Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first quarter of 2026. My name is Claus Ingar Jensen , and I am Head of Danske Bank's Investor Relations. With me today I have CEO Carsten Egeriis and our CFO Cecile Hillary. The presentation today will be extended as it will include an update on our Forward 2028 strategy. We aim to keep this presentation at around 35 minutes. After the presentation, we will open up for a Q&A session as usual, and afterwards feel free to contact the IR department if you have any more questions. I will now hand over to Carsten. Slide two, please.
Thank you, Claus. I would also like to welcome you to our conference call, where I'm pleased to share the highlights of Danske Bank's financial results for Q1 and present an update on our Forward 2028 strategy. Let me start with the key messages for the quarter. We've had a solid start to 2026, driven by clear commercial momentum across our focus areas and supported by a constructive Nordic operating environment despite the market volatility that we've seen. On the numbers, net profit was DKK 5.7 billion, and this corresponds to a 13.1% return on equity, and our cost-to-income ratio was 45.8%, broadly in line with our around 45% 2026 target. Activity levels were strong. Total lending grew around 4% year-on-year, supporting market share gains across the Nordics.
We delivered around DKK 6 billion of net inflows in asset management in the first quarter of 2026. For the remaining two years of our Forward 2028 strategy period, we're raising our financial ambitions. For 2028, we target a return on equity above 14.5%, total income around DKK 63 billion, and cost-to-income ratio no greater than 43%, with a new CET1 capital ratio target of around 16%. Finally, reflecting our strong capital position and updated capital framework, we're announcing an extraordinary dividend payment of DKK 5 billion, equivalent to DKK 6.14 per share, and this alongside a revised ordinary dividend policy of 60%-70% of net profit.
Cecile and I will go through the Q1 results briefly, and then we will comment much more on the strategy update and then of course take questions. Slide three, please. Turning to our business units, we saw good customer activity across segments in the first quarter, driving higher loan and deposit volumes overall. At personal customers, performance was stable, supported by core income from higher volumes and an increase in daily banking activity. ROAC remained above target, reflecting disciplined costs and continued efficiency despite fairly modest volume growth. At business customers, we saw a stronger quarter with solid lending and deposit growth translating into higher income. ROAC also remained above target, helped by lower costs and loan impairment reversals that underscored the quality of the portfolio.
At Large Corporates & Institutions, activity levels were good and volumes continued to grow, but total income was impacted by seasonality and performance fees. As a result ROAC declined slightly, also reflecting somewhat higher allocated capital. Overall, the picture across business units is consistent. We see healthy customer demand. We see good volume momentum and returns that remain at or above target at PC and BC, and then with LC&I performance reflecting a strong underlying franchise impacting by timing effects only. Slide four, please, and I'll hand it over to Cecile.
Turning to the income statements, total income was broadly stable year-on-year, supported by solid core income. Net interest income increased versus Q1 last year and reflected higher volumes, while fee income also grew year-on-year on the back of strong underlying customer activity. Quarter-on-quarter, total income declined, mainly reflecting seasonality after a very strong Q4, particularly in performance-related fees.
Trading income and income from insurance activities were impacted by volatile financial markets, driving negative valuation effects in the quarter. On costs, operating expenses increased slightly year-on-year, reflecting inflation and investments, but declined quarter-on-quarter, mainly due to seasonal effects in performance compensation and lower severance costs. Overall, the cost development remains in line with our full year guidance. Credit quality remained very strong, with small net reversals of impairments.
As a result, net profit for the quarter was DKK 5.7 billion. Slide five, please. Turning to core banking income, the underlying trajectory remains solid, driven by higher business volumes and continued customer activity. Net interest income remains resilient, adjusted for the DKK 200 million non-recurring tax benefit in Q4. Despite fewer interest days in the quarter, NII increased by around 1%, supported by continued growth in lending and deposit volumes and contributions from the structural hedge.
Lending margins were impacted primarily by timing effects, with competitive pricing pressure also continuing to weigh on margins. During the quarter, we increased the notional amount of the structural hedge by around DKK 10 billion to approximately DKK 190 billion, while NII sensitivity remains unchanged, providing a stable earnings profile going forward. Fee income declined quarter-on-quarter as expected, following a record level of performance fees in Q4.
Underlying trends remain healthy, with strong daily banking activity, sustained demand for corporate cash management, and solid lending and guarantee fees, while capital markets activity was subdued due to financial market volatility. Slide six, please. Turning to trading income and costs. Trading income quarter-on-quarter reflects higher underlying customer activity in LC&I, though it was impacted due to the volatility in financial markets.
This volatility and the interest rate movements had a negative impact at Group Treasury from unrealized market value adjustments, primarily related to cross-currency swaps and bond portfolio investments held for liquidity management purposes. On expenses, costs were lower quarter-on-quarter, mainly due to seasonality, including lower performance-based compensation and lower severance costs. This improvement is consistent with what we typically see in the first quarter. More broadly, cost discipline remains strong and we continue to deliver structural cost takeouts in line with plan.
As a result, we reaffirm our full year 2026 cost outlook with a range of DKK 26 billion-DKK 26.5 billion, corresponding to a cost-to-income ratio of around 45%. Slide seven, please. Turning to credit quality and capital. Asset quality remained very strong in the quarter. We recorded net reversals of impairment charges of DKK 26 million, reflecting a well-diversified and well-provisioned portfolio that is supported by stable customer fundamentals.
Full year impairment guidance, however, remains unchanged at around DKK 1 billion, corresponding to around 5 basis points cost of risk. Our macro scenarios remain prudent, reflecting ongoing geopolitical uncertainty, including tariff and trade tensions. Post-model adjustments were maintained at DKK 5.4 billion, equivalent to around 30 basis points and provide significant downside protection. On capital, we continue to generate strong capital during the quarter.
