DNB Bank ASA

OSE:DNB

Q3-2025 Earnings Call

[Even Westerveld, executive]

Good morning, everyone, and welcome. Welcome to everyone also watching us on the stream, this will be the presentation of our third quarter results in DNB Group, and we are looking forward to present the results for you. Kjerstin and Ida will go into the details shortly.

The emergency exits are in the front you left and in the back. But there are no planned drilled today. So if there is a fire alarm, it's for real.

So there will be questions later, both here in the audience and possible to ask questions for those watching on the stream.

And I'll just leave the floor to you, Kjerstin, to get on with it.

[Kjerstin Braathen, executive]

Thank you very much, Even, and a very good morning to all of you, and a warm welcome to this presentation of our third quarter results. We are presenting a strong set of numbers, reflecting the summer season where a couple of months are slower for parts of the activity of our business. But overall, steep and increasing activity towards the end of the quarter. The Norwegian economy continues to do well, and this is well reflected both in the customer activity across our business, but also in the robustness of our portfolio.

I wanted to start by sharing a few highlights from the quarter. The first 1 actually after the quarter because only a few days into the fourth quarter, the transaction related to listing Verisure on the Stockholm Stock Exchange closed. We had the honor of being a global joint leader of this transaction. And it was the largest listing in Stockholm in more than 25 years, the largest listing in Europe since 2022, and it marks the strengthened brand and platform we have with DNB Carnegie.

Our assets under management continues to grow to a record level, NOK 1,579 billion, driven by market valuation and net inflow, and we continue to grow despite having sold Holberg in the quarter.

One of the key drivers is successfully launching new products. We have launched 4 new products so far this year, and this has driven NOK 5 million of -- NOK 5 billion of net inflow.

Making life easier and simpler for our customers is something that we always strive for. And this quarter, we have launched several new initiatives, 1 of them a fully digital process not only to register your company but also onboard your company in the bank. And each of these processes, saving our customers 18 days in the process.

By using amongst other, artificial intelligence, we are also simplifying the customer journey across services and across our platforms. And this has within the last year, led to an 18% reduction in number of service inquiries by our customers. And as usual, I do think it's appropriate for me to give a big shout out to the organization that works so hard every day to deliver on our mission to make life easier and the economy better for our customers at large.

Now maybe over more to the numbers. Return on equity for the quarter at 15.8%, which is well above our targeted return of minimum 14%.

The net interest income in the quarter is down by 1% compared to the previous quarter. This number is positively impacted by growth both on the lending side and the deposit side and offset by repricings that have been done and taken effect during the quarter as well as product mix effects.

Net commission and fees, a strong 28.9% increase from the corresponding quarter last year. Key engines or drivers, if you will, are investment banking and asset management. In Investment Banking, we see high activity across ECM, DCM and a somewhat lower contribution from M&A this quarter. Asset Management already referred to record numbers and attractive both market valuations and net inflow into the business.

And other area that stands out very positively this quarter are our activities on the insurance side, both in the life insurance and the non-life insurance.

Costs are down, reflecting our continuous efforts to increase efficiency and scale. We have a robust and well-diversified portfolio across industries and geographies. We do take impairments of NOK 862 million this quarter, but it is important to highlight that impairment on the underlying activity is for NOK 131 million, which corresponds to a cost of risk of 8 basis points.

Core Equity Tier 1, 17.9%, 135 basis points headroom to the FSA expected level. And this number also reflects a reduction of 40 basis points related to the additional 1% share buyback that was announced earlier today.

Earnings per share up 2.8% from previous quarter. Year-to-date, a total of NOK 6.98, year-to-date NOK 20.81, a solid platform to continue to deliver on our dividend policy.

A few comments on the Norwegian economy. New data and economic update has shown that growth was higher than thought actually in the first half of the year. So the growth estimates for the year has been updated and is now believed to come in at around 1.8%, a very healthy level of growth, and it's expected to stay roughly at this level for the coming years.

Unemployment remains low and the regional business survey that is published by the Central Bank supports both the growth outlook and the unemployment with a very positive results.

Inflation continues to move down. With lower inflation, high wage growth, we see drivers for increased consumer spending, which is an important driver for further economic growth.

