Welcome to the DNB Q4 conference call. My name is Alan, and I'll be your coordinator for today's note. This call is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one or if you require assistance at any time, 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.
Thank you very much, and very, very welcome to the DNB's analyst call for the fourth quarter . Present here in Oslo: Kjerstin Braathen, CFO Rasmus Figenschou, Head of Personal Customer Maria Ervik Løvold, Head of Corporate Norway Marianne Wik Sætre, Head of LCI, and, of course, Head of DNB Carnegie, Alex Opstad. Before we open up for a question, Kjerstin will give you highlights from the quarter.
Yes, everyone, just a few highlights on the backdrop with the Norwegian economy that continues to perform well in a world where uncertainty is growing. The GDP growth this year expected to be 1.5%, 1.6% next year. We continue to see low unemployment, and this is after all indicator that that demonstrates financial stability and health in the Norwegian economy. 2 rate cuts in 2025, we believe there will be one first before the key policy rate stabilizes around 3.75% for the remainder of the forecast period. Again, and the same as lack of opportunities for businesses in Norway and also sectors that we are involved in outside of Norway, and this translates amongst that you see us delivering in the Q4 .
But the backdrop is still positive for our business. The quarter as such, we are pleased to see that continues to grow, even on the back of rate reductions that are also taking effect, this quarter. 1.2% growth in NII, we're seeing growth across segments, and as well as positive contributions from other interest-related elements, offset by rates as well as some mixed effects on the NII segment. The real strong point in our mind is fees that grows in this quarter. Two very strong contributors is assets under management that has a strong net inflow of NOK 20 billion in the quarter. And of course, also DNB Carnegie, with a sharp uptick in investment banking and equities, and a high level of activity through...
I would even highlight more the strength and position across asset management and, investment banking, where we have received many proof points and positions, among them, the fact of being the institution that participated in, the highest number of IPOs in Europe in 2025, as well as the amount that was raised in the market. Costs are up, reflecting high activity seasonally in the quarter, and also some one-offs that we have talked about. We also chose to highlight the cost development for the year, believing that this is more representative of the development.
If we take a look at the underlying cost development, it's 2.6% for the year, slightly less than the inflation level that we have seen in Norway of 3.1%, demonstrating that we work systematically towards delivering on the cost ambitions outlined in the Capital Markets Day. Strong capital generation in the Q4 , strong earnings per share, up from Q3 , contributing to the basis on which our board intend to recommend a cash dividend per share of NOK 18 per share for the year 2025. We also announced today an additional share buyback program, in aggregate, taking this to 1.1% of our shares being bought back as outstanding in 2025.
After deducting both the cash dividend and this last, share buyback, our very strong 17.9% headroom towards the expected and required, level by the FSA. So a positive backdrop, a strong capital, supporting our ability to continue to grow and a commitment to deliver on our dividend policy, as we demonstrate again by lifting the nominal level dividend from what was distributed in 2024. And from there, we'll take your questions.
Thank you. Operator, we are ready for questions.
Thank you. If you like to make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised your question. We will take our first question from Gulnara Saitkulova, Morgan Stanley. Your line is open. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. I have two, please. First one on competition. Can you share your current observations on the competitive dynamics in Norway, are you seeing any meaningful changes compared with the last year? Lending spreads have come down this quarter. At what level do you expect them to normalize, and how does that relate to the competitive environment, and what initiatives can help you to offset the pressure on margins? And maybe here you can, maybe you can elaborate more broadly, are you betting on pricing actions, or do you see digital capabilities and service quality as the primary levers to retain customer flow?
Thank you for the questions. In general, on the competitive environment in Norway, we qualify that as strong. I think we have seen, and we have said for some quarters, that capacity and appetite to grow is larger than that of the demand. Our focus on growth is always profitability, and that is why we're also pleased to say that even in this environment, we are able to deliver profitable growth across all sectors. The strongest contributor in terms of being Corporate Customers Norway and Large Corporates. On Large Corporates, we are, of course, also leveraging our platform to grow outside of Norway, and half in the quarter and for the year stems from our activities outside of Norway.
And again, we often talk about this platform and our ability to leverage positions, and this is typically a year where you see that being demonstrated. We always advise you to look at the volume-weighted margins of official spreads, in particular, in periods where the key policy rates and prices are moving, and therefore a decrease of 6 basis points in the Q4 . This represents materially the impact of the repricing implemented throughout the quarter. It does also represent, in part, mixed change, different growth between lending and deposit, margin pressure related to the competition we have talked about. We are, I would say, offsetting margins, leveraging our platform, our presence, our capability across Norway to grow also in times of strong.
