Hello and welcome to the DNB Q2 conference call. Please note this call 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. If you require any assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Mr. Rune Helland, to begin today's conference. Thank you.
Thank you very much, and hello everyone, and welcome to DNB's annual call for the second quarter. Around the table here in Oslo, we are, in addition to the CEO, Kjerstin Braathen, and CFO, Ida Lerner, we have Maria Erik Løvold, head of personal banking, Harald Serck-Hanssen, head of large corporate, Alex Opstad, head of DNB Carnegie, and also Eline Skramstad, head of risk management. Ida will now start giving you the highlights for the quarter before we open up for questions. Ida.
Thank you, Rune, and thanks everyone for taking the time to participate in this call. The Norwegian economy continues to be robust, with a strong and healthy GDP growth this year expected to be at 1.2% and 1.5% next year. Unemployment remains low at around 2% and is expected to remain at this level in the coming years. As you know, the central bank cut the key policy rate by 25 basis points in June, to now being 4.25%. Our economist expects two further rate cuts this year and then to see a key policy rate to stabilize at 3.75%. For DNB, this quarter is characterized by continued high activity level with profitable loan growth in all customer segments and strong contribution from capital-like income. Higher margin deposit volumes were up in personal customers, while we noted a decrease in low margin short-term deposits in large corporates.
NII was down in the quarter, affected by the profitable loan growth, which accelerated towards the end of the quarter, as well as the product mix effect within deposits earlier mentioned, as well as other elements non-customer-related elements in NII. We continue to have a robust and well-diversified portfolio across industries and geographies and taking permanent provisions of NOK 677 million in the quarter, predominantly in the large corporate and corporate customer Norway area, with still very specific customer-specific situations. We maintain a strong capital position with a core equity tier 1 capital ratio of 18.3%, 180 basis points above the regulatory expectation, and also marked this quarter a return on equity of 15.4%, well above the long-term ambition of being above 14%. With that, we open up for questions.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one now on your telephone keypad, and if you would like to withdraw your question, please press star two. The first question comes from the line of Johan Ekblom, calling from UBS. Please go ahead.
Thank you. I just wanted to come back a little bit on the interest rate outlook and if you can say anything on the impact of the price changes that you've announced. First, on the rate outlook, I mean, I think you've stuck with your call of a 3.75% kind of trough rate, even though the cut we had came a bit sooner. I look at Norges Bank forecasts, they have three more cuts beyond that in their baseline. I know that the numbers you quote is DNB Carnegie, but can you help us understand what makes them so different? Do you have a dramatically different view on inflationary pressures? Do you have a very different view on the growth dynamics in Norway, or why does Norges Bank see rates so much lower than what you think?
Maybe slightly related to the cut that we've had. When rates were going up, you would give us some guidance as to the impact of already announced price changes. Would you be willing to do that for the price changes you've announced so far, please?
Thank you, Johan. First, on the rate outlook and the rate cut, which I would rather say came a bit later than expected, more than it came sooner than expected, because the market expected this to be in March, and the central bank decided not to, and postponed it then until June, when most people actually expected the postponement to be until September. That is just a detail. Our view was that it was to be expected already in March. As for the future outlook, it has been a while where the view of our economists has differed somewhat from Norges Bank, but I believe our view to be more in line with the consensus in the market. The primary differentiator is on the inflationary outlook, not so much the growth perspective, the unemployment or activity, but rather more on the stickiness of the inflation.
I believe also the uncertainty and the turmoils and the discussions around tariffs alongside the debt levels across various states in the western part of the world. In addition to the investment outlooks on defense and other areas, are all expected to be believed to be drivers of inflation. This is the primary reason, I believe, for DNB Carnegie maintaining their view of further two-rate cuts rather than several more, as outlined by Norges Bank. We have decided not to give a nominal guidance on the impact of the repricing this time. We did so, as you're correctly stating, on many occasions when rates went up. I guess the best sort of reference we can give you is to refer back to the nominal impacts we talked about at the time, between NOK 1 billion and NOK 1.5 billion was what we commented on.
For the 25 basis points rate hikes that we saw at the time.
