Good morning, everyone. Welcome to the conference call for Danske Bank's Financial Result for 2023. My name is Claus Ingar Jensen, and I'm Head of Danske Bank's Investor Relations. With me today, I have our CEO, Carsten Egeriis, and our CFO, Stephan Engels. We aim to keep this presentation to around 25 minutes, and after the presentation, we will open up for a Q&A session, as usual. Afterwards, feel free to contact the Investor Relations department if you have any more questions. I will now hand over to Carsten.
Thanks, Claus, and I would also like to welcome you to our conference call for the financial report for 2023. 2023 turned out to be an eventful year for Danske Bank. Firstly, our operating environment continued to be impacted by a high level of geopolitical risk and the associated effects for the economies and our customers. Secondly, we succeeded in making significant strategic progress. We have now completed our financial crime plan, and most of our legacy cases are therefore behind us, and this is an important achievement that allows us to put an even greater focus on driving the commercial performance in the years to come. This was very clearly expressed through our Forward '28 strategy, which my colleagues in the executive leadership team and I presented in June at our Capital Markets Day.
The strategy includes clear financial targets for 2026, where we aim to deliver a return on shareholders' equity of 13%. Financially, 2023 also turned out to be a year with a strong improvement in performance. Net profit came in at DKK 21.3 billion, equivalent to an ROE of 12.7%, significantly above our outlook from the beginning of the year and in line with our most recently revised outlook from December. The result is supported by a strong trend for NII that was underpinned by margin expansion, strong credit quality, and improved cost efficiency. The nominal cost level of DKK 25.4 billion is as expected and in line with our guidance from the beginning of 2023. We maintained a strong capital and liquidity position throughout the year.
Earnings in the second half of 2023 contributed to an increase in our core capital ratio that stood at 18.8% by the end of the year. Against this background, the board of directors is proposing a dividend payment of DKK 7.5 per share, based on earnings in the second half of the year. Added to the dividend of DKK 7 paid out for the first half of 2023, this is equivalent to a full-year dividend payout ratio of 59%. As announced in our company announcement yesterday, and based on our financial results for 2023, the Board of Directors has decided to initiate a share buyback program of DKK 5.5 billion.
The program, which has been approved by the Danish FSA, will start on the 5th of February and be completed no later than the 31st of January, 2025. The payout will reduce our CET1 capital ratio by around 66 basis points, all else equal. Together with the ordinary dividend, this will take our payout ratio to 85% of net profit for 2023. For 2024, which Stephan will comment on in more detail, we expect a net profit of between DKK 20 billion and DKK 22 billion, driven by an uplift in income, but also by loan impairment charges at more normalized levels and a slight increase in cost as a result of the investments we announced in our presentation of the Forward '28 strategy. Slide two, please. 2023 was the final year for our Better Bank plan that we launched in 2019.
The strategy was prepared in times of significant challenges for Danske Bank and had a bespoke focus on issues related to customer satisfaction, compliance, cost management, and sustainability, as well as employee engagement. An important part of the plan was the financial targets, where we aimed for a gradual improvement in profitability from a low level, and I'm proud to say that we have successfully delivered on our priorities. Time does not allow for me to elaborate on the many results today, so instead, I'll refer you to the details that we have in our annual report and, of course, to our Investor Relations team. However, it is important for me to emphasize that our achievements over the last four years provide a strong foundation for our ability to execute our new Forward '28 strategy.
We have now entered our new strategy period, and we've set targets for how we will measure progress. Our overall financial ambitions for 2026 are well known and were clearly communicated at our Capital Markets Day in June. We're targeting a return on shareholders' equity of 13%, with a core capital ratio of more than 16% and improved cost efficiency. We confirm our ambition for capital distribution and significantly higher investments as important elements of our strategy execution. Since June last year, our business units have put a lot of effort into defining how to measure progress on our new strategy. Needless to say, the focus areas differ between the BUs. However, the common goal is to drive growth and profitability across Danske Bank.
As our catalog of key performance indicators for internal steering is comprehensive and also detailed, we've made a selection of each business unit in order to provide updates to our investors on a regular basis in our external reporting. Slide three, please. Now let us turn to the progress that we've seen across our business units. Starting with Personal Customers, we had a year with a strong uplift in profitability as the return on allocated capital more than doubled to 28%. Our financial performance benefited from the interest rate environment and strong credit quality, and was supported by commercial momentum in Denmark. Our focused efforts to stay relevant and adjust our product offerings to customers' changing needs contributed further, and have also been recognized externally. Let me highlight just a few examples of the commercial momentum that we've seen.