We would not match any price points. There is no need to match any price points as long as we can grow profitably. We are working, we have talked about to reduce time to pay out on mortgages. We have reduced the time for mortgage application and processes by 25% during 2025. This is important to customers. We have facilitated much easier registration of businesses for new companies and onboarding into them, reduced the timing of this by 37%. And of course, we actively use our distribution, both digital and physical, in order to market and proactively seek growth. So this will be our strategy going forward. We do not guide it on margins as such.
I did mention that we do expect to see another cut in the key policy rate towards the summer. This is likely to believe to have an effect if banks continue to also change prices when key policy rates are priced. But we're confident in our time, deliver growth, and we iterate the ambition to grow 3%-4% for the group. It's not the max. We did grow by 4.9% in and as long as growth is profitable, there is some some flex to this. But the main plan and sort of ambition is a 3%-4% rhythm, I would say, on the on the back of the platforms that we command.
Thank you. Very clear. And just, second question, the impacts on NII. How should I think about this item going forward, and what are the key underlying drivers for other NII? And should we assume for the, that this benefit is non-
Well, it's a harder element to give you sort of guidance on in relation to other elements related to volume and margins, because other NII tends to be more volatile from quarter- to- quarter. It's a bucket consisting of many different. If you look at the pre-provision and negative delta from quarter- to- quarter, this quarter, we are in a situation where all of these major elements come into play. Among the categories that are represented in other NII is interest-bearing activity that is not directly linked to lending, one of the examples being securities finance, another being short-term management of liquidity. It is also a bucket where that stems from intercompany elimination in the accounting will be visible.
It also bears elements of non-performing portfolio that can impact the numbers from quarter- to- quarter. So there's no real sort of ground rule for indicating the direction or which level it should be at. If you do, however, look at this over a longer period of time, I think you would more often than not, there is a stronger contribution in the Q4 than in other quarters.
Thank you very much. Very clear.
Next question from Sofie Peterzens, Goldman Sachs. Your line is open. Please go ahead.
Yeah, thanks a lot. Here is Sofie from Goldman Sachs. So, the fees, the investment banking fees, very, very impressive, up 100%, over 100% year-on-year, and over 60% quarter-on-quarter. You think about the sustainability of this fee income line, is it fair to assume that it could be kind of a normalized Q4 level, or should we expect kind of the level we saw this quarter to be a normalized level. And then my second question, on the Polish mortgage provisions. Could you please just remind us what the outstanding exposure is, any additional provisions this quarter for that book, and how much the total provisioning or coverage is? Thank you.
Should I start, Kjerstin?
Yes, please.
Hi, Sofie. It's Alex here. So referring to the investment banking fees and the growth that you mentioned in Q4. Well, first of all, of course, a seasonally strong quarter for investment banking, normally, and we saw that also this year. But I would say that the activity level is broad-based, and while we also have some large significant transactions, it was broad-based enough to say that we expect that to be a sort of normalized level for Q4.
Yes, and when it comes to the Polish portfolio, this is NOK 34 million, which is much lower than last quarter, but this is what we see sufficient for the situation. Currently, the size of the portfolio is NOK 2.4 billion, which, where the composition is 89% in EUR, 1% in CHF, and 10% in PLN, the nominal.
Sorry, just a clarification. On the Polish portfolio, what was the original exposure of this book?
The max exposure back in time?
Yes.
I don't think we have that number.
Okay.
But, yeah, I'm not sure why that would be relevant. I mean, what we're outlining now is the current exposure and spread across currencies.
Okay. No, because some of the other European banks with Polish exposures are saying... I mean, if you look at the Polish banks, they have, like, a percent coverage because they are saying that you basically also can get claims for loans that have already been repaid. So I was just curious that the size of this exposure at the peak was.
Okay. Yeah. So I think what we can say is that the aggregates that we have taken of our best estimate as to the representative level of impairment.
Okay.
We will take our next question from Riccardo Rovere, Mediobanca. Your line is open. Please go ahead.
Thanks for taking my questions. A couple, if I may. The first one is, if I remember correctly, and if I understood Kjerstin, you mentioned that in Q4, you somehow experienced some lower margin pressure than if I got your comment right this morning. I was wondering if you could elaborate a little bit on what exactly that meant. And the other question I have to you is, if the loan book is supposed to grow kind of 4%, because this is more or less what you have delivered in 2025, this is a fairly elevated number, at least in Western European countries, that the pie is large enough for everyone to have a profitable growth without margin pressure. 4%, it's fairly, fairly high for Western European standards.