The reported CET1 capital ratio was 17.7% before the impact of our announced DKK 5 billion extraordinary dividend payments, which pro forma will take our CET1 capital ratio to 17.1%. Risk-weighted assets increased by DKK 11 billion, net of the previously announced impact of the Conglomerate Directive, primarily driven by higher lending volumes and market risk related to financial market volatility. Capital requirements were broadly stable, leaving CET1 capital ratio headroom of around 290 basis points, underscoring our continued capital strength and flexibility. Slide nine, please, and back to Carsten.
Yeah, thanks, Cecile. Let me turn to the update on our Forward 2028 strategy. This remains our framework for delivering growth and improved profitability. As we communicated in June of 2023, the strategy is built around three priorities. First, growth in focus segments. We're targeting leadership positions as a leading wholesale and business bank in the Nordics, and as the leading retail bank in Denmark and Finland by growing share wallet and market share with the most attractive customer segments. Second, disciplined capital allocation and cost focus. Capital is directed to the most profitable areas that meet our hurdle rates, while we continue to drive productivity cost takeouts and the execution of our technology and our AI strategy. Then third, strong capital generation with low risk.
We aim to generate capital consistently over time while maintaining low and stable risk levels through the cycle. These priorities have not only supported our 2026 targets set in 2023, but they also enable us to guide for returns and capital distribution above these levels. On capital distribution for the period 2023- 2026, we saw dividend potential above DKK 50 billion, with an ambition for further distribution subject to capital levels and market conditions. Including share buybacks and special dividends, we're now at DKK 70 billion, well above what we communicated in 2023. Slide 10, please. Let me briefly summarize where we stand and also where we're heading. Starting with performance today, I'm pleased to see that we are delivering above our targets on all key metrics.
Based on that, we're raising our ambition for 2028, return on equity above 14.5%, cost-to-income ratio no greater than 43%, and CET1 around 16%. To accelerate the transition to our new capital framework and supported by our strong capital position, we're making an extraordinary dividend payment of DKK 5 billion. At the same time, we've revised our ordinary dividend policy to a payout ratio of 60%-70% of net profit, providing greater predictability and confidence in future distributions. Looking ahead to the period from 2026- 2028, this framework supports dividend potential of above DKK 55 billion. With an ambition for additional distributions. Any further payouts will be determined by capital position, by growth opportunities, and prevailing market conditions. The key message is clear. Strong capital generation remains a core pillar of our equity story.
Overall, this captures what we are focused on delivering today, staying on track for 2026, and then building a stronger and an even more profitable Danske Bank towards 2028 and beyond. Slide 11, please. Let me briefly focus on how we're driving profitable above-market growth across the group. The starting point is that growth is selective and disciplined. We are allocating capital to segments where we see structural demand, strong customer activity, and returns that are clearly above our hurdle rates. You can see this reflected in the key financials on the slide, where growth in income, lending, and assets under management is consistently above underlying market growth. It is growth that balances volumes and market shares with improving profitability and capital efficiency.
As such, we're delivering profitable growth in our chosen segments with a clear focus on deepening share of wallet and increasing non-NII income. Across the group, this focused approach is clearly supporting higher profitability and structural ROE uplift. The key message here is that our growth agenda, it's financially selective, it's above market, and it includes significant growth opportunities that are a critical enabler of the returns and cost improvements that we're targeting towards 2028. Then slide 12, please. Let me also briefly turn to execution because this slide here shows that Forward 2028 is already delivering results across the board. Since 2023, we've made tangible progress across all business units, and importantly, that progress is visible in returns and efficiency, not just activity.
Starting with PC, the focus on the Affluent and the Private Banking segments, housing and advisory excellence is delivering higher productivity, stronger asset growth, and ROAC in line with target. The rollout of Panorama and advisor upskilling are clear contributors. At business customers, execution is centered on scaling acquisition of Mid- corporates through targeted sales campaigns and digital flows. This is driving solid lending growth and strong fee momentum while maintaining capital discipline supporting our ROAC ambitions. At LC&I, deeper engagement with institutional clients, financial sponsors, and asset managers is driving stronger income momentum with lower consumption of capital to support ROAC, even as we have continued to invest in platforms and capabilities. Across the group, digitalization, automation, and AI are key enablers supporting both growth and structural efficiency.
Overall, the execution progress we've delivered since 2023 provides a solid foundation, and it gives us great confidence that we can further accelerate business momentum as we move towards our 2028 ambitions. Slide 13, please. Let me also briefly highlight the strategic focus areas that will sustain this momentum and allow us to scale the business towards 2028. Starting with PC, the priority is to continue to deepen engagement and improve efficiency. We will continue to grow within the Affluent and Private Banking segments by scaling our Panorama digital advisory tool in Finland and also in Sweden, which remains part of our Nordic strategic focus. We are advancing the investment experience with strong product offerings and advisory capabilities as a key entry point to win fuller customer relationships.
At the same time, we're leveraging AI to drive more proactive engagement and to improve digital journeys, advisor workflows, and service efficiency. At BC, the focus remains on accelerating growth in prioritized segments. We're scaling acquisition of Mid- corporates and small businesses while further strengthening our One Corporate Bank through expanded platform coverage and AI-enabled onboarding, servicing, and credit decisioning.
At LC&I, we're reinforcing advisory as a differentiator, deepening sector leadership, and continuing growth in capital markets and sustainable finance, as well as focusing on areas such as defense and digital asset opportunities. We are also expanding Nordic institutional capabilities across lending, asset management, and servicing, supported by simplified platforms and AI. For all three business units, all of the above underpins improved profitability and cost efficiency. Across all areas, the common theme is it's scalable, it's platform, it's AI-enabled growth.
Together, these priorities ensure that the execution progress that we have already delivered translates into continued momentum towards 2028 ambitions. Slide 14, please. Let me also turn to the strategic investments that we've made in digital and in technology, because these are critical enablers of our strategy. Since 2023, we have executed consistently in line with our one platform strategy, the result is a technology foundation that is increasingly modern, agile, secure and efficient, importantly, also unified across the bank. We now think about and deliver technology in a far more integrated way than before. That's what allows us to support the commercial momentum across our business units. The progress is really tangible on three fronts.
