Good afternoon, everyone, and welcome to the Danske Bank Third Quarter 2025 Pre-close Call. My name is Claus Ingar Jensen. I'm Head of Investor Relations, and with me, I have [Ole Larsen] and Nikola Tvernø from our IR team. Please note that this call is being recorded for compliance reasons, and the script used for this call will be published on the investor relations website after the call. Given that we conduct this call via Teams, please be aware that if you want to ask questions, you must log on via the Teams app or your browser. If you want to participate via a telephone line, the IR team will be available for questions after the call. In today's call, I will highlight relevant public data and macroeconomic trends in our markets. I will go through the relevant P&L lines and comment on capital at the end.
Afterwards, we will open up for the Q&A session. For the sake of good order, I would also like to highlight the following: I will only answer questions related to already disclosed information as well as publicly available information, unless otherwise noted. In connection with this, I wish to highlight that developments in specific indices may not always have the same effect on our performance. Let's start out with the macro. Before going through the income lines, I would like to start with a brief comment on the most recent macroeconomic development based on our Nordic outlook published in early September. In the euro area, optimism is gradually rising. Health growth has been higher than expected, and inflation has come under control. Also, the EU-US trade deal has reduced the downside risk to the economic outlook.
For the Nordic economies overall, the improvement is expected to continue, except for Sweden that has been marked by high inflation and weak growth. Moreover, broadly, uncertainty still weighs on business and especially consumer sentiment. Turning to the Danish economy specifically, the GDP growth figures have been revised following the revision by the Danish Institute of Statistics due to a computation error so that the growth forecast for 2025 is now 1.8% and no longer 3.2%. This means that looking at GDP growth, Denmark is now viewed as an average European economy, just with Novo Nordisk on top as an extra growth driver and not a significant positive outlier in Europe. Nonetheless, the Danish economy is still strong. Employment is high. The current account surplus has reached record levels, and government finances are robust.
Also, although consumer confidence remains low, the housing market activity in Denmark has gradually improved, and the outlook is positive with higher expected housing prices. Now let's have a look at the NII. Let's start by highlighting the relevant changes to the central bank policy rates. The expectation is now that the ECB has finalized the cutting cycle and reached its terminal rate. In September, both in Sweden and Norway, central banks have cut rates. Riksbanken lowered policy rates to 1.75% and signaled unchanged rates until 2026. Norges Bank has reduced the policy rate from 4.25% to 4%, however, signaling further cuts. Regarding recent volume developments, we refer to publicly available data. In terms of lending volumes, we note that overall credit demand has modestly improved, especially with respect to corporate lending demand.
Please note that the Q3 has one additional interest day compared to Q2, and the day effect is estimated to be around DKK 75 million. As always, please be mindful of currency fluctuations in the markets where we operate. In the third quarter until now, NOK and SEK have appreciated around 2% against DKK, while the pound sterling has depreciated around 2%. Looking at funding costs, we note that CIBOR, STIBOR, and NIBOR have decreased during the quarter, with CIBOR lower by around 6 basis points, STIBOR lower by around 19 basis points, and NIBOR lower by around 29 basis points, all based on quarterly averages.
In terms of wholesale funding, we are progressing well according to our full-year funding plan of between DKK 60 billion and DKK 80 billion of debt issuance across instruments, as we have issued around DKK 65 billion in total year to date, with around DKK 18.18 billion done in the third quarter. As always, please visit Danske Bank, the debt section, for further details on terms and pricing of our issuance. With respect to NII, we reiterate the interest rate sensitivity given at the Q2 2025 interim report release, which is an approximately DKK 650 million negative impact per 25 basis points cut across all currencies. Correspondingly, per 25 basis points hike, we estimate an effect of around DKK 450 million. In addition, we estimate a year two and year three up and down effect of DKK 300 million and DKK 100 million, respectively, related to our structural hits.
Please note that by far, most of our sensitivity relates to DKK and euro in that order. In respect to fee income, we will start by noting that the development is always subject to conditions in the financial markets, housing market activity, and your general activity level among our customers. For fee income in general, we note that the uncertainty and relative negative business and consumer sentiment, as well as the summer period, are expected to have a dampening effect on customer activity in the third quarter. This also applies to activity-driven fees with muted consumer spending due to sustained low consumer sentiment. Looking at investment fees, published data by Finance Denmark supports continued strong momentum in AUM through August.
Since the start of the third quarter, we have seen higher asset prices, which could have a potential positive effect on asset under management and investment appetite among our retail customers. In respect to fees generated from financing, most lending volume at RealKredit Denmark refinancing options for adjustable rate mortgages will take place in Q4 2025. Therefore, we expect income from refinancing fees in the third quarter of 2025 to be immaterial but to increase in Q4. In addition, in terms of lending demand, we refer to recent public sector statistics being released on the 25th of September, showing a slight recovery in retail lending and solid corporate lending for the sector. Finally, concerning income from capital market activity, please note that the third quarter is typically impacted by seasonality across primary debt and equity markets. Now turning our focus to trading income.