Thank you. Then maybe just secondly, I think you commented this morning that you're happy with the progress of the Carnegie integration and things like that. I mean, now that we can't see the contribution of that alone, can you give us a bit more color on what are you seeing in terms of, I guess, pipeline and did Q2 conversions come in as expected? I mean, we've seen various press stories of activity being delayed maybe until after summer at least. Maybe give us an update if there is any on staff retention. I think we spoke about it last quarter. I know you were very happy that you kind of kept the people that you wanted. Has there been any change on that front, please?
Good. I'll have Alex answer.
Yes, thanks, Johan, for starting on sort of business momentum throughout the quarter. Of course, very little happened in April. I think commenting on various products, M&A processes were pushed out in time or delayed somewhat. We have not really had any M&A processes is being canceled as such, but they were slow-moving as clients sort of took a wait-and-see approach throughout April and early May. We have seen some ECM mandates both being postponed and some altogether pulled, likely to return at some point, but they were due to be executed in the second quarter. Of course, a very strong business momentum sort of May or mid-May onwards. In the middle of all of this, we have launched sort of the common DNB Carnegie brand and organization. The sort of six weeks that we have experienced from, we feel that the competitiveness of the platform is e ven better as expected.
We have had a very busy sort of capital markets period from mid-May, but some of the transactions have been delayed and really moved into the second half of the year. With regards to staff retention, there has been very limited turnover, quite frankly, somewhat less turnover than we would have expected. No really unwanted turnover at all so far.
Thank you.
The next question comes from the line of Namita Samtani calling from Barclays. Please go ahead.
Hi, and thanks for taking my questions. I've got three piece. Firstly, are there any timing impacts on when you reprice your mortgages downwards and when that flows into the P&L? So are mortgages repriced sometime after the 25 basis points rate cut is announced, or are there any factors which would make the rate sensitivity of 25 basis points to your NII a bit lower than one might expect? Secondly, I just wondered how much were the Polish provisions this quarter? And can you remind us what this was taken for, and is this the end of taking these provisions? And my last question is just in relation to the output floor of 72.5% when it's fully loaded. Should we expect your RWA inflation to be lower than the average bank, given you already have risk weight floors?
I think the EBA has disclosed the average RWA inflation is around 6%, so would you be expected to be around that or lower? Thanks very much.
Sure. If we start with the timing. We have said that, as I said in the presentation, we have the full effect from the repricing being implemented on the 25th of August. That means that we have the same delay or lag effect as we had on the way up in terms of eight-week lag effect, both on deposits as well as on mortgage lending. When it comes to the Polish portfolio, as you know, we've talked about this before. We have a currently outstanding exposure of NOK 4.1 billion. We've taken accumulated provisions of NOK 1.4 billion. As you know, 88% of that portfolio is in euros, and only 2.3% is in Swiss franc. That means that we've written off the entirety of the Swiss franc portfolio and are also then following very closely the development we're seeing in the rest of the portfolio.
The provisions that we've taken to date is our best estimate in terms of provisions also looking ahead. This is something that we follow very closely. This quarter, we're taking payment provisions around NOK 152 million, which is lower than what we took last quarter. When looking at the fully loaded, we are providing the information in our pillar three report being published in August. We haven't got the numbers kind of ready for you today, but overall, you are right in your assumptions given the calibration in our portfolio and our risk-weighted assets today. I would more point in terms of where the Nordic banks have also commented on their effect, and we would be in the mid-range of that. This is my best estimate today.
That's helpful. Thanks very much.
The next question comes from the line of Jan Erik Gjerland calling from ABG Sundal Collier. Please go ahead.
Are you on mute, Jan Erik? We can't hear you.
Jan Erik, can you hear us? We can't hear you.
Just we move to the next.
Yeah, we will move to the next. The next question comes from the line of Patrick Nelson. Please go ahead. It seems that we currently have a technical issue then.
We're just waiting, so you just let us know if we're able to sort it out or if we should redial.
Yeah, please bear with me while we are sorting out.
Hello? Can you hear us?
