Hello and welcome to the DNB Q3 conference call. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions. 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'll be connected to an operator. I will now hand you over to your host, Rune Helland, to begin today's conference. Thank you.
Thank you very much, and a warm welcome to all of you. Welcome to DNB's annual call for the third quarter. Here in Oslo, we are, in addition to Kjerstin and Ida, we are Head of Personal Customers, Maria Løvold, and Head of DNB Carnegie, Alex Opstad. Before we start the Q&A session, Ida will give you the highlights for the quarter. Ida?
Thank you, and hello everyone, and thanks for taking the time to listen into this call and participate. The Norwegian economy continues to perform well, and we're also seeing that the recent updates stemming in terms of new data points show that GDP growth will be higher than what was expected before. GDP growth this year is expected to come in at 1.8% and then continue to grow around 1.3%-1.5% in the coming years. Mainland corporate investments continue also to show a positive outlook, and also more importantly, when looking at the surveys done with the corporate customers and the corporates overall around Norway, it shows a very positive sentiment. We noted higher real wages last year and also continue to see that real wages are expected to increase also this year, of course supporting both purchasing power but also lending growth overall.
Unemployment levels remain low at around 2%, and that is of course also positive when looking at the potential in terms of loan growth going forward as well as consumption ahead. The Norwegian central bank has decreased the key policy rate twice by 25 basis points and now has a key policy rate of 4%. Our economists believe that there will be one further rate cut in June next year, which means that we will level out on a key policy rate of 3.75%, a very healthy level also for an economy such as Norway. When turning to the quarter, we delivered a solid third quarter result with a return on equity of 15.8%, earnings per share of 6.98%, an uptick of 2.8% from the last quarter, and year to date an earnings per share of 20.81%.
In the quarter, we saw net interest income coming down by 1%, impacted by the key policy rate, customer repricing, and product mix effects. We saw a positive and profitable loan growth in all customer segments, but mainly pointing to personal customers increasing by 0.4%, corporate banking in Norway being relatively stable this quarter, also due to the fact there wasn't any major uptick in terms of new builds of houses. Large corporates increased by 0.5%, but underlying in that portfolio, there were significantly more movements than what you can see in those numbers, so actually the activity picked up also during the quarter. On deposits, we saw an increase of 0.6%, a seasonal decrease in personal customers, an increase in corporate customer in Norway, also seasonal linked to the public sector. Underlying SMB customers, we had an uptick in deposits of 2%.
Large corporates had an uptick in deposits of 8.5%, driven by one less tax payment within the oil industry. We continue to see a good and solid and well-diversified feedback. Net commission is up 28.9% from the corresponding quarter last year. Underlying asset under management growth was NOK 54 billion in the quarter, net NOK 15 billion due to the fact that we also divested the Holberg portfolio in the quarter. There's also a strong activity and investment banking pipeline moving into the fourth quarter, but also good activity on the equity capital market side, not least as well as debt capital markets in the quarter, where we saw a significant uptick towards the end of the quarter. Our credit portfolio continues to be robust and well-diversified. 99.4% of the portfolio is stage one and two.
Of the total impairment provisions taken this quarter of NOK 862 million, the legacy portfolio in Poland accounts for NOK 281 million, and a model adjustment of the expected credit loss model impacting stage one and two in personal customers as well as corporate customer Norway amounts to NOK 150 million. That means that the underlying impairment provisions of the portfolio, customer portfolio, is NOK 431 million. There are no systematic changes in the portfolio, and overall both the personal customer segment as well as the corporate customer segments are performing well and show a very solid development. Core equity tier one of 17.9%, 135 basis points above the regulatory expectation, also taking into account that we today launch a new share buyback program of 1% in addition to the one that was completed during the third quarter. So with that, thank you for your attention, and we open up for questions.
