Hi, everyone. I hope you're well, and thank you for joining us on Jyske Bank's Q2 2023 post-results conference call. This is Simon Hagbart from IR speaking. With me, I have our CFO, Birger Nielsen, and our Director of IR and Sustainability, Trine Nørgaard. If you have trouble hearing us during this call, please feel free to reach out to us, and we will get back to you after the call. Please make sure that your devices are muted, as Birger will walk you through our prepared remarks. Afterwards, we will open up the Q&A.
Yes, thank you, Simon. Everybody, welcome to everybody. Thank you very much for joining us on this call. I will, as Simon says, go through some of the remarks as an introduction, and please feel free to ask any questions afterwards. Looking at the big picture, we still expect to see growth in the Danish economy during the course of 2023. Exports and public spending are on the rise, whereas if we look at investments, private spending are trending downwards. The economic sentiment has improved to a more or less long-term average level. Despite all these elements, we still expect to see some dampening effects in the private sector from the gradual impact from high interest rates hitting both corporates and individuals during the course of 2023 and 2024.
That being said, if I look at, as you can see on the slide here, the third upgrade for 2023 hit the market recently from Jyske Bank. We have now been able to deliver DKK 37 for the first half of this year, compared to DKK 24 last year. A very solid and very stable development during the last quarters in Jyske Bank. Back in 2022, we delivered DKK 55. If you go back from average 2013 to 2020, you saw DKK 29 as an average EPS return annually. Secondly, very importantly also, we have made a small acquisition during the course of the second quarter.
On the thirteenth of June, we announced an acquisition of PFA Bank, which of course supports our wealth management business and strategy. I'll come back to that just in a second. Thirdly, net interest income is still very strong, and the momentum is still very strong. 78% growth year-over-year, of course, due to high interest rates, but also to the inclusion and acquisition of Handelsbanken in Denmark. That being said, despite the fact that we have seen savings accounts and time deposits growing with lower margin than transaction accounts. Fourthly, if you look at the cost-to-income ratio in the group, we are trending steadily downwards due to, especially due to, high earnings, retained earnings in the last couple of quarters, but also cost management.
Still, still, tough and consistent cost management in the group, down 12 percentage points over the year, now in sub 50% territory. I will come back to that just in a second as well. On the credit quality side, very stable quarter with no big swings in the sub-portfolios whatsoever. 0 basis points in actual write-offs and 0 basis points in cost of risk. Capital, the capital position has been rebuilt even further here in the second quarter. We are now at 16.1%, in the middle of the announced interval between 15% and 17%. On top of that, we also just recently received an upgrade from S&P. Now our issuer rating is single A plus, as opposed to single A flat, and the outlook is stable.
That, of course, further improves the stability of the group. Looking at the other acquisition we made a year ago... Can you change the-- Yeah. Sorry, looking at the acquisition we made just recently, sorry, I have to start there, with the PFA Bank acquisition announced on the 13th of June. It's a small bank. It's a no-lending bank. There is no credit risk involved, and it's a bank- banking arm of PFA Pension of PFA, PFA Pension, established in 2014, 9 years old. We have taken over around 10,000 personal and private banking customers, around 43 full-time employees. The assets are DKK 15.5 billion under management, invested in PFA Invest, their mutual funds, and it stems from three sources.
One is, investment through the investment platform in PFA Pension. Secondly, third-party assets. Those two are small numbers, the big chunk stems from PFA Bank, which we acquire here, we acquire here in June, announced the acquisition of in June. On top of that, we have DKK 1 billion in deposits. If I look at it from a strategic perspective, yes, it's a very attractive customer base. We have cross-selling potential. Some of these customers are single-product customers, we have a possibility to approach them, to make them, full-line customers with Jyske Bank. Finally, as we state here in the bottom, it supports our wealth management business and strategy.
consecutive years been, been, claimed them, having the most satisfied private banking clients by Voxmeter. On the financial side, of course, it's a small business. It's a very small capital consumption which relates to no loans, but primarily asset management. We paid a total consideration of DKK 245 million, DKK 120 million is equity, and DKK 125 million is goodwill or customer relations on top of that. So the, the total impact on the CET1 ratio is less than 0.1 percentage point. We expect to close in Q3, and everything is running according to plan as of now, and we expect also the, the approvals by the authorities to be delivered on time.