If you look at our customers, we have launched the Panorama advisory tool, we've upgraded mobile banking app, and we've scaled our digital platform, Panorama, to more than 140,000 business customers. If you take our engineers, we've built our critical data products, we've advanced our data platform, and we've rolled out a transformational bank-wide AI strategy and roadmap, making us a leading Nordic GenAI bank on the Evident AI Index.
As for our future, core technology modernization is significantly advanced. Cloud migration is accelerating and is now over 30% of applications that have moved to public cloud since 2023. This is already translating into measurable outcomes, so more than 20% improvement in technology productivity, also a higher developer throughput, a far more scalable cost base. We're not done. Our 2028 targets are ambitious.
Above a two times increase in technology productivity, a five times increase in developer throughput, and a more than 25% services productivity. AI is a key accelerator that will take us there. This is the platform on which the next phase of profitable above-market growth will be built. Slide 15, please. Let's also look a little bit at our AI and technology ambition and how we really think about this as a key accelerator of our strategy.
Our starting point is strong. We are completing the foundational work. We are executing on our bank-wide AI strategy as we have built scalable AI foundations, also with an integrated risk and compliance framework, and have started AI enablement across priority domains in software development, in credit and in service, and critically also have embedded AI into our culture and our ways of working.
The results are visible. We have approximately 95% developer adoption of GenAI coding assistance. We have agentic AI incorporated into our corporate credit processes with now an approximately 40% faster processing time, and we have an AI-enabled customer service capability in the mobile bank, which is now delivering an approximate 75% first-time resolution rate. This foundation allows us to scale AI across the bank and importantly to increase both our ambition and our pace.
We're moving beyond individual productivity tools like Copilot and chatbots into really enterprise-wide and transformative applications that can fundamentally reshape how we do core banking. That means deploying agentic AI to boost growth in focus segments through instant personalized advice, through increased speed via agent-to-agent interactions, and through shifting to a more efficient operating model powered by human agent collaboration. Our financial ambitions also reflects this.
By 2028, we expect an approximate DKK 2 billion in annual productivity benefits from AI and technology, and this driving an approximately 3.5 percentage points of cost income improvement. This is where our investments convert into structural efficiency and to durable competitive advantage, a core enabler of the Forward 2028 ambition. Please turn to slide 17, and then I'll hand over to Cecile.
Thank you, Carsten. Let me briefly summarize our 2028 targets, which build on our strong delivery in 2025. We delivered 13.3% ROE in 2025, broadly in line with a 13% target for 2026, and we now raise our ambition to above 14.5% ROE by 2028. On efficiency, the cost-to-income ratio was 45.5% in 2025, consistent with the around 45% target for 2026, and we are targeting a further improvement to no greater than 43% by 2028. Our capital position remains strong. We ended 2025 at a 17.3% CET1 capital ratio, and we guide towards a normalized level of around 16% by 2028 while maintaining a prudent management buffer.
On loan impairment charges, our planning assumption remains around 8 basis points of loan losses in 2028, despite a lower level in 2025. Finally, on shareholder returns, we highlight our dividend potential of above DKK 55 billion for 2026-2028, facilitated by a revised dividend policy of 60%-70% of net profit. We have distributed around DKK 70 billion already since June 2023. To conclude, 2025 confirmed that we are on track with our Forward 2028 strategy. Our 2026 guidance is reaffirmed, and the new 2028 targets raised our ambition with a strong focus on efficiency, capital strength, risk, and shareholder returns. Slide 18, please. Let me briefly walk through how we are strengthening our financial position over the coming years as we move towards our 2028 targets.
Firstly, we are focused on sustainable income growth across segments and markets, targeting around DKK 63 billion in total income. This will be driven by continued growth in our focus segments across the Nordics, building on strong momentum at LC&I and within the Mid-corporates, Private Banking, and Affluent segments. We are deepening our customer relationships with a clear focus on growing ancillary income.
Secondly, we are working towards a lower cost base through efficiency and automation with an expected 2.5 percentage points improvements in the cost-to-income ratio to no greater than 43%. This will come from continued cost management and a productivity increase via our tech and AI transformation program. Thirdly, we continue to deliver strong capital generation. We are optimizing the CET1 capital ratio to around 16% towards 2028. Capital planning and allocation will support growth, regulatory resilience, and capital distribution.
Overall, sustainable income growth, a structurally lower cost base, and disciplined capital management. Slide 19, please. Our top line growth towards 2028 will be diversified, supported by a stable macroeconomic environment across the Nordics. We expect total income to increase from around DKK 57 billion in 2025 to around DKK 63 billion by 2028. This growth will come from a balanced contribution of net interest income and fee income. Trading and insurance income are expected to recover to more normalized levels. Our income trajectory assumes 3%-4% annual lending growth and 1%-2% deposit growth. Despite recent interest rate volatility, our main assumption, which you will find on slide 27, is short-term rates of approximately 2% going into 2028. Growth is anchored in clear commercial drivers across the Group.
At personal customers, we expect continued volume growth, particularly in Denmark and Finland, alongside a higher share of wallets through our enhanced advisory. At business customers, we will continue to capture market share with Mid- corporates, driving both lending and ancillary income. At LC&I, the focus remains on becoming the house bank for more customers and deepening institutional relationships across the Nordics.
Slide 20, please. Let's focus on our cost trajectory towards 2028. We will continue to deliver operating leverage through structural cost management while investing in growth and digital capabilities. Since 2023, we have improved the cost-to-income ratio by around 3 percentage points, moving from 48.6% in 2023 to 45.5% in 2025 despite inflationary pressures. This reflects the normalization of financial crime prevention and remediation costs and ongoing structural cost management.
