Earnings Call: Q4 2016

Feb 2, 2017

Summary

Net profit reached DKK 19.9bn, up 12% excluding 2015 goodwill impairment charges, with 13.1% ROE and stronger capital. 2017 net profit guidance is DKK 17bn–19bn amid low rates and uncertain market conditions.

Good day, and welcome to the Danske Bank Annual Report 2016 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Thomas Borgen, CEO. Please go ahead. Thank you, operator. Thank you all for taking time to listen in to this call today. With me in the room today, I have our CFO, Jacob Aarup Andersen, and Head of IR, Claus Ingar Jensen. Slide 1, please. In today's call, we have the pleasure of presenting Danske Bank's financial results for 2016. We aim to keep this presentation to around 20 minutes. After the presentation, we will open for a Q&A session as usual. Afterwards, feel free to contact our IR department if you have any more questions. Slide 2, please. 2016 was a satisfactory year for Danske Bank. We are pleased to report steady progress in our financial performance, as well as continued improvement in customer satisfaction. Net profit came in at DKK 19.9 billion, up 12% from the level in 2015, excluding goodwill impairment charges. This gave a return on shareholders' equity of 13.1%, which fulfills our longer-term financial ambitions of at least 12.5%. The operating environment remained challenging throughout the year, with a continuation of negative rates, low to moderate growth, and increased geopolitical uncertainty. As a result, the market generally saw subdued demand and strong competition in many areas. We are therefore very much encouraged by the results, which demonstrates the strength of our diversified business model and also show that we have successfully executed our strategy of becoming a more customer-centric, simple, and efficient bank. Macroeconomic developments in 2016 were characterized by modest growth in Denmark and Finland, whereas in Sweden, growth declined slightly during the year from a high level. In Norway, where we also saw modest growth, economic activity outside the oil industry picked up towards the end of the year. In Northern Ireland, uncertainty increased after the U.K. referendum in June, although the outcome did not have a large effect on the economy. Developments in the financial markets were a key factor in the period. Early in 2016, global uncertainty caused a slowdown in customer activity that was followed by a robust rebound in the second half of the year. This was particularly true for our C&I business, with only slight interruptions around the U.K. referendum and EU membership in June and the U.S. presidential election in November. The strong customer activity had a positive effect on our trading income. We saw good progress in lending activity as volume grew 5% over the level last year. Growth was strongest at Personal Banking and Business Banking in Norway and Sweden, reflecting our strategy of realizing our Nordic potential. Partnerships agreements, both new and existing ones, were strong facilitators of growth at Personal Banking. In the second half of 2016, we signed promising new agreements in Finland and in Sweden. In Denmark, we continued to see demand for mortgage loans while unsecured lending declined. Expenses came in according to plan in 2016, as we continued to focus on costs. We made good progress improving cost efficiency through digitalization and improved internal processes. Going forward, we will remain vigilant regarding expenses to ensure that we remain competitive. Credit quality was strong, and it improved further in 2016. Impairments remained unusually low, although a couple of industries to which we have limited exposure were still challenged because of weak market conditions. Our capital position remained very solid. On the basis of sound earnings and continuous business optimization, we strengthened our capital ratios during the year, despite the effect of the share buyback program that we recently completed. On that basis, the Board of Directors is proposing a dividend of DKK 9 per share, which represents a payout ratio of 45%. We have also decided to launch a new share buyback program for DKK 10 billion. In 2016, we continued our efforts to improve the customer experience. Digitalization and accessibility are focus areas for us, and we launched many initiatives across our business units in order to strengthen our customer relations. As a result, customer satisfaction improved further during the year, and we are now on target in most markets. All in all, a satisfactory year with good progress in most areas despite a challenging environment. Finally, for 2017, we expect a net profit in the range of DKK 17 billion-DKK 19 billion. I will now turn the presentation over to Jacob, who will take you through the financial results in greater detail. Slide 3, please. Thank you, Thomas. Let's take a look at the main items of our financial results. Net interest income came in at DKK 22 billion. This is 3% higher than in the year before. Lending growth of 5% and lower funding costs offset margin pressure. A margin pressure we saw especially in the first half of 2016. Adjusted for FX effects, NII was up 4%. In Q4, NII was up 5%, owing partly to the repricing of Danish mortgages and volume growth. Net fee income declined 6% from the level in the year before, when we benefited from strong customer activity. It fell mainly because of subdued investment activity. In