Firstly, the healthy deposit flows, particularly in Denmark, where our tailored customer offerings, including the recent rate pass-through, led to further migration into our high-yield savings products. The trend re-accelerated in the fourth quarter after our rate pass-through, and another DKK 10 billion in inflows into Danske Toprente and Danske Indlån accounts took the total for the year to DKK 35 billion. Secondly, lending advisory services and offerings. While demand across the Nordic countries has been impacted by the slowdown in the economies, namely housing markets, and PC Norway is further impacted by the divestment, we continue to stay relevant for our customers with flexible home loan offerings. And I'm pleased to see the progress in PC Denmark, in particular, where the Danske Bolig Fri loans were up another 7.5% this quarter, supporting our improving bank lending market share, which is at the highest level in many years.
And thirdly, our momentum within Private Banking, where we saw solid improvement throughout the year, evidenced by an inflow of new customers, positive net sales for assets under management, and an improved market share for Danske Invest. At Business Customers, the strong financial performance continued throughout the year, with a return on allocated capital improving to 23%. Deposit levels were supported by a stable trend in Denmark, and in terms of lending volumes, we saw positive trends across the Nordic markets, both quarter-on-quarter and year-on-year, except in Sweden, where credit demand was impacted by a weaker operating environment. Our focused advisory capabilities have now led to 750 Business Customers' advisors having completed their ESG training in 2023, which clearly contributes to higher customer satisfaction scores across our markets.
In the fourth quarter, we also launched solutions to further enhance digitalization and security efforts. Increased access to self-service offerings remains a strategic lever, and District Marketplace is now available in all markets. The upskilling and the enhancements ultimately enable a deepening of wallet, and we've seen improved ancillary income through cash management, insurance and pensions, and within asset finance, and this is just to give a few examples. Finally, let's move to LC&I. 2023 was also a satisfactory year for LC&I, as we generated a markedly higher profit before tax. Profit was up 32% relative to 2022, and the ROIC increased to 22%. This was driven by NII and trading income, as well as continually strong credit quality.
Trading income recovered from the level in 2022, driven by the fixed income strategy implemented towards the end of 2022, and which has resulted in more stable income generated on the basis of solid customer activity. I'm pleased that we continue to execute our strategy and win new Corporate Customers in Sweden, and we also saw an increased market share in cash management as new house bank mandates were added in all Nordic countries. Moreover, the debt and equity capital markets started to see improved conditions, especially in the second half of the year, and we're pleased to have diversified franchise that is positioned to advise our customers and take advantage of the opportunities in the capital markets.
As activity started to recover during the year, we managed to strengthen our M&A position in Sweden and Finland, and we are the Nordic leader within M&A and in ECM advisory services in Denmark. Our Asset Management business saw an increase in assets under management during 2023 and in the fourth quarter, partly due to recovering financial markets, but also due to strong net sales in the Institutional segment. This trend was supported by most of our funds outperforming benchmarks and is expected to benefit further from the execution of our new Asset Management strategy. So to sum up, on all three main business units, we have made significant progress in 2023, and this leaves Danske Bank in a strong position to deliver on our Forward '28 strategic ambitions and our value proposition as a focused Nordic bank.
I'll now hand over to Stephan for a walkthrough of the financials. Slide four, and over to Stephan.
Thank you, Carsten, and good morning, everybody. Now, let us have a look at the most important trends in our income statement and reserve comments that are more detailed for the following slides. As Carsten just mentioned, we saw a strong improvement in our performance during 2023. Profit before tax almost doubled and came in at DKK 26.8 billion. Relative to 2022, we saw stronger income, lower costs, and significantly lower impairment charges based on continually strong credit quality. The improvement in total income was driven by stronger net interest income, good momentum, and better financial market conditions. Furthermore, total income was supported by a recovery in our insurance activities, which came back to a more normalized level.
Compared to last quarter, profit before tax amounted to DKK 7.3 billion, an increase of 12%, which clearly confirms the positive development we have seen throughout this year. Based on this positive development, net profit more than doubled when excluding the effect of the provision for the re-resolution of the Estonia matter and goodwill impairment charges in 2022. Compared to the initial net profit outlook for 2023 of DKK 15 billion-DKK 17 billion presented a year ago, the final result came in stronger and represents a good starting point for our new strategy period. Slide five, please. Let's take a closer look at the recent development in net interest income. NII has benefited significantly from the expansion of deposit margins during the year and continued its positive trajectory with another DKK 200 million uplift in the fourth quarter if you adjust for tax one-offs.