Yes, we can hear you, sir. Could you please—can I ask everyone who wants to ask a question? Please press star one now again as we have some technical issues, and we will put your question through. Please, please press star one to ask a question. Thank you. Our next question is from Riccardo Rovere from Mediobanca. Please go ahead. Your line is open.
Thank you. I hope you can hear me. You can hear me well.
Loud and clear .
Okay, perfect. I was just looking at your fact book. Specifically, table 1.2.5. I was looking at the very, very toward the end of the table, which shows the line other interest expenses, which has always been positive with different numbers, but always been positive over the past 24 months, capital years. Then all of a sudden, in the second quarter of 2025, it gets negative by NOK 500 million. There is a swing in that line of almost, 700, more than NOK 700 million, only in that line. There is a footnote that says that interest rate swaps are included there. Can you explain why that line, that small little line of the P&L, had a swing of more than NOK 700 million in a quarter? Because the NII decline Q1 too seems to be completely driven by that. What's in there and what are those interest rate swaps?
If you can clarify that, please.
Yes, Riccardo, thanks for the question. I mean, apart from what you're seeing in terms of the footnote on number two, this interest expenses needs to be seen in connection with the total interest income because there is a counteracting mechanism in terms of that. You would see that in the numbers above, but we're not specifying them specifically. You will see a matching number on the interest income, which is spread out between the different elements there.
Ida, just to be clear here, there is nothing particularly odd in minus 517?
No.
Nothing. Okay. All right. Okay. Thanks. The other question I wanted to ask is, if I'm not mistaken, I understand that your Polish provisions amounted to NOK 150 million in the quarter. Basically, the underlying provisions, I do not know, are those Polish provisions to be considered sort of one-off or not?
I think when looking at the Polish provisions as all provisions, we always make an estimate in terms of best assessment of the provisions at any given point of time. That is depending on the development in the portfolio. It is also depending on how we actively handle the development in that portfolio. The Polish provision is. The consequence is that we have start initiated a bit of a different approach to part of that portfolio. There is no change in the underlying portfolio. There is no change in the outlook per se in the portfolio, but it is more a reflection of our best estimate given how we have approached that portfolio today.
Okay. Because this is something that happens also in other banks in Europe. Other banks in Europe say that we should be more or less close to the end or the amount of these provisions should come down significantly over the next quarters or maybe a year or whatever. Would you share this thought or not?
I think that's very difficult for me to say in terms of outlook. The provisions that we're taking are always a reflection of what we believe are the right amounts of provisions. Therefore, to have any thoughts about what we think will happen in the future would mean that we would have to take those provisions today or reversals of those provisions today. This is the best estimate that we have in terms of also looking at the accumulated provisions of, as I mentioned, of NOK 1.4 billion, looking at the overall portfolio. You also need to think about when assessing what other banks are doing, and again, I'm not an expert in terms of their portfolios, of course, you need to also look at the portion of Swiss franc loans and euro loans. In our portfolio, 88% is euro loans, which are assessed to be less. Exposed in the period or in the Polish situation.
Okay, thanks. Sorry to get back to the NII question one second. Because when I look at the asset side of the table, I just cannot see anything that offset that NOK 700 million or more than NOK 700 million swing.
No. That is why I'm saying it's distributed in between the different lines. I see that I'm not helping you here, Riccardo, but. This is kind of if you look at interest on amounts due from credit institutions, for instance, you see an uptick there, and you also see a movement in between the different lines. You need to look at the total interest income and look at also the total interest expenses as a whole.
Sorry to bother you. Everyone was, how can interest rate swap all of a sudden can become negative? Everyone was expecting rates to go down at some point in Norway. Your balance sheet should have been somehow repaired, if I may say so, to this kind of situation.
Riccardo, I'm sorry for interrupting you here, but as it says on the footnote, it includes interest rate adjustments resulting from interest rate swaps. That does not mean that the entirety of this is related to interest rate swaps. It includes that element in addition to other elements as well.
The other elements are?
I'm sorry, Riccardo. I don't have that information.
Okay. All right. Okay. No worries. No problem. I'll try to take it offline. No worries. Okay.