Q4, however, it benefited from performance fees and the booking of the shadow account balance from our life and pensions business. Net trading income came in at DKK 8.6 billion, up 26%, as a result of strong client activity at C&I during most of the year. The figure reflects negative credit value adjustments of DKK 0.6 billion because of a model improvement and a gain of DKK 0.8 billion relating to the sales of Visa Europe and Danmarks Skibskredit, including DKK 0.4 billion in Q4. Other income rose 34%, primarily because of property sales. Operating expenses fell 3% to DKK 22.6 billion. That decline reflects our focus on cost efficiency, and we achieved it despite increased costs related to regulatory requirements. A lower net contribution to the Danish Resolution Fund and lower depreciation of intangible assets also had positive effects. The cost income ratio came in at 47.2%. That is a decline of more than three percentage points from the year before. Finally, we saw net reversals of loan impairment charges as a result of benign credit conditions in most areas. Net reversals in Q4 of DKK 0.2 billion were made mainly at Personal and Business Banking. Slide 4, please. in 2016, we saw satisfactory developments at our two Nordic banking units, Personal Banking and Business Banking. Income was lower than the year before when fee income, in particular, benefited from high customer activity that was related to investments and remortgaging. At both units, the underlying business continued to improve with a good inflow of new business, strong credit quality, and improvements in customer satisfaction. In Northern Ireland, we saw positive underlying business developments, net of currency effects. Let us look more closely at the three units. Personal Banking delivered good results with profit before tax and goodwill up 34% to DKK 5 billion. Total income was 3% lower than in the year before, owing to pressure on NII and fee income. In 2015, activity-driven income, particularly from remortgaging activity in Denmark, was very high. Expenses were down 9%, owing primarily to cost efficiency, lower depreciation of intangible assets, and lower costs for guarantee funds. The return on allocated capital was 21.8%. Total lending volume was up 3%, owing to growth in Norway and Sweden, where lending volume measured in local currency rose 13% in both countries. These strong gains came primarily from partnership agreements. In Denmark, where volume was almost stable, the trend towards higher mortgage lending and lower lending in conventional loan products continued throughout the year. In Finland, volumes were almost unchanged. At Business Banking, we made good progress in all markets. Lending volume measured in local currency was up in all markets, most notably in Denmark, excluding Realkredit Danmark, and in Sweden, where it rose 8% and 10% respectively. Overall, profit before tax was up 3%. Total income was almost unchanged from the level in 2015, when customer activity in Denmark in particular was very high. NII benefited from higher lending, whereas low customer activity had an adverse effect on fees and trading income. Expenses were up 2%, partly because of higher regulatory costs. The return on allocated capital was 16.1%. Finally, Northern Ireland, where our business showed satisfactory developments, although a significant drop in the exchange rate had an adverse effect on the reported results. Total income fell 7%, adjusted for the depreciation of the currency was up 3%, despite a U.K. interest rate cut in August. Expenses were down 9%, and adjusted, they were up 2% because of restructuring costs and increased indirect taxation. The return on allocated capital in Northern Ireland was 14.5%. Since the U.K. referendum on EU membership in June, there has been uncertainty about future economic growth. Economic data suggest that there was no significant effects on the Northern Ireland economy in 2016, however, and our business performance remained robust. Slide 5, please. At C&I, profit before impairments rose 8% over the level from last year, but higher impairments caused profit before tax to be 10% lower. The year had a challenging start with difficult market conditions and subdued client activity. Conditions improved significantly, however, most notably in our FICC business, which took advantage of opportunities arising from high client activity. Total income rose 7%, mainly because of higher NII and trading income. Fee income was lower because of a decline in activity in the beginning of the year, but it increased in Q4 owing to higher activity within corporate finance and equities. Expenses were up 5% because of higher activity and increased costs for the Danish Resolution Fund. Impairments, which by nature fluctuate at C&I, amounted to DKK 1.1 billion, including DKK 1 billion in collective charges. Oil-related exposure accounted for all of the charges. The overall result of Q4 contributed significantly to a robust full-year performance, which reflects our efforts to reposition C&I towards a more client-driven business model with lower risk and income volatility. At Wealth Management, profit before tax was in line with the year before, as market developments and high volatility caused lower customer activity, mainly in the beginning of the year. Market conditions improved in the second half, and activity rose. Fee income fell 4% from the level last year, mainly because of lower management fees, while