We, as I said, the, the allocated capital is very low, and since it's, it's decent returns on these products and businesses, of course, we expect to deliver a high return on the allocated capital. We'll see the full effect of that in, from 2025 onwards, and we have to book around DKK 50 million in integration costs in 2024. Going to the other integration we announced a year ago with Handelsbanken. We are now in the process of closing, reaching the, the milestone in October of 2023, where we should have merged and closed the, the branches that overlapped. 22 of the 30 branches mergers we want to make has been finalized here by July of this year.
Then in November, we expect to complete the full migration with the IT integration of Handelsbanken and Jyske Bank on the same IT platform. Looking at the allocations, as you can see, we are now down to 97 locations nationwide, and it's 20% down from Q4 last year. Integration costs, expectedly, expected DKK 0.3 billion this year. We are around DKK 100 million here by the end of the first half, and we expect still the integration cost to be back end loaded in over the year due to further IT costs and branch mergers. The main driver behind the DKK 97 million in the first half was cost to BEC, the IT platform, employee costs, branch mergers, and transitional service agreements, which we made with Handelsbanken.
The other-- the flip side of the coin, the cost synergy is around DKK 84 million in the first half. It is primarily related to employees, lower costs to external systems and rental costs, which have driven the improvement of DKK 84 million in total cost synergies, and we are still facing and expecting to deliver DKK 0.2 billion this year and DKK 0.4 billion by the end of next year. Going into the financial result of the second quarter. Overall, as you can see, DKK 18 in earnings per share, a bit down from the very strong Q1 and also a bit down from the exceptional strong Q4 of last year, but still fully on track within the interval DKK 70-DKK 80 per year in 2023.
Business volumes on the right-hand side, as you can see, deposits, has shifted a bit down in Q2, primarily due to corporates coming from an extremely high level in Q1 of this year, a rather volatile elements, of course. Secondly, if you look at the loans, the green line, small increases on total loans. If you look at the yellow one, AUM on the rise, but primarily driven by market conditions, leasing and mortgage, the two latter ones, also small increases in the quarter, demonstrating that activity has not been particularly high in Q2. If you do look at the left-hand side, at the bottom, you can see the swing from 9.2% ROE in Q2 of last year to 11.8 this quarter in 2023.
The main drivers, of course, are net interest income, the inclusion of Handelsbanken and interest rates, also a more positive financial market development. The flip side, naturally, higher cost expenses due to Handelsbanken. When it comes to loan losses, we have shifted from reversals last year to a small expense this year. Then, also a negative delta on the investment portfolio relating to the extra funding that they have to pay, and only gradually can reinvest their portfolio at high interest rates. Then, looking at the NII line, just focusing a bit on that, which is, of course, the main driver to the, the growth in earnings. You can see that on the chart, that from Q2 2021 to Q2 2022, the quarter, the quarterly returns or NII line was relatively steady.
In Q3 to 2022, we started changing pricing on corporates, deposits, and private individuals deposits. Also we saw a change in the interest rate level that led to a higher return on the bond portfolio. From Q4 onwards, you've seen this massive shift-... where the yellow box illustrates the return on the bond portfolio trending significantly upwards, and the red one at the bottom shows that we are now paying, of course, positive interest rates on deposits in total. In the dark green box demonstrates the effect on the customer rates on loans, which has also been lifted significantly.
If you do a comparison Q3 2022 versus Q2 this year, you see a lift of around DKK 1 billion, and that, of course, all includes Handelsbanken as a significant part of the equation and explanation. Looking at the cost-income ratio now below 50%. The last four quarters, 48%, and Q2 2023, in isolation, actually is 46%. From 2017 to 2020, we had a long period with tough cost management and very low growth in, on the income lines. From 2021, 2022 onwards, we have continued focusing on cost management, but now the income line has topped up the development in the cost-income line, or ratio, delivering the sub 50% return here in Q2.