Thank you very much. We will now take our next question from Gulnara Saitkulova from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon. Thank you for taking my question. My question is on fee income. We saw that investment banking activity has remained resilient. You mentioned in your previous answer that mid-May you' ve seen the relatively strong business momentum. How sustainable do you think this can be in the context of elevated uncertainty and tariff risks? Any comment more broadly on what you see in terms of the key moving parts for the coming quarters on the fee income more broadly? Where do you see most potential to grow your fees in the near term? Separately related to that, on commission margins in asset management, we saw in the previous quarters they have been under pressure. Can you comment what you are seeing this quarter and what is your outlook for commission margins going forward? Thank you.
Alex can comment on the investment banking part, and I can take the rest of the fee base more broadly.
Thank you, Yashin. If I should start, momentum very strong. From mid-May onwards, as mentioned. It is, of course, tightly linked to the fact that risk sentiment has gradually improved throughout the quarter in capital markets in general. We sort of feel that optimism has carried into the summer. In the Nordic region, business is slower now during July. As long as capital markets stay constructive, we expect that the business momentum to continue once we sort of get into the later part of August and early September.
Thank you, Alex. Largely, I would just reiterate that we maintain our guidance on growth in fee and commission income by 9% annually. We maintain our commitment to delivering on the synergies as outlined on DNB Carnegie. As we have said before, our two main engines, so to speak, in the fee growth are indeed investment banking as well as asset management. We did provide you with some additional information on the asset management position in the fact book this time around. We also had substantial inflow this quarter, more than NOK 10 billion, but have not seen margin pressure to speak of. Approximately 50% of the inflows were Retail funds and 50% Institutional funds. In general, as you know, Retail funds come at a higher margin. There is a more global trend of a move towards index-related products in our region. Over time, that may put.
Some pressure. On the other hand, we have systematically been building the retail share in our assets under management and benefited from that. We do expect that to be a key driver for fee growth also as we move ahead. The assets under management in the defined contribution bucket now have surpassed NOK 200 billion. That is growing recurringly every month. We continue to see customers staying in their savings agreements, putting savings down in their mutual fund products every month. We continue to expect saving growth to be two to three times as high as GDP growth for Norway in the years ahead of us. Real estate brokerage, more seasonal impact, but this is a high quarter, seasonally high quarter, second quarter, and we are taking market share in that area. Money transfer and banking services, Money transfer is very steady.
Third quarter should be an active quarter. People, even with a relatively weak Norwegian krone, they book their vacations and they travel and they spend money. There is also a good sentiment on the insurance side, not the least, non-life insurance where combined ratios have come back considerably. This is a positive contributor this quarter on the fee side, but also on the associated companies line for this quarter. We expect that business to be in a better place also in the coming quarters and years than we have seen in the previous few quarters.
Thank you.
Thank you. We'll now move to our next question from Patrick Nelson from Goldman Sachs. Please go ahead. Your line is open.
Yeah, thank you very much for taking my question. It was also on fee income, and I appreciate you gave a very comprehensive answer now to the last question. I just wanted to follow up on that. Is there anything in terms of the seasonality that you expect to be different this year, given that there were quite some challenges in the second quarter following the beginning of April? Do you think that the second quarter is a good sort of proxy of how the second quarter, and then how we can think about the seasonality for the remainder of the year? Or is there some kind of catch-up effect we should expect? Thank you.
I think Alex's run-through gave a pretty good picture of a slower start and a much better finish to the second quarter. I think we have seen the same. Also on the mortgages, that pace has picked up activity. That's not so much on the fee side, but still. We have seen increasing activity throughout the quarter. A lot of the lending activity also on the large corporate side came towards the end of the quarter. I would say we have unusually high activity going into July. How long that will last and whether it will lead to a very different picture for the third quarter or not, I mean, we're at a level of detail that I think is hard to comment upon beyond saying what I just said. There could be a sentiment that that part of the activity is pushed into.
July, and thus the third quarter compared to what we would see in a more normal year.
Thank you very much.
Thank you. We'll now move to our next question from Shrey Srivastava from Citi. Please go ahead.
