing in volumes. That is when they're able to do a combined advisory combined bank products and mortgage products. That's a feature in the Danish market. And even the very large companies, they prefer to have a balance here with those products.

[Asbjørn Mørk, analyst]

All right. Then if I look at the sector statistics, it seems like there's still quite good credit demand in the corporate space. I do acknowledge that Q-over-Q bank lending on the corporate space is down slightly, and I guess your numbers reflect some of the same. But if you could just touch a little bit upon or shed some light on where the corporate demand is derived from? Is it within the larger corporates? Is it within SMEs? Are you beginning to see changed demand across or any sort of impact from the German package, et cetera, anything that started to move?

[Lars Stensgaard Morch, executive]

We've seen a remarkably stable business and corporate segment within our bank during the last year. If we look at the market, we would see quite a bit of the growth in terms of numbers comes from major mergers and acquisitions among the very largest businesses and some bridge financing and so on, which is normally not the territory of our bank.

When it comes to the SMEs, fairly stable development here and not a lot of extra credit volume this year. We are in a very stable situation. We just calculated recently that with the churn rate that we've seen lately, it means that our customers on average, the SME customers on average will stay with us 45 years. Obviously, we don't know that for sure. But if you look at the raw figures now and you do the math, then that would imply that the customers will stay with us.

[Asbjørn Mørk, analyst]

Just if I may follow up, you said that the demand is from the largest corporates. Isn't that the area that you wanted to tap into a year ago? Or is it a little bit of a more of a niche market?

[Lars Stensgaard Morch, executive]

It's a little bit more of a niche market. So what we do is some different products and financing for some of the very largest companies, including the very largest in the country here also. But if you have the biggest cross-border companies and they do bridge financing on major acquisitions, we are part of that to a limited extent and predominantly where we have a relationship with the customer.

[Simon Falk, executive]

Next question comes from Martin Birk from SEB.

[Martin Birk, analyst]

Maybe I'll just follow up on my Bankdata questions before. Lars, can you please help me unpack the toolbox? So what kind of levers can you pull in order to make the Bankdata offering attractive for the part of Al Sydbank that is not already on Bankdata today beyond, of course, having the best product in the market.

[Lars Stensgaard Morch, executive]

Yes. I can to some extent, but I also think that you would appreciate that this is coming down to a negotiation. And I think if we play out all our cards here, that would be wrong. So allow me to comment on this a little bit, but not in great detail. So there's a pure quality that they would obviously consider of the IT solutions. And basically, I don't think there are weak data platforms out there. So it's strong platforms that they are considering.

From our perspective, we think that the one that we are on is, in particular, strong when it comes to business and corporate clients. And we think the setup is strong when it comes to supporting the markets business which is part of our business and some other banks business also. We think we are in a very good development within Bankdata, and that has accelerated within the last year or 2 and that the cooperation on a daily basis is strong. And then I think what we can do is, obviously, we can discuss the future plans of the platform here to make sure that, what we come with is the most compelling offer. There's also something that is related to speed. So when can we do the migration, I think that will be of great importance to AL Sydbank. And there's a number of quality things that we can do.

[Martin Birk, analyst]

Okay. As -- in your position as CEO of Jyske Bank and also sitting at the Board and the Bankdata, would you like to see that Bankdata and BEC merged?

[Lars Stensgaard Morch, executive]

I think what we have discussed across the industry many times is what is the right number of data platforms. On the one hand, you would probably want more than 1, do you want 2 or 3? That's up for debate. What we will do is what makes sense, both short and longer term, and we will not be the last one who would wish to do mergers of platforms. But I don't envisage any of that within the next year or 2. But there's a number of things that need to be right before that is potentially done. We've been one of the banks who are not against that in the past, and that will also be the future. For now, we are very pleased with the platform that we're on. We believe that, that's the strongest platform for us. And I'm confident that we'll be in a good position also a year and 2 down the road.

[Martin Birk, analyst]

Okay. So if we go back to my first question about the DKK 2 billion in revenues, and we assume that, and sort of try to play on your stance of being a pro-merger. Do you think that if you move all the banks to Bankdata and you completely write off the BEC system just as a theoretical thing, do you think that you could still run Bankdata at around DKK 2.5 billion in revenues once everything is migrated and done and dusted? Is that a fair way of seeing it? So basically, your IT cost would to Bankdata would be half.

[Lars Stensgaard Morch, executive]

Yes. I don't want to comment on if it would be half or if it would be 60%, but it would be quite a bit lower. I think the thing that has been holding back banks from doing this in the past is the transition and the cost of the transition. There's no doubt that there will be major synergies for all banks if that was done on the little bit longer term. What has also made us hesitate is that there's quite a bit of pressure on bringing new things to the market and not the least also working on the stability and the resilience of the IT platforms. So you have a number of tasks that each of the platforms are doing at the moment that you need to do in order to be confident that you have a resilient and strong platform. And you cannot postpone that for 4, 5 years while you do a merger of these platforms. And that is what, to a large extent, is complicating this.

[Simon Falk, executive]

And next question comes from Asbjørn Mørk from Danske Bank.