Thank you. As a reminder, if you would like to ask a question, please press one on your telephone keypad. If you change your mind and want to withdraw your question, please press two, star two. Please ensure your lines are unmuted locally as you'll be prompted when to ask your questions. So as a reminder to join the queue for questions, it's star one. The first question today comes from a line of Martin Ekstedt from Handelsbanken, please go ahead.
Hello, thank you. Can you hear me?
Yep, yep.
Yes, I can.
Okay, excellent. So I just wanted to ask you about loan loss provisions. You see that there's been surprisingly little disclosure around this in recent quarter given the size of provisions. I think in Q2, sorry, in Q1 this year, you said it wasn't very material. Then in Q2, you said interest was NOK 152 but mentioned that this was lower than the undisclosed amount you took in Q1, and now you took an additional NOK 281 loan losses this quarter then. So that means you've taken well more than NOK 500 million in 2025 alone, right, which has elevated your loan loss provisions ratio at least from my calculations, three basis points. So I mean, provisioning for the FX part of the Polish lending portfolio seems to be just below 50% now based on what you said in the call earlier.
Are you comfortable with this level of provisioning, or is there possibly more to come? And don't you think you would just benefit from giving some more numbers on this? For example, I mean, the ECL adjustment of NOK 150 million, you've got the bullet in the credit quality slide of the presentation deck, right? But this Polish provision, which is almost twice the size, it was already mentioned in voiceover. I mean, wouldn't it be better to just give a slide on this showing what you've taken in each quarter and how provisioning has evolved and so on? Thank you.
Thank you so much, Martin, and we'll take your feedback into account and hear what you're saying. If we look at the Polish portfolio, as we've said before, this is related to a legacy currency portfolio of which we have total outstanding loans of NOK 3.7 billion, as you rightly point to. 88% of that portfolio is in euros, 2.3% in Swiss francs, and the remaining is in zloty. We have taken accumulated provisions of NOK 1.6 billion related to this portfolio. The reason why we've taken added provisions this quarter as well as the previous two quarters has not been in relation to change of activity among the customers, but more the fact that we have taken different approaches in order to try to solve this situation and really see how we can work with it.
In addition to the fact that we, of course, follow this portfolio very closely in terms of movements and also actions from reactions and actions from the customers. The impairment levels that we have taken today are in line with our best estimate given the information and also the development we've seen in the portfolio and also the development overall, so it's impossible for us to say if there will be more impairments or if it will not, because that would have meant that we would have to take that today. On the other hand, if we continue to see a growth momentum in terms of solving these issues, that will also impact impairment provisions going forward, but today, we are very comfortable with the levels that we've taken, but follow this closely also ahead.
Okay, great. Thank you for that. The next question comes from a line of Marcus Sanden from Group. Please go ahead.
Good evening, everyone. So first one on commission income following the downturn this quarter. I think you've said that you expect to have a 9% growth in the coming years, and I was thinking there's less than half that comes from corporate finance and asset management, and the rest has been at least historically growing pretty slow. So I mean, could you elaborate a bit on how do you see this commission income pan out in the coming years? What should we expect from corporate finance, for example, in terms of growth year on year?
I can start by giving some more general comments and then maybe ask Alex to give some more flavor on this quarter. I think it's a substantial and growing portion of the fee and commission that stems from asset management and investment banking, and those are also the key engines that are fueling the growth that we do expect and talk about when we talk about expecting above 9% growth on an annual basis. I think if you trail back and adjust for changes in accounting principles, you will see that our trailing growth pace over previous years has been somewhere between 6% and 7%. So that should be a representative number for what the before looks like, before the Carnegie transaction that is.
And then we will not be able to break out for you the expectations related specifically to investment banking or asset management that need us to say they need to be at an annual pace above 9% in order for us to deliver on the 9% in total fee and commission. Rationale is slightly different if you look at investment banking versus asset management, but from my side, I will refer to the complementarity of the businesses, the strengthened offering, the platform that we now have as a leading Nordic bank, and also judging from the feedback that we already see from customers and the position that we have across RFPs and mandates that we see coming in, that confirms the business rationale as we have seen it.