The uplift is testament to the continually positive trend, even in a quarter characterized by significant deposit repricing on the back of the September rate hikes by the ECB and the Danish Central Bank. Our total deposit volume remained elevated and well-diversified. Overall, the migration we have seen has been in line with our anticipated sensitivities. The composition of our deposit base and migration to higher-yielding saving products naturally tapered margins. The pass-through that took effect in the fourth quarter should be seen in light of the many previous rate hikes we have seen and is also outweighed by the positive contribution from our balance sheet effects that are gradually taking hold. As a reflection of the general slowdown in the economy's growth and lending volumes leveled off towards the end of the year.
In the fourth quarter, however, credit demand was supported by a positive development in retail Denmark, despite the housing market uncertainty caused by the rate volatility and the new property tax appraisals impacting sentiment. Corporate lending demand, demand held up well with encouraging signs in the SME segment in almost all countries and a normalization of balance sheet lending to LC&I clients. Finally, on our NII sensitivity, we have seen a natural moderation also in light of the recent pricing adjustments we have made. For the next 25 basis points move up or down, we expect around ± DKK 500 million.
However, as the balance sheet effects from our hold-to-maturity portfolio and unhedged fixed asset rate assets are gradually coming in, we still anticipate with the current forward rates and all else equal balance sheet, a year two and a year three effect of another DKK 300 million and DKK 200 million, respectively. Slide six, please. When looking at fees, the full year level has clearly been impacted by the subdued housing market activity and less remortgaging activity, as well as the financial markets' impact on asset prices we saw in the first half of the year. The recovery in fee income we saw mid-year has been sustained. In the fourth quarter, fee income increased sequentially again and was up 10%, driven by credit demand from both retail as well as Corporate Customers.
Investment fees also contributed positively, primarily due to a strong performance in asset management in the fourth quarter. As alluded to earlier, capital markets fees were supported by more constructive markets and gained momentum in the second half of the year. Our DCM franchise continued to accommodate customers' preferences between balance sheet and bond financing, and fee income benefited from a recovery in M&A activity in the fourth quarter. Slide seven, please. Now, let me briefly comment on the net trading income. Net trading income improved significantly in 2023 from the low level in 2022 and amounted to DKK 3.7 billion for the year. Factoring in the impact from one-off, one-offs during this year, this is in line with our expectation for a normalized trading result.
The improvement was driven by higher customer activity and the benefits of the implementation of our fixed income strategy at LC&I in 2022. In the fourth quarter, trading inc-income was impacted by seasonality and customer activity, but nevertheless increased compared to the preceding quarter. Q3 was impacted by a one-off of DKK 0.8 billion related to a CET1 FX hedge in group functions following the exit of the Personal Customers business in Norway. That concludes my comments on the income lines. Let's now move to expenses on slide eight, please. Reported expenses were 4% lower in 2023, and I'm pleased to see how we have managed to keep costs in line with our plans and have mitigated the inflationary pressure to the end, to end the year within our guided range.
The cost development in the fourth quarter reflected known seasonality for staff costs, including higher performance-based compensation. With our release today, we have also provided cost guidance for 2024. As highlighted here, we have made it a priority to reallocate resources and invest in future-proofing our business in cons with our Forward '28 strategy. We will continue with stringent cost measures, and efficiency gains will partly mitigate the impact of the expected inflation. In addition, in 2024, costs will be temporarily impacted by the relocation to our new domicile and by minor costs for divesting our Personal Customers business in Norway. Slide nine, please. Next, let us look at the development we have seen in 2023 in our credit portfolio. Macroeconomic conditions developed more favorably than initially expected at the start of the year. Moreover, the credit quality of our portfolio continued to be strong.
During an economic slowdown caused by higher rates, we would naturally expect a migration in the portfolio, but so far, the slight increase in stage three exposures have been related to very few single names and has been countered by reversals and positive migration in other parts of the portfolio. In sum, we had net reversals in the fourth quarter, and consequently, loan impairment charges for the year amounted to DKK 0.3 billion, equivalent to a loan loss ratio of just 1 basis point. This result is clearly below our normalized through-the-cycle expectations. We maintain our prudent approach in terms of management overlays, with PMAs equivalent to more than four years of normalized loan losses.