The Central Bank decided to cut rates for a second time in September this year. Ahead in the forecasting period, the expectations of DNB Carnegie is for 1 more rate cut to take place and that to take place in June next year taking the key policy rate level to 3.75% and thereafter, stay at that level for the remainder of the forecasting period.

Needless to remind you, the world is an uncertain place these days with geopolitical tension around us, more importantly, the robustness and the resilience in the Norwegian economy continues to be very visible, and this is what matters the most for our business.

A few highlights from the main business areas. An additional strong quarter from Personal Customers, 2.7% growth in lending year-over-year and a quarter where there's been a high interest from customers in not only financing new homes, but also looking for a new bank and many of them selecting DNB and our Sbanken brand who have had the strongest growth in a quarter in a month that they have seen for more than 15 years.

Attractive revenue and Other income, strong cost discipline and very low losses leads to attractive return on capital of 19.6% for Personal Customers.

In Corporate Customers Norway, volumes at the end of the quarter are relatively flat. They do increase if we look at the average volumes throughout the quarter. And the underlying activity and growth across regions are positive with growing demand and growing volumes, driven primarily by seafood and somewhat energy. There is a solid contribution from Other income, in particular on the life insurance and defined contribution pension this quarter. Also here, cost discipline, certain customer-specific impairments have been taken, but even so a return on allocated capital of above 20% for this part of our business.

In Large Corporates, pretax profit is down compared to the previous quarter. And second quarter is usually a slower quarter, in particular, in Other income, where we are comparing to a record high quarter third quarter 2024, which was also impacted by positive market-to-market effects. Volumes are up by 0.5 percentage points. Underlying activity is, however, stronger in the business. There's also been a high activity in refinancing, typical transactions related to bridge to bond, which indicates a strong activity related to new business to get to the 0.5 percentage points growth. Year-over-year growth on lending here is 10.2%. A solid contribution from Other income certainly on ECM again and DCM, but also here, we see the lower contribution from M&A.

Wealth Management revenue in this area continues to grow.

In the Nordics, we are building on our strengthened growth platform. If we take DNB Carnegie and look at the rolling 12-month revenue, it's up by 12.3% compared to last year. This is driven, of course, by the Carnegie acquisition, but also high activity on the ECM and DCM side.

Equity capital markets are open. We do see an increasing number of RFPs and mandates coming in. And we are expecting to see more of the business materializing after having been pushed out in time after the trade turmoil earlier this year.

Wealth Management, again, we see a revenue compared to last year, that is up by 26.8%, a key driver, obviously, market valuation, but also very attractive flows into the business. And of course, the acquisition of Carnegie with Carnegie Fonder and Private Banking in Sweden that broadens our platform.

Because I would like to highlight that even more importantly than this quarter is the strengthened growth platform that we have across these 2 business areas.

The position stands out very strongly with a clear leading position as the Nordic Investment Bank. We have done 3 of the -- we have been a leader in 3 of the 4 largest IPOs in Europe so far this year. And in equity research, we hold the #1 position in 16 out of 21 sectors and are among top 3 in the remaining sectors.

For assets under management, it's a broader platform, well positioned for further growth.

And then it's time for me for the last time to welcome my copilot for several years on to stage for the last time. And it is also more than appropriate for me on behalf of DNB to thank Ida for her service and commitment to our activity, our business and our shareholders for many, many years across different roles where she has added substantial value in so many characters.

So Ida, the stage is yours.

[Ida Lerner, executive]

Thank you, Kjerstin. And thank you to the entire team for allowing me to be here for 18 years. It has definitely been the best 18 years of my life so far. So thank you all.

Now moving over to the third quarter. We note good activity across the group with currency adjusted profitable loan growth of 0.3%. We continue to see a good momentum in the Personal Customer segment, where the lending volumes were up 0.4%. And as Kjerstin pointed to, with an uptick of growth towards the end of the quarter.

Corporate Customer Norway was stable in terms of lending volumes. But this segment is, of course, also impacted by the fact that there's continues to be a low activity in the construction of new houses, which is usually a strong engine for growth in the corporate customer area.

Large Corporate and International are up 0.5%. This does, however, not fully reflect the underlying development in the portfolio, where we're seeing several larger bridge to bond transactions being taken out in the quarter and good momentum in terms of new businesses.