Hi, and thank you for taking my questions. Two for me, please, today. The first is I wanted to ask about the competitive impact to your sales from the consolidation of the smaller players, both in the SME and personal customer market. How do you view the sort of margin versus volume debate in these markets? That is to say, could we see further pressure on lending margins in personal customers or SMEs going forward, independent of the level of rates? That is my first one. Thanks.
I think we comment on the competitive situation in general, that it is indeed very fierce. Banks have a lot of capital. There is ample supply in the market. It's nothing new in the Norwegian market that the competition is fierce. We always remind you that it's also a rational market, saying that all the banks with the material size have return on equity as their most important financial target. There is a shifting dynamic in the market, as you were pointing to, with several of the middle-sized players merging and growing in size. On the one hand, you can argue this will intensify competition. On the other hand, we always know that these mergers open up windows of opportunities where banks are busy with the integrations and mergers.
The way we see it, we do prioritize profitability over growth, which is why we're also specifying this quarter that we are growing profitably and that overall customer margins are roughly stable. We see that we have a product offering and the way to deliver services that, where it is more than a single pricing point, so that is of value to customers. One of the proof points is that we saw a sharp uptick in the number of customers considering to move their mortgage to us after the central bank reduced the key policy rate. We would always target profitable growth. This quarter, we do deliver this in all customer segments in a very competitive environment. We like to say that competition is good and healthy. It makes us on our toes. The only way to win and earn customers' trust is by being c ompetitive.
We expect to continue to be that in the future.
That's understood. Thank you very much. One more from me, please. Can you speak a little bit more about the big quarter-on-quarter decline in large corporate deposits? I know it's not a big NII driver, but can you speak about the dynamic there in terms of the large corporate willingness to do business with yourselves? Is this based on a change in pricing or change in competitive pricing? How do you see this evolving going forward, both in the deposit and loan side?
Yeah, your question more specifically on the deposits, I'd be happy to comment on that. It is due to pricing and how attractively we choose to price these deposits. I think we've commented on several occasions in the years after the pandemic that we have been seen increasingly attractive as a counterpart for larger corporates for their deposits, being one of the very few banks with a AA rating. This has been one of the reasons for a large deposit growth and why we have a close to 100% deposit coverage in the large corporate area. We have also repeatedly said that we price these in close cooperation with Treasury and we never pay more than what makes sense for us. These have never been presented as very sticky deposits.
Now we did some changes to our pricing on these deposits in the second quarter that resulted in some of these customers choosing to place some of their deposits with other institutions. These are, as you're saying, low-margin deposits. So they are primarily reflected in our volumes, not so much in the revenue line.
That's understood. Thank you very much.
Sorry, we can't hear you.
We will now take our next question from Jacob Kruse from Autonomous Research. Please go ahead.
Great. Thank you. I hope you can hear me. I had one question, really. Just on the net interest income, if I look at the divisional disclosure. Firstly, a lot of the negative is in the other division this quarter. Most of the kind of business lines are relatively stable. Is that just the tunnel funds pricing that we see there, or are there other factors driving it? On the related question, I guess, if I look at the corporate customers' Norway business in the quarter. Is there some kind of restatement or something going on here? I'm just looking at the SME business having NII growing from NOK 2.7 billion to NOK 3.4 billion within that division, while the overall is slightly down, which seems to say that the kind of balancing item is moving very drastically.
I just wanted to kind of understand what's going on on that line. Thank you.
Thank you, Jacob. NII, I think your overall assessment is correct. The customer activity is benign and growing, which is why we're also commenting very clearly that customer spreads are roughly stable. The elements that are reducing NII are a lower contribution from other net interest income elements, such as the interest on equities, such as a somewhat higher funding cost, and a smaller bucket of other net interest-related elements. As for the corporate banking Norway, yes, that is very well spotted. It is actually more a reshuffling in terms of how we have identified the different exposures related to CRR3. It is more the fact that we have now registered these corporates in a more similar way. You will see the same movement, for instance, in large corporates or in other areas. That is more of a matching element here. More companies are doing this.
Okay. So that number is really, we should start in Q2 as our kind of base.
Yes. Exactly.
Great. Thank you so much.
Thank you.
