Good morning, and welcome to Nordea's 1st quarter 2023 result presentation. Here in Helsinki, we have our CEO, Frank Vang-Jensen; our CFO, Ian Smith; and my name is Matti Ahokas from Investor Relations. As usual, we'll start with a presentation by Frank, and after that, you will get a chance to ask questions. To ask a question, please remember to dial into the teleconference. With that, I'll leave the floor to our CEO, Frank Vang-Jensen.
Good morning. Today, we have published our first quarter results for 23. In the quarter, we witnessed turbulence in the financial markets and continued high macroeconomic uncertainty. Recent developments, including problems faced by a few specific banks in other countries, have reminded us all of the importance of a safe and trusted banking sector. Nordea is one of the most stable and profitable banks in Europe. Our resilient and diversified business model, sound financial risk position, strong balance sheet, and high profitability makes us a safe and trusted partner for customers, employees, shareholders, and broader society. Despite the weaker economic environment, we are pleased to report yet another strong set of results in the first quarter. We continued to drive a solid business performance underpinned by our financial strength. Our position of strength is evident in the trust and confidence our Nordic customers continue to show in us.
This trust and confidence has been reflected in improved external customer ratings, higher market shares in prioritized segments, and increased deposits in particular. Some of the highlights in Q1, operating profit was up 34% year-on-year despite negative exchange rate effects. Our return on equity improved to 17.1% from 12.6%. This was the highest return on equity since 2007. Due to the weaker economic environment, lending growth slowed but continued to develop positively. Corporate lending was up 5%, and mortgage volumes were up 1%. Deposits were up 5% year-on-year, and assets under management slightly improved, increasing by 1% quarter-on-quarter. Net interest income increased, supported by deposits in particular. NII was up 35% year-on-year.
Net commission income decreased by 8%, mainly due to lower lending activity, subdued capital markets activity, and lower savings income. Net fair value result and net insurance result were up 27% and 31% respectively. The cost-to-income ratio, excluding regulatory fees, improved to 40% from 45%. In all our businesses, income has grown faster than costs. Our aim is to continue to deliver these positive jaws. Let's now look at the first quarter results in more detail, starting with the income lines. Net interest income development reflects current trends when it comes to both customer behavior and the macroeconomic economy. Monetary policy rate hikes are resulting in improved deposit margins, creating a tailwind for NII growth. As I said previously, this is a healthy normalization after a highly unusual prolonged period of negative rates.
On the other hand, we are facing a headwind due to the uncertain environment. The higher interest rates and slowdown in economic activity have caused our lending growth to slow. This development is visible across the Nordic countries. We are naturally pleased to see that our Nordic customers continue to show trust and confidence at us at a time when some banks elsewhere were facing problems. This was visible in our deposit growth in particular. Deposits grew by 5% year-over-year, with strong growth in corporate deposits in particular. Lending growth has decreased following the slowdown in economic activity. Our proactivity towards our customers has helped to drive positive business volume growth. Corporate lending grew by 5% and mortgage lending by 1%. The depreciations of the Swedish and Norwegian krone had a clear negative impact on the figures during the quarter.
Deposit volumes and margins increased. This increase was partly offset by lower lending margins driven by higher funding costs. Overall, net interest income increased by 35%. The picture for net fee and commission income remained mixed in the first quarter, following weaker markets. Net fee and commission income was down 8% year-on-year. Payment and card income increased by 3% year-on-year due to higher transaction volumes. Brokerage and advisory fee income remained muted due to lower customer activity in a subdued market. We expect this area to recover when market confidence increases. Our savings fee income continued to decrease following a 7% decrease in assets under management. Net flows from internal challenges remained positive, demonstrating the strength of our franchise. We continue to support our Nordic customers in meeting their financing and risk management needs in turbulent markets.
This activity led to a strong net fair value result in the quarter. Growth in customer areas amounted to 21% year-on-year, a substantial contribution. FX and interest rate hedging products continued to be in high demand. Market making operations were also up, driven by FX and rates trading. Net fair value result increased by 27%. The higher inflation affecting our customers and society in general is leading to increased cost pressure in our business. We also continue to make substantial investments in strategically prioritized areas such as digital, technology, and risk management to strengthen our business and resilience even further. Costs excluding regulatory fees increased by 6% in the first quarter. This is in line with our plan. When it comes to cost, our approach is unchanged. We remain focused on maintaining strict cost control and growing revenues faster than costs.