So I was wondering whether that comment to you makes sense or not. And then, sorry, to get back to what Sofie just asked on Poland, but it's not clear to me if you actually charged some provision in this quarter related to the Polish portfolio, and how much that was. Thank you.
Thank you, Riccardo. We charged another EUR 34 million this quarter. You are correct. I did mention an observation that we had seen lower margin pressure in Q4 than Q3. I would qualify this as a comment related to the fact that we are not seeing spiraling and rapidly increasing rather than indicating what we expect to see in the future. My reference was also pointing to the fact that it's not just thinking about growth versus pricing. I'm quite happy to see the work that Maria and her team is doing in order to leverage our position, our products channels, both in terms of physical distribution and digital, in order to generate new customers and across the services and products we are offering.
3%-4% growth has been sort of our marching rhythm, so to say, above some years, slightly below. It speaks to our growth platform more than to the pace of economic in Western Europe. You know that we have more of a challenger position in other Nordic countries than means that we are not as dependent on the growth in the economy overall, and we feel that our offering and capabilities towards clients is much improved, regarding Carnegie across investment banking as well as wealth management, and this is well received by our our customers. Beyond that, we continuing brand and offering across energy, across the maritime sector, across healthcare, and these are all industries that are driven by some of them we see that we see evolving.
This is the reason why we think we can detach a little bit and deliver profits. If this means that everyone can deliver profitable growth, I'll leave it up to others to judge. But I think we have highlighted, as we believe it's the fact, that our growth platform is a competitive advantage that gives us room and flexibility that others may or may not have.
Okay, just still, you know, 3%-4%, it would be at least for Norway, less than the nominal GDP. Why should that be the case? Because the nominal inflation is 3%. Real GDP growth expected to be 1.5%, kind of, is one of your slides, if I'm not mistaken, and 4.5%. Why the largest bank in the country should be growing less than the nominal GDP?
Well, I think you can order of development of house prices and refinancing activity that fluctuates. I think and look at the historic development, it has not been very representative to just combine GDP as inflation. I mean, there are other factors that are impacting it. You need to look at the credit demand, for one. This has come down. With the demand, for example, among Corporate Customers Norway, in the SME sector, grew by 2.9%. Yeah, we are growing more or less exactly in that rhythm. If home construction, as an example, does pick up, we don't materialize in 2026, maybe towards the end and into 2027.
We wouldn't expect it to materially impact the GDP growth, but we would expect it our growth numbers. So it's a little bit different than just combining the, the inflation and the, and GDP. And again, the international platform and the rapid turnover we have in the portfolio, meaning that if you took the gross amount, I think if we were only looking to add volume, we could add much more. But we are very focused on profitability, and the larger the clients, the larger the holdings. We'll also look to syndicate, originate, and distribute. So the gross level of business that we're doing, where which involves also a lot of refinancing commitments, is again much higher than the GDP growth.
Fair enough. Thank you.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We will take our next question from Jacob Kruse. Please go ahead.
So two questions. As for Carnegie, what would be the area you found greater success than you had expected in your plan, and conversely, other areas where challenges? And second, just to understand, when we look at this, other effect and thinking about 2020, 2026, and I guess Q1, do you think it makes more sense to start with Q3 as a base level, or is Q4 kind of a better starting point? I realize that if you could elaborate on that. Thank you.
Thank you, Jacob. I'll hand it over to Alex to answer Carnegie. On the other NII, I'm afraid I won't be able to give you much assistance. You will see that it is a line that fluctuates. I would just reiterate, not having gone back and looked at this quarter, but over time, if you look at several years, it tends to be a lower contribution in Q1 , the Q4 , typically because of more elemental towards the end of the... You need to keep in mind a non-recurring quarter number of NOK 100 million.
Yeah.
Hi, Jacob, it's Alex here. So, your first question, what sort of areas have we had greater successes than we may be at the outset? I might say we to this believing that the two business great fit in terms of, and that all integration time consuming. And, maybe start by highlighting that we are all only really two full quarters in combined operations in. So if we go, May of last year, really the focus point has been to bring the organizations together and bring our combined products to our clients and really position. And then if I were to summarize then both Q4 and 25 in that context, we have made very good progress on market position.