Asset management, I think the strength of the platform is demonstrated also this quarter with an increase in assets under management by NOK 54 billion and divesting a sizable volume like Holberg isn't even visible in the numbers. We again also talk about a record high level of savings agreements, which is one of the main engines related to the retail area, where that, in addition to the defined contribution, are very sticky and continuously growing amounts adding attractive assets to our total base on a monthly basis. So I think these are the drivers, and yet again, compared to historical pace with some changing accounting principle that makes it look less out of the box, the real sort of growing number has been between 6% and 7%. But Alex, maybe you can add some more flavor to this quarter.
Thank you, Jessie. Well, first of all, to say that I guess it's 366 days exactly since we announced this combination, and the starting point was a very, very good fit in terms of the complementarity that you talked about, Jessie, both in terms of geography, in terms of product, and in terms of sectors, and we feel that that has played out as expected over, say, the course of the six, seven months where we have been one combined entity. If we look at the business in the quarter, stronger in terms of capital markets, both on ECM and DCM, and a little bit softer on M&A if you ask about corporate finance in particular, especially the ECM momentum was strong towards the end of the quarter and into October.
As you know, Carnegie has an incredibly strong ECM platform that's been a driver of their business for many years. If you, for instance, take the 30 largest IPOs in the Nordic region in the last five years, we combined have been an advisor on all of them, and we've led 25 out of the 30. And that's perhaps the area where we see the most visible business momentum at the moment, but only, say, one significant IPO closed in the third quarter, and that was the IPO of Nova in Stockholm. And then we've seen significant market transactions into October, most notably the IPO of Verisure that listed in Stockholm on the 8th of October.
And I think that's a good example of sort of synergies or business that one or the other firm wouldn't be able to do on their own because it was a combination of products that got DNB Carnegie invited into the RFP and, of course, a fantastic effort and outcome both for the company but also for the legacy ECM Carnegie platform that brought this company to Stockholm in what is then the largest IPO in Europe in the past three years and the biggest one in Sweden in 25 years. So we do feel that there are significant successes that sort of validate the merger rationale, and we look quite optimistic upon our sort of positioning. And if you look at investment banking across the Nordic region, using data from Dealogic year to date, we are a very clear number one across products than ECM, DCM, M&A, and loans.
And our market share is, I guess, then more than 50% larger than number two. So we do feel that the sort of business logic is being validated every day, and we do feel that we do get a lot of positive feedback from clients, and that sort of makes us optimistic for the continuation. And then lastly, maybe just to highlight, it's still early days. We've been a combined sort of entity and brand operating since May, and it's going to be, in some sense, this will always be a bit of a transition year because it takes time to build this business together.
Very good. Thanks. That was a very thorough answer. Thanks.
A quick reminder, if you'd like to join the queue for questions, please press star one on your keypad. So next question comes from a line of Shrey Srivastava from Citi. Please go ahead.
Hi there, and thank you for taking my question. First, I'd like to say thank you to Ida for answering all of our questions over the last few years. I'm sure it can't have been easy. My question now, I want to have an updated assessment of the new and the competitive dynamic for mortgages in Norway. I know this is a key feature of last quarter, and you mentioned you were prioritizing sort of margins over volumes. What is your updated assessment after the third quarter results, and how do you see the change in the dynamic from the changing risk-weight floors? Thank you.
Sorry, in terms of the changing dynamics on the competitive landscape. First of all, I think it's important to look at, on the personal customer side, we've always talked about a strong competitive market, but rational, and we continue to say that the market is indeed rational with all the largest players focusing on profitability above growth. On the other hand, you also see that there is growth in the Norwegian market compared to other markets in our neighboring countries where there are limited growth. That means that a lot of the Nordic players are also focusing on positioning themselves in the Norwegian market.