We aim to continue to improve our profitability while investing to strengthen the bank even further in the long term. Our credit quality is strong and realized net loan losses remain low. We have a well-diversified loan portfolio across the countries and sectors. Net loan losses and similar net result for the first quarter was EUR 19 million or 2 basis points. Despite the continued economic uncertainty, we had relatively few new individual and collective provisions in the quarter. These amounted to EUR 21 million in total. The management judgement buffer was kept unchanged at EUR 585 million. In this way, we continue to ensure a strong reserve to cover potential loan losses. Looking ahead, macroeconomic uncertainty remains high. We expect the challenging environment with lower consumption and lower growth, tightened financial conditions, continued higher inflation, and higher interest rates to persist in the coming quarters.
However, our risk position is sound. The Nordic economies are strong and well-positioned to weather the challenging conditions, and our customers are in good shape overall with solid financial positions. Our capital position is among the best in Europe. The quarter CET1 ratio was 15.7%. This is at 4 percentage points above the current regulatory requirement. With our high profitability and strong capital generation, we have been able to deliver market-leading shareholder returns. It's a result of a successful implementation of our strategy. At the beginning of March, we received regulatory approval for our fourth share buyback program. Our board has decided to launch the EUR 1 billion program, which will commence tomorrow, April 28th, or as soon as possible thereafter. In addition, our annual general meeting in March approved a dividend of EUR 2.9 billion or EUR 0.80 per share for 2022.
This is up 16% compared with 2021. It is a pleasure to see our dividend payments to our 560,000 shareholders supporting economic activity, driving growth, and channeling funding towards innovation, education, healthcare, and other forms of support for society. Let's now move on to our business area results. All our business areas delivered solid performances once again. In Personal Banking, we grew volumes in line with the market and continued to build strong relationships with our customers. In the tougher economic environment, investment activity and demand for new loan promises remained lower than a year ago. Mortgage lending slowed and stood at 1%. Deposit growth contributed positively to our net interest income development. Deposit volumes grew by 2% in this quarter.
We continued to support our customers proactively and drove a 32% year-on-year increase in personalized interactions in our digital bank. In Sweden, leads generated for mortgage and saving advisors through our digital channels increased by 38% year-on-year. Digital customer engagement remains high, with private mobile app users and logins up 7% and 8% respectively year-on-year. In February, we were rated the best digital performer among European retail banks by the well-known rating agency, D-Rating. The income was up 22%, driven by strong NII growth. return on capital at risk improved to 25%, compared with 18% a year ago, and the cost-to-income ratio improved to 44% from 50%. In Business Banking, the strong business momentum and volume growth continued.
Total income in the first quarter increased by 20% year-on-year, driven by higher lending and deposit volumes, improved deposit margins, and higher net result from items at fair value. We grew lending volumes by 4% in local currencies year-on-year. The increase was primarily driven by Sweden and Norway. Deposit volumes increased by 3% year-on-year, with strong growth in fixed-term deposits. We maintained close dialogues with our customers, increased our proactive engagement, and delivered strong sales in risk management products. The risk picture remained very stable, with net loan losses amounting to 2 basis points. We continue to stay close to our customers and monitor the situation, especially in sectors under significant pressure from inflation and higher interest rates.
Reflecting our proactive customer approach, Swedish SMEs, for the first time ever, ranked us highest for both small and mid-corp banking in the annual Prospera survey. In addition, we also ranked first for cash management in the Nordics in the annual Prospera Transaction Banking Survey. To fulfill our ambition to be the leading digital bank for SMEs, we continue to develop the Nordea Business Net Bank and mobile app. We added new products to our product store, which is currently available to customers in Denmark, in Finland, and Sweden. Customer service ratings further improved for both the Net Bank and mobile app. We also remain focused on driving the transition to a more sustainable future. During the quarter, our sustainable financing portfolio increased to 9% of total lending, and our green business loans, granted under the European Investment Fund framework, exceeded EUR 100 million.
Return on capital risk in Business Banking increased to 23%, compared with 18% a year ago. The cost-to-income ratio improved to 38% from 33%. In Large Corporates & Institutions, the strong income development continued. We advised and supported customers on their financing and risk management needs in the turbulent markets. Total income was up 23% year-on-year, driven by strong growth in net interest income and net result from items at fair value. We grew lending volumes by 1% in EUR year-on-year. In local currency, the lending growth was 8%. Our pan-Nordic diversification, high credit quality, and market-leading position enabled us to grow our deposit volumes by 4% during the quarter. Net interest income increased by 29% year-on-year.
Net fee and commission income was down 9% due to continued weak capital markets as investor risk appetite remained low. Net interest or net result from items at fair value increased by 41% due to high customer activity and strong risk management. Credit quality continued to be very strong, and we actually saw some net reversals during the quarter. Our capital discipline resulted in economic capital remaining stable year-on-year and return on capital at risk increased to 25% compared with 19% a year ago. The cost-to-income ratio improved to 33% from 38%. In assets and wealth management, we were able to achieve solid income even in weaker markets. Operating profit increased by 29% and total income was up 19% year-on-year.