The areas that are most affected in a sense by change is in equities and in investment banking. In equities, very clear market leader in the Nordic region. And we do see that the scale benefit that we are achieving will result in more efficient and more attractive offer to our clients. I think at the moment we are ranked number one in three of the four Nordic countries. I mean, I really see that the two organization really complement.
I've mentioned before, from our DNA in DCM that Carnegie didn't have, and Carnegie have a strong DNA in ECM, that we've for instance the Q4 , where Sweden was an active IPO market. So altogether, we are I think very, very happy in where we've gotten, and the client feedback that we are receiving. And then, highlight then that it's still early days, and we believe the better opportunity of us. And maybe following up on that, Harald, the work together with LCI has been progressing well the year. But I really feel that that's accelerating at the moment. And in terms of challenges, I think, yeah, it is a significant amount of work to bring two organizations together, and that process is very much ongoing, but I think we're making good progress.
Okay, thank you so much.
We will take our next question from Riccardo Rovere, Mediobanca. Your line is.
So thanks for taking my two couple of follow-ups, if I may. The first one is on something that I always ask you, and I always forget the answer, is on the Solvency II ratio, again, 260%, around 260%. It was supposed to come down, but it remains, it always remains 260%. Wondering, what is the level that you target over the medium term, not 10 years? Supposed, is it supposed to be upstreamed, you know, in a faster way, the capital that you generated in insurance operations? The second question is on SRT. Just a brief, an idea if you have been active, what you have done, if it's an instrument you are actually using at the moment, you have been using in the past, just a little bit.
Then maybe just, you know, just a curiosity, given the NOK 171 million one-off in NII, I was wondering what this refers to. Just a curiosity.
Thank you, Riccardo. I will hand the SRT question over to Rasmus, but I'll briefly respond at the end, I believe. We haven't specified a target specifically for Solvency. We have said that if solvency ratio is above 140, we will distribute up to 100% of the annual results as dividends. We are very pleased that DNB Liv has managed to quite substantial volatility in the solvency ratio towards rate changes, so it's vastly more robust than it was. We had a strong results there from DNB Liv, a pre-tax profit of NOK 1 billion for the Q4 , and of course, a solvency of 2.6 will upstream a hundred. We are likely to upstream 100% of the results in dividend.
In addition to that, you know that we are in a process where we are capital up to the parents, which strengthens our core equity tier one ratio and our ability, again, to pay dividend to our... That amount, I think it was for the third time that we did this, the Q4 last year, now NOK 1.5 billion. You are asking the question, could we do this faster? Told you on the capital markets days, that we look to upstream NOK 10 billion.
NOK 30 billion.
NOK 30 billion, sorry, in the coming 10-year period. I think that still stands firm. This is a process where we need approval from the FSA when we pay more than 100% of the result. We need to do this sustainably in a gradual manner that enables us to continue. But I think you're clearly seeing our intention, and that is to access capital. And we are now in a situation where the guaranteed portfolio is gradually diminishing. NOK 171, non-recurring, because you can't expect to see it every quarter. It's still real revenue, but it should have been spread out differently across the year.
I can tell you, but it's related to real interest income, but you shouldn't expect to see the same kind of quarter.
Yeah.
Okay, but... Sorry, sorry, sorry.
Yeah. In terms of significant risk transfer, we have done one large securitization within the transport area, green transport, in the past, and we are looking at further potential and securitization in important areas of the bank going forward. In addition to that, we also had, and as mentioned, during this morning's call, we use insurance actively to strengthen our originate and distribute on the large corporate side, which this year also became visible on our transfer and banking fees area. So in terms of SRTs, both on the securitization and on the insurance side.
Rasmus, you could do there with more room to offload, to reduce capital absorption on the back of this, or you think you are, you are doing what you can do?
We believe there is more potential within securitization, and we are further pursuing that.
Right. Very clear. Thank you.
We will take our next question from Shrey Srivastava, Citigroup. Your line is open. Please go ahead.
Hi, and thank you very much for taking my questions, too. The first is the NOK 200 million non-recurring costs that you saw in the quarter. Could you be a little bit more specific about what these relate to? Is it sort of variable or something else? And the second one is, can you provide a bit more color on the growth, particularly in corporate customers in Norway? Specifically, what sort of underlying and what might be shorter term, for example, bridging facility with something like that would be very much appreciated. Thank you.