Currency-adjusted deposits were up 0.6%. The decrease of 1.8% in the Personal Customer segment are driven by seasonality. The reduction is, however, lower than what is usual for a third quarter and should also be seen in connection with this good increase we're seeing in asset under management from the retail customers.

Corporate Customers are down 3.9%. This is driven by a seasonal effect related to the public sector where there is a monthly -- where there is no monthly contribution from the state to the municipalities in August, but it is so for the remaining months of the year. The underlying deposit growth in Corporate Customer Norway is actually up 2%, which is, of course, a positive testament to the momentum in the overall society.

Large Corporate and International saw an increase by 8.5%, predominantly driven by the fact that there was only 1 petroleum tax payment in the quarter. We continue to maintain a strong deposit-to-loan ratio within the Customer segments of 73.6% in the quarter.

Net interest margins were affected by interest on equity and other NII and is down by 5 basis points. Combined spreads are stable. The underlying development in combined spreads are somewhat weaker than what can be seen here related to product mix effects and continued strong but rational competition in the market. For instance, Large Corporates, we noted a high margin bridge bonds, as mentioned before, being replaced by lower-margin loans. In the Corporate Customer area, we also saw a decrease in low-margin deposits stemming from the public sector being replaced by larger, higher-margin deposits from the SMB segment.

Net interest income decreased by NOK 162 million in the quarter. Volume growth and FX effects increased NII by NOK 142 million, and 1 additional interest day contributed positively by NOK 129 million. Spreads are affected by the rate cut, product mix effects, as mentioned before, and continued strong but rational competition in the market.

Interest on equity is down by NOK 202 million, affected by changes in the money market rates and lower average equity following the dividend payment made in May as well as the concluded share buyback program.

In the fourth quarter, we will see full effect from the first repricing being implemented 25th of August as well as partial effects of the second repricing being implemented mid-November.

We continue to benefit from a robust and well-diversified fee platform. Customer activity picked up throughout the quarter and in addition to what you can see on this slide, we are also noting positive momentum from the DNB Life Insurance business as well as the non-life insurance company, Fremtind, as you can see on Other income.

Net commission and fees on this slide is up NOK 878 million or 28.9% from an all-time high third quarter last year.

Real estate broking was up 9%, reflecting the higher activity in the real estate market.

Investment Banking Services was up by 73%, driven by the inclusion of Carnegie and a strong deliveries within equity capital markets and growing so also from debt capital markets.

In M&A, as Kjerstin mentioned, activity was lower than what was noted in the similar quarter last year, but particularly related to the maritime industries as well as energy.

In Investment Banking, we note a solid pipeline within equity capital markets as well as debt capital market, where several transactions already have been completed in the fourth quarter, and more mandates are expected to come.

Asset Management and Custodial Services was up 67%. There was a continued growth in asset under management in the quarter, net up NOK 15 billion when adjusted for the sale of the Holberg divestment.

Underlying asset under management was NOK 54 million in the quarter. And we noted positive net inflow from both Personal Customers, the retail segment as well as institutional customers. And we continue to see a positive development in terms of number of long-term savings schemes.

Guarantee commissions were down by 6%, driven by lower demand for trade finance.

Money Transfer and Banking Services were down by 19%. The positive contribution that we're seeing from the seasonally higher transaction and international travel activity was offset by costs and reduced contribution from banking services.

Banking Services was, among other things, impacted by fewer cars being sold from DB Finance and also insurance premium costs related to exposures in Large Corporate and International. The latter is a tool used for capital efficiency increased originate and distribute and also generates overall profitability to the group.

Sale of insurance products was up by 21%, supported by continued good income from defined contribution in our non-life -- in our life insurance business, and positive development also in the non-life insurance business.

Moving on to costs, where operating expenses are down by NOK 242 million, reflecting seasonally lower activity. Fixed salaries are down by NOK 126 million quarter-on-quarter, NOK 45 million of these are related to seasonal effects in our Swedish operation where the vacation days are deducted from previously accrued costs. The rest relates to fewer full-time employees in the group.