If, if we look at the cost line in isolation, it is clear that the online cost, as they've been in Q2 and in Q1, was 3% underlying growth. We have taken on board number of fees, especially in the field of AML. Employee costs have grown, higher IT costs on Bankdata, and then, of course, we write off cost relations in relationship to the acquisition of Handelsbanken. That being said, of course, our main focus is, of course, to keep costs as slim as possible. But the environment, as we've talked about in several quarters, of course, leads us to underlying cost growth. But still, looking at this picture, we are very fond of the situation where we have brought down the cost-to-income ratio well below 50%.
Credit quality, is a special story. If you go back and, and do a write-off, illustration, as we've done here, trailing 4 quarters, from 13-18, around 18, we had around DKK 1 billion-1.2 billion, average-wise, in write-offs, and then you saw a massive drop, which where we now are, are down to DKK 200 on a trailing 4 quarters, calculation. Actually, the Q2 number is, is around 0. It demonstrates, first and foremost, that we have nothing left over, from the financial crisis. It also demonstrates the quality of the book, where both, banking business and mortgage business has improved. It, it, demonstrates, the de-risking of the portfolio, which has been ongoing for now, many years since we merged with BRFkredit.
Near-term risk, if I have to focus on that, and want, and I want to do that just to demonstrate that it's not a one-way, one-way, delivery, we can see some swings in the, in the numbers here, both in, in the, in the write-offs, but also impairments. We've said that impairment is a, is an expense this year, and you've seen small numbers being booked. We can't, of course, rule out that there will be some, some impairments also in the second half or into 2024. The reason being, expected lower disposable income due to high interest rates, which will gradually hit both private individuals and corporates.
Of course, the overall risk of lower employment, which I see as the most prominent element that could trigger a slight reversal of this very, very strong development. Still, we are talking about extremely low levels of write-off, and we are talking of extremely low levels of impairments, well below an average year, which in our book is 12-13 basis points. Capital. When we entered and merged with Handelsbanken in Q4, we dropped from 18.6 to 15.2% on the CET1 ratio, still within the interval of 15%-17%, but at the low end. We have rebuilt the capital levels over two quarters, and now we are running steady in the middle of the interval 15%-17%.
The reason for the strong de-development from Q1 to Q2 this year is primarily high retained earnings and a drop in REA, where market risk actually drops, whereas credit risk is relatively steady from Q1 to Q2. We are also favored by an upgrade from S&P, which they announced here in July, where they have listed our issue rating from single A flat to single A plus. The reasons being that our MREL funding is strong and solid, and our funding plan is also strong and solid, improved earnings in the group, and a solid capital position. Those are the three main elements behind the high issue rating, which also still is with a stable outlook, as it was formerly with a single A flat rating.
Regarding capital, the board endeavors to still, to distribute capital in, in the second half of this year. That is, of course, what we are focusing on in the coming months and quarters. It's up for the board to decide. Then naturally, there will be a process with the FSA, for them to finalize such an approval. Yes. Looking at the outlook, well, core income expenses will grow, both of them due to Handelsbanken. Loan impairment charges, as I said, still very modest. We still have a post-model adjustment buffer of unchanged DKK 1.4 billion.
Net profit is lifted according to DKK 70-80 per per earnings per share, DKK 4.7 billion-DKK 5.3 billion, as I announced three times, we have lifted this level for the year 2023. The CET1 ratio, 15%-17%, is still what we are looking into, and as of now, we stand very solidly in the middle of that range. I think that covers my first remarks. Please, any questions will be very welcome.
Yeah. Thank you, Birger. If you would like to ask a question, please raise your hand or unmute your device. I believe the first question in line is from Asbjørn Mørk from Danske Bank. Please go ahead.