performance fees, the vast majority of which were booked in Q4, amounted to DKK 0.5 billion. Fee income in Q4 also benefited from a transfer from the shadow account in Danica. Expenses were up 5%, mainly because of establishment costs for the new business unit. Assets under management were up 4%, owing to an inflow of DKK 43 billion from net sales and premiums. Slide 6, please. Moving on to expenses. Total expenses for 2016 amounted to DKK 22.6 billion, down 3% from the level last year. The number is in line with our expectations. The decline reflects a continued focus on cost efficiency measures, a lower net contribution to the resolution fund, and lower depreciation of intangible assets. The increases in staff costs and consulting costs can be attributed primarily to increased customer activity and regulatory requirements for compliance and AML measures. The number of FTEs were 1% higher than the level last year. This occurred because of the insourcing of IT resources and increased staffing and compliance functions. Slide 7, please. The positive trend in credit quality continued in 2016, and for the second year in a row, we had a net reversal for the group. The reversal was DKK 0.2 billion, compared with a net reversal of DKK 0.1 billion in 2015. The loan loss ratio, excluding non-core activities, was zero basis points for the full year. With a net reversal of DKK 0.5 billion, Personal Banking had the largest decline as the positive effect of increased collateral values, mainly in Denmark, continued throughout the year. At Business Banking, the net reversal of DKK 0.2 billion derived mainly from the commercial property segment in Denmark. Market conditions for the agriculture industry also remain challenging, although they improved slightly towards the end of 2016 as a result of higher output prices. At C&I, we booked impairment charges of DKK 1.1 billion for the full year, of which DKK 450 million in Q4. The vast majority were against oil exposure as we continued to see difficult market conditions for subcontractors in the oil and gas industry. Most of the charges, DKK 1 billion of the DKK 1.1 billion, were collective impairments since we expect weak market conditions to persist. In Northern Ireland, we posted another reversal of charges on the basis of better conditions in the property market and customers' finances. Although the reversal was less than half the amount in 2015. Slide 8, please. Our capital position remains strong, and with a reported common equity tier 1 capital ratio of 16.3% at the end of the year, we are significantly above our target range of 14%-15%. The total capital ratio was 21.8%, up from 21% at the end of 2015. The REA level was almost unchanged in Q4 as slight decreases in credit and counterparty risk were offset by small increases in market and operational risk. The leverage ratio was 4.6% according to transitional rules, and 4.3% when the new rules are fully phased in. The implementation of IFRS 9, which is the new accounting standard for financial instruments, will begin on the 1st of January 2018. The requirement for earlier recognition of expected credit losses is expected to increase the allowance account balance by DKK 3 billion-DKK 5 billion. The accompanying capital effect is expected to be phased in according to transitional rules that have not yet been settled. The share buyback of DKK 10 billion in 2017 will affect the core tier 1 capital ratio by 1.2 percentage points pro forma at the end of 2016. The new share buyback program will start on February 3rd and run for no more than 12 months. Slide 9, please. Finally, I would like to present our guidance for 2017. As usual, it is subject to uncertainty and macroeconomic developments. We expect largely unchanged macroeconomic conditions in 2017 with a continuation of very low short-term interest rates, although significant uncertainty about geopolitical risks persist. For net interest income, we expect it to be higher than in 2016 as we benefit from volume growth and lower funding costs. Fee income is expected to be somewhat higher than last year, subject to customer activity. Net trading income and other income are expected to be less impacted by positive special items compared to 2016. We expect expenses to decline somewhat from the level in 2016. For loan impairments, we expect the charges to remain low, although higher than in 2016. Finally, we expect net profit to be in the range of DKK 17 billion-DKK 19 billion for the year. We maintain our longer-term ambition for a return on shareholders' equity of at least 12.5% on the basis of unchanged assumptions. Slide 10, please. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by email. Operator, we are ready for a Q&A session. Certainly. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We will now take our first question from Mads Thinggaard from Handelsbanken. Please go ahead. Your line is open. Yes. Hello. This is Mads Thinggaard from Handelsbanken Capital Markets here. My first question is digging a bit into the development we are seeing in Personal Banking in Norway. I do not know if you could put a bit of light on what is happening with the margins here, and also perhaps give a bit of an outlook. We just heard DNB on their conference call talking perhaps about a bit higher margins going forward. Also perhaps with the volumes being a bit lower now here by the end of the year in Norway, the increase in the volumes being a bit lower, could you give an outlook here also. Then I was also a bit curious if you could mention the deal with the Akademikerne in Norway. When is that actually maturing or expiring, or if there's running negotiations on that one. That could be quite interesting to hear. That was the first question. Okay. Take that first. Okay. That was a long introduction of a question. Yeah. Sorry. First of all, there is no question that we have been able to attract a substantial number of very high-quality Personal Banking customers in Norway during the last 2 and a half years. Many of these clients are coming through the Akademikerne strategic relationship. Second, it is rightly observed that the margins in the Norwegian mortgage market has been under pressure throughout the latter part of 2015 and throughout 2016. There has been what we will refer to as healthy competition. Where margins are going from here, it is always an uncertainty, but it is our belief that we are close to the bottom of the cycle. We are comfortable that there is highly likely that we will have a margin expansion in Norway going forward, also due to NIBOR being lower, which increases what we call the difference between the funding rate and the customer rate. Finally, we also did recently a rate hike, which has been announced, which also have the effect during Q1. All of these together should make a good platform for a healthy development going forward. When it comes to the volume, it has been a very high volume in 2015 and 2016. It is natural that that volume may ease off somewhat, but we will believe that it will be a double digit, and then we will need to see at what level of double digit it will be. But we will probably still increase our market share. The strategic deal with Akademikerne was a 5-year agreement which is now running. Okay, great. Thanks. Just a second question on if we look on the very high NII you have, a considerable part is coming from other activities, treasury. It seems that some funds transfer pricing changes are behind this. Is there a kind of unsustainable element of the DKK 300 million uptick in NII from Q3, or is Q4 more or less the basis for looking forward? Hi, Mathias. It is Jacob. When we look at NII, it is correct when you look at the delta in Q4 versus Q3, and I think the delta is around DKK 300 million. The growth there, roughly half of it comes from the business units in terms of reporting, and the other half comes from the internal bank, as you also referred to. The increase in internal bank is very natural when you have a growing lending book and stable deposit margins. So that is more a technicality in the way we run the internal bank, and you should expect that to balance out in the coming quarters. So there is nothing unsustainable about that. That is simply just an effect of the way the model works. So that NII will be spread out on the BUs in the coming quarters. So it is just as high quality NII as the BU reported NII. Okay, great. Thanks. Our next question comes from Omar Keenan from Deutsche Bank. Please go ahead. Your line is open. Good afternoon. Thanks very much for taking the questions. Firstly, I had a question on your DKK 3.2 billion rate sensitivity. I was wondering if you could give us a little bit more color of how NII will behave when rates increase. There has been a bit of discussion around some banks saying that there is quite a lot of flaws in the lending books, so the sensitivity might not be as high as these guided numbers. Just wondering if you could comment on if we get out of negative rates where we see the fall, is the DKK 3.2 billion quite close to reality? My second question is, I guess with a month out of the way, how have Trading and wholesale banking activities been so far in 2017? Thank you. I will do the last one because that is the easy one. We do not comment on a period which we are in the midst of, and as we release Q1, you will know. Jacob? Okay. Yeah. It's a fair try, Omar. Then on the other one, I think you're referring to the fact that we mentioned that 25 basis points sensitivity gives you DKK 750 million to DKK 800 million. I think that's when you're saying 100 basis points is DKK 3.2 billion. Is that the reference you're making? Yes. Okay. Fine. Good. Just wanted to make sure. Listen, that is, as always, all else equal statement. I cannot guarantee you that that is the sensitivity we will have because it always also depends on how the other market participants behave, et cetera. But it's the best estimate we can give you on the rate sensitivity on the book. Obviously, one thing I can guarantee you is it will probably not be exactly that number, but it really depends on market conditions. But that is the all else equal number we can give you. Yeah. Okay. I think some other banks are saying that it would actually be far away from that number. So I understand it's not precise, but for some banks they weren't factoring in flaws in the lending book, for instance. So as long as that's ballpark accurate, that's okay. We have given that number because we believe it's ballpark accurate. Great. Thank you. Our next question comes from Jakob Brink from ABG. Please go ahead. Your line is open. Thank you. The first question is regarding net interest income. If I do the calculation from your slide pack on the positive impact from lower funding cost in 2017 versus 2016, or sort of a running impact or annualized impact, I get around DKK 245 million. However, when