Good morning to you all. Welcome to DNB and this live presentation of the Q1 results. The magnificent artist Prince, he used to sing Sometimes It Snows in April, and it certainly did this week. We've had four seasons in just one week in Oslo. Today we'll hope you'll feel the DNB warmth in the DNB auditorium. Welcome to you following us online as well. As usual, we'll go through the numbers first with Kjerstin and then Ida in detail, and we'll have a Q&A session in about 30 minutes. Kjerstin, please go ahead.
Thank you so much, Thomas, a very good morning to all of you. Q1 of 2023, a quarter that has been marked by turbulence across global capital markets at times. It has all the same been a quarter with a continued high activity in the Norwegian economy. We are both grateful and humbled that more customers continue to trust us with their business, the solid economy in combination with high activity has led to growth across most business areas and a very strong set of results that we delivered today. I'm also very proud of the team who works relentlessly meeting thousands of customers every day. Now to a couple of highlights in the quarter.
We point to return on equity as our most important financial target, and return on equity for the quarter comes in at 17.2%. This is up from 17.1% in the Q4 last year when this number is restated for IFRS 17. Many of you may remember that in the Q4 we had an unusually low tax rate, the quality in the numbers that we deliver today is even higher than those of the Q4 last year. NII is up by 3.8% from last quarter and close to 40% from the same quarter last year. This is driven from growth in both lending and deposits across customer groups, increasing interest rates, and also the acquisition of Sbanken.
High activity across customers and products has led to growth in fees and commissions by 1.8% compared to a very strong Q1 last year. These are all-time high results. We have a robust and diversified fee platform, the largest contributor in terms of growing this quarter is transactional and banking services with customers. There is a robust development in asset quality. We have a net contribution from reversals this quarter, which reflects successful restructurings as well as a stable and very solid portfolio. Rock-solid capital, 18.6% with a very comfortable headroom to its required unexpected level from the regulatory authorities, and a growth in earnings per share in the Q4, or earnings per share of NOK 6.59 per share.
A substantial growth from the Q1 last year, which enables us both to continue to grow with the sound capital as well as continue to deliver on our dividend policy. Activity level in the Norwegian economy continues to develop at a healthy level, and we are expecting a GDP growth of 1% this year. Consumption is holding up. There is a continued shift from goods towards services. Investments are expected to pick up in the energy sector, offsetting a slight decrease in investments across the mainland economy in 2023. We have a demonstrated resilience and in combination with the expected growth and the fact that inflation is still at a higher level than the targeted level from the central bank, the expectations for further rate increases are now increased.
The expectations from DNB Markets, who issued new assumptions in the morning today, is that the central bank will increase the key policy rate by another four times this year, with the policy rate topping out at 4% towards the end of 2023. There has been a completion of the central wage negotiations in Norway. They settled at 5.2%, and this has led to expectations for wage inflation from markets for the year at 5.5%. This also means that a lot of Norwegians would actually experience a growth in disposable income, despite the fact that inflation is still high. I continuously say that the most important thing is that people have a job. Unemployment is still low at 1.8%.
The very tight labor market is showing some signs of easing, and unemployment is now expected to grow somewhat towards 3%. There is an increased confidence across the markets that we will have a soft landing in the Norwegian economy. All the same, I think it's very important to point out that we are in times where uncertainty is higher than normal. These are times where models have their shortcomings, and we have seen in recent weeks the impact of us being an open and small economy, and we can and will be impacted by turmoil that happens around us in global markets. A few highlights from the business areas. There is a very strong performance from personal customers for the quarter. Pre-tax profits are up by 9.1% compared to last quarter. NII is up by 9.8%.
This is impacted by a continued growth in lending, as well as increasing spreads in the sector. We have continued to hold up a very high activity on savings and investments in the quarter. During the quarter, we've had numerous conferences under the brand name SHE Invests across Norway on every occasion with a full house. We have had a record attendance and attention on our leading investment arena, DNB Invest. The result of these activities and the economic development has led to an increased holdings in both deposits and savings, where increase in saving products offsets a slight decrease in deposits in the personal customer segment for the quarter. We continue to innovate to constantly offer better products and services to our customers.
News from this quarter is the ability to pay in the mobile banking app with Face ID, and we have made it easier for customers to switch banks. We do see that our position as the preferred bank for young customers in Norway, that that position has even further strengthened during the quarter. We also experienced that an increasing number of customers wants to talk to us to seek economic advice, which we're often able to find. Even though there is a slight uptick in requests for instalment deferrals, these are still at what we would characterise as normalised levels. There are no material shifts in the portfolio, no systematic migration, and the portfolio continues to be very, very robust.