Yes, hi. Good afternoon. Thanks for taking my questions. A couple of questions from my side. First, Birger, on capital. You mentioned it yourself, the intention still to do buybacks in the second half of this year, but just maybe a little bit of flavor on the actual process here. I obviously understand you've been busy with the PFA Bank transaction, and obviously integrating Handelsbanken, and then the July upgrade on your profit. Is it so that... Should we interpret your communication such as now you will approach the FSA, or have you already done so? Hence, we should expect some buyback communication rather soon. Haven't we seen the buyback because you don't want to print a CET1 below 16%?
Is there anything like, like that we should have in mind? Also maybe a little bit longer term, your view on, on, on capital distribution now, obviously, being a much more profitable bank than, than you were a couple of years back, with limited REA growth, your free cash flow is, is, is improving quite significantly. What kind of payout ratio do you expect? Is that 100% from here, more or less, considering that you are where you want to be? Just, that was my first question, please.
Yes. Thank you very much, Asbjørn. The process, when it comes to buybacks, is rather straightforward. The FSA has to approve it, as opposed to dividends, which is, which is the matter with the, at the annual, general meeting. The process here with a buyback is that if we- if the board decides, we can apply, and then the FSA has a certain time period in order to look into that application, and they can ask questions during that, that period of time, and then they will come with a verdict, and relatively soon afterwards, we need to announce that to the market, when- whenever that is, closed and, and finalized.
Looking at this situation, I said that we are in a solid, lev- with a solid level of 16.1 in the middle of the range. Yes, we are well off now. We have rebuilt our capital base relatively quickly, over only two to three quarters. We find ourselves in a strong position, especially also when we look at the retained earnings and expectations for the year, DKK 4.7 billion-DKK 5.3 billion, post-tax, net profit. I- we believe we are, we are building up strong capital position relatively quick, and of course, that gives us, the board, a great flexibility in order to decide.
I can't be more precise on timing and anything else, because it's up to the board to decide, and we can't reveal any information before it's settled with the FSA. Please also be aware that the FSA has recently, over the last half year, been more harsh in their views on the banks and the uncertainty in the market, especially relating to housing, house prices, IRB models being able to capture the possible swings in the market, et cetera, et cetera. Of course, there are elements involved in such a process that is not known in the market.
Secondly, if you ask about long term, if I go back in history, and please correct me, Simon, if I'm wrong, but I think we can demonstrate around 70% payout ratio, average-wise, in over the last few years. We have to take in consideration the expected growth, growth in the REA, of course. Whenever things are more smooth and things are up and running, and we, we'll, we can get approval from the FSA, of course, we want to bring back our payout ratios to a decent, and decent high level, due to the very strong earnings capacity in the group.
Maybe just a follow-up on that one, Birger. I guess with the EBA stress test, and I admit there's a lot of limitations to that test, especially on your side with the acquisitions. Given that and the comments you made on the FSA, is it then really 16% we should be looking for? Is it more the upper end of the 15%-17%, that is the sort of realistic go-to target?
Well, we can't, we can't announce any specific numbers to look at, but as I said, we are we find ourselves in a very solid position in the middle of the, of the range, and can fully comply with Basel IV requirements first quarter 2025. I also believe that when we when we sent out the press release here in July, when after the EBA stress test, we, we underlined that there were some limitations to the, the quality of that stress. I also believe that if you read the FSA comments afterwards, that they seem rather reassured of the quality of the Danish banks and the capital positions.
It's more stress test related or normal stress test related issues that needs to be managed in the relationship with, with the bank and, and the FSA when applying for an, for a buyback.
Okay, fair enough. On, on your NII, I see your cost of deposits come up from, on my numbers, 26 basis points, QOQ 2 to 116. Could you give a little bit more flavor, what you see on the deposit side in terms of flow into savings products? How much of your deposits are yielding a positive rate? Maybe also a bit on your, on the running yield on your portfolio of bonds, which seem to be 2.3% or something. There seems to be some upside here. Maybe a little bit of what you see as, as a tailwind and as a headwind going forward on your NII.