we did the same calculation about a year ago, it also showed a significant positive impact for 2016, but it never really got to be utilized. Could we expect some of this to actually happen in 2017? That was my first question. The second question is regarding the dividend payout. You guide for DKK 17 billion-DKK 19 billion. I guess there's some conservatism, but still you guide for DKK 17 billion-DKK 19 billion. If we assume that you'll keep your dividend policy of around the 46% or up to 50%, you could actually see a decline in the dividend per share in 2017. I just want to hear how is your strategy actually. Could that happen, or do you actually have a strategy of trying to keep the nominal DKK dividend per share increasing, or could it theoretically bump up and down? Thank you. Okay. Thanks, Jacob. Let me start with the NII. On the funding calculation, I think when we do the math quickly, we end a little bit lower than your number, but not materially different. It is around the DKK 200 million level. You can't really say that you didn't see it in 2016, because do remember that the funding benefit then goes through the internal bank and goes out in the customer rates. In the end, we never report it as a separate item. But I do recognize the fact that in some of our markets, we were in severe competition, so there couldn't be an argument that some of that funding benefit was passed on to customers. We're giving you that sensitivity because we do expect that this is a tailwind in 2017. The best answer I can give you is that we are expecting to achieve these benefits, and that it's part of the guidance we're giving in terms of NII growth for the full year. Okay. Jacob, when it comes to dividend, we have a very clear policy, as you alluded to, that we will pay between 40% and 50%. We have not stated that we should increase the nominal amount year on year, because that would be a different strategy than what we have given you as approved by the board of directors. 45% this year or for the calendar year 2016 amounted to DKK 9. If we reach the midpoint of DKK 18 billion in 2017 and do 50%, we will also reach the DKK 9. You asked the question, could it be bumpy up and down? It is not our intention to have it bumpy up and down. It's our intention to continuously try to improve the bottom line, and then have the flexibility within the dividend policy between 40% and 50% to have a predictable dividend. How the final øre will be adjusted accordingly, the year will see it come through, but we try to be very balanced and predictable, and you shouldn't expect anything else. Many thanks. Our next question comes from Per Grønborg from SEB. Please go ahead. Your line is open. Yes, good morning. It's Per from Danske. Two questions from my part related to NII. You write in the report that part of your strong Q4 NII is due to better utilization of your liquidity buffer. Was this clever positioning this quarter, or is this something where you have changed the strategy, so we should expect this improvement to be lasting also the coming quarters? And more specifically, also a question related to your margin hike on the mortgage book. Looks like the outcome has been significantly higher than what your IR department has been guiding for the last half year. Have you seen any impact besides the residential book? Have you also seen these price hikes getting impact on the corporate book? That was my two questions. Hi, Per. It's Jacob. I assume you're at SEB now, by the way. You said Per from Danske. Yes, sorry. I will take question number two there. In terms of RD and the hike there, I think our effects are where they have been guided to. So I am a little bit confused in terms of the impact you are stating. But the guiding has been 300 plan, and it is up 94 Q-over-Q. I think when you look at the details, and we can take them afterwards, the pure RD mortgage margin, it is a smaller effect than the 90. So we can take that afterwards. The guidance from- Yes. Yeah. Okay. This is Claus here. Your question around the liquidity buffer impact on NII. It is true that there is a part of the impact on NII this quarter due to a more efficient use of our liquidity buffer. It is not something that we usually can predict from quarter to quarter. I am not able to give you any guidance on whether this will be lasting, but it is nevertheless a minor part of the delta you have seen in our NII and other activities. What is a minor part? Is that a three-digit amount, or is it a two-digit amount? Well, you are essentially asking me to separate cold and hot water, and I am not able to do that. It is not a three-digit, no. It's not a 3. Okay. That's the important part. Thank you. Our next question comes from Jan Wolter from Credit Suisse. Please go ahead. Your line is open. Yes. Hi. Jan Wolter, Credit Suisse. Thanks for taking the question. First, on the guidance on the NII 2017, you said that you expect NII to be higher than in 2016. Just wondering, have you built in any changes in interest rates in that guidance? Secondly, also on the NII guidance, what kind of volume assumptions you have? That's my first question. The second on the cost guidance below the 2016 number, what base should we use then, or which base are you using? Is that the reported DKK 22.6 billion? My third question is on the Danish SME margins. We're seeing the more stable picture now in the fourth quarter. Can you just talk to what is driving that? Have