So what we're saying is that there is continuous strong and fierce competition and perhaps a bit elevated also in the periods where there are rate changes, which is also natural due to the fact that the customers then become even more active in looking at the loans. Having said that, I think for us being the largest player and also maintaining the position as being the largest player with a good headroom above the second player is important for us and also shows that we have continued to focus on profitability above growth and will continue doing that also going forward.
If you look at the corporate customer segments, we are also seeing strong competition, especially on the small and medium-sized enterprises, but again, I would point to a strong rational behavior, and the same goes for large corporates where there aren't really any changes to speak of in terms of competitive landscape, and maybe just to add, since you mentioned specifically the risk-weight floors, naturally this has increased the competitive edge or cost of capital, if you will, related to mortgages for the standard model banks, and we do see some impact of that insofar as they are slightly more aggressive in the market. We are not particularly concerned by that. It's just one piece in the element of competition. They represent roughly 20% of the market, and I think it's tough to grow as a small bank regardless.
So it's not anything that we expect to materially impact the total picture overall.
Brilliant. Thank you very much.
The next question comes from a line of Sofie Peterzens from Goldman Sachs. Please go ahead.
Yeah, hi. This is Sophie from Goldman Sachs. Thanks a lot for taking my question. So my first question would be on your exposure to U.S. renewable energy. There was a press article maybe a couple of weeks ago where the regulator was kind of looking, I guess, at your U.S. renewable exposure. Is there anything you can add here? Do you see any risk for any higher risk weights for this exposure class or anything else that the regulator potentially could do? And if you also could just let us know how much exposure you have to U.S. renewables. And then my second question would be, we've now heard a couple of other banks kind of talk about the need to invest maybe a little bit more due to growth online. Does DNB see any need to make any additional investments to grow revenues over the coming years?
Thank you, so if we start with the report that came from the NFSA, and as you all know, the NFSA makes all the reports public, and that's why some of them make headlines in terms of Bloomberg, and I think this is what you're referring to. What the NFSA pointed to in their revision of our U.S. operation was that we have had a relatively strong growth in the renewables area over the past few years. They also pointed to the fact that in a situation where you're growing in areas that are, in their view, new and unexplored, not for DNB because we have a 15-year experience from working in this industry and understanding the industry, they are pointing to that there are, of course, risk factors, both geopolitically, political risk, and other factors that we need to take into account.
We are not seeing anything in that report and also not in the discussions with the regulator following that report or that examination to say that we would need to change our models related to renewables. We are very comfortable with the position that we have there, the exposure that we have in the U.S., and the exposure that we have overall in renewables, which has been an area that we also believe that we can fill an important role globally, bearing in mind our know-how. The power and renewables portfolio accounts for 4.2% of total EAD in the group, and I think it's fair to say that we are seeing less activity in the U.S. renewables portfolio today than what we did a year and a year and a half ago, and that we expect to continue to see also going forward.
The growth that we're seeing today is more related to the U.K., for instance, where we're seeing carbon capture storage initiatives as well as other wind projects being initiated in other parts of the world rather than in the U.S. And just to add, when Ida talks about 15 years of experience, that's 15 years of experience doing renewables outside of Norway. If we look inside of Norway, we probably have 100 years of experience given the fact that all energy in Norway practically are renewable, the one that we are consuming. You asked a question related to the need to invest in order to grow. We have invested in Carnegie. That has given us a tremendous platform to grow our activity in the Nordics.
Beyond that, I would not say that we have a material investment need in order to be able to deliver the growth that we have talked about targeting for the future.
Thank you. That's very clear.
The next question comes from a line of Thomas Svendsen from SEB. Please go ahead.
Yes. Good afternoon. So, question to the corporate, the lending margins in the corporate customer segment in Norway. So, several of the smaller banks launching this growth ambitions in this segment while you are disciplined, showing no growth this quarter. But do you think it's fair to assume that sort of the equilibrium margin above the number is lower to sort of get growth in this segment given the competition?