Yeah. We continue to see a moderate pace of private clients migrating to savings, savings accounts. That has not accelerated. At the end of Q2, more than one-third of private client deposits were placed in savings accounts, with the majority in easily accessible demand deposits yielding between 1.05% and 1.65% per annum. Additionally, in the recent years, as you have noted also from sector statistics, corporate clients have been migrating to time deposits, which of course lowers our margin. Those migrating are likely to be more price-sensitive clients that we did not expect to fully maintain a margin of several percentage points on. So that's sort of what we're seeing in terms of the deposit migration.
Overall, you're, you're, you're right that we have a significant bond portfolio of more than DKK 90 billion at the end of Q2, which will very gradually be repriced, repriced to the higher level of interest rates. At the moment, you're right that the, the yield or the, or the coupon rate on that bond portfolio, which impacts our net interest income, is quite low compared to the current level of interest rates. That is also the effect that you can see under the investment portfolio earnings, where we have a short-term funding cost impacting immediately and then a more gradual repricing of the investment portfolio, which results in a negative net interest income on that line. You, you're right.
Hopefully, or eventually, we'll, we'll be yielding, a higher level of, of interest rates, on, on our bond portfolio, but, we still have some ground to make up there.
All right. Fair enough. The final question from my side, on credit quality, you're still guiding for an expense for 2023. Obviously, that is a wide range. If I look at your actual exposures, your Stage Three exposures year to date, down DKK 0.3 billion, your provisions against Stage Three, up DKK 0.1 billion. There seems to be some quite interesting changes there. I, I acknowledge you made some model changes in Q1, but just basically looking at from here going forward, if you don't make any incremental changes to your credit model, what kind of provisioning level are you seeing for the next couple of quarters?
If you look at the, you're quite right, there have been some model changes due to the uncertainty in the market. Of course, inclusion of Handelsbanken also makes some swings between, between the, the discount, the discount, a one-day discount and then the actual impairments. The overall impression when we look at the book as of now, is it's a very steady one. We see no, as I said, formally, we see no big swings in the sub-portfolios. The write-offs is more or less a done deal, so it's only a matter of looking into the future.
There we have DKK 1.4 billion in management estimates, which is unchanged from Q1 and making sure that we are well, we are well positioned to manage uncertainty that may occur in the second half of this year. There are no segments or sectors, industries that are of special difficulties. So we believe we have done what is necessary in through all sectors to manage this uncertainty that we are facing.
To what extent?
To maybe answer your question, I can't do it correctly because I don't know exactly where we are heading. We have stated that we see an expense because there's been a shift in the sentiment from gradually improving corporates and individuals to a more stable development. Now, we are looking into an interest rate scenario where things gradually will lead to lower disposable incomes, especially for private individuals. That could trigger a few impairments, and that's the reason why we use the word expense for the year.
but just to get that straight, Birger, the post-model adjustments of DKK 1.4 billion, to what extent will you use those for, for credit duration? To what extent do you see that as a, as a buffer on the buffer?
Well, we came from DKK 0.6 billion three years ago, and now we're at DKK 1.4 billion. We believe there is certainly room to manage uncertainty, to bring down the buffer, but not to the level of DKK 0.6 billion. If things turn for the worse, which we don't expect now, of course, we need to rebuild that buffer a bit. Otherwise, we have a strong cushion of DKK several hundred million to be used before we, we even book DKK 1 in the P&L.
It doesn't sound like we should expect a major change versus Q2 on provisions?
You're quite right. That's what we expect as of now. The word expense, we need to book here and talk about here, because we don't see reversals going forward, given the macro environment and given the interest rate levels.
All right. Thanks a lot. I'll let go, move back in the queue. Thank you, Asbjørn. Next question in line comes from Jakob Brink from Nordea. Please go ahead.