Thank you. We will now move to our next question from Martin Ekstedt from Handelsbanken. Please go ahead. Your line is open.
Thank you. Can you hear me?
Yes.
Okay. Great. Could I just ask, could you let us know a little bit more about in what industries you saw loan losses this quarter in particular? Are there any concentrations to any portfolios? For example, given what is happening geopolitically and with global trade and tariffs and so on, I had a specific look myself at your shipping portfolio, and I wanted to check if you could add some color to the stage migrations you see in this quarter, where, for example, stage three impairments drop sharply and exposures in stage two increase a lot over the last two quarters. If you could give us more color on that situation.
Yeah. I need to start out to say that I truly believe that we have a very overall robust and solid portfolio. And that 99.3% of our exposures are within stage one and two and without any individual provisions. In a historical perspective, I think we are on very low levels when it comes to stage three provision. When we look at what is within the provision this quarter, these are really customer-specific situations and not something that we think are a real trend of any kind. It's more customer-specific situations or incidents. That said, of course, it's a somewhat turmoiled geopolitical situation. Of course, we need to foresee that impairments might increase going forward if the turmoil continues or if we need to foresee that there will be more volatility, probably. Furthermore, given this higher geopolitical unrest and uncertainty.
It would be natural to see more company-specific impairments as well in the longer-term perspective. We believe that the cost of risk will generally come in below the 20-year historical average. We can just maybe add some light. I mean, there are really, it is spread across. Maybe not a large number, but a moderate number of companies. There are some names related to residential construction activity and property. We still do not comment this as an industrial trend because we have looked at all of them and see that this is not systematic across the portfolio. There is no negative migration in this portfolio. These are particular companies who have taken specific risks that have led to these situations. Again, I reiterate that the portfolio is robust and well-diversified. No systematic weakening, no migration.
No deterioration in any area compared to what we've been reporting in the previous couple of quarters. Should I make a comment on shipping in particular? Yes.
As you can see, the shipping portfolio is very strong. I think that's also due to the fact that Harald and the team have worked diligently on choosing customers within shipping that have strong ownership and also have a strong cash flow ability and do not have any oversupply. I think if you look on historical average, shipping used to be more of a volatile and cyclical industry for us and has also then imposed more impairments historically than what we see today. This is actually now a low-risk portfolio. Of course, shipping is exposed to geopolitical uncertainty and macroeconomic developments. Therefore, we follow this industry closer. As you can see, very low risk in this portfolio. Also, again, pointing to the fact that I believe that Harald and the team have worked very diligently on choosing the right customers here.
Yeah. I can just add, this is Harald. I can just add that the area of shipping most exposed to the changes in trade and tariffs will be container shipping. We have very limited exposure on the container shipping side.
Okay. Great. Thank you very much. That is a very, very clear answer. That was all for me.
Apologies. We'll now move to our next question from Jan Erik Gjerland from ABG Sundal Collier. Please go ahead.
Thank you for taking my questions. Hope you can read them now.
We can hear and read you well. Again, apologies for not seeing your questions earlier today.
No, no problem at all. I just have a couple of questions. The first one is to this Insurance coverage you use to cover your exposure at default. Is this a new thing you have entered into, or is this something you have been going on for a number of years? Is this roughly NOK 100 million you pay for this Insurance coverage lowering your basis? How much is it lowering your CET1, increasing CET1 this time around, or is this what you pay for it? You have a high CET1 ratio, so why are you actually paying to get it higher than actually utilizing your growth ability to lower it when you have strong growth? That's my first question.
Just in general, I mean, we have been using Insurance as one of the items in the toolbox originated to distribute and increase the turnover of capital. Of course, we would look at every individual transaction and the price of such coverage from a profitability point of view to make sure that it's accretive to the bank. I don't think it makes sense to think about that in terms of how much it's costing to the core equity tier one ratio, but it's one of the instruments that can be considered in the originated distribute toolbox. Yes, we have a very strong capital ratio, identical headroom to what we presented in the previous quarter. As you know, we do reinvest this into growth partly and into distribution of dividend or capital back to shareholders to the extent we do not use it for growth.