This quarter also includes one-off costs amounting to NOK 55 million, of which NOK 25 million relates to the announced decrease in number of full-time employees in our operations area and NOK 30 million to the integration of Carnegie.

Over to portfolio quality, which remains robust and is well diversified with 99.4% being in Stage 1 and 2. We note impairment provisions totaling NOK 862 million in the quarter, NOK 150 million of these relates to an update of our expected credit loss model. This impacts impairment provision in Stage 1 and 2 in the Personal Customer segment as well as in the Corporate Customer segment.

In addition to that, we have taken NOK 281 million of further impairments related to our legacy portfolio in our Polish -- in Poland.

Impairment provision as Kjerstin mentioned, in the underlying portfolio amounts to NOK 431 million, equivalent to cost of risk of 8 basis points.

The overall portfolio in the Personal Customer segment as well as in the Corporate Customer segments are strong with no signs of deteriorated quality.

In the Personal Customer segments, there are fewer customers with installment holidays and defaulted loans today than what we saw a year ago.

In the Corporate Customer segment, we have fewer customers on watch list, and we continue to see a good momentum.

The impairment provisions in Stage 3 for Corporate Customer Norway related to customer-specific situations in the same sectors as we pointed to before, namely real estate related.

The overall portfolio quality here continues to be sound and robust with a limited portion of the exposure in high risk. We remain comfortable with our credit quality in the overall portfolio.

And now moving on to capital. The Core Equity Tier 1 capital is strong at 17.9%, 135 basis points above the regulatory expectation. The Core Equity Tier 1 was positively impacted by profitability, 30 basis points, which was offset by the increased risk weight floors in the residential mortgage portfolio, leading to a reduction as announced previously of 60 basis points.

We finalized the previous share buyback program during the quarter and are today announcing a new 1% share buyback program impacting the Core Equity Tier 1 by 40 basis points this quarter.

Leverage ratio remained strong at 6.3%, well above the regulatory requirement of 3%.

With a Core Equity Tier 1 of 17.9% and a leverage ratio of 6.3%, our capital position remains strong and enables us to continue to deliver on our dividend policy.

So summing up, we delivered a strong set of results in the third quarter reflected in these key numbers. Return on equity came in at 15.8%, earnings per share at NOK 6.98, 2.8% increase from the last quarter, cost income at 37.4%.

And with that, I thank you for your attention, and we now open up for Q&A.

[Even Westerveld, executive]

Thank you so much, Ida. Thank you, Kjerstin. So this is the last chance you have to ask Ida difficult questions. Any questions from the audience?

[Kjerstin Braathen, executive]

To Ida.

[Even Westerveld, executive]

Yes, Roy from Arctic.

[Roy Tilley, analyst]

So Roy Tilley from Arctic Securities. So a couple of questions. Just on the customer revenues in DNB Markets, they were a bit down year-on-year and also the year before. Is that expected? Or are you surprised? That's the first question. I think there was NOK 700 million this quarter. So it's 20% down versus Q3 '24.

And on the activity levels after the September rate cut. I remember after the June rate cut, you had record high activity on mortgages. How was this in September? Was it the same or less this time around? I can start there.

1 more, actually. On Poland, just the legacy portfolio, can you just remind us how big is that portfolio? How big is the provisions now? And should we see more?

[Kjerstin Braathen, executive]

Thank you, Roy. I'll do the 2 1st ones, and Ida can do the latter. Third quarter DNB Carnegie is a good quarter, but it's a lower quarter than same quarter last year. And this -- we see strong areas such as DCM, equity capital markets in DCM, particularly on the investment-grade side. If you look at customer revenues, it's also on the fixed side that there is lower activity, lower activity related to interest hedging and somewhat lower on FX. And these are natural volatility for that part of the business, I would say.

As for M&A, it's typically the part of the business that varies from quarter-to-quarter. Third quarter last year, particularly active driven by, as Ida was saying, the maritime sector and transactions in the energy sector, an exceptionally high quarter for us. And this piece was lower in the third quarter.

So there's nothing that stands out that we would like to comment, rather emphasize the strong growth platform and that this business needs to be seen over a longer time than a quarter, and we're very happy with the development and what we see going into the fourth quarter.