Looking ahead, we expect a further 2.5 percentage point improvement in cost efficiency from 2025 to 2028, taking the cost-to-income ratio to no greater than 43%. This will be driven by productivity initiatives and structural efficiencies with technology and AI contributing around DKK 2 billion in financial benefits in 2028. Importantly, while we plan to increase investments by approximately DKK 500 million annually over the period, this comes on top of the 30% investment ramp-up already announced in 2023.
These additional investments will be deployed through a disciplined stage-gating approach, ensuring clear returns, tight prioritization, and full alignment with our cost-to-income ambitions. In absolute terms, total costs will increase moderately from DKK 25.8 billion in 2025 to no more than DKK 27 billion by 2028. Overall, the cost program will support improved profitability while preserving capacity for investing in growth.
Slide 21, please. Let me turn to capital. We have a strong capital position and continue to generate high levels of capital supported by a resilient earnings and risk profile. Since we resolved our legacy issues, the balance sheet has been materially de-risked, giving us flexibility to optimize capital while supporting growth and shareholder distributions. We are introducing a new CET1 target of around 16%. This reflects an expected CET1 requirement of approximately 14% in 2028 and implies a prudent buffer above regulatory requirements. The requirement benefits from around DKK 3.5 billion of Pillar II relief, equivalent to around 40 basis points that relates to our resolved legacy cases.
This is expected prior to year-end 2026, subject to the annual supervisory processes. To accelerate the transition to the new CET1 target, we are announcing an extraordinary dividend payment of DKK 5 billion. We expect to end 2026 at around 17% CET1, followed by a gradual step down towards the new circa 16% target by 2028. The capital glide path pace will depend on REA growth from lending activities. Our capital generation capacity of above 275 basis points per year on average supports our distribution expectations.
As a result, we are also revising our ordinary dividend policy to 60%-70% of net profits, supporting a steady, predictable distribution profile. Based on current assumptions, this implies a dividend potential in excess of DKK 55 billion over the period, with additional distributions subject to capital levels, growth, and market conditions. As the CET1 capital ratio normalizes, we will continue to support an efficient capital structure through AT1 and Tier Two issuance, ensuring balance sheet resilience and funding flexibility.
In summary, our updated capital framework reflects confidence in our earnings power and risk profile. It reflects our dual focus on growth and the return of capital to shareholders. Slide 22, please. As we have shown on the previous slides, we are delivering strong underlying performance with solid income momentum, continued cost discipline, and a robust capital position. Our final slide today pulls those elements together and shows how they translate into higher profitability towards 2028, measured through return on equity.
We start from 13.3% ROE in 2025. From here, income growth is a positive contributor, driven by focused growth across our core franchises. That is complemented by cost efficiencies with productivity gains from technology and AI more than offsetting inflation and the cost of growth and strategic investments. Finally, we expect an impact from normalized loan impairment charges from the low level in 2025, in addition to capital efficiency improvements as we move towards a more normalized capital position. Taken together, these elements support our ambition of a ROE above 14.5% by 2028. With that, I will hand over to Carsten to wrap up on our 2028 ambitions. Slide 23, please.
Thank you, Cecile, and let me now close by pulling the story together. What we've laid out today is about strengthening our position as a focused Nordic leader with strong profitability and leading digital solutions, and doing so in a way that is sustainable and that's disciplined. By 2028, we target a return on equity above 14.5%, income around DKK 63 billion, a cost-to-income ratio no greater than 43%, and a CET1 around 16%.
We're supporting that with a DKK 5 billion extraordinary dividend, a 60%-70% dividend payout policy, and a dividend potential above DKK 55 billion in 2026-2028, with further distribution subject to capital levels, growth, and market conditions. Together, this underpins a clear and a disciplined path to sustainable growth, strong shareholder returns, and long-term value creation. With that, we'll conclude our presentation, and Claus, I hand it over to you to facilitate questions, please.
Thank you, Carsten. 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. A transcript of this conference call will be added to our website within the next few days. Operator, we are ready for the Q&A session.
Thank you to ask a question please press star one one on your telephone and wait for your name to be announced. To withdraw your question please press star one and one again. We will now take the first question. From the line of Shrey Srivastava from Citi. Please go ahead.
Hi, and thank you for taking my question. My question revolves around the level of conservatism in your plan. You assume basically flat three-month interest rates in three of your four geographies. You actually have cuts in Norway, and on top of that, you're assuming 1%-2% deposit growth per annum, which lags your experience last year and lags what the Danish system is doing. I just want to get your sense on how much prudence is baked into this plan and what range of scenarios this plan could withstand. Thank you.
Yeah. No, thanks for that. Look, I mean, first of all, on rates, clearly, it's very uncertain right now in terms of where rates are going and market expectations this year have a couple of rate increases and then perhaps those increases being offset by decreases the year after. We've sort of thought about this, when we think about 2028 targets as rates that are somewhere above 2%. Clearly that may change, but then at the same time, it really depends on the nature of those rate increases and whether they come to offset the inflationary pressures and the like, which is currently what we're seeing, which would then offset some business activity.
I think it's very difficult to say exactly how the movements will be, 2026 into 2027. Over time, as we look out towards 2028, we feel that these assumptions are prudent and realistic, and again, our growth assumptions 3%-4% growth on asset and 1%-2% growth on deposit support the kind of growth levels we've seen on average over the last two, three years, while also being able to grow faster than market. Our clear ambition is to grow faster than market. Clearly if we see growth that's higher than those levels, then we should be able to outperform on a relative basis in the Nordics.
And perhaps if I can add as well, Shrey's, when we look at our Q1 results, actually we feel that they're really on track and they put us exactly in the right line when it comes to the guidance that we've given, including obviously the guidance for 2026. That's the first point I would make. The second point I would make is on rates. I think you have to obviously consider the following points. One is that the rate volatility, which is obviously, you know, currently still temporary, we'll see where it goes, was higher in the one to three year segment than at the short end.
Clearly we're more impacted at the short end. Secondly, when you think about deposits as well on the liability side, what really matters there is the central bank hikes, right, which obviously are captured in the NII sensitivity table. Of course, we haven't seen these, and it remains to be seen whether they will take place. If they do, then again, you have our NII sensitivity tables.