We maintained strong momentum in our private banking business and continued to generate positive net flows from internal channels, EUR 1.3 billion in this quarter. We attracted high numbers of new customers across the Nordics and increased lending and deposit volumes by 4% and 11% respectively. Deposit margins also continued to improve. Assets under management increased by 1% quarter on quarter to EUR 362 billion. Looking at sustainability, net sales of sustainability-linked products continued to follow the positive monthly trend of the past two years. Approximately 66% of total AUM were in ESG products at the end of the quarter. In life and pension, we are progressing as planned with the integration of Topdanmark Life, and we have now launched our first product under the new Nordea Pension name.
Return on capital at risk was 53% and the cost-to-income ratio improved to 39% from 44%. To sum up, the first quarter of the year was strong for Nordea. We were able to drive profitable growth in an uncertain environment. Against this backdrop, we remain committed to delivering on our key priorities and 2025 financial target. We aim to continue improving our profitability and expect return on equity to remain above 13% in 2023. This is already in line with our financial target for 2025. We plan to provide a target update by the end of 2023 when the economic environment will hopefully be clear. Meeting our financial target requires us to keep delivering on our three key priorities, creating the best omnichannel customer experience, driving focused and profitable growth, and increasing operational and capital efficiency.
In an uncertain environment, safety and trustworthiness are features that are highly appreciated from various businesses, not least banks. A strong and profitable bank like Nordea promotes stability and predictability. We are able to support and deliver attractive services to customers and society. That is also how we are going to continue in both good and challenging times. Thank you. Operator, we're now ready for the Q&A session. Thanks.
If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Magnus Andersson from ABGSC. Please go ahead.
Yes, good morning. Starting with NII and your deposit margin development, we can see on page eight in your fact book that it was up EUR 190 million quarter-on-quarter. If you can give us some flavor of the regional development so far and what you expect? When I look at Personal Banking, for example, at page 13, I can see that it was a flat development quote unquote in Sweden in local currencies and a quite small improvement in Denmark, which leaves Finland and Norway as the main explanation as it looks. Related to that, I guess that this deposit hedge you've been talking about might have had something to do with those developments.
If you can give us any indication of how that has impacted, in terms of, or magnitude? That's the first question. Thanks.
Good morning, Magnus. Thanks for the question. We've seen good development in deposit margins across the board. As you know, the pace of change in rates has been quicker and earlier in Sweden, and we're seeing Finland and Denmark coming through in the last few quarters. That continues, and we would, given the expectation on interest rates for the next few quarters, we would expect to make further progress there as well. The deposit hedge has had a dampening impact on NII development, but it's still, you know, outweighed by, you know, the benefits of, first of all, continuing to show good progress in deposit volumes, but also managing carefully the pass-through rate.
I don't have a particular feature to call out in any of our countries. I think we continue to make good progress. As I say, the deposit hedge has a dampening effect. The other thing that, I guess impacts us in headline terms versus some of our peers is obviously the impact of foreign exchange on NII development. With the depreciation of SEK and NOK over the last two quarters, that moves the headlines a little bit, but we continue to make really good progress in all of our businesses.
Yeah. Just if I follow up there on Sweden, if I look at page 13, I mean, it's flat. NII is flat there in Personal Banking quarter on quarter in local currencies according to the column there, while rates are obviously up quite significantly in average terms. What's driving that? Is it partly migration into higher deposit rate products, et cetera, if you have anything there?
We have seen, first of all, some pressure on mortgage margins, and that has a dampening effect on net interest income development. There is some customer preference for savings accounts. We have very attractive rates in all of our markets, and there's been a small movement, I guess, in terms of proportion of deposits, from transaction accounts into savings. The key development on net interest income on a regional basis and then in Sweden has been, in this quarter, some pressure on mortgage margins.
Okay. Thank you. Secondly, just a note across the board, trading income or net result of financial transactions or whatever you call that line has been quite strong now for a couple of quarters, two, three quarters in a row in most banks. Do you think that this is a sustainable development driven by the fact that we now have entered a positive rate environment, i.e., so that we should expect a high level going forward than we've seen previously during the zero rate or the QE years?
I think the volatility that we've seen over the last 12 months has been one of the drivers. Our customers are turning to us for risk management, products and advice on rate management effects, all of those different kinds of things. I think that has been one of the contributors. Whether that continues, I think will depend on what we see in terms of market volatility going forward. We have had a really strong performance supporting our customers in that space over the last couple of quarters, and I think we'll be there for them going forward.
Yep. Okay. Thank you.
The next question comes from Andreas Håkansson from Danske Bank. Please go ahead.
Good morning, everyone. Following up a little bit on Magnus' question on the deposit side. If you look across the region and the four countries, do you see any trends or do you have any plans to start to pay interest on the transaction accounts? That's the first question.