With respect to commercial real estate, our prudent underwriting approach and modest risk appetite over the past many years have formed the solid credit quality of our book, and actual credit deterioration in this part of our portfolio remained limited throughout 2023. Now let's turn the page and cover our capital position on slide ten, please. Our capital position remains strong, with a reported CET1 capital ratio standing at 18.8%. Retained earnings after deduction of the announced ordinary dividend largely mitigated the impact from higher RWA and an increase in the deduction from our insurance operations. The increase in risk exposure amount related primarily to the end-of-year calibration of operational risk RWA, which is scaled by the level of income. Our CET1 capital requirement stood at 14.2% and continues to include the Norwegian retail exposures. Slide 11, please.
Finally, some comments on our outlook for 2024. We expect total income to grow, driven by higher NII and fee income, based on our continued efforts to drive commercial momentum. For NII specifically, and based on the current forward rates, we expect NII to peak around mid-year. Income from trading and insurance activities will be subject to financial markets conditions. As mentioned earlier, we expect operating expenses to be in the range of DKK 26 billion-26.5 billion, reflecting the increased investments in line with our financial targets for 2026, which also entail a continuous focus on cost efficiency measures. The outlook includes non-recurring items of approximately DKK 0.6 billion, related to the relocation to our new domicile and minor costs for the divestment of our Personal Customers business in Norway.
Loan impairment charges are expected to reflect the assumptions in our financial targets for 2026 of approximately 8 basis points per annum. Net profit is expected to be in the range of DKK 20 billion-DKK 22 billion. Our outlook is, as always, subject to macroeconomic uncertainty and financial markets conditions. However, I would like to emphasize that we consider net interest income as well as loan impairment charges to be subject to an elevated level of uncertainty in 2024. Slide 12, please, and back to Claus.
Thank you, Stephan. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions, and 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 one again. We will now take the first question. Please stand by. The first question comes from the line of Sofie Peterzéns from JP Morgan. Please go ahead.
Yeah, morning. This is Sofie from JP Morgan. So, yes, the first question would be around the DKK 5.5 billion share buyback. How should we think about the potential further share buybacks in 2024? Is DKK 5.5 billion the kind of full amount that we should expect for 2024, or can we expect more share buybacks? And also, if you could kind of discuss if there are any limitations to pay more than 100% of your profits to shareholders. So that would be my first question. And then the second question would be on net interest income. There was quite a lot of deposit margin pressure this quarter.
Could you maybe just discuss the, kind of how much you're paying on the deposit side, what deposit because you're seeing and, and kind of, have the deposit increases been done, and we should expect a stable cost of deposits going forward or how should we think about this? Thank you.
Hey, morning, Sofie. Thanks for your question. Let me take the buyback and sort of capital distribution question. I mean, the way I think about it, first of all, we're of course pleased that we can start our share buyback program again. I think that reflects one, that we have a robust set of results and a very robust balance sheet. Clearly, these discussions are done with our regulators, and it also reflects that we have, you know, finalized our financial crime plan, and also, to some extent, reflects kind of a belief that the macro situation is somewhat more stable.
What I will say today is that, you know, we confirm our ambitions that we presented in June at our Capital Markets Day, which is that we would distribute over DKK 50 billion in dividend over four years. E.g., the higher end of our dividend distribution range, but also that we would distribute excess capital, and we mentioned in June, roughly 3% of RWA over the period. So the third thing probably to think about is that the buyback that we do today, that we announced today is really focused on 2023 earnings, and is a function of the earnings that we have done in 2023, and not a focus on existing excess capital.
We will update the market in summer, which I think is also what we have been regularly saying and updating on. So we will come with a more fuller update on capital targets, capital position, and sort of as much detail as we can give at that point on future thinking on capital distribution. So that's hopefully answering the capital and buyback question. Then on the deposit question, the fourth quarter was a quarter where one, in the Danish market, you saw a 25 basis points, so from 0- 25 basis points on the transactional accounts. And then we also passed through a significant amount of the Q4 rate cut to ensure that we maintain the most competitive savings accounts for our customers.
We believe that, that has shown to be a positive for our customers. We've seen overall inflows in deposits. Then your question around what do we expect as we go into 2024 and what deposit betas are? We expect deposit betas to continue to be within the expectations that we've given and within the sensitivities that we've given. I don't want to go much more into you know, pricing aspects because clearly we can't give forward-looking pricing pieces, but I can say that, you know, deposit migrations have been well within our assumptions and NII sensitivities.
Thank you. That's very clear.
Thank you. We will now take the next question. The next question comes on the line of Jakob Brink from Nordea. Please go ahead.