Thank you. I'll do the, and I'll hand, the question on cost to, to Rasmus. If we look at the growth, for the year, because I think that makes more-- the growth in Corporate Customers Norway was 5.2%. Important to highlight that commercial real estate is also part of Corporate Customers Norway, as our regional business, with SMEs. And of course, they differ when it comes to pattern and growth. I think what is important for us with SMEs is to continue to see profit. For the year, we see a credit growth demand of 2.9%, and our growth is 2.8% in the SME area throughout the year.
We are pleased also to see that a higher number of customers are choosing us as their bank, and we have a material uptick in terms of new customers selecting DNB. So this also means that the larger part of the growth or approximately half of the growth come in commercial real estate. Several large transactions were closed in the Q4 . These are transactions that were composed of underwriting elements with a view to syndicate. For the major part, these syndications have already been completed after New Year's, that is, towards the end of this year. This is normal for state, so I, I'm not sure I would qualify it as recurring or non-recurring.
We have an attractive book of commercial real estate, where we turn the capital around more rapidly than typically see in an SME book. But of course, what this means is that the tailwind that you can see from the quite material growth that came in towards the end year is not necessarily sort of lasting through the Q1 as we are distributing material, material amounts into the market.
Very good. In terms of the one-off effects on costs, as NOK 200 million, as you pointed to, NOK 50 million of those are attributed to the integration called DNB Carnegie. There's also year-end events relating to an effect relating to variable salaries that have been sort of throughout the year and then ending up in the last quarter, and other operational expenses.
Understood. Thank you.
Thanks.
We will take our next question from Thomas Svendsen, SEB. Your line is open. Please go ahead.
Yes, hello. Good, a question to the buyback program. You know, point to the fact that you buy back 2.5%, including today's announced program. So how realistic is it to sort of manage to execute about 2%-2.5% per year on this program from a total shareholder point of view?
Well, I think what we can see now is that we are looking to deliver on this and a half. In terms of going forward, this depends on the total volumes and many variables, so it's hard to describe in the future years where it is. But in the... And for 2020, this is what we are able to deliver.
But I think we can add that we've said all along what the general assembly asks for share buybacks. It's an indication for the... I think we've also been quite clear we do buybacks volume transacted in the market, not so as to interfere with the development of the shares. So at some point, there is a practical limit. And, as you know, we are now in smaller pieces where we need the approval from the FSA. The FSA has been quite efficient in approving what we have applied for in the pipeline. We think that if everything is aligned, there is probably a potential to do some more, but we are not guiding specifics.
Again, I reiterate that the magnitude of share buybacks in 2025, alongside the dividend of 18 per share, takes our distribution back above 86% of the annual results.
Okay. Thank you for that.
Question from Riccardo Rovere, Mediobanca. Your line is open. Please go ahead.
Good. Thanks again. This must be my lucky day. Sorry. Sorry about that. I just sorry to pester you again on them believe, but the solvency capital remains at NOK 33 billion, NOK 32 billion, NOK 34 billion, always. So I'm just wondering, has the capital upstreaming started this NOK 30 billion or not? Because the number is always the same, and NOK 30 billion, and what do you need eventually to... It's not clear what you need. NOK 30 billion out of NOK 1.2 trillion RWA is more than 2%. It, it's a big number.
Yes, it's a big number, and I'd say a great potential to support the dividend capability of the group over time. Again, as long as it's about we will repay the results. We will ask the FSA to reallocate surplus capital back to shareholders. This is new situation to be in, and we're not in a sustained systematic, the longer term, rather than the game. The solvency ratio on the year , I mean, this is something that will, with the exposure under the insurance contracts, with the expected returns on the contracts in the future, so it's more just sort of taking the capital of last year, adding the results and deducting the extraordinary dividend, if you will. So has been a situation where the performance of Liv has improved.
We also mentioned that we have a very I would call it in our risk results and financial results this quarter, which plays into the financial instrument line in the P&L. Of course, it is something to work on. But the focus is to be able to do this gradually, sustainably, but capital and excess it out over time.
Sorry, Kjerstin, but the number is always the same. It's always NOK 33 billion. So all the started or the number is larger than NOK 30 billion because it's-
But Riccardo, Riccardo. But Riccardo, I'm telling you that there are more elements that goes into relation than the results and the capital reallocation. It depends on the interest rate level, it depends on the exposure under the insurance contract, it depends on the future of return, and these are only a few elements. I'm sure we can provide you with details as to how solvency is calculated, and we'll do this following the... We will do that following this.
Okay. Okay. Fair enough.
There are no further questions on the line, so I will now hand you back to your host for closing remarks.
All right. Thank you so much for your participation, and we would like to wish you all a good day. Thank you.