Then of course, going forward, if the rate volatility, the financial markets, and geopolitical events were to persist, clearly it's not just impact on rates and obviously on NII. We have to also consider impacts on volumes, impacts on growth and more broadly potential consequences there. You know, these are also elements that lead us to reaffirm our guidance, reaffirm our targets, and we strongly feel that these are the correct ones.
Thank you very much. Just a very quick follow-up. What do your cost of risk targets bake in for any release of your management buffer? Thanks.
Yeah.
We haven't included any assumptions around releasing post-model adjustments, so we've only sort of used a normalized 8 basis points of loan loss rate, which is similar to what we also had when we presented the plan back in 2023. Then I would add to that look, obviously it's an uncertain environment right now. I've said before, and I'll say again, we're probably at the higher end of post-model adjustment levels if you sort of look through the cycle. At the same time, I think, in times like this, it's incredibly uncertain to say whether or not, and at what pace those post-model adjustments may be reduced, and obviously it could also go the other way. We have not included any change in those assumptions.
Understood. Thank you very much.
Thank you.
Thank you. We will now take the next question from the line of Namita Samtani from Barclays. Please go ahead.
Morning, and thank you for taking my questions. My first one, could you help us understand what the hedge will be contributing to income in 2028, or can you just give us a sense of what the hedge is gonna be doing then? My second question, just on Norway, Danske only has 8% market share in corporate. Do you think that's enough to be scalable to have a presence in Norway? Would you think about any potential M&A here, or how do you think about the 8% market share? Thank you.
Hi, Namita. Let me take the Norway question, and then I'll ask Cecile to do the hedge contribution to income in 2028. We do feel that 8% is a reasonable scale. I mean, we run the corporate and institutional business as a Nordic platform. We're one of the leading players in Norway on many areas in the corporate and the institutional space. In fact, we've been growing faster than market over the last couple of years, taking market share.
We continue to have a strategy where we want to grow and expand in Norway. That's the first thing. Whether there are inorganic opportunities, we would be interested in looking at inorganic opportunities, I would say, across the Nordics in our chosen market segments, and that would include Norway, and it's something that we continually look at, but it's not something that we've included in any assumptions within the plan and within the 2028 ambitions. Cecile, you wanna talk-
Yes. Let me take the structural hedge contribution, Namita. As you know, I guided towards a slightly higher hedge contribution in 2026. In 2027, the hedge contribution will be equivalent to the 2026 level. On 2028, it will start obviously under the current rate assumptions, right? Because of the roll-off of the hedge reinvestment in slightly lower rates going forward, it would start to tail off a bit. Again, just to be clear, this wouldn't, won't be a very dramatic impact, but that's the profile of our hedge. I will confirm that it remains between, you know, three and three and half year average life.
Helpful. Thanks very much.
We will now take the next question from the line of Johan Ekblom from UBS. Please go ahead.
Thank you very much. Just if I could follow up on Shrey's question in terms of conservatism in the plan, right? I mean, all of the targets are set at a minimum ROE of 14.5% and a maximum cost/income of 43%, etc. When you think about the potential levers for better or worse for that matter, outcomes, what are the key drivers that can create the different results? Is it predominantly a revenue environment that is better or worse, or are there any other factors that you'd like to highlight?
Then secondly, maybe a little bit analogous to Namita's questions on Norway, where are we in terms of the Swedish retail, right? I mean, I think when you presented the plan in 2023, you said you wanted to see a marked improvement in performance in Swedish retail, you know, within the scope of this plan. Could you give us an update maybe on where we are? Because it's hard to see that real progress in terms of volumes or profitability for that matter.
Yeah. Thanks. Thanks for that, Johan. I think, look, I mean, the levers you mentioned, but let me elaborate just briefly. Clearly, with economies in the Nordics that we currently have growing somewhere between, let's say, 1.5% to close towards 3%. I mean, Denmark right now, we have, you know, somewhere between 2.5% and 3%. With economies growing at that range, within that range, and if that continues on the back of, you know, quite a large investment cycle that I believe we're entering into, driven by defense, by energy, by technology, clearly there is an upside case, right?
Where that growth delivers well, and that should be very supportive to our business, which clearly is, you know, two-thirds SME, large corporate, and institutional, and where we have a very strong position with our customers, where we're leading on Prospera in terms of customer satisfaction, and where we've shown that we can take market share. So clearly that's an opportunity, and we will take advantage of that opportunity if the market growth is better than expected. But we've decided to stay at the 3%-4% level because we believe that that is prudent and realistic.
On the productivity side, you'll have noticed in the ambitions that we've set, for example, for technology productivity that we say above, for example, 2x on technology productivity. That is because it is still uncertain exactly how much productivity we can drive over time with the technology benefits and the investments we're making in AI. Clearly, [inaudible] is a potential that we can deliver further productivity over time on the back of these tools. We're optimistic with what we've seen. You know, the assumptions that we've added in the plans are the ones you see here. We're also signaling that it could be better.
On Sweden retail, absolutely, Sweden has been a focus of ours to reposition that business to be a more focused Private Banking mass Affluent business. That was part of sort of our 2023 narrative repositioning for Forward 2028. We've been doing that. We do see early signs of improvement. If you look year-on-year, we see signs of improvement on lending and assets under management and also customer flows. Therefore, we also see improving signs of profitability. We're also very realistic that it will take time. We like the business. We like the business opportunity. We are really focused on growing in Sweden across all business lines, and we also want to continue to have the optionality to grow inorganically.
Sweden is for certain not different there, and neither is the retail opportunity in Sweden. That's how we think about the Swedish business going in the right direction. It will take time, but we'll continue to invest here. It's important again to remind everybody that we have one platform. As we make investments in Denmark and in Finland, those investments are scalable and cost efficient as we go into Sweden, and we also like that positioning.