The third quarter has been characterized by spread compression and lower volatility in the Danish mortgage market, while spreads of Danish government bonds have been broadly unchanged during the third quarter. Generally, market conditions and consumer activity have been constructive in the third quarter. We have nothing to note when it comes to Danica, but please be aware that the results are always subject to developments in the financial markets and trends impacting the health and accident claims. With respect to other income, we can reconfirm the lower run rate for other income seen in earlier quarters in 2025 due to lower contribution from asset finance activities. On the cost line, we reiterate our outlook for full-year expenses of up to DKK 26 billion, given the expected higher seasonal cost occurring in the fourth quarter, which current consensus might not fully reflect.
Kindly note that in the third quarter of 2024, we recognize an insurance reimbursement of DKK 175 million in the expense line. For the third quarter, we have no comments on asset quality other than to note that macroeconomic conditions continue to support credit quality as we reiterate full-year loan impairment guidance of around DKK 1 billion. We have no comments with respect to tax, and at this point in time, we do not expect any one-off items for the third quarter of 2025. Regarding capital and our CET1 ratio, please be mindful that during the quarter, we have called a Danica Euro Tier 2 instrument of EUR 500 million. This will, all else equal, lead to an around DKK 3.7 billion increase in the group's statutory deduction for insurance subsidiaries and consequently reducing the CET1 ratio by around 50.50 basis points.
However, as highlighted in our Q2 report, the draft legislation of the EU conglomerate directive is envisioned to apply from the 1st of January 2026, and as such, we expect the CET1 reduction to be temporary. We do not have any specific comments on REA besides noting that market risk remains subject to volatility in the market. This concludes our initial comments in this pre-close call. Before we move to the Q&A session, I would like to highlight that we begin our silent period on the 10th of October. We will shortly start to collect consensus estimates with a contribution deadline on Monday, the 13th of October. Please note that we publish our third quarter results on the 31st of October at 7:30 A.M. and that the conference call for investors and analysts will take place at 8:30 A.M. as usual. We are now ready for the Q&A session.
If you wish to ask a question, please use the raise your hand function. Thank you. Okay. It doesn't seem as we have any questions. Is that okay? Yeah, Sofie. Sorry, I overlooked your.
No problem. I'm back. I was just wondering, how should we think about the kind of GDP downgrades we have seen for Denmark? Will it have any impact on your provisions, the macro overlays that you need to take, or it won't really impact those?
No, absolutely not. That is not what we can see. The nature of the downgrade was very much due to more statistical reasons. There have been some changes in the models for how you incorporate certain growth elements, including the impact from the quite sizable Danish shipping sector. On top of that, we have also revised the outlook due to a lower impact from the export of pharmaceuticals, and you should read it as the impact from Novo Nordisk. I think from the 1.4% lower GDP growth, 1% is coming from this statistical revision I'm talking about, and the 0.4% is the pure pharmaceutical or the Novo effect.
Okay. How should we think about the overlays? Did we expect any releases of the overlays given that you still have quite a lot of overlays?
I think we have over the last couple of quarters had a flexible approach, and we have also released some of our PMAs. Whether we will do that in the third quarter, it's too early for me to comment on. We will be back on that, Sofie. Our initial approach to PMAs is essentially unchanged compared to Q2.
Okay. That's clear. On the remortgaging fees, should we basically, did I understand your comment correct that we should expect quite a slow activity in the remortgaging fees in the third quarter and then a big pickup in the fourth quarter?
Yeah, you can say it follows a little bit the refinancing calendar, where we have a lot of adjustable rate mortgages coming up for refinancing in Q4, while we hardly have any in the second and the third quarter. I would even dare to say that the third quarter impact will be even lower than what we saw in the second quarter. I think I used the word immaterial. It is very immaterial, income from refinancing we will see in the third quarter.
Okay. And then, final question. Some of the other Nordic banks, there are some questions around interim dividends. Is this anything that Danske would consider?
No, it's not on our agenda, Sofie. I think we have paid out interim dividends twice in order to catch up on, you know, the lack of dividend payments back in time. I think we have been quite clear in what we have stated recently that our dividend policy is actually based on annual dividend payments. This is also very much in line with what the Danish regulator actually prefers corporates to do in Denmark.
Okay. That's very clear. In terms of the Danish FSA, are they still quite conservative, or do you think they would be happy for you to pay more than 100%?
I think our communication around potential payout above 100% is unchanged from the second quarter. All share buyback decisions need to go through the Danish FSA because it's seen as a change in the company's capital structure. We will just do what we have done in previous years, but whether we are able to discuss anything about it, I think it's a little bit too premature, also because, as we have communicated earlier, the probation period with the DOJ is coming to an end by the end of the year, and that will naturally open up for discussions on the Danish FSA. That's not for now, that's for later.
Okay, that's clear. Thank you.
You're welcome, Espian.
Yes. Thank you, Claus. Could you just repeat your comments around cost? There was something about seasonality and consensus, and then there was something around DKK 175 million of one-offs.
Yeah, that is referring back to last year, the third quarter of last year. I am happy to repeat. We reiterate our outlook for full-year expenses of up to DKK 26 billion, given the expected higher seasonal cost occurring in Q4, which current consensus might not fully reflect.
All right. Got it. Thank you.
You're welcome. I can't see any more questions. Thank you very much for your participation, and I wish you a nice afternoon.