As for corporate customers, again, we see that the activity in corporate customers is more than twice the size of our activity with personal customers in financial terms. We're very pleased to see a healthy growth in corporate customers. 3%, 3.7% growth in lending and 12.3% growth in deposits. NII slightly down from previous quarter in view of two less interest days in the Q1, but up by 36.7% from last year. We see a very high activity level across the customer group in the quarter and are pleased to see that we win an increasing number of mandates in the payments and transactional area, an area where we have invested substantially during the course of the past few years.
Revenue from our investment banking capital markets activity continues to hold up at very high levels, but with a different mix of products. There is less income from the M&A side, a higher contribution from DCM, as well as from the FIC area. The Q1 is also a very strong quarter for markets, with a pretax profit of NOK 1.3 billion. We continue to work on and successfully complete restructurings in the offshore segment, and we have taken some reversals during the quarter in view of the completion of some of the restructurings. This is also combined with a very solid development of the portfolio. The development in the markets has also led to a gain from holdings that we have in certain of the companies that we have previously restructured.
All in all, a very solid performance, I'd say, across both corporate customers and personal customers. With those remarks, I'll leave the floor to our excellent CFO, Ida Lerner.
Thank you. Thank you, Kjerstin. We noted a profitable loan growth of 2.1% in the quarter. In the personal customer segment, the lending volumes grew by 0.6%, and the growth in the corporate customer segment was 3.7%, and predominantly then in low risk. The deposits increased by 6.9% in the quarter. The development was fairly stable in the personal customer segment, with a slight decrease of 0.6%, but an increase in corporate banking by 12.3%, as stated by Kjerstin. This reflects our solid position in a turbulent market, as well as inflow from customers, in particular in shipping, as well as in the oil and gas industries.
We maintained a strong deposit-to-loan ratio of 78.6% in the quarter, up from 75.1% in the Q4. We reiterate our long-term expectation of an annual loan growth of between 3% to 4%. The net interest margin was up 8 basis points to now 178 basis points. This includes the full effects of the repricing in October, November, and mid-December, and partial effects from the repricing implemented from end of January. Lending spreads were up 32 basis points and deposit spreads down 17 basis points, which leads to an increase in combined spreads of 10 basis points. Net interest income increased by NOK 529 million, up 3.8% from the Q4. Effects from repricings, including interest on equity, amounted to NOK 741 million.
Increased average loans and deposit volumes contributed by NOK 117 million. Currency effect contributed NOK 67 million, and the two fewer interest days decreased NII by NOK 2,231 million. The increased contribution to the Deposit Guarantee and Resolution Fund was driven by an increase in the resolution fund in Norway, as well as the fact that we take the full yearly cost in Poland that is being recognised in the Q1, amounting to PLN 66 million. Following the Norwegian central bank's increase in key policy rate in March, DNB announced a further repricing with effect from mid-May. This is estimated to have an annual NII effect of NOK 1.1 billion. Please note that the indicated effects are based on the current composition of the portfolio. Customer activity has continued to be high, including continued strong contribution from FICC, which is included in other income.
The net commission and fees comes in at NOK 2,634 million, reflecting strong performance across product areas and is actually an all-time high Q1. When looking at the restated numbers in 2022, in the Q4, 2022, in line with IFRS 17, you can see that looking at consensus, this actually deviates by approximately NOK 320 million. This is something that needs to be taken into account when looking at the analyst consensus estimates, which didn't have this number in there. The result from real estate broking is up 4.6%, reflecting increased activity in the market. Investment banking continues to deliver good result, mainly stemming from debt capital markets as well as equity broking. It's up from the Q4, but down from the corresponding quarter in 2022.
That was, however, a quarter with extraordinarily high activity, in particular related to M&A, coming out from the pandemic. Asset management and custodial services were down 3.2%. Asset under management is up 4.3% with slightly offset by a 1 basis point reduction in commissions. We saw a continued positive inflow from retail customers in the Q1, we note, as Kjerstin pointed to, that our customers remains committed to the saving schemes and actually increase their savings amount. Guarantee commissions is up 8.9%, reflecting a sound increase in demand for trade finance products in the corporate customer segment. Money transfer and banking services continues to increase, up 45.2% from the corresponding quarter last year. The positive development is driven by increased use of payments card, also a decrease in costs.