Activity level after September was also very strong. Hard to say if it's exactly at the same level, but we continue to see that customers are focused on what their terms are, where they do their banking. And we think that's a very positive thing. It's healthy competition, and it does remain rational. And of course, we were delighted to see that so many customers wanted to come in and join Sbanken. But even in the DNB brand, we have seen a 10% increase in financing certificates. So this is a strong September and end to the quarter for all of our business in the Customer segment related both to pricing but also to the offering at large.

[Ida Lerner, executive]

And in terms of the loan book in Poland, we have a total loan book of NOK 3.7 billion, of which we've taken accumulated impairments of NOK 1.6 billion as of today.

What's important to say, and I'll give you a bit more details in terms of the portfolio, 88% of the portfolio is euro loans and only 2.3% is Swiss franc loans, which is exposed in terms of the recent developments we've seen in terms of rulings from the court.

The reason why we're taking larger impairment this quarter as well as last quarter before that is not due to the fact that the customer are changing in terms of behavior or anything like that, it's related to our proactivity towards the customers where we've tried different solutions really to find a long-term solution here, which is impacting the impairment provisions, but not underlying development in the portfolio.

We are continuously monitoring the development and are comfortable with the impairment provisions that we've taken overall related to this portfolio as of today.

[Even Westerveld, executive]

Thank you. You can toss the mic to Thomas Svendsen from SEB.

[Thomas Svendsen, analyst]

So on the capital, this big difference between your posted CET1 ratio and the FSA expectation. Should we expect that to come down over time, let's say, the next 2 couple of years? That's the first question.

And second, as you pointed out, there are sliding corporate -- large corporate lending margins. Is this a trend that we should expect to continue throughout the next few quarters?

[Ida Lerner, executive]

In terms of the Core Equity Tier 1, you're right, we have a good buffer, 135 basis points per the regulatory expectation. What needs to be also taken into account when looking at this number, is that we have a Pillar 2 guidance of 125 basis points within that expectations, which is significantly higher than our Swedish peers, which I believe is around 50 basis points.

So we have a buffer on top of the buffer so to say, and therefore, we are also very well capitalized where we are today, and that's also why we are launching a new share buyback program.

We haven't changed our dividend policy. That stays firm. We're going to continue to focus on an increased nominal cash dividend year-on-year and utilize share buybacks as a flexibility tool to optimize the capital position. But where we are today, I would say that we are very well capitalized.

And in terms of LCI and the lending margins. As I pointed to, and Kjerstin also mentioned, we're seeing some movements within the portfolio in terms of larger bridge to bonds, which have higher margins being taken out in the quarter and being replaced by lower margin and also low risk in large corporates.

In addition to that, there is a fierce competition out there. There is a lot of very solid, well-capitalized banks out there, which, of course, also has an impact in terms of the overall market developments. But this quarter, it's predominantly the impact of the fact that we're shifting large portions of transactions which are different in terms of lending margins.

[Kjerstin Braathen, executive]

And we do not see a basis to be able to call it a trend.

[Even Westerveld, executive]

Any more questions? Herman Zahl from Pareto.

[Herman Zahl, analyst]

Just on the competition within PC, Personal Customers currently. Since lending spreads are up by 16 basis points. So it seems like you have given some more repricing downwards than would be suggested by the conventional 25 bps and that your communicated repricing effective date. So -- and you're not growing that much in the quarter either. So I know you're stating and saying that competition remains rational. But would you say it's less rational than it has been historically?

[Kjerstin Braathen, executive]

The key theme is that it is rational, but it is slightly intensifying. I think we've been very clear on that. And I think it's well known that the magnitude of liquidity in the market at the moment surpasses demand. However, I believe it's important to be cautious while reading spread movements and directly transferring them to repricing movements as the margins in the statistics are based on the money market rates. And they move and bear in mind that we've had 2 rate cuts within relatively short period of time, and you will see lag effects just as we did on the way upwards, you will see lag effects as money market rates tend to move prior to the adjustment from the Central Bank. And again, there's a lag before the price adjustments become effective into our numbers. So there is competition.

I would qualify the growth in the quarter as attractive given what we've seen statistically. And given what we see in September. And given what we see also in the wider market. This is a quarter where I at least I'm very happy with the performance of the team and reiterate that year-on-year is a growth of 2.7%, and it's at profitable conditions.