I can take that. Hi, Andreas Håkansson. It's Frank Vang-Jensen. We don't see any sort of like experience any interest, big interest from our customers, within high or highering the interest rate, which is basically zero, on transaction accounts. We also should remember that, when we think about positive interest rates on transaction accounts, we are back to the days when before the negative interest rates, and also the very, very high requirements on transaction monitoring, you know, appeared or entered the markets. We have 3,000 people in Nordea that solely works with monitoring transactions, KYC and sanctions. The cost related to or connected to a transaction account is very, very big. As currently, no such plans are in place.
I would say that our customers are using our savings account and term deposits in a very active way and are very pleased with our offering. No such plans as currently.
That sounds good. Since you are the only true pan-Nordic bank, could you tell us if you look at asset quality country to country and sector by sector, are you as comfortable in all regions or do you see any pockets where you're a little bit more concerned?
Starting with the countries, all countries are looking strong. No, you know, signs of any deterioration of the quality happening and absolutely no flags for now. I would be a bit disappointed if there were, you know, flags coming out now from sort of like weakening in general. There will always be some here and there, but no structural issues for sure. That should not happen Nordea. When it comes to then if you unfold it a bit first on sort of like household contra versus corporate. Household super strong. It's amazing how well the Nordic households are holding up. We are following, of course, a number of metrics just very carefully, delayed payments and so.
As long as the unemployment rate, ratio is, or rate is very low and deposit still keeps up in general, then I would say that our customers are handling it very well. Very well. On the corporate sector, I would say outside the large ones super good shape. Absolutely no signs of any problems. The mid-size similar, of course, but different sort of like impacts due to different sort of type of businesses. Then looking at the small enterprises, sole traders and so, some of them are, you know, of course, challenged right now.
From a bank perspective, it doesn't really impact anything or because they are very asset light, right? Of course there are some challenge, but nothing that can impact our figures right now. Left is corporate commercial real estate. As you know, we are a very small player here. It's around 7%, as I recall, of our total lending. Similar picture in Sweden, much lower than the others. It's very stable.
Sounds very good. That's it from me. Thank you.
The next question comes from Maria Semikhatova from Citi. Please go ahead.
Presentation taking my questions. First of all, on net interest income, just wanted to hear your latest thoughts on trajectory from current levels. If we annualize the first quarter results where effectively this implies a EUR 1.4 billion increase for this year, this is effectively in the middle of your guided range. Just wanted to kind of check on your latest thought on different drivers. Specifically on volumes, you capped this as a positive for contribution for 2023, but it was actually negative in the first quarter. If there is anything else you can add on headwinds that you see from current levels.
That's on your sensitivity slides and then maybe on lending margins specifically, out of this EUR 23 million impact in the first quarter, how much was from floors and if you still expect this to disappear in the second quarter? Thank you.
Good morning, Maria. I think in terms of net interest income trajectory, first of all, given the rate path and our volumes, I would expect to see some further NIM expansion later into this year. Of course, that's positive for net interest income. There's a bunch of different things to manage within that. The pressure on mortgage margins, particularly in Sweden, I think is an important factor. I think everywhere else we're holding quite well and our margin development in corporate lending is pretty stable.
I think in terms of what we would see with volumes, first of all, in local currency terms, we've seen positive volume development, and I think the outlook for the rest of the year, we would split between household, where I think it's a much quieter market than we've been used to. On the corporate side, we're still seeing good interest and demand from our customers there. I think therefore, you know, our expectation is. I think you've called it quite well in terms of your extrapolation, being in the middle of the range. I guess we'll look to see how lending margins and volume development will affect that through the year. We feel good about the prospects for NII this year.
In terms of your detailed question, the contribution of the elimination of mortgage floors, of interest rate floors, I beg your pardon, was around EUR 9 million negative, and I suspect that will fade to zero over the rest of the year.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Riccardo Rovere from Mediobanca. Please go ahead.
Thanks. Thanks a lot for taking my question. There are only one actually. The European Commission is discussing changes with regard to inducements on asset management products. You are a big player in this, not only in the Nordics, I would say, because you distribute your funds all across Europe. Do you see any impact? How do you see the situation? Do you see any potential negative spillover for you from this possible change in regulation? Thank you.
Hi, it's Frank. No. The short answer currently is no. We have bans in place in some of the Nordic countries, and have adapted to this in a I should say smooth way. Without me knowing the details yet, of what is like, exactly coming, I would say that we will solve this. Any things to add, Ian?
Okay. No, I think as you say, Frank, we've dealt with changes to terms in all of our Nordic countries successfully.
Yeah.
We'll adapt, as you say.
Okay, thanks. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
All right, guys, that was easy this time. Thank you so much for participating and looking forward to speak and reach out any time that you might feel the need for discussing something. Thank you so much.