Thank you. Sorry for coming back to, to Asbjørn's initial question on, on buybacks. Just, just I, I appreciate you can't say if, if you did approve it or, or apply already or not. Just, just to understand, let's, let's say you had a board meeting in June, which I believe you typically do have. Would, would, would, would that be the time where you would discuss this, or would it be fair to assume that a board would want to see the actual CET1 ratio for the quarter before applying?
Well, if we take the situation, and it's, it's just for illustration purposes, there is a board meeting in June, as you say. Yes, there is a board meeting in June. They look at the stress test, as they do every quarter, and the stress test demonstrate that we are well off capital-wise, in 3-4 years' time on the CT1 level and the, and the overall capital level. They decide we want to dis- to return some of the capital to shareholders. Then they can ask the organization, Jyske Bank, to, to make an application to the FSA. Then, that will be managed, we will, we will send it to the FSA, then they have a certain time period to look into the matter, they can come back with questions.
In due time, they deliver a verdict, and we have to announce it to the market. I think it's a relatively straightforward process, and that it, it's actually an ongoing monitoring and supervision of the quality of the stress test and the quality of the capital levels that the board is looking into. Yeah, that could be an outcome which is... could be a possible outcome, yeah.
Mm. The fact that by June, you didn't, of course, know the end June CT1 ratio, I guess you didn't know it early July either, since it wasn't included in the upgrade, but came in, in connection with the S&P announcement. Is that then something you feed back to the FSA whenever the number is ready, or can you kind of apply on the back of rough numbers or just-
We can actually do several things, and we have several options. When we apply, and I, I go back in history, when we applied to the FSA for an, for a buyback program, we sent them the information we have at hand at that point in time, say, say a, a Q1 result with the stress tests. Then we can, we can tell them if their process period overlaps Q2, then of course, we can update their the information with Q2 numbers or Q3 numbers, or where, where we are in, in, in the calendar year. So that is an option we always have, and we can also have a dialogue, of course, with the FSA regarding their views on our quality of the capital.
It's an open process, where we can deliver new material, and they can ask questions.
Okay, that's clear. Thanks a lot. Then on actually also the deposit cost that we already discussed a bit, but looking in your fact book and the increase on, on the deposit costs, quarter on quarter, taking that in relation to total deposits, it's like a 30 basis points annualized increase. I was just wondering, I mean, that, that increase you have quarter on quarter seems relatively big when looking at the movement in deposits. Your time deposits moved from 40 to 60, and then I think 50 now in Q2. Let's say a DKK 10 billion-DKK 15 billion average increase in deposits on time deposits during the quarter or during the half year, and now you get such a big increase in the deposit cost.
I was, I was just wondering if, if there is anything else than just people moving to time deposits, impacting the deposit costs?
Yeah, there are several factors, though, starting on corporates. Of course, some corporate deposits are money market-based, and as the money market rates, we have increased expenses for those types of deposits. On the better primary factor on corporate deposits. You're right in terms of the mix, we see a smaller share of the time deposits, but that was mainly some short-term time deposits we obtained during Q1. That's very little impact on the NII lines on those. Moving on to products, we made some quite significant changes to our savings deposits products in April.
We raised the deposit rates on the 17th of April by up to 75 basis points on some savings products, and we also introduced more attractive terms on time deposits for private clients, upping those by 50 basis points for six months, times deposits. Those factors combined resulted in an increased expense for, even though the volumes didn't have much of an impact.
The 75 basis points, was that on sort of real savings account, where you lock them in for a year or longer, or what did you say?
... That was the demand part of,
Okay.
Yeah, maybe just a quick clarification. We have demand deposits that are regular transactional demand deposits, and then we have a special product in many Danish banks, where we have a demand deposit that's for savings purposes, not related to a transactional account, so they are readily, easily accessible. You obtain, instead of 0% interest rate, you obtain the 1.1%-1.6% platinum at the moment.
Okay. You said you increased that 75 when?
That was on the 17th of April, and the 75 basis points was on deposits between 100,000 DKK, 500,000 DKK.