Fees from sale of insurance product is down 2%, but a continued strong underlying performance. Operating expenses are down NOK 390 million, reflecting seasonally lower level compared to a high Q4. The nominal expenses in the quarter are affected by non-recurring items of approximately NOK 100 million related to an early termination of a lease agreement in Norway. The pension expenses are approximately NOK 70 million higher than normalized levels, reflecting higher return on the closed defined benefit scheme. The scheme is partly hedged, so you can therefore find a corresponding gain under net gains on financial instruments. Fixed salaries are overall stable and a smaller increase of NOK 8 million this quarter. Variable salaries and other personnel expenses, travel, training, and marketing expenses are down by a total of NOK 363 million from a high level in the Q4.
The credit quality remains robust and well diversified, as Kjerstin pointed to, with 99.2% of the portfolio in Stage 1 and 2. We are continuously scrutinising and stress testing the portfolio, but we have so far not seen signs of systematic risks in any segment or industry. For the personal customers, impairment provision was NOK 70 million. The personal customer portfolio, as Kjerstin said, remains strong with no signs of deteriorated quality or increased impairments. Our customers continues to be in dialogue with us, but then mainly in relation to seeking advice on how to handle increased costs as well as increased interest rates. We are not seeing any noticeable changes when it comes to instalment holidays or increased impairment levels. For the corporate customers, we noted net reversals of NOK 149 million, main related to reversals and successful restructurings in offshore.
We remain comfortable with our credit portfolio. Please bear in mind that losses will vary from quarter to quarter and that the uncertainty in relation to customer-specific events has increased in light of the macroeconomic development we see around us. Moving on to capital. Our capital position remains strong with a Core Tier 1 capital ratio of 18.6%, up 30 basis points from the Q4, driven by solid profit generation, partly offset by volume growth and FX effects. This gives a headroom of 160 basis points from the NFSA's long-term expectation. With a strong Core Tier 1 capital ratio as well as profit generation, we remain committed to our dividend policy. The Annual General Assembly gave the board of directors an authorisation on Tuesday to buy back shares up to 3.5% of outstanding shares.
DNB has, following this, sent an application to the NFSA and await their approval. Summing up, our key figures are affected by the implementation of IFRS 17, setting this aside, we deliver a strong result in the Q1, driven by high-quality income and good performance across product areas as well as customer segments. Cost income ratio came in at 34%, return on equity at 17.2%, and earnings per share was at NOK 6.59, an increase of 3.6% from the Q4 and 38.2% from the corresponding quarter last year. With that, I would like to thank you for your attention.
Thank you, Kjerstin and Ida. As usual, we will open up for questions. If you have any questions online, you might type them in in the form below this screen. We'll start with Jan Erik Gjerland on this side.
Thank you. Two questions from my side. The first one is on the buybacks application. How do you intend to implement your buybacks if and when you have been granted that 2.5% allowance? How... Is it 50 basis points, 100 basis points a quarter, or how do you think you should do it when and if you get that kind of approval? Secondly, on the growth side, do you expect the 3% to 4% growth to be mainly driven by corporates rather than households? Thank you.
I can answer the growth question and again reiterate that when we guide the 3% to 4%, it's on the group level. We do focus on profitability over growth, and in view of our position, we are likely to grow in line with the market in Norway or slightly less. The question is how much will the Norwegian market grow? The expectation for credit growth from DNB Markets, it's 3.7% for the year. This is coming down somewhat, which is not unnatural in view of the market environment we are in. We are very comfortable with the performance across the brands of DNB and Sbanken, where we see that we are, on a relative perspective, performing better.
What we have said is that we are comfortable to flex more with the corporate banking portfolio, where we are also actively syndicating and distributing loans. It may be that corporate will be a higher part of the growth equation for the year, but it will depend on the development as it moves forward.
When it comes to share buybacks, this is of course also, a question in terms of when we receive the approval from the NFSA. We will continue using share buybacks as the flexibility tool that we've always done and will therefore expect it to be done, in a conceptual way throughout the year.
Okay, next up is Johan Strøm on this side.
Thank you, Thomas. two questions on the buybacks again. we've seen these applications before. Normally, how long does it take to get the approval from the FSA? Start with that.
It usually takes a few weeks. We hope, in line with historical time, to be able to start towards the end of Q2.