you seen any change in the competitive behavior in the Danish SME market? Thank you. Thank you. Hi, Jan. Let me start with the NII question. You asked in terms of what we expect on interest rates when we do the guidance. We never assume changes in the interest rates on guidance here. When we guide here, we are assuming the current levels. You may assume that if there is a move up in the short end of the curve, which we are not expecting in the short term, that that could have an additional positive impact. But we never guide on interest rates, and therefore it's based on flat rates. In terms of volume assumptions, we are not giving you the explicit assumptions on volume, but we're entering the year 2017 with a good trajectory. You know that we have been talking about in our 2018 bridge, which we have referred to many times, of a couple of percent of annual volume growth. We know we're running higher in 2016. There are some reasons why we could believe that that volume growth could be a little bit higher than the 2%, as you've seen our partnership agreements in Sweden, et cetera. There is not a significantly high volume assumptions behind that. So it is business as usual on the volume side. Regarding SME margins, you alluded to, and that's correct, they have been flattish for the last period. We also expect them to be flattish going forward. There may be some intra-country movements, some up, some down, but they're all for the group, more or less flattish. That's how we see it for the time being. Sorry, and you also asked on costs. The base here is DKK 22.6. It's the reported number of costs. Okay. No, but that is very clear. Many thank you for that. Thanks. Our next question comes from Willis Palmero from Goldman Sachs. Please go ahead. Your line is open. Hi. Thank you for taking my question and for the presentation. The first one is just to come back on the targets again, the DKK 17 billion-DKK 19 billion. I was just trying to understand if you had to give a proportion of what is controllable and what is not to reach the DKK 19 billion. What is it in your view? What is depending on your initiatives, so repricing and so on, and what is depending on just market activity, so i.e., better trading? That is the first question. Then the second one is on the asset gathering part of the business. I was just wondering if you could talk a little bit on the initiative you are currently implementing in that business. We saw there was a new team, and also the flows were a bit better at the end of the year. Did you set up new targets for that business, and what do you expect in term of fee growth this year? Okay, thank you very much. Let me start out on the target side. If you look at what is controllable, you know there are different degrees as what we can control within this guidance. We are very much a mirror of the economy that we are operating in, as you know. But basically, if you look at the top lines, the NII side volume growth will be the volume growth that we can achieve, but it is hard to say we can control that. We have implemented some price increases that you are aware of. So obviously, and that is a tactic we will continue to focus on in terms of driving our NII growth, but you should not see our top line as something we can control as such. Obviously, fees we set, but again, fees are driven by customer activity. You mentioned trading income. We're not guiding specifically for trading income. We're only saying that we have had some positive one-offs in 2016 on the trading side that will not occur again in 2017. Top line, there is an element, of course, of us being able to control the fees and the rates, but a lot of it is driven by market activity. The one line we can control to a much larger extent is obviously cost, where we will be very focused and vigilant again in 2017. Then finally, the credit side or the loan impairment side, will to a large extent, obviously reflect the underlying performance of our clients. Sorry to not be able to be more specific on it, but there are different degrees across the different lines of the income statement. To your second question about our new unit, Wealth Management, which we established the 1st of April in 2016. As you recall, it's a combination of the old Danske Capital. In other words, that's the management unit, Danica, our life insurance company, and private banking. We really believe that the underlying trend, in other words, asset accumulation in the Nordics, and also the demographics, and also longevity, makes this a very interesting business for us going forward. Various analysts are out expecting the underlying market development should be in the range of 6%-9% towards 2020. Where exactly we'll be, we don't know, but we think we are in a mega trend. Our ambition is, of course, to take an over proportion of that market growth. During 2016, management has been put in place with substantial changes. The platform is in place, management in place, and some internal ambitions are put in place. We have so far not communicated any particular divisional targets to the market, and we have no intention to do that now. But we will, as we did with scene, when we find it prudent to give you and your colleagues some more insight into what do we think Wealth Management can contribute with going forward. All right. Thank you very much. Okay. Our next question comes from Kim Bergoe from Nordea. Please go ahead. Your line is open. Hi, just one