We have grown 1.7% year- to- date, which puts us in the bucket of 3%-4%, as these are guiding for the annual growth. I'd say we rather believe in growing sustainably and building valuable positions over time rather than just trying to grow very short-term on the more easier, but than usually lower return opportunities if we were more erratic. I mean, we focus on profitable growth within the strategic areas that we are targeting. Again, see ample opportunities. I mean, we're growing 3.3% also in the large corporates this quarter. Our business model is more longer term, systematically building value rather than growing in accordance with what our capital ratio is at all times.
Okay.
A few comments from Harald too, maybe.
Yeah. Jan Erik, just if you look at the growth over time in the LCI segment, you will see that growth in volumes and income is much higher than the growth in risk-weighted assets. That is how we try to manage the growth. The Insurance is a very flexible tool because you can actually cancel the Insurance after a period of time. It is a way to manage concentration risk as well on single transactions, single clients, and even industries. It is a good way of maintaining the full share of wallets on the cross-selling side without inviting your competitors into a syndicate. It is a good way for certain types of transactions to boost the yield on that transaction. It is actually a good combination, something we are very pleased to use as a part of the originate-and-distribute model.
Very good. That lead me into the next question about the lending growth in your area then. You had a sort of slow start to the quarter, probably, and that's why the average lending growth in the LCI is down Q1Q, but it looks like it's up as you pointed to on the end-to-end levels. Could you shed some more light into which countries and region and type of clients you have been gaining this time around in probably June? If this is going to be kept going forward and point to a net interest income contribution, or is it something that you want to make it into a syndicate and sell it into the bonds market, as you said to Harald?
Yeah. I can't really give a concise answer to the second part of your question because that's an ongoing process in terms of the originate-and-distribute model. That's why volumes will vary over time. Of course, the flattish volumes we had in the first quarter must be seen against the very strong growth we had in the second half of 2024. You're right, most of the growth in the second quarter came towards the end of the quarter. Again, you can't really, because of the originate-and-distribute model, you can't really look at the changes in exposure at the fault to conclude which sectors will be most active. I would say that 50% comes in Norway and 50% comes outside Norway. That's roughly in line with our overall portfolio distribution if you look at it in.
In terms of activity, I would say the most active sectors have been power and renewables, fishing, fish farming, and we've also been increasingly active on manufacturing as a part of our Nordic ambitions following the acquisition of Carnegie. We've also had a very high activity level on oil and gas. The exposure at the fault is actually down, partly because there's been a CRR3 effect on revolvers, which means that the capital weights have come down on drawn revolvers.
Okay. Just one kind of clarification on the other income. You have a very strong vision of the Fremdting and Insurance part. But also in the other income, it seems like that line is growing to roughly NOK 700 million run rate from, let's say, NOK 500-600 million over the last couple of quarters. Is it some gain hidden there, something we have missed out on either of any of your transactions done of late, or is it just the new run rate?
No. Under other income, there is an effect of an increased contribution from the corporate portfolio in DNB Life. So there you have an extraordinarily high contribution, I would say, this quarter, but it's generally a run rate that I would say would be in more normalized levels, NOK 50 million below the level today. Apart from that, there is nothing that is sticking out in terms of extraordinary. There is a positive development in the corporate portfolio in DNB Life.
Okay. So your equity in the Life is booked there as a contribution from whatever you have as a gain there. Thank you.
That is, yeah.
Perfect. Thanks a lot.
Thank you. As a final reminder, to ask a question, please signal by pressing star one. We will now take our follow-up question from Riccardo Rovere from Mediobanca. Please go ahead.
Oh, thanks. Thanks for taking my two follow-ups if I may. The first one is to get back on second to what Jan Erik was asking before on loan growth in general. The growth in the semester is running below the 3%-4%. It's just above 1% in personal customers. It's kind of 1.5% in Nordic corporate. And it's kind of 1% or even a little less in large corporate. So this is for the semester, so June and December. Multiplying it by two, basically even on land, in the 3%-4% region. I was wondering if rate cuts, that may be the one that has already happened and the ones that may occur in the next quarters, could eventually revamp. And in general terms, if you're still confident on the 3%-4%, this is the first question.