We'll send flowers this time, right?
Thank you, Ida. On funding, two quick questions on that side. First of all, on deposit to loans, there's a big difference between personal and corporate customers on the deposit-to-loan ratio. It's I think around 60% covered on the personal customer side. Do you have any targets on the specific segments or perhaps for the group as a whole? You have a very high level at the moment, but it's a huge, of course, focus area. Secondly, on covered bonds, what is the current over-collateral... It's a difficult word. Over-collateralization on that side.
Thank you.
How much covered bonds do you have today compared to the mortgage book?
Ample room, but Ida can cover that in more detail. On the deposit side, we have a target for the group, which is a minimum of 60% deposit-to-loan ratio. As you've seen, we are now surpassing that by a vast amount and are above 78% for the group. It's quite usual to have a higher coverage in corporate versus personal customers, but both of these have moved in a direction of a higher coverage than we had prior to the pandemic. We are not targeting a specific coverage per segment. Personal customer deposits as well as SME deposits tend to have a more sticky nature. Of course, they very closely follow the customer relationships.
The other corporate deposits, I think we can safely say that we do see a flight to quality. We are a triple-A rated bank. We are viewed as a very safe destination to be trusted with some of our customers' deposits. We have certain industries that have very high earnings at the moment, and this is also reflected in the numbers. On the large corporate side, we're very focused on accepting deposits only when they are beneficial to us also from a financial point of view. They can vary somewhat more, there's been a stable and consistent solidity in higher deposit-to-loan rates so far, post-pandemic.
Just squeeze one in. Sorry, Thomas. No, it's a difficult read, but Norwegian deposits at the moment, if you adjust for FX in the weak, krona, is it growing?
Two-thirds of our deposit base is in Norwegian kronas. I haven't got the split in terms of if what the FX affects, but still, it is increasing. Yes.
Thank you.
On the funding side, we have approximately funding needs of NOK 65 billion-NOK 75 billion in the year. We've done approximately NOK 30 billion already up until today. It's predominantly in senior non-preferred. We are uncertain if we need to do any covered bonds. If we were to, there are ample room, significant room in terms of that. I don't have the number on top of my head, but it's ample. Not something that we're concerned about. FX-adjusted deposits grow by 4.9% compared to last quarter and 10% compared to last year. There's a solid growth also, FX-adjusted, and very little foreign currency deposits in the personal customer part as well as the SME part, where the most valuable deposits are placed.
Okay, next question from Thomas Svendsen, SEB, and then Alexander.
Yes, good morning. Another question on share buybacks. When trying to assess your sort of total buybacks, buyback potential, how much weight should we put on the leverage ratio versus the CET1 ratio to sort of estimate what is the adequate capital level?
Well, if I start with the leverage ratio, we're at the leverage ratio of 6.5 today. The requirement is 3. There is ample headroom on the leverage ratio just there. On the CET ratio, we're at 18.6. The long-term expectation, not the requirement, the expectation is 17. If we look at that combined, there is ample room to buy back shares. There is also a availability in the funding market in terms of adding up in terms of AT1s or particularly in Tier 2, if that's something that we were interested in doing. I don't see any constraints in that area, bearing in mind the strong solidity of the bank.
Just to be very clear, we are aware that the FSA focus on the leverage ratio and what is called real solidity. It is the Core Equity Tier 1 which is the restricting element that we are measured again and what should be focused on in order to assess the cushion towards the expected and required level.
Second question, just on, number of employees. It declined somewhat Q over Q. Should we expect this to continue throughout the year?
We, as stated, last quarter, we expect number of employees now to turn. It has been growing for a while. We now expect it to turn somewhat. We will not give a detailed estimate. It's hard to be specific on quarter-to-quarter adjustments. As you've noted, there has been a shift towards a lower number. I think we can say that end year, it will be lower, but without being more specific than that.
Thank you.
Thomas, if you could send the microphone two rows forward, to Alexander Lager from Arctic. Please go ahead.
Yes, hello. Alexander Lager from Arctic Asset Management. You have an impressive deposit growth this quarter. How do you expect this to develop going forward, both for personal customers and for corporate? Secondly, how many % of your deposits now, both on the corporate side and the personal customer side, are on zero interest rates on their deposits? Thank you.