question for me, and it is just trying to sort of square the circle on net interest income again, I am afraid. Looking into the guidance, if I look at what has been driving the margin and net interest income for the full year and before in isolation, and then looking forward, it looks like in Q4, the lending margin has been quite strong, whereas the deposit margin has actually been a negative, whereas it is the opposite looking at the full year. When I look at your guidance, I am just trying to understand if it is a continuation of the same kind of driver, so is it something else that you are expecting in your NII guidance? I am referring to in your Fact Book to page 7, where you show sort of the different drivers. Yeah, no, that is fair, Kim. Let me just give you some color, and then hopefully that helps a bit. Let us just take a step back and look at what we have been through in 2016. You refer to some of the trends yourself, and it is correct that we saw a different NII development towards the end of the year versus when you just look at the full year picture. If you look at the full year picture, NII was up 3%, FX adjusted up 4%. The positives in NII was the lending volume, and it was the deposit margins, especially in C&I and partly also in Business Banking as we reprice the deposit side of things. But the negatives on the full year has been the lending margin. As you know, a lot of that development was in the first part of the year, and it became better in the latter part of the year. In Q4, we then saw continued lending volume growth, so that has been a positive throughout the year, but we saw lending margins starting to actually be a positive contributor to our NII. You see in the bridge you refer to, you will see a positive impact from lending margins. There is a smaller negative effect on deposit margins in Q4. That is not a new trend, but it purely reflects the fact that we have been growing deposits a bit in our Swedish and Norwegian units, but we are paying a bit more for deposits given where rates are. That is not a change as such. When you look into the new year, we are looking at a stabilization of margins, the one stabilization of margins we've seen here in Q4 with basically stable deposit margins as you've seen in the last couple quarters, and lending margins in most countries being stable, and with a bit of upside, especially in Norway on Personal Banking and Business Banking. The margin picture is more constructive. Combine that with the fact that we are seeing continued good lending growth, and combine that with the fact that we are seeing a continued tailwind from the funding roll on the wholesale side. I would say the combination of those three factors makes us constructive on NII going into 2017. I assume, obviously it takes into account what you've been describing in terms of the mix effect that where you are growing is on the lower margin, the secured lending and actually the unsec- Sorry? What I'm saying is that when looking at volumes, it looks like you're having stronger volume growth on the lending side, you're having stronger volume growth on the lower margin, the household product, the housing products, and you're actually seeing a decline in some of the unsecured lending. There is a negative mix effect, but I'm thinking that's part of that picture there. Yeah. I can confirm that's part of the guidance. We're not expecting a sudden mix change. The mix we've seen in recent period is the one we expect to continue. Thank you. Okay. Thank you. Our next question comes from Martin Brandt from Carnegie Investment Bank. Please go ahead. Your line is open. Hey, thanks for taking my question. Both of my questions relate to Personal Banking. I see the lending volumes are both up in Sweden and Norway. How much in percent comes from Saco and Akademikerne? How big is the delta effect that can still be gained from these two? My second question is that, once the agreement with the Akava and TCO kicks in 2017, should we expect to see similar patterns from these two as we have seen in Saco and with Akademikerne? Yeah. Thanks, Aspen. Let me try to address that. We will not give you specific numbers on each of the different partnerships, but we can confirm that it is when you look at the growth we're seeing in these countries, it's more than half of the growth that is coming from these partnership agreements. It is a significant part. When you refer to the different partnerships and the effects we should expect to see, it is fair to say, as Thomas alluded to in the beginning and one of the other questions, Akademikerne has been a very strong growth story, and we do continue expect to see good growth from Akademikerne. But in terms of the base effect, it does mean that the growth rates will come down a bit compared to what you've seen. On the other hand, Saco was a strong contributor, especially in the second half of last year as the agreement fully came into force. We have told you that the TCO agreement will come into force probably effectively in the second quarter of this year. Again, you will see some momentum coming from that. We will not speculate exactly as to what the growth impact will be, as each country has its different characteristics. Each agreement has its own characteristics. But there is no doubt that we expect that this is a positive contributor to our growth and thereby maintaining the good growth momentum in all of our Nordic countries in Personal