I think it's a very sort of challenging question to give a straight answer to if you're taking the corporate market as a whole all the way from SMEs up to the larger ones, or maybe you're asking mid-size and larger ones. I would not say that one quarter is sufficient to judge this at all. I think local banks cooperating and regional banks going national certainly adds into the competitive picture, but still within what we would define as a rational framework. If you look at the volumes, yes, in corporate banking Norway, they are flat end quarter to end quarter. But I reiterate that when we look at the regions, we do see growth in four out of five regions in Norway and a healthy development of the portfolio.
So performance-wise, we are more or less on par with the growth that we have been used to delivering, lacking, of course, the volumes related to house construction activity. So I'd say there's no concern there, and we believe this continues to be an attractive area for growth. Talking large corporate, if you look at 12-month growth, it's 10.2. We always say that you need to look at more than one quarter. It can be choppy from quarter to quarter in view of the very rapid turnover in this portfolio with a duration of less than two years. The quarter that we have just reported on also held high activity on refinancing, in particular, substantial takeout of several bridge-to-bond facilities.
I would not confirm that we see what you describe as a trend to be a trend, and we're comfortable with our ability to continue to grow profitably across these two areas.
Okay. Understood. Thank you.
The next question comes from a line of Riccardo Roveri from Mediobanca. Please go ahead.
Thanks. Thanks a lot for taking my questions. Two or three, if I may. The first one, I just want to get back to the initial question, Polish provisions, but then just inform. One of the reasons I believe that's why today the share price is down 4% is because almost NOK 1 billion of provisions were not expected. Now, your level of provisions is not only larger than that of the other Nordic banks, but it's also much more volatile. Now, you have almost NOK 3.9 billion of expected loss deduction in your capital already deducted.
Would you ever consider to increase the coverage ratio, to take provisions in the P&L, maybe in Q4, in all the areas where you see some problems, given that this would unlikely affect your capital, given that that stuff is already deducted in one way or the other, so to make that line of the P&L a little less volatile, and that should not even impair your ability to pay dividends because that thing is already deducted. It's almost NOK 4 billion. It's a fairly large amount deducted from the capital base already. This is my first question. The second question is, with regard to risk-weighted assets, if I strip out the impact of the floors on the mortgage book, risk assets are kind of flat or maybe even a little bit down quarter on quarter.
So I was wondering if you had any mitigation, if you executed any mitigation action in the quarter, SRTs, anything like that. Then I have another question on deposits in the large corporate. I don't know if Harald is on the call or not, but the deposits in the large corporate have gone down quite significantly. Okay. I understand the seasonality, but the seasonality seems to be much, much larger this year than what I have on the back of my mind. And then I have a very, very final question, if I may. I mean, those are facts. Whenever you report numbers on a quarterly basis, and this is not a criticism, this is nothing. It's just facts. That day, the stock generally is down like today. Now, is that a problem for you?
Do you think this is disturbing for you, or you think maybe you could change something in your communication on anything to prevent that basically three times out of four, the share price is down whenever you report the numbers? Thanks.
Thank you, Riccardo. I'll leave the three first ones to Ida, but on the last one, let me just be very, very clear that we do not manage our business in view of expectations for share price development in one way or the other, and we do our utmost to be as clear and transparent as we see fit with regards to communication, and in general, the feedback that we get from most of our owners is that we have detailed, transparent, and very open reporting. We believe that our focus should be on building a valuable business, work systematically, which is what it takes in this business, in our experience, to create value for customers and through that actually create value for shareholders, and we believe that needs to be assessed over time.
And if you look at the statistics over time, that is a fairly good testament to us having done exactly that. With regards to the other three, I will hand it over to Ida.
Yes. Thank you, Riccardo, for your questions. In terms of, I think it's important to say that over the past 15 years or even longer than that, we have worked quite diligently on diversification of the portfolio. That has taken down cost of risk over time, and we've also seen that that's, if you look at it, average five years, that has meant that we've taken down cost of risk from 21 basis points, which was the average then, down to 12-14 basis points. And this quarter, the underlying cost of risk is 8 basis points. Then, of course, I can see that there is always challenging to see that there is model adjustments. Expected credit loss model is expected to be updated on a general basis, on an ongoing basis.