Mm. Okay. On the on the cost line, if I look at the cost details, which includes the from the fact book, which includes the integration cost on on Handelsbanken. I guess that's part of the explanation, but IT costs are are quite high, both in Q1 and Q2. Should we... what, what level should we expect those to drop back to when, when you're done with the integration here in H2?
Yeah, that's I, I, I can't answer that specifically, but we can say that many of the IT costs from Handelsbanken is all of them is, of course, booked on, on the IT costs, and many of them relate to BEC, the data vendor, where we have some increased costs in the short term, and towards the end of the year, we expect to be able to migrate from BEC to our data vendor, in the form of Bankdata. That should help significantly, and I would still but I would still expect a higher level than what was before we purchased Handelsbanken Denmark. Given the current inflation on IT contracts.
Okay, last question from my side. On the on the liquidity portfolio, we talked about earlier as well, the interest rates on on your fixed income books are are not rolling every quarter, but, but, I think I understood something about a semi-annual rate setting or repricing. Is it possible to give any more details so we know kind of how much we should expect of a delta in in Q3 versus Q2 from this book, on rates that have already gone up, but you haven't earned yet?
Yeah. Again, I, I can't be too specific, but I can say that it's a small portion of the... I mean, we have DKK 91 billion of bonds, and it's a small portion of that, so vastly below half and also below a quarter of that, significantly below a quarter of that. I wouldn't expect any sort of major change in terms of what we obtain from bonds, but we should see a larger increase in income from bonds in Q3 versus Q2 than we saw from, I mean, from Q1 to Q2.
Okay. Fair enough. Thanks a lot. All from my side.
Thank you, Jacob. Next question in line comes from Martin Birk from SEB.
Yeah.
Go ahead.
Thank you. Just a couple of follow-ups. If we start on NII, what kind of assumptions do you guys make on volume growth for the remainder of the year?
If you look at the development in the last couple of quarters, you've seen very flattish developments on bank loans, leasing, mortgage, nominal mortgage loans trending slightly upwards. For the second half of this year, as I said, there is some uncertainty as to the risk appetite and also the consequences from high interest rates that could dampen the development. A good view here from our side is more or less flattish to slightly up, but a very stable development in the second half of this year.
You would expect the same to occur on deposits?
Well, deposit is a slightly different story because it's more volatile, and you can see the swings we saw from Q1 to Q2, which is related to corporates, dealing with deposits in a more volatile manner than private individuals and SMEs. That could, of course, trigger some swings in that line going forward. When you talk about the SMEs and private individuals, you see, we are more focused on seeing the, the shift from transaction accounts into savings accounts or time deposits, which is the main trigger behind what, what impact will the, will the, the deposit line have on, on the P&L.
Okay. when you look at your, your, QOQ, decline in your deposit base of around, I think it's 4%, does, does that, does that tempt you to, to bid up for deposits, or are you okay with seeing that?
Well, it's, we are okay with that because we saw a significant growth from corporate deposits in the former quarter. I think we are well, well off looking into that, and still our metrics, liquidity metrics, short, long term, are very strong by end Q2.
Okay. Perhaps jumping on to on on on to fees. I guess this has been, well, sort of the negative surprise in terms of the P&L for, for you and also for, for many of your peers. When do you see this, this, this bottoming off out? What other elements do you have on your, your fee line in order to sort of recover, recover some of the-
... the lost fees from lower lending activity?
Hmm. They're very good questions. We, we made a change in the fee structure for private investors in 1st of April, which is now fully implemented, of course. The lower levels relates, of course, primarily to mortgage business, loan application fees as well. There is a specific one-off this quarter, which also hits our books. Overall, I think it's, it's a direct mirror to the low activity we saw in Q2. If we are right in our assumption that there will be some, well, stable development in the second half, we don't expect to see significant growth in the fee line over the coming quarters. Please, please add, Simon, if you have further questions, comments.