[Asbjørn Mørk, analyst]

Yes. It was actually a little bit on the same topic as Martin, but let me ask you a little bit differently then. So Lars, if you look at the complexity of merging Bankdata and BEC, just trying to grasp a bit here how complex that task will be, what kind of cost it would involve? Because I guess -- now Sydbank it seems want to play out Bankdata and BEC and see who will offer the best terms. And I guess losing this bank is going to be devastating for whatever IT platform that will lose.

But I guess there's also a winners curse here in terms of offering to attractive terms. So do you think that the exit cost that Sydbank or AL would have to pay, would that cover the sort of extra cost if you were to do a full integration of the 2 IT systems? Is that -- do you have any sort of view on that?

[Lars Stensgaard Morch, executive]

I think the cost will probably be bigger for a full integration, but the benefit -- and the benefit will come later.

[Asbjørn Mørk, analyst]

How much bigger do you think?

[Lars Stensgaard Morch, executive]

It depends on the model. It's a philosophical question because those negotiations aren't ongoing. But it's a philosophical question, and it's also based on the decision that will be made. There's no doubt that the cheapest way of doing it would be to decide on one of the IT platforms and migrate the banks on the other platform onto that platform.

Many times, I think when you have negotiations like that, every platform would like to come with 50% or their share of subsystems, and that would be extremely expensive and that will be complicated. So it also depends on model.

[Asbjørn Mørk, analyst]

But if you were to, let's say, migrate BEC into Bankdata, just migrate the banks onto that, would that be covered by what that cost do you think?

[Lars Stensgaard Morch, executive]

I think I should respond differently. I think any cost that the banks would have doing this upfront, there will be savings coming in the fairly near future that will pay this off fairly soon. So that will not be a 10-year thing.

[Asbjørn Mørk, analyst]

And considering the scalability that you just answered on one of the previous questions, I guess, at the end of the day, for Bankdata to lose should bank would be an unacceptable outcome.

[Lars Stensgaard Morch, executive]

That's certainly not the outcome that we would anticipate, but there will be a number of different possibilities should that occur. And please remember, no matter if some of the banks are leaving BEC or Bankdata here, there will be a payment at least 2.5 years and probably longer into the future and some of the payment will be even larger than running as the systems do today.

So there will be quite a payment, and there will be quite some time to do -- to consider your options and make a deal. I find quite a bit of comfort in the fact that I think our platform is very strong also compared to the alternatives out there. So I'm fairly certain that Bankdata, the one way or the other would be part of the future setup here.

[Asbjørn Mørk, analyst]

All right. And then final question from my side. If I sort of look at the 2 major deals we've seen in the market the last year, I guess if you're a smaller bank in Denmark, you will all else equal, be a little bit less sure about your mortgage provider. And I guess this deal also -- the deal on Monday, I guess, shows that there is still uncertainties relating to IT that you -- that's basically out of your control. Do you see any sort of changed behavior from the smaller banks in terms of sort of being a bit more unsure about the future and wanting to sort of secure their own destiny, so to speak?

[Lars Stensgaard Morch, executive]

Yes. I think quite a number of them, if not all, are considering to have a plan B. And I think most of them are discussing that heavily. And probably we will see some moves also in the next couple of years here.

[Asbjørn Mørk, analyst]

And that also goes for a mortgage provider?

[Lars Stensgaard Morch, executive]

It could. It could.

[Simon Falk, executive]

And next question comes from Martin Birk from SEB.

[Martin Birk, analyst]

Yes. And sorry for my curiosity Lars. Now that we have you here, I might as well just give you a couple of more questions. Do you think that coming back to the Bankdata questions, do you think that once this AL Sydbank deal is done and dusted, you will, for the first time, have a defined big brother and a defined little brother in the Danish banking IT space. Do you think that increases the probabilities of the 2 going together?

[Lars Stensgaard Morch, executive]

Of the 2 platforms?

[Martin Birk, analyst]

Yes. Hasn't that been -- I mean, hasn't that always been the problem that BEC and Bankdata have simply in the past, been too equal in terms of size. And all of a sudden, you do have a defined little brother now and you will, in the future, also have a defined sort of big brother.

[Lars Stensgaard Morch, executive]

Yes. I think there are 3 platforms out there. And I think if you look at the past, there have been -- you're normally a fairly direct person, Martin, you would say there's been a number of excuses for not merging the platform. So we would say that there's been a number of different reasons that, that has not been done. There are also reasons for not doing it now, not the least because from a regulatory compliance and resilience perspective, there's a number -- there's a big number of investments in all of the platforms now to make sure to live up to future requirements. And you don't want to jeopardize that you're able to live up to that. So I think that's the biggest hurdle here if discussions were to occur.

[Martin Birk, analyst]

Okay. All right. I guess we will continue our talks on these data platforms for the foreseeable future.

[Lars Stensgaard Morch, executive]

Yes. Maybe there's a solution one day.

[Simon Falk, executive]

Thank you, Martin. It seems as if there are no further questions in line. We would like to thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us if you have any further questions. We appreciate your interest in Jyske Bank and wish you a nice day.