Thank you for your good questions. It's difficult to be specific as to the future developments. As stated, we have a much higher deposit coverage now than we had prior to the pandemic. Of course, we're having discussions whether the stickiness of a longer term higher deposit to loan level and at point expected it to normalize at the sooner point in time than it actually has done. Deposits have held up also despite growing inflation and increasing prices in the market. There is a stabilization with a slight decrease this quarter, but we also see a positive flow from retail customers into savings products. Those combined actually continue to show growth.
The development more reflects the economy and the market development rather than a different competitive environment. I think that is important to point out. The mix of deposits on the personal customer side is that 75% is sitting in across the various savings accounts products that we have. We see that customers are more focused on what kind of accounts they have their deposits in, leading to some shifts, but not that either in a material manner. Consumption is expected to hold up, but wage growth is expected to be quite decent as well. We haven't changed our guidance or expectations in a way, and we don't foresee any material shifts, but it will again depend on the economic development. In terms of, how it's split on transaction account versus savings accounts.
What we have said historically is that in personal customers approximately 75% sits on transactional accounts. No, savings accounts, sorry. 25% on transactional accounts.
Okay. yep, we also have one question from Daniel Røvik, SpareBank 1 Markets, please.
Thank you. Good morning. It seems like your loan loss provisions reflect a soft landing, and you assume GDP growth on around 34% in 2024, 2025. As you say, Kjerstin, the uncertainty is higher. Would you say that the uncertainty is reflected in your loan loss provision this quarter?
The full picture that we see currently is reflected in our Q4 number. This both takes in the expected macro outlook for the coming 3 years and the current state of the portfolio across the customer segments. Successful restructurings have led to reversals, as we've talked about. Material movements in terms of migration, no systematic patterns in terms of industries, even though we see that sales are developing slower in certain sectors compared to others. We've talked about retail and fast consumer goods as examples, but nothing that is impacting our portfolio as such. I think our comment should be read for exactly what it is. We are in a higher inflationary environment. This is impacting people and companies in different ways.
Just from a general perspective, this increases the risk of more company-specific situations arising, but there are none that we see that is not factored into the current view that is reflected in the accounts.
Thank you.
Okay. Rune Helland, you have been following the question from our online viewers. If you have any more questions on buybacks or anything, please go ahead.
Yes, we do. Many of these questions has been answered. I'll ask the one that has not been. We have a question from Vegard Toverud, Pareto Securities. In addition to reversals of offshore provisions, it appears that you have reversed in total NOK 68 million on provisions for commercial real estate. Could you please give us some details on what driving this and which improvements you see in this market?
Yes. On commercial real estate, first of all, it needs to be just repeated that in the Q4, we took some additional reversals of reserves related to commercial real estate, retail industries, as well as service industries. That needs to be taken into account when you see what's happening this quarter. The main driver for the reversals, small modest reversals, I would like to add in commercial real estate, is macro-driven, and also the fact that we aren't seeing any negative signs in the portfolio. Because it's really that specific element. If there are specific customers migrating negatively, that will have an impact. In addition to that, I just want to reiterate that our credit policy has been very clear in terms of focusing on cash flow, strong owners, and residual values.
So far in the Norwegian market, we aren't seeing any negative trends there to speak of. Therefore, looking at the cash flow, as 40% of our commercial real estate portfolio relates to office and office premises, vacancy rates and rental prices are important. Rental prices are going up, vacancy rates are going down still. This is, of course, a positive element when looking at commercial real estate. I also just wanna remind you that 94% of our portfolio is in Norway.
Very good. A question from Christoffer Adams, Kepler Cheuvreux. For corporate lending, how is lending growth split by liquidity lending and investment-driven lending?
Yeah, well, first of all, it's a very good question. The growth is not related to drawings on available credit facilities or liquidity facilities. These are new and also healthy lending, as I pointed to, in terms of low-risk customers. That's the main driver for this. It's also across segments as well as geographies. We see growth both in what we call future and tech, and we also see growth in the small and medium-sized enterprises.
Okay. I think that concludes the Q&A session. Finally, a long career has come to an end, not in DNB, but in Dagens Næringsliv. Press photographer Elin Høyland, you have had a fantastic career in DNB, in DN. Next time maybe in DNB. I think I've heard that you started and the first photo you took in DN was Bill Clinton, and the last will be Kjerstin Braathen. It's a step up. We have gathered a small token appreciation for your great job and all the photos you have taken of all the DNB managers.
Thank you.
Good luck in your endeavors. Okay, we'll open up for individual interviews outside as usual. For the rest of you, have a fantastic day. Thank you for coming.