Thank you. Maybe just to follow up on your first answer. I mean, when we think about productivity improvements from AI and technology more generally, as you said, there's uncertainty of how much can be achieved. We're early days in the AI era. But what you put into this plan, does that include kind of full implementation of what you see as the reasonable base case today? Or are there further benefits beyond 2028 even on what you're seeing today, if that makes sense?
Well, I think for certain there is opportunities beyond 2028. Our plan continues to be a plan that builds on the progress that we've seen, where, you know, the above 14.5% target in 2028 is a stepping stone, but certainly not harvesting the total opportunity that we see over time in terms of improving profitability and growth. No doubt that we believe that over time cost-to-income ratios and profitability can be improved further beyond 2028. Right now for 2028, if you ask me that question, then we believe currently that we're capturing the benefits that we see. As I said, no doubt as coding tools change, it seems by the week, if not by the day, there could be further opportunity.
Let me give you perhaps a little bit more details on where we see these benefits, and maybe that will help you also frame your view in that context. Firstly, I would say that we obviously continue to invest, right? We continue to invest in a significant manner, right, in these tech and transformation program and AI tools in particular. Obviously we're raising our investments from DKK 4 billion last year to DKK 4.5 billion, and investments will stay at around DKK 4.5 billion, you know, throughout the period until 2028.
These investments, which obviously some have already taken place and they're in train, allow us indeed to size these tech and AI benefits to a DKK 2 billion run rate in 2028. This is not a hockey stick, by the way. It's actually fairly linear, and we'll see some of these run rate savings to a fairly significant level in 2027 already. They're obviously embedded in our plans. What do they consist of? They consist of about 3/3 roughly. There's a larger third that is actually around our developer productivity. This is as much internal through our developer workforce as also regarding some of the external suppliers that provide this developer transformation tools.
Obviously we capture them through our KPIs as well in technology and services. Another 1/3 is around frontline tools. What is it? It's things like, you know, our AI chatbots, which is progressing fairly significantly, as well as our advisor productivity tools. You know, we've talked about Panorama, we've got another tool called CRM. These are developing as well, and we use them in particular in our Private Banking and Affluent segments, but also in business customers. We also have now banker productivity tools, which we're rolling out at speed and currently piloting with a view to scaling, including in our LC&I franchise.
Finally, the third sort of category is everything to do with back and middle office as well as general enterprise productivity. Things like our business and corporate credit tool, which we're now rolling out in business customers as well as other GenAI tools, including in our risk department, including in our legal department and many others. Taken all together, this allows us to size the run rates of these productivity benefits to this DKK 2 billion that you see in 2028, which again, as I mentioned, is also somewhat linear throughout the plan.
Thank you very much.
Thank you. We will now take the next question from the line of Sofie Peterzens from Goldman Sachs. Please go ahead.
Yeah. Hi. Here is Sofie from Goldman Sachs. Thanks a lot for taking my question. Just going back on the inorganic growth opportunities, how should we think about like potentially a transformational deal for Danske? Or are you more interested in kind of bolt-on acquisitions, or would you consider something that would kind of transform Danske and maybe make Danske a little bit more a European bank?
Would you also consider kind of selling your Northern Irish businesses? My second question would be on the payout. You have guided very helpfully on dividends, but how should we think about future share buybacks? Is it fair to assume that the current level of share buybacks will continue? The final just a follow-up question. Related to the cost target you have given, should we expect any restructuring costs to come? Thank you.
Thanks, Sofie. Let me take the first one. On inorganic and how you should think about it and what would be transformational for Danske. Look, first of all, what we believe is truly transformational is our ability to continue to really accelerate, augment everything we do, both internally and towards our customers with technology. The most transformational opportunity we see for Danske is to continue to really double down on our focused Nordic strategy and to invest heavily in technology and AI to really transform the customer experience and to transform our processes, and we have so much opportunity there. In terms of sort of inorganic acquisition opportunities, probably most likely bolt-on opportunities.
Again, it's not something that's included in our plan, but it's something that we're continually looking at and, you know, clearly we have sort of challenger positions in Norway and in Sweden, a number three position in Finland, but where there is much more opportunity to grow. It's really looking at bolt-on inorganic opportunities throughout, you know, the main focus areas of corporate, institutional and retail banking across our chosen market areas. On payouts and share buybacks, Cecile, maybe you wanna comment on that. I think there was also a question on severance and cost targets.
Absolutely. On the payout, Namita, beyond the ordinary dividend policy of 60%- 70%, indeed we are clearly, we have an ambition for further distribution. This will continue to include a combination of dividend and share buyback. I mean clearly as we move away from the one times price to book, these share buyback become, you know, net less interesting. However, they still have a role to play. I think we'll continue to look at it in the same vein going forward.
Secondly, when it comes to cost target, whether it's the cost envelope itself, DKK 26 billion-DKK 26.5 billion this year, up to DKK 27 billion by 2028, or the cost-to-income ratio, circa 35% this year, no greater than 43% in 2028. These are fully baked, right? They include all costs, including where appropriate any restructuring costs.
That's very helpful. Thank you.
Thank you. We will now take the next question from the line of Mathias Nielsen from Nordea. Please go ahead.
Thank you very much. Thank you for taking my question as well. My first question, that's mainly for you, Carsten. I recall that you over for a couple of years now have said that you didn't see any reason why Danske Bank shouldn't be able to deliver a return on equity on par with the best in the Nordics. You're obviously making a big step in towards that with the target that you set out today. Yet you're not still there, at least not in my numbers. How long should we wait before we see Danske Bank performing with a return on equity on par with the best in the Nordics?
Thanks, Mathias. Look, what you've seen over the last couple of years is a consistent improvement in our profitability through growth and improving cost-to-income ratio. The plan we have is a growth plan. It's an investment plan, where we're also very diligent on how we think about driving productivity so that we become even more competitive. We see that we've delivered consistently on the commitments that we've made.