Thank you, and good morning. On the guidance for this year, I read obviously your details in the slides, and I heard what you said, Stephan, about NII this year. So would it be possible to give a little bit more detail on the revenue side of things? It seems like your loss guidance and cost guidance net-net is roughly in line with consensus. If we add the two together, the top end of your range is typically quite cautious this time of the year. Last year, I think you beat it 30%. So could you just give us some details on sort of your comfort on the revenue lines in 2024, please?
That would be my first question, and the second question is related to Danica and maybe also part of relating back to my first question. I see that you lost almost DKK 900 million on health and accident in 2023, and especially in the second half of the year in Danica. Is there any progress to close that hole, or should we expect a similar big loss in 2024? Thank you.
Thanks, Jacob. In terms of your questions on guidance, one, we do guide to increasing income, core income, NII, and fees. I would say as much as that we don't disagree with the current consensus on NII, and we expect that there would be a pickup in fees, driven by healthier activity, not least in capital markets. So hopefully that's helpful. Danica, correct that a big headwind for Danica has been the increase, general increase in society, in sickness, not least driven by stress leave and other things. And that has caused us to revisit the provision that we have in health and accident, and as you say, that's DKK 900 million for the year.
As we look forward, we did see a slight better trend towards the end of Q4, not least in terms of reactivations, and the provision that we've taken through the year is set to cover expectations that we've seen and the latest trends. The latest trends being a stabilization and slight improvement. So hopefully that answers your question.
And maybe.
So, just to understand it. Sorry.
Maybe a short addition, since you mentioned that we almost misguided you by 30% last year. I think we are also trying to improve ourselves, so I wouldn't expect that again.
No, I probably agree on that. But on the Danica, just so I understand 100%, so the DKK 900 million also includes some kind of strengthening of reserves?
No, I mean, how I would say it, Jacob, is that, you know, basically, we reserve based on some view on the latest trends. So basically, the reserve reflects a heightened level of provisions against a heightened level of sickness trends in society, and also a poor reactivation level. So what I'm saying is the provisions already reflect a heightened level, and we see the level slightly improving at the end of Q4, and therefore, we should feel comfortable at this stage that we are comfortably or correctly provisioned, is probably the right wording. And you know, we continue to be focused on reactivations and also on proactive helping our customers in the health and accident space. Does that answer your question?
Yeah, I think that's fine. Thanks a lot.
Thank you. We will now take the next question from the line of Johannes Thormann from HSBC. Please go ahead.
Good morning, everybody. Johannes Thormann. Also some questions from my side. First of all, follow up on the capital distribution. Your official dividend policy is 55%, now it is 59%. Should we model, and this is a future level, and then will the total payout in the future be rather closer to 100% or less than the current 85%? So probably, no, I guess you won't say any specific numbers, but just give me a relative feeling, please. Secondly, on a follow-up on insurance income, is the current level more something you would consider a normalized level in insurance income, or, were there also some effects you would describe as positives in it, or one-off positives?
Probably one question for me as well is, on the slide three, your PC satisfaction level, where you just top four, what are the countermeasures to get to a better level?
Thanks, Johannes. Three questions. Capital distribution policy. We've said that dividend policy is between 40%-60%, and we've said in our strategy that we would pay in the higher end of that over the next four years, including 2023, and the 59% reflects that. Total payout this year of 85%, really, that should reflect the fact that we decided to carve out the potential risk buffer for commercial real estate, which is likely to come in this summer, to show that we are prudent and taking that into consideration. Otherwise, there would not have been any particular reason not to have paid out more of this year's EG 2023 earnings. Insurance income normalized level, roughly DKK 1.6 billion is what we guided to in June capital markets day. We would continue to believe that.
Clearly, the income this year was heavily impacted by one-offs, both the health and accident that we just discussed, but also a very, very solid investment result, given the decreasing rates in Q4, particularly. And then on personal customer CSAT, customer satisfaction, that's something that we work on ongoing. It has, in fact, improved the last couple of years quite significantly, particularly when we look at the bilateral interactions with customers. So our own measures that customer tell us on bilateral interactions, but also when you look at things like Trustpilot.
And really, the strategy that we presented in June is all about how do we make customer experience better through better digital solutions, through better advisory, and that is part of the investments we're making, but also part of some of the things that we've just rolled out. For example, just this week, we rolled out a pure digital account opening for new customers in Denmark, which will take account opening from 10 days to roughly two hours, just to give one example.
Okay, thank you.