Banking. In addition, it's no question that having these strategic agreement as a base also gives the various units a good buzz, which attracts also non-clients or clients not related to these strategic partnerships. Overall, this is very positive for us. Okay. Thank you so much. Please press star one to ask a question. We'll now take our next question from Caleb Cruz from Autonomous. Please go ahead. Your line is open. Hi, thanks. It is Jacob Brink from ABG. I just wanted to ask, firstly on the payout, you are paying out 100% cash this year or near enough. Would you say that is a limit that you cannot breach with the FSA and the current regulatory framework that you have, or regulatory uncertainty that exists? Secondly, just on this TCO deal, I noticed that you are already the most aggressive for list prices in Sweden when it comes to mortgages. How much further does this bring down pricing relative to where you are today, if at all? Thank you. Let us take your first question first. Of course, there is no legal limitations of the payout. You need to separate it that when it comes to the dividend, that is to be approved by the AGM. When it comes to the share buy, it needs to be approved by the national or the relevant regulators. We believe we have a very solid capital strategy, which is a combination, as you know now, between a very stable and predictable dividend. Then we take the profitable growth, and after we met the capital targets, if we have any excess capital, we will distribute that back to the shareholders. If there was a theoretical situation where we are above 100%, we would need to deal with it at that time. The probability for us to be in a position where we will distribute more than 100%, where we are seeing several places growth opportunity, is highly unlikely. I think that will be my response to that question. Jacob, on your TCO question, first of all, we do not comment on the pricing of different agreements. There is no reason to expect that this should be struck at a lower level than what else we have been doing in the Swedish market. Would you say, given where your price at the moment, have you shifted growth towards Sweden rather than Norway in terms of where you're the more aggressive, or is that reading too much into it? No, that's reading too much into it. We have an ambition to have profitable growth in Norway, in Sweden, and in Finland. Finland, we have not grown that much due to competition, due to pricing, and the macroeconomic environment. We will probably see some more growth due to the agreement with Akava. In Norway, Sweden, we will continue with a balance and a healthy growth. So it's no change in that strategy. Could I have the final question, please? Certainly. We'll now take our final question from Daniel Do-Thoi from JP Morgan. Please go ahead, your line is open. Hi, thank you. Just two quick questions. The first one was on a follow-up on the NII sensitivity. Just wondering whether that also includes the 750, 800. Does that also include the fact that you've got negative deposit rates in C&I and Danish Business Banking? That's my first question. Is the sensitivity actually lower for the first 50 basis points or so rate hike? Then secondly, when it comes to Sweden, can you just remind us again, at a high level, what kind of market share you're targeting in the longer term? What market share you need to ensure sufficient profitability in Sweden? Thank you. Thanks, Daniel. Let's start on the NII side. There is not a lower sensitivity in the first 50 basis points you referred to. That is not a material impact. You should expect that to be the sensitivity from the level we are at right now. When it comes to your second question, we have not guided and will not guide on any particular market share overall in Sweden, as we are profitable as of today. But we think we can be even more profitable as we grow going forward. The market share of today is very diverse, where we have a very small market share in Personal Banking. We have a sizable market share in Business Banking. In C&I, we may be one of the leading player, particularly within what we call the trading activity, institutional clients, and parts of corporate banking. The last new unit, Wealth Management, is also where we have a small market share, where we see a great potential to grow. We have a good platform. We have good management in place. It is more of the same, and make sure that we grow profitable, but we already are at a place which is very solid. Thanks. Just on the first one. The assumption here is that you can maintain current negative rates in C&I and in Business Banking, even in the face of another rate hike. Well, first of all, we never comment on what our price behavior would be. We are saying underlying that assumption is that they will not have a major impact on the NII side, yes. There are many assumptions when you do this, given the diversity of the book across different currencies, et cetera. Do not expect a large impact. Okay. Thank you. Okay. Thank you for your interest in Danske Bank and for your good questions. As always, you are welcome to contact our IR department if you have more questions after you have time to look further into the financial results. A transcript of this conference call will be added on our website and the IR app within the next few days. Thank you very much, and have a nice afternoon. That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.