Yeah, I fully agree. Of course, on a quarterly basis, we will see some the usual seasonality. Q2 being the weakest quarter of the year, we will, we will of course see higher net fee and commission income in Q3 and Q4, but activity levels are likely to remain sluggish.
Okay. If I just may come back to a follow-up question on both Asbjørn and Jacob, and then just turn it around and say, well, now you have sort of reclaimed or regained your Basel III savings, which you spent on Handelsbanken. When you look forward, we're looking into a scenario with very little growth. Basically, my question is: What is holding you back from having a payout ratio over the coming 2-3 years of 100%, or at least very close to 100%?
Well, that's a very good question. It as, as you said, it depends very much upon the growth prospects. Short term, we are quite I believe we quite agree that the growth is not significant going forward. Of course, it's to be seen. Our payout ratio historically has been around 70%, and hopefully we can go higher than 70% in the coming year, 1, 2, 3 years. With this earnings capacity in the group, that has improved significantly. Fully managed risk development, we find ourselves in a fortunate position. So we'll see when these elements can be realized in the market.
Okay. Then maybe just perhaps a, a, a final question, also back on, back to, to questions on loan losses. Do you expect Q3, Q3 to be a repetition of, of Q2? It looks like you're gonna be squeezed quite a lot in your guidance on the upside, right?
Just to understand your question.
My question is why-
For loan losses in the second half.
Yeah. Yeah, my question is, why are you not upgrading today again?
Oh, upgrading? Okay, now I get your point. Well, I think we delivered 37 DKK in the first half. A replica of that would give us 74 in the middle of the range, 70-80. I think that's, that's the, the simple calculation, but, but the, the, the more nuanced view is that we have seen a couple of or three very strong quarters, actually, Q4 last year, Q1 and Q2 this year. Of course, there is uncertainty, but we still believe that we can deliver more or less what we've seen in, in, in the first and second quarter of this year, even in the second half. If that comes through, then we will end in the 70-80 area and territory.
Okay. Thank you.
Okay. Thanks, Martin. I think, I, I think we are running out of time, so, if there are...
There is another question.
other questions, please.
Simon.
Yeah. We have another question from Alan Chester. Please go ahead.
Yes. Hello. Hello, can you hear me? Can you hear me?
Yes.
Am I on? Okay. Let I go back to the share buyback, in the Jyske Bank's year report of the 28th of February, the board said that they, they, they would take, take, buy back up in the second half year of 2023. I should ask, well, I'm sorry, I'm Danish, so can I put it, put it in Danish? It's, it's easier. But, what has changed since you now not are going to buy back? Because the results are going from, from DKK 6-70 per share, to, to now DKK 7-80 per share. What has happened since you, not, not follow up on that?
Yeah, very good question. When we announced this in the full year report in February, we said that the board will endeavor to start distributing capital in the second half, there is no timing on the announcement being made. As I said, just recently to one of our analysts here, we are looking at this on a quarterly basis with the board, and they are very keen on actually distributing excess capital back to shareholders. It all is a matter of timing, of stress testing, quality of the capital, capital position, but also a dialogue with the FSA. I think we are still within the range of saying that we will, we will, we hope to start distributing in the second half of this year.
We can announce it at any point in time, whenever we get an approval from the FSA. It's not tied to the dates where we release the, the, the quarterly numbers.
You would have expected it at 28th of February, then you have expected that it was all right to start it up. Now you don't think it's all right to start it up, because we haven't seen the buyback, and the shareholders are very disappointed today.
When we announced this in February, we said that the board will endeavor to distribute capital. There was no guarantee, but it was our aim, because we had to rebuild capital after the acquisition of Handelsbanken in December of last year. I think we are still within that timeframe of delivering on that, on that note from February of this year.
Okay. We expect it soon. Thank you.
Thank you, Alan, and thank you all for participating in today's conference call. A recording of the call will be available on our IR website in the coming days. Please do not hesitate to contact us if you have further questions. We appreciate your interest in Jyske Bank and wish you a nice day. Thank you. You may now disconnect.