Thank you. We will now take the next question. One moment, please. The next question comes from Jan Erik Gjerland from ABG. Please go ahead.
Thank you for taking my questions as well. When it comes to the capital level, you talked about some updates after the second quarter results in July. How should we think about the RWA of 3% distribution versus how, when you are, and how you're selling Norway out of this? Will that sort of be a extra dividend or extra capital relief after that? Or how should we think about Norway in this context when it comes to the 3% of the RWA distribution for the next four year? And my second question goes to the NII. Have you added some hedges when interest rates was high, so you can keep the NII stronger for longer, so to speak?
Or how should we think about your sort of sensitivity into 2025 and 2026 when it comes to the 25 basis points changes, or is it just that the old hedges are gone again, so there are no new hedges at the top?
Yep. Thanks again, Erik. On capital levels, you should think about Norway as being separate. Clearly, we hadn't announced the sale at the time of the June announcement and the 3% of RWA. So you should think about Norway as being separate and again, you know, proceeds around Norway, we will clearly look at either investment or distribution when it comes to Norway, and we will update on that in due course. And then in terms of the hedge, we do have a hedge. We do have a deposit hedge, and that is a deposit hedge that we replenish ongoing. And you know, it has roughly a three-year average maturity.
So you should think about that as continuing to pick up some yield.
Okay. Thank you for that. Very clear.
Thank you. We will now take the next question. From the line of Johan Ekblom from UBS, please go ahead.
Thank you. Just two questions, if I may. One, just to continue on the net interest income and the hedge. I mean, given the number of rate hikes we've seen over the last two years, there should be quite a continuing tailwind in certainly all of 2024 and partly in 2025 as well. Can you quantify kind of what the yield differential is on your hedge versus spot rates, or something to help us gauge how much tailwind there is to still come through there? And then maybe secondly, just on the cost side, so, you know, you're flagging DKK 600 million or so of one-off items in this year.
Are these gonna be lumpy one-offs, or is it kind of a, an increased cost level relating to relocation, et cetera, that'll be, I guess, harder to disentangle from the headline numbers? And also on the cost side, you're using some of the benefits to boost investment levels. Should we view this as a permanent increase in investment levels, or is it a temporary effect from kind of taking advantage of some of the benefits you're seeing this year?
Just on cost, and then I'll hand the hedge yield question over to Stephan. On cost, the DKK 600 million are, t hat is a one-off. One-off, related to domicile and then the sale of Norway. Those are lumpy and will not be recurring again in 2025. And then on investment level, you know, we guided towards a incremental investment level of roughly DKK 1 billion a year, throughout the strategy period. I don't, I think you should see that as a reasonable ongoing level to continue to invest in the digitization and automation of our business, as well in the advisory and sustainability. So I think the guidance that we gave in June on sort of ongoing incremental investments is probably right.
You know, we'll obviously always want to invest in our business, and those levels could, of course, change over time.
So, on NII, my first simple answer would be all what you have been asking for, Johan, is properly reflected in the sensitivities that we have given you. And again, it's the hold-to-maturity book. It is the unhedged fixed-rate loans in Sweden, and we have also talked about the unhedged fixed-rate loans in Finland. Please keep in mind that the Finnish have been on six and 12-month reset models, which means most of that portfolio has been reset. And then it depends on rates move, how that will go. You find some more detailed information about our fair value portfolios in the Note G33 in the annual report, page 166, I think it is. I don't wanna discuss a detailed yield.
Again, think of the portfolio of a duration of, call it three point and a bit years. Twenty percent probably below one year, 60% in this three-year duration bucket, then another 20%, possibly above or above five years, which means we have been continually picking up yield. If you compare year-end 2022 with year-end 2023, you can also see that the position has grown a bit, but in general, it's a hedge. So this is more a consistent replenishment model, as Carsten has also said before, and again, it's reflected in the sensitivities, specifically year two and three.
Thank you.
Thank you. We will now take the next question. One moment, please. From the line of Geoff Dawes from SG, please go ahead.
Yeah. Hi, good morning, everyone. Thank you very much for the time this morning. Just one question from my side, and that's looking at volume growth. Obviously, as we go through the various operations and the various divisions, it's hard to find, as you've already guided. Can you just give us a couple of thoughts, first of all, on whether there are any areas within the business where volume growth is starting to emerge, when you're starting to see those famous green shoots? And then second of all, when you look at your guidance, is that pretty much predicated on volume growth remaining where it is now, so very, very stagnant? Or do you see some sort of uplift as we go through the year? So those would be the one stroke, two questions.