We're committing to above 14.5%. As you say, that gets us closer to the targets that have been given, you could say by the most profitable banks in the Nordics. 2028, for me, for us is a milestone, but also a stepping stone. We believe that, as I've said before, and I will continue to commit to that we can, have profitability in line with the absolute best in the Nordics. But I won't give you an exact date today, Mathias.
Understood. If I may, like, follow up on the assumptions. Like you also called it a growth strategy, but like, at least when I look at your assumptions, there seems to be at least something off in my opinion. Like you have real GDP growing like 2% and have inflation of 2%, and then you say that we are going into a large investment cycle, and yet you expect lending growth of 3%-4% and deposit growth of 1%-2%. Like there seems to be something a bit on the cautious side there.
It's a bit the same when I look at your cost guide, and you're implying that the cost gain from 2025- 2028 could be up to 1.5%, while you on the other hand also say like you see massive productivity gains from AI and tools. Those investments that you're making on the cost side, is the benefits of those things, is that just coming after 2028? Is that how we should think it? The years after 2028 is gonna be much better than the years towards 2028. How should we think about those?
Yeah
Those assumptions? Like it seems to be a bit off in my opinion.
Look, Mathias, I think on the cost side, first of all, as you can see over the period, we're offsetting inflation with efficiencies. That's already pretty good. I think, if you look at historically, you know, ability to absorb inflation and drive productivity. The second part is that we're investing significantly in the business in the future, and we really think long term about our business. The investment levels are at the highest level that they've ever been. If you also look at sort of the amount of strategic development investment within that, it is by far the highest it's ever been, and we're gonna maintain those high level of investments.
Therefore, I think, you're right in saying that there will be future further opportunity to improve cost-to-income ratio as we continue to deliver these investments and as we continue to truly embed AI across our main processes in the bank, which takes time. Not so much 'cause the technology isn't there, but because it takes time to actually industrialize it, embed it. It takes time to get, of course, the regulator on board. It takes time to ensure that you do it and deploy it in a way that's credible and safe. Yes, it takes some time, but I think we're already seeing not just beyond 2028, but actually also in the next couple of years that we can deliver those efficiencies, and that's why we're actually able to offset inflation with the efficiencies.
Look, on the growth side, what you've seen the last couple of years overall is that, you know, 3%- 4% growth is actually growth that's slightly higher than market, right? I mean, look again year-on-year, Danske Bank, both on NII and on fees, we have the highest growth rates year-on-year among any and all Nordic banks.
If you normalize for acquisitions that have been done other places, right? We believe that trajectory for growth in our business is strong. We believe that we're growing faster than market in many of our areas. You know, the plans that we've set out, we believe prudently reflect right now market conditions and market expectations. As I said, you know, if growth rates end up being higher, we will take our fair share of that.
Likewise, what I would add is both on the cost-to-income ratio, which is very balanced between the income side and the productivity side, and the return on equity, which is balanced across income, efficiency and capital normalization. We also have levers to use as a result, both on the cost side and on the return side, in order to face any unexpected, you know, market event or geopolitical events that we may face in the next several years. It goes both ways, of course, Mathias.
Thanks a lot for the clarity on that.
Thank you. We will now take the next question from the line of Martin Gregers Birk from SEB. Please go ahead.
Thank you so much. Coming back to capital, I appreciate your comments on your Pillar II requirement. Still, how do we see AT1 issuances and payout that corresponding CET1? What are the thoughts on your commercial real estate buffer and potentially lower [CRE] buffer over the course of the remaining years since the strategy period? That's my first question.
Yes. Thank you very much, Martin. Look, on the capital side, obviously, as we normalize toward 16%, you can expect over the next three years a normalization as well of AT1 issuance and Tier Two issuance. These funding costs are obviously fully baked into our plan. Of course, there's two things to consider, right? I'm sure you're obviously thinking about costs and how they will materialize, right, in our plan. Some of it is that obviously the quantities of AT1 and Tier Two will be higher. At the same time, the refinancing cost versus where the outstanding instruments were issued, you know, was also previously higher, right?
You've got to net the two against each other. Net-net, it adds a little bit of cost to the tune of DKK 200 million in 2028. Having said that, again, it's fully absorbed in the plan. That is on the AT1 and Tier Two issuance. When it comes to the CRE buffer. As you can see, the normalization and the reduction of our CET1 risk requirement towards an estimated 14% in 2028 is based on two elements.
The first element is the release of what I would call the sort of legacy Pillar II sort of a buffer that is expected at the end of the year, linked to approbation, linked to some legacy cases, and that accounts for half of it, so that's 40 basis points. The other half relates to the increase in the growth that obviously we've got under our plans, and obviously, reminding you that our Pillar II is a nominal amount.
Obviously, as we grow, then it becomes proportionally smaller. We have not included any release or any assumption of CRE buffer, the systemic risk buffer, obviously on our business customers sort of division in the plan. It's not included because obviously it's still highly uncertain with the various discussions that have taken place.
Okay. Maybe a more sort of holistic question. When you look towards 2028 and when you look towards, we've been facing enough of our flaws and you're gonna have significantly less liability and risk rates going forward, and also going to perform much better in stress tests. Why shouldn't Danske Bank, in terms of your CET1 guidance look much more like a European or a core European UK bank, rather than a Nordic bank at 16%?
Look, I think first things first, right, Martin, that we're obviously we obviously are a Nordic bank, and regulated by the Danish FSA and overseen by College of Supervisors, which include the Nordic regulators. As you know, our actual minimum requirements and overall CET1 is not too dissimilar to the other Nordic banks. I would say, for now, that is the assumptions that we're basing on that we're in a regulatory environment where those are sort of the levels. Therefore, you cannot directly compare it to European level regulated banks because there are slightly different rules, as you know, both on capital and modeling and risk densities and things like that.
Today, for 2028, we come with our best view, obviously also having discussed these with our Danish regulator on a prudent capital trajectory, if you will, that we're very comfortable with and that we also believe that our regulators are comfortable with. By the way, that we also think is quite aligned with what we see in the Nordic banking region.