[Herman Zahl, analyst]

And just given that some of the -- sort of more challenger banks in -- within Personal Customers have grown quite strongly since the rate cuts. Could you give some color on how you how the Sbanken volumes have developed since the June rate cuts?

[Kjerstin Braathen, executive]

We do not give sort of details across our brands. We believe the key importance and our priority is to deliver a profitable growth in the area, and that is what we do this quarter. When looking at percentages, it is important to keep in mind that we have doubled the volumes of the second largest player in the market, and there is a strong culture for amortizing in the Norwegian market. So just keeping volumes means having a very high level of activity and growing volumes even beyond that. And we are grateful and appreciative of the fact that so many new customers choose to bring their business to us.

[Even Westerveld, executive]

Any questions from the online audience? No. There's 1 more from Roy, please. [ Simon Rune ], ABG.

[Unknown Analyst]

Just a question on your costs for the quarter. Ida, I think you mentioned that was mainly driven by the drop quarter-on-quarter is mainly due to seasonal effects. But I think Kjerstin, you said there's also some structural aspects of it in your introduction. So which 1 is it?

And in relation to that, you have NOK 3 billion cost savings program ongoing until '27. Can you say something about how you're tracking towards that with -- yes, close to 1 year already done?

[Ida Lerner, executive]

I would say in terms of your first question, both are right. When I talk about it was more quarter-on-quarter where we're seeing the seasonality effect and that's more to also talk about what we're seeing in the fourth quarter, which is expected to have a higher seasonal element into it.

What Kjerstin talks about is, of course, that we continuously work on cost efficiency. We use digitalization and increased automation. That's also 1 of the reasons why you're seeing a decrease in full-time employees in the operations area is driven by increased automation and efficiency.

In addition to that, we are now kind of benefiting from the full impact of the reduction of 500 full-time employees that we launched last year or announced last year, which is, of course, also impacting long term in terms of the overall -- the underlying cost development.

So when you're talking about the NOK 3 billion, this is something that we embed in how we do business on an everyday basis, and cost efficiency is really embedded in our culture and continues to be a very important tool also when looking at competitiveness, not at least in the mass market and then both on the Personal Customer side but also on the Corporate Customer side.

[Unknown Analyst]

Yes. So trying to quantify how you track...

[Ida Lerner, executive]

I would say we're tracking in line with what we expected. Actually, a bit kind of better than that being said that we then decreased the number of full-time employees already this year of 500.

[Even Westerveld, executive]

And Roy, you had 1 more question?

[Roy Tilley, analyst]

Just a question on insurance. So as the Fremtind, the results in the quarter, they were 76.4% combined ratio. They're tracking well below the target they had for 2025. So I know it's kind of a benign summer quarter for insurance, but it's starting to get very profitable again.

So 2 questions. Firstly, are -- is this the level you expected? Are you happy? And secondly, if it's good enough, are you prepared to start taking some volumes again? You think kind of -- is the premium hikes behind us now? Will competition increase? Or is there still more to do?

[Ida Lerner, executive]

In terms of the non-life insurance business, I think what we have seen in Fremtind is also showing their results today. I would say that the team under Hege's influence has done a tremendous job in terms of focusing on increased profitability, cost efficiency and also focusing even more so on the distribution the banks.

And this is also what we're seeing this quarter a closer collaboration between the Personal Customer segment with Maria as well as the Corporate Customer segment with Marianne in terms of how we can collaborate even better in terms of selling more towards our customer and making it even more digital and more seamless for the customer.

So we are seeing a positive uptick on the non-life insurance company business for DNB as well this quarter. And I hope that, that will continue also with a strong sentiment and the driver we're seeing from Hege and the team in Fremtind.

[Even Westerveld, executive]

All right. Thank you. I haven't seen any more questions in the audience. So then we will close this session. And for the journalists in the room, there will be time to meet management after this session. Today, we are rigging for the DNB next conference tomorrow outside. So the journalist interviews will be in the area just behind us.

Thank you so much for joining us online and physically, and have a nice Wednesday.

[Kjerstin Braathen, executive]

Thank you.