Thank you very much.
Yeah, thanks for that. There's no question that lending growth has been somewhat subdued. I mean, if you look at both Q4 and for the year, you know, we were flat in Personal Customers in Denmark. We saw, you know, if you look throughout the whole year, roughly 1% growth increase in Business Customers overall, and then lending growth down in LC&I, but clearly offset by pretty okay capital markets activity. If you look in 2024, our expectations is that lending will pick up somewhat, so we should expect housing activity to pick up. I'm talking over the whole year.
I think Q1 may still be somewhat subdued when it comes to housing, but if you look at across the whole year 2024, and with the assumptions that we have here around around interest rates coming down, then I would expect housing to pick up over the year. I would expect Business Customers to see slight growth, but again, relatively subdued, in line with the growth expectations that we see in the Nordics. And then I think on the LC&I space, I think there are arguments for seeing pickup in lending, not least when we look at activity, when we look at pipeline, and also when we look at, you know, the PE space is likely to pick up during 2024.
So all in all, yes, we do expect some pickup in lending, still relative, of course, to an economic environment where we're seeing, you know, 1%-2% growth across the various different Nordic markets. And all of that is what is also the basis for the 2024 outlook guidance that we're giving you.
Brilliant. That's really clear. Thank you for the run-through.
Thank you. We will now take the next question from the line of Riccardo Rovere from Mediobanca. Please go ahead.
Thanks. Thanks a lot for taking my question. Just a couple of clarifications here, if I may. First of all, I just wanted to be sure I understood it correctly. Is that you expect NII to kind of peak around mid-2024, and then you stated that overall, you kind of—you don't disagree, you don't disagree with NII consensus as it is visible on your website, and that NII in case is subject to elevated uncertainty. That's my first question. The second question I had is a general, a general one on impairment in your guidance. How do you, in the 8 basis points that, that you mentioned, is there any assumption about using the post-model adjustments or post-model adjustments are expected to remain where they are?
In general, does the guidance include Norway, including the conclusion of the transaction or not? Thanks.
Thanks, Riccardo. You're correct on NII, exactly as you said. Impairment assumptions, 8 basis points, is the normalized impairment that we're guiding towards. Your question around would that use post-model adjustments, you know, the answer is it depends, because some post-model adjustments are of course directly linked to certain sectors, and certain names. So in the cases where the PMAs are more specific and granular, in those cases, it would include them. But of course, we also have a significant amount of sort of more general post-model assumptions where it would be unlikely that those would be used as part of the guidance.
And then, the guidance that we're giving includes all of our assumptions around how Norway will run off and leave our books towards the end of the year as we migrate it to Nordea.
Thank you. Thank you very much. Thanks. That's very clear.
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. Two questions on my side. The first one being, if I look at your deposit margin and lending margin disclosure, it seems like the deposit margin is making a little bit of a pivot here in Q4, which is, of course, totally understandable. But it seems like your lending margins aren't really moving either. Isn't it time to start to push those lending margins now that deposit margins are seeing a little bit of pressure? That's going to be my first question. Then my second question, it comes back to trading. Five-year Danish swap rates are down roughly 100 basis points in Q4. And you're still making what you call the normalized trading results.
Actually, if I look at your LC&I results, it's actually looking worse compared to last time Danish five-year swap rates were up by 100 basis points. Is this a satisfactory level for you guys?
Hi, Martin. Thanks for that. If I take trading first, there's no question that Q4 and the end of Q4 was a bit slower on trading. I don't think you should make any correlations to the five-year swaps, because what we've done is significantly reduce kind of overnight risk, if you will. And really you should think about the trading income as being correlated to customer activity, much, much more so than in previous. In general, we believe that the result for 2023 is a solid trading result that shows really good customer activity and also strong market shares when it comes to our trading activity. But no question that, you know, December particularly was weak in terms of activity.
I can say that we, we've started the year with good activity on the trading side. Deposit margins. There's no question that lending margins are at the lower end, right, across the sector. And so if you're asking me, would you expect deposit margins to come somewhat down over time and lending margins to come somewhat up over time? Yes, I would expect there will be some sort of normalization, but I wouldn't expect any, you know, larger increases in lending margins, but more a gradual, let's say, normalization of both.
And maybe a more technical comment. If you look at the slide, you can obviously see in the deposit margin, as you mentioned, the repricing of our deposits, as we've discussed before. But keep in mind, we have technically the same effect on the lending margin to a certain extent because not all the loans reset within the quarter, and the latest rate hike was relatively late. So we have seen a technically somewhat lower pass-through rate. We expect that to pick up in Q1.
