Hello, and thank you for joining today's DNB call. The call will be beginning shortly, so please stay on the line and thank you for your patience. Hello, and welcome to the DNB Q1 2022 conference call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded, and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'll now hand you over to your host, Rune Helland, to begin. Thank you.
Thank you very much, and welcome to DNB's first quarter analyst call. Around the table here in Oslo, we are in addition to, of course, Kjerstin and Ida. We have the head of personal banking, Ingjerd Blekeli Spiten, head of corporate banking, Harald Serck-Hanssen, and also head of group risk, Sverre Krog. Ida will start giving you a short introduction to the quarter and before we open up for questions. Yes, Ida.
Hello, everyone. I would just like to start with what Kjerstin pointed out in her presentation this morning, where the world finds itself in a challenging territory with the war in Ukraine. This of course impacts the macroeconomic standpoint, but more importantly, it affects people in the Ukraine. Norway is, however, in a relatively seen good position with strong underlying activity. The recovery is expected to continue after the lifting of restrictions related to COVID-19, and expectations for GDP growth this year is 3.8% before normalizing from next year and onwards. Unemployment is back at pre-pandemic levels, and we see a substantial uptake of number of available jobs in the market.
The central bank has started hiking interest rates and has so far hiked the key policy rate three times and has signaled expectations of another seven rate hikes towards the end of 2023. We see a somewhat higher inflation in Norway, but still close to the central bank's targeted level of 2% and expected future levels are what we qualify as healthy levels and far lower than what we see elsewhere in the world. Investment sentiment in the business sector is strong, with expected growth in mainland sector this year and petroleum related sectors as of next year. The housing market is expected to continue to grow. The cooling effect from the increasing rates are offset by the expectation of a somewhat reduced activity level within new construction.
Moving on to DNB specific results for the quarter, we see continued strong results across customer segments as well as product areas, as well as net reversals of impairment provisions. Return on equity for the quarter ends at 12.9% and on a rolling 12 months, 11.4%. NII is up 1.6% from the fourth quarter and up 13.2% from the same quarter last year. We see the full effect from the first repricing as of mid-November and part effect from the second repricing as of end of January and expect to see the effects from the third repricing in mid-May. Loan growth comes in at 1.1%. Strong growth in corporate customers and a more moderate, stable growth in personal customers of down 0.3%.
Deposit growth continues to be strong, 0.5% for the quarter with an exceptionally high growth in personal customers. Net commissions and fees comes in up 8.1% from the first quarter 2021, with a strong performance across product areas, but in particular investment banking, assets under management, money transfer, and banking services. As also mentioned earlier, net reversals of impairment provision at NOK 589 million, reflecting successful restructurings of customer-specific cases in stage three, as well as an overall robust portfolio with 98.9% of the portfolio in stage one and two. Costs are down by NOK 461 million, driven by lower activity-based costs, but also lower pension expenses due to the positive mark-to-market effect related to the defined benefit scheme.
In terms of capital wise, we still have a very strong capital position, even when deducting the 125 basis points for Sbanken. We come in at the Tier 1 capital ratio 18.1%, well above the regulatory requirements. With that, I think we open up for questions.
Thank you very much. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad now, please. Please ensure your line is unmuted locally and then you will be introduced into the call. That is star one on your telephone keypads now, please. Our first question comes from the line of Sofie Peterzens from J.P. Morgan. Please go ahead.
Yeah, hi. This is Sofie from J.P. Morgan. I was wondering if you could talk about your rate sensitivity and kind of how we should think about the latest rate hike in Norway, the +25 basis points. How much NII tailwinds do you expect from this rate hike? Is it the same NOK 1.5 billion or is it less? Then my-
That's okay.
My second question would be on Sbanken. Now that the transaction is approved and it's on your balance sheet, how should we think about potential cost synergies and revenue synergies from Sbanken? Are there any restructuring costs going forward that we should expect from Sbanken?
I can answer Sbanken, and then Ida will address the NII. First of all, we're very pleased to have received the approval of the Sbanken acquisition and excited about the discussions we're having and what lies ahead of us. We haven't been specific about scope and size of synergies, yes. The business case remains as attractive, if not even more attractive, when we compared to when we did made the first bid now close to a year ago. We're comfortable in our ability to take out the synergies both on the capital side and on the cost side.
More importantly, we're in active dialogue with them to build on how to make this attractive combination benefit our customers and how to shape the future. Also pleased to see that Sbanken had a very strong and healthy growth in the first quarter with 5.7% growth in volume. In the immediate term, Sbanken shall continue to perform well with DNB at their new owners, and then we will revert in due time when we have more details.
Yes.