All right. Thanks.
Thank you. We will now take the next question from the line of Alexander Vilstrup-Jørgensen from DNB Carnegie. Please go ahead.
Yes. Thank you for taking my questions. Most of them have already been answered, so just a few follow-ups from my side. For many quarters, we have seen a gradual run-off of your hold-to-collect bond portfolio. I'm just wondering, will the loss on your bond portfolio ever be fully unwound and released into NII?
Just to clarify, the question is on the hold to collect portfolio, the-
Yeah.
...the bond portfolio that we hold, whether that over time will be released back into NII. That, I think that's the question, Cecile.
Yeah. Let me explain a bit how we think about it. Obviously that you know in large part clearly relates to our structural hedge. The way we think about our structural hedge is in terms of what it includes. There's two parts, right? One is what we call typically a structural hedge, right? Which include a bond and non-derivative part. The other part is the loan hedge, right? The loan hedge is something in the order of DKK 200+ billion. It's a shorter duration. It's about one and half year average life. Of course, you know, we manage it according to you know the usual you know ALM practices, right?
Transforming obviously to floating, the balance sheet to floating rate. You've got the structural hedge itself. The structural hedge itself used to be only bonds, right? Up until the end of last year, and it was a mix of HTC and HTCS bonds. Obviously, it follows a caterpillar strategy, whereby the bonds that roll off were reinvested into new bonds to achieve roughly the sort of three and half year average life. Now, at the beginning of this year, as I mentioned, you know, several times last year, we started using derivatives, obviously, under hedge accounting capabilities to manage the volatility, and also to be a little bit more precise and really benefit from obviously a very liquid derivative market.
That doesn't mean that we are going to stop using bonds. All things being equal, it means that we'll use a bit more derivatives. In fact, we've done so. We still primarily use, you know, have bonds, right? Just as a stock. You know, I don't expect that they will roll off to a point where we won't have any more. Don't expect a massive change there, but all things being equal, it will reduce somewhat.
Okay. Do you believe consensus fully reflects the positive net interest income contributions from your structural hedge?
Absolutely. Yeah. It's all been included.
Okay. If you just turn to your income from insurance business, when do you expect the insurance result from Health and Accident to break even?
Yeah. I mean, the result on Health and Accident is roughly break even, in fact, in Q1. We feel pretty comfortable that that business is now on track to break even. Notwithstanding obviously, the dependencies there always are on fluctuations in claims driven by, you know, societal dynamics. We're roughly break even in Q1, and we feel good about the trajectory there.
Of course, the impact of the insurance result of the Danica result this year was actually linked to the investment side of things and really linked to, frankly, the market volatility that we've seen. Most of it obviously is expected to normalize. As a matter of fact, we continue to guide in a normalized context, which again we're expecting to Danica results in the range of DKK 1.4 billion-DKK 1.6 billion for the year.
Okay. Thank you. That makes sense.
I think we are coming to an end. Operator, can we have the last question, please?
Thank you. We will now take the last question, sorry, from the line of Jacob Kruse from Autonomous. Please go ahead.
Hi, thank you. So I just had a couple of questions. Firstly, on the growth numbers that you have, the relatively low lending growth and deposit growth, how do they compare to the discussions you have with your, you know, regional business managers? Are they also operating against those kind of targets?
And then secondly, on the capital, the 60% level, if I think about the glide path there, should we assume that to be somewhat linear, so you start a year at 17.7%, and then for the next three years, I guess, you have a reduction of 60 basis points or so per year, and that's how we can sort of try to frame our own assumptions. Just finally, if I may, on the cost side, you talk a lot about the AI and the opportunities from technology. Are you already seeing a sort of reduction in supplier cost when it comes to IT services as they get more efficient and do you see material staff impacts as a part of this plan? Thank you.
Thanks, Jacob. On the growth side, I'm not gonna go into detail with what our regional different growth targets are, but what I can say is that our ambition and our targets and our belief is that we can grow faster than market and take market share. That is ultimately what we're looking at is how do we get more customers into the bank, how do we grow profitably with those customers, and how do we make sure that we do better than competition. On the cost side, supplier costs, yes, we are seeing that and we are of course including that in all our discussions with partners and vendors, an expectation that we see cost reductions on the back of AI.
Because we have such good experience with what we're seeing in our own bank, and that's across software development life cycle, across how we use tools in banking discussions around how we use assistants to be more productive when we prepare for customer meetings in terms of the assistance tools we're rolling out for customers in the personal bank. We feel that we have a pretty good understanding of what these tools can do and the efficiencies that they can deliver. Those discussions are certainly brought into all vendor discussions. Yes, we do see that those costs are coming through. We will of course continue to push for that as well.
On your question around, you know, FTE, look, overall, we're not setting any FTE targets, but as I've said before, we do expect gradually over time will be less people in the bank. You also see that year-over-year in our own numbers that despite quite solid growth and again, faster growth than market, we've been able to absorb that growth while still reducing headcount. We are becoming more productive. We are able to do more customer meetings and so on and so forth with less people.
On the capital side and the circa 16% target at the end of 2028. The obviously CET1 ratio at 17.7% at the end of Q1 2026. If you take into account, you know, the pro forma of DKK 5 billion dividend that takes it to 17.1%, then obviously you will have, you know, capital generation this year. We're expecting to be at circa 17% CET1 at the end of this year.
17%, 16% at the end of 2028. As you point out, it will be exactly linear, roughly, right? That's indeed the glide path. I mean, of course, if we see a bit more growth or a bit less growth, etc , I mean, things might normalize, you know, just a little bit differently. I mean, assume a linear glide path and at this stage, this is also what we're looking at.
Very good.
Okay. Thank you.
Thanks, everybody. Really appreciate your questions and interest in Danske Bank as always. As always, you also know that you're welcome to contact our IR department if you have any questions, and look forward to see many of you over the coming week. Thanks very much.