Okay. Just, just coming back to your trading line. I mean, I understand your communication around trading in a normal quarter, but when you see extreme effects like this, and I assume you still have a roughly 25% within Danish fixed income, and that also requires you to hold a sizable amount of inventory, and that inventory will see positive fair value adjustments. What should we expect as normalized trading from here on?
No, but I think we don't actually hold sizable inventory. We still maintain market shares and maybe have even improved market shares, but the inventory we hold is just at a much, much shorter period of time. So we don't hold the same amount of inventory overnight, not even close, versus what we did. But the market in general has also shifted towards, you know, trading on the basis that we and others won't hold as much inventory. The normalized trading should be. We still very much believe in the DKK 4 billion that we guided in June.
Okay. All right. Thanks.
Thank you. We will now take the next question. One moment, please. The next question comes from Shrey Srivastava from Citi. Please go ahead.
Hi, and thank you very much for taking my question. So my first is, based on your symmetric and sensitivity, is it correct to assume that you'd be able to reprice downwards at the same rate as you reprice upwards when rates are coming down? And additionally, on deposit mix shift, how do you see this progressing as rates come down? Is this sort of a multi-year headwind, or do you see this significantly slowing as we reach the end of the hiking cycle? And my second one is: Given the recent discussions you've had around the flex loans, has this affected your lending appetite? And do you intend to further alter the specific features of this product? Thanks.
If I got the first question, it's around symmetric NII sensitivities, e.g., it's ± DKK 500 million, DKK 300 million, and DKK 200 million in year one, two, three, both up and down. Those are clearly assumptions used for modeling purposes and to give their sensitivities. You know, we believe that it's fairly robust. Like I said, the deposit betas that we've seen on the way up have been well within our assumptions. So I think that's what we can say at this stage. We haven't changed our lending appetite on flex loans. Clearly, the discussions with the Danish FSA mean that we need to go back and look at certain loans in terms of the documentation that we do, but it's not a risk appetite question or issue for us whatsoever.
Process issue.
Thank you.
And then I think.
Thank you very much.
I think we are ready for the last question, please.
Thank you. One moment, please. We will now take the last question from the line of Jacob Kruse from Autonomous. Please go ahead.
Hi, thank you. Jacob from Autonomous. So two questions. First, just on your capital, could you say anything around what you see as day one Basel IV effect in January 2025? You can have an idea there. And then second, on the NII and the hedge shift. So could you just help us understand? We've had, I guess, 14 or 15 rate hikes, and you talk about the year two and three sensitivities or additional benefits coming through from the hedge for the replication portfolio and the loan repricing. How much of those benefits do you expect in 2024, just mechanically, given that period has already happened, when you think about the consensus level of NII being roughly correct? Just to understand your building blocks there. Thank you.
Thanks, yeah, I'll let Stephan answer the NII and hedge kind of dynamics. I didn't get your first question on capital. Can you repeat that?
Yeah, sorry. Just the Basel IV with the implementation in January 2025, do you have an estimate for how much that will impact your capital level?
I mean, that has largely already been incorporated in the risk-weighted assets that you see today. So there should be no Basel effect or a very minor Basel effect, if any, in January 2025. Stephan on NII.
Yeah. Then on the NII hedges. Again, if just trying to build a very simple model, the rate hikes started like, call it mid last year, no, yeah, mid last year. And what we are saying is every 25 basis points over three years is worth DKK 1 billion. So if we had 15 hikes up and have five hikes down, the DKK 15 billion total volume goes down to DKK 10 billion total volume, and then it spreads over time with this 50%, 30%, 20%. Which means that in simple terms, what you have been seeing so far is mostly short-term sensitivity. What you will see gradually moving in is more the long-term sensitivity.
As I've mentioned earlier, the benefits of the Finnish book are basically in already, so there is some and I think that is as close as we can get, because otherwise you get down to modeling each and every rate hikes separately, and I think this is gonna get us out of the time frame of this deal. But the simple version is DKK 1 billion for three years, and then you need to think a little bit in slices, which means the short-term stuff is early and the other one comes later.
All right.
Can I just ask them? Okay, thank you.
Thanks very much, and, yeah, please do reach out to us, or to Claus if any other questions. Thank you, everybody, for your interest, as always, in Danske Bank and for all, all your questions. Much appreciated, and, as always, you're welcome to contact Claus and the team in Investor Relations. Thanks a lot. Take care.