On the NII effect, as you rightly comment, we have said that the first two rate hikes were expected to have an annual effect of approximately NOK 1.5 billion. The third repricing that we did, which will then be implemented in May, is expected to have an annual effect of approximately NOK 1.2 billion.
Thank you. That's very clear.
Thank you very much. Our next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead.
Thanks. Good afternoon to everybody. Thanks for taking my questions. I have three, if I may. The first one is again on Sbanken. If I remember correctly, Sbanken calculates risk assets under the standardized approach, and I would imagine at some point this should migrate on your systems, on your internal models. How long should it take the process and what should be the RWA saving that you might have out of that? The second question I have relates to the reversals related to oil and gas. If you could explain a little bit more in detail what is driving that. Is the reserve-based lending? Is the value of the collaterals, the oil prices going and gas prices going through the roof? If you could shed a little bit of light on that.
Then I have a very final question on, again, oil and gas exposures. DNB over the past years has systematically reduced oil and gas exposures. Now that the whole of Europe probably need gas from everywhere in the world, and an Italian politician so recently had a trip to Congo and Angola to try to secure some gas contracts over the next few years. I would imagine that Norway could be a partner in that, or should be a partner or a reliable partner in that. Is DNB gonna finance new drilling, new exploration on the Norwegian shelf, increasing again the oil and gas exposure, considering the Norwegian Petroleum Directorate says that Norway is currently producing and selling roughly a third of the reserves that are supposed to be on the Norwegian shelf. Thank you.
Thank you, Ricardo. I think Harald can address your two latter, and then Ida can address the first question.
Yes, when it comes to the Sbanken and in terms of capital efficiency, that's of course something that we've taken into account in the overall business case, and it's something that we'll continue working on. We haven't communicated a specific number on that, and we've also said that we will come back in terms of more details on the numbers as soon as we've started to work closer together with Sbanken as well overall. As we said, that is also part of the business case together with other synergy effects that we see from a financial point of view.
Thank you, Ricardo, for good questions. With regard to the reversals, they are related to specific restructurings that's been successful and where the outcome of the restructuring has been more positive than what we'd assumed in our initial loan loss provisions. That's, of course, solid bank work from our good colleagues, but also improved investor sentiments for the oil-related industries. It's not the theoretical exercise with the change of rates or oil price. Your second question is a very interesting one. I think it fits well with our strategy, which has been to finance the transition and play a constructive role rather than to exclude. Having said that, we're not going to be active in Congo.
We've said that we are shifting the main focus to the North Sea. We have, as you said, reduced oil and gas related exposure by 50%. We want to keep it at approximately that level. It may fluctuate over time, but I think we have capacity to support our clients who are looking to expand in the North Sea without increasing our overall exposure to the sector.
Harald, sorry. I'm not sure I get it. You think you can do it without capital absorption? Is that what you're saying?
Yeah, because we have a substantial turnover in that portfolio, and we are still rebalancing the portfolio towards the North Sea, taking down our exposure outside. That is both for commercial reasons, because we have the highest return in the North Sea, but also for ESG reasons because we see the North Sea has the best regulatory environment and also where you have the most environmentally conscious operators, I would say.
It's important to add that we have not put a cap on our exposure in this particular sector. To underline what Harald is saying, it may fluctuate from quarter -to -quarter. Where we have set targets is on the emissions reductions indirectly stemming from our portfolio towards 2030. Our aim is to achieve that in cooperation with our customers, not necessarily through a further reduction in the portfolio.
Okay. Right.
Norway's ability to support Europe, I think, in the very short term is probably an essential part to your question as well, and something that's obviously being discussed, but that you also are well aware there are long lead times to establish new capacity into completely new projects.
Could I just add also we'll also, Ricardo, contribute on the LNG side. You know, we are financing the, our SF-
FSRUs.
FSRUs, thank you. LNG vessels, which also will play a crucial role in replacing the gas.
Okay. Okay, because what I understand at the moment is that Norway, whatever is produced in Norway at the moment, roughly 120 billion cubic meters, is already sold to Europe, to Holland, Netherlands, Germany, UK, and so on. You would need to, let's say, expand the capacity up there, you know, to provide more gas to the continent. I'm not 100% sure I understood DNB wants to do that or not. I'm sorry.
If that capacity can be found, and I'm sure it's being explored and looked for by our customers, we are prepared to support that type of project, given that they fall within our normal framework and consideration.
That is clear. Thanks.
Thank you very much. Just as a reminder, it is star one if you would like to ask a question on the call today. Okay, it looks like we have no further questions in the queue, so I'll turn you back over to the speakers.
All right. If there are no further questions, thank you very much for participating. If you have any further questions later this afternoon, please call us at investor relations at DNB. Thank you. Have a nice day.
Thank you.
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