We have today and this quarter updated our expected credit loss, which is also in line with the expectation from our external auditor as well as the regulators. And this is something that we do on an ongoing basis to ensure that we also link it to your first question in terms of management overlays. I know that other banks are working with significantly larger management overlays. Our understanding of IFRS 9 and also in close dialogue with the external auditors is that that's not something that they prefer to see and also not something that is in line with the regulatory requirements on IFRS 9. But then I can see your point from an analytical point of view that that would make it a lot easier in terms of seeing that there is less volatility.
But that's not how we have interpreted regulatory regime and also not how our external auditors have interpreted. When moving to your second question in terms of risk-weighted assets, yes, there is indeed a decrease. And if you look at stage three, you can see that there is a significant decrease in overall exposure in stage three, which is related to a sale of an exposure that was there for quite some time and therefore reduces risk-weighted assets. And then you can see that that's also to some extent been changed with low-risk exposure in the large corporate area. We are continued to working with securitization.
As we talked about a year ago, we did the first securitization, and we are also now looking at new opportunities within securitization, which will be an important tool also going forward in order to ensure that we optimize the capital position and utilize the capital in as smart and efficient way as possible. You also point to your last question in terms of large corporates and the deposit volumes there. It's true that underlying it's a decrease of 0.7% in the quarter. FX suggested it's an increase. Oh, sorry. It's an increase of large corporate deposits of 7.4%. FX suggested it's an increase of 8.5%. I believe you might have then talked about the corporate customers Norway when you said that there was a decrease. Am I correct in assuming that?
LCI over the year, I think.
LCI over the year is also happening.
No, it was actually LCI because if I look at your fact book, the amount of deposits in LCI was 512 in Q1, went down to 62, and now it's down to 450. I don't know. Maybe the dollar has an effect here, maybe.
A very large amount of our deposits in the large corporate area is, first of all, time deposits, and second of all, it's dollar denominated. So therefore, you will see an effect of that. As we mentioned, in the second quarter, we had a larger decrease in deposits related to a few customer-specific situations in the large corporate area. Some of that has come back this quarter, but again, these are volatile deposits that are not as important from a funding perspective, but are still very profitable for the bank, and therefore, it's something that we continue to work on as being part of the proposition to the large corporate area but overall, in terms of margin development and underlying growth on an NII perspective, these deposits are not as relevant for us as other deposits, which is important then to look at when you look at the corporate customer area, for instance, where we mentioned earlier today that the underlying growth in the SMB segment is up 2%, while you see a decrease this quarter related to the public sector, which is, again, low-margin deposits.
Okay. Thanks. If I may just a very, very quick follow-up. When you mentioned the Verisure IPO, that was, if I'm not mistaken, more than EUR 3 billion IPO, so it's kind of more than SEK 30 billion IPO. Your role was, if I'm not mistaken, Global Joint Coordinator, so it was not junior at all. Am I right in saying that you could book hundreds of millions of NOK in fees in Q4 on the back of that, if I may ask?
I guess there are italics here, Riccardo. Thank you for your question. It's correct. So this was a very significant transaction, as I mentioned, the largest one in Europe. I believe it's the Porsche IPO in 2022. And the role that DNB Carnegie had in the IPO was one of three lead banks, and the other two were U.S. global investment banks. And this will be a good event for our business.
Fair enough.
Finance.
Okay. I understand. Fair enough. Thanks.
It's Q4, as you say.
We currently have no further questions. So as a final reminder, if you'd like to ask a question, please press star one on your keypad.
If there are no further questions, we will thank you for your valuable questions and wish you a nice day. Thank you very much.
Thanks. Bye.
Thank you.
Thanks.