The second question I have is on the solvency of DNB Life, which continues to remain at 200%, actually above 260%. Shouldn't this go down at some point? I remember this should be brought to 140%. That's what I have in the back of my mind. It's two years that keeps traveling around 260%. And the equity base of DNB Life actually never goes down. It never goes down. So it should go down theoretically with the dividends upstream to the parent company, no? At some point.
Thank you, Riccardo. I'd say we're confident in our ability to deliver the 3%-4% growth this year as it stands. We have grown 1.7% so far this year. And just by doubling that pace, we would be at 3.2%. That being said, we do start to see signs of an upsticking activity in house constructions that could lead to a further increase in credit demand in the SME corporate customer Norway sector. There is a very active housing market. With additional couple of rate hikes, the expectation is for the credit demand in the personal customer area to continue to grow, and we should take our fair share of that. It's always more difficult on the large corporate side because it will vary more from a quarter- to- quarter.
What we can say is that we are positioned in industries and sectors that are driven by long-term trends and that we are able to find opportunities where we can add value and that are profitable to us. We will continue to work on them. Three to four should be well within reach this year. As for the solvency, the solvency ratio is high. We are not targeting to go down to 140%. 140% is the minimum level we say at which point we will consider to dividend up to 100% of the result from the Life Insurance company. We have additionally talked about the expectations to allocate NOK 10 billion back to shareholders towards 2030. We are at the beginning of this period, having done this for the second time this year.
Over time, everything else being equal, this should lead to a reduction in the solvency ratio. That being said, Ida just commented to Jan Erik about the improved result in the Life Insurance business. We have seen also this quarter an improvement in the risk result in the Life Insurance business that we expect to continue. Of course, it is also impacted positively by an improved result in the Life Insurance business. If that proves to be sustainable, that would add even more capital and add to the capability of distributing capital back to shareholders.
Okay. So the idea of upstreaming dividends from DNB Life to the parent company, that remains. The fact that the solvency ratio remains, the solvency stays into 260%, does not mean that you will not upstream capital from Insurance to the parent.
Absolutely. I mean, as you're pointing to, the solvency ratio is way ahead of the level where we're saying we would consider holding back regular results. There is ample room to deliver on the outlined intention to distribute capital back. As you know, our obligations onto the guaranteed portfolio have topped out and gradually also come down further, adding to the capital built up in the company.
Yeah. Okay. Thank you very much. Thanks for your clarification.
Thank you. We have a question from Johan Ekblom from UBS. Please go ahead.
Thank you. Just two quick follow-ups. I saw you made a decision to demerge your leasing business. I was wondering if there is any, or what the rationale is behind that, if anything. I mean, I think the trend is towards simplifying legal structure rather than adding legal structure. What drove that decision? I just wanted to come back to Ida's comments on the output floor. Because I think you've always been very clear that you do not expect meaningful impact from Basel III finalization. Ida says somewhere in the average of Nordic banks, the average of your five large cap peers that have disclosed is 11%. There will be NOK 120 billion higher risk-weighted assets pre-mitigation. I'm not sure how I could square that with minimal impact. If you can maybe give some more color there, it would be helpful.
Absolutely. If I start with the demerger, this is driven by the fact that we see that a lot of other leasing companies, the main competitors to DNB Finance, is on standalone basis and are not the aggregator or part of other kind of ordinary banks, which with this new setup that we're now establishing, makes them far more competitive and also far more similar to their main competitors. This is, in one way, a simplification as well in terms of streamlining and simplifying the structure for DNB Finance. That's really the driver for this. When it comes to the output floor, as I said, we will disclose this in August in the Pillar Three report. Again, you can only see my comment as being an indication of my best estimate today. It could be lower, but it could be in that region.
I think we will just have to come back with a further clarification and description when we have the full information in August.
Thank you.
Thank you all for your questions today. It appears there are currently no further questions in the queue. With this, I would like to hand the call back over to our host for any additional closing remarks. Thank you.
Thank you very much. Thank you all for your participation. We all here from Oslo would like to wish you a pleasant and a very good summer. Thank you so much.
Thank you.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.