Hello, and welcome to the DNB Quarterly Conference Call. My name is Caroline, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your answers will be on listen-only mode. However, you'll have an opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand over the call to your host, Rune Helland, to begin today's conference. Thank you.
Thank you so much, and hello everyone, and welcome to the Q2 quarterly analyst call. Around the table here in Oslo, we have, in addition to the CEO and CFO, Kjerstin and Ida, Håkon Hansen, Head of Wealth. We have Alexander Opstad, Head of DNB Markets, and we have also Harald Serck-Hanssen, the Head of Corporate. Before we open up for your questions, Ida will give you the highlights for the quarter, so please.
Hello everyone, and very nice to see so many of you on the call. I'll start with a brief update on the macro picture. The Norwegian economy continues to show strength with low unemployment, resilient activity level, and increasing confidence among both individuals as well as corporates. Investment activity in the petroleum industry is expected to remain high in 2024, and mainland corporate investments are expected to pick up from low levels in the second half and then gradually increase in the coming years. Overall, household consumption has held up well in spite of higher inflation and increased interest rates. Purchasing power is expected to further improve this year by increasing real wages already in 2024. Unemployment remains low at 2% and expected to remain around this level in the coming years. Inflationary pressure has come down but remains higher than the long-term target of around 2%.
With wage growth around 5.2% this year, continued strong Norwegian economy, and low unemployment, the Norwegian Central Bank is expected to maintain the key policy rate at 4.5% until March next year and then gradually decrease it towards 3.25% in 2027. Now moving over to this quarterly result, which was definitely impacted by higher activity and an all-time high net commission fee. Profitability is solid for the quarter with a return on equity of 16.6%, and this is driven by a healthy economy but also strong activity across the group, both in terms of different customer segments as well as product areas. Net interest income is up 1.9%, driven by growth and customer activity.
Loan growth comes in +0.6% with a stronger growth in corporate customers, but also increasing activity and growth in personal customers towards the end of the quarter, also seen in the higher activity we've seen in the property markets. Net commission fees are up 22% from the corresponding quarter last year, with a strong performance across all product areas, an all-time high result in investment banking services, predominantly stemming from debt capital markets, but also increasing activity in equity capital markets and M&A. In addition to that, we continue to see a solid performance in asset under management, with continued increased savings from both personal customers but also institutional. The portfolio continues to be solid and well diversified. We take impairment provisions of NOK 560 million in the quarter, predominantly related to customer-specific events in small and medium-sized enterprises and large corporates.
The capital position remains strong with a core Tier 1 capital ratio of 19%, 210 basis points above the regulatory expectation, in spite of the fact that we've now also taken the share buyback program that was announced in June of 1% of outstanding shares into account. So the fact that we have a profitability increase in the Q1 capital ratio, that is outweighed by the deduction from the share buybacks. With that, I think we will open up for questions.
Sure, thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line Riccardo Rovere from Mediobanca. The line is open now, please go ahead.
Understand exactly your words.
Sorry, sorry for interrupting you.
Can you hear me better now? Can you hear me now? Yeah, okay. Sure, sure. Just for me to understand exactly what you mean, when this morning during the press conference, if I understood it correctly, you stated that the robust level of activity that you have seen in the first part of 2024 is expected to continue in the second part of 2024. And if I understood it correctly, this comment refers not only to lending, but to a much broader, let's say, a much broader context to any kind of activity, not just lending. Did I get it correctly?
I think what we tried to say is maybe slightly more nuanced to that, and I can try to comment. I think the broad comment that we addressed is a shift in sentiment amongst individual customers who now seem more positive and are more actively looking at transacting, for example, in the housing market again, and that has increased the activity in this area during the quarter. And the general outlook for the economy is also strengthened by what seems to be some more optimism among business leaders that were interviewed in the survey made by the central bank a few weeks ago. And I think overall, if we look at lending volumes, we have stated that we expected first half to be somewhat more muted than we expect second half to be without being sort of segment-specific.
But we also said that activity in the corporate area, more specifically in the large corporate area, has been very high, and the growth we deliver must be seen also in combination with the insight that there has been a relatively high activity of prepayments and a high number of transactions being done in the second quarter. If we go to the fee side, there is no news that there is a seasonality quarterly that impacts these numbers in addition to the level of market activity for some of the areas. Several important drivers this quarter were real estate brokerage, investment banking, and asset management. Real estate brokerage, there is a seasonality where second quarter is usually a very high quarter. Investment banking, it's also second and fourth quarter that usually are the quarters that are the most active.
In terms of the soundness and healthiness in the markets, what we see, there is no reason to believe that there will be a shift, but of course, third quarter will be lower. That is natural to expect compared to what we've seen this quarter, but there is a healthy amount of business being worked on and considered also for the latter. Assets under management is more gradual. It also depends on the profit sharing split that comes in pieces every quarter, but more so in the fourth quarter. But in asset management, at least the inflows from the retail side come relatively steady as we see them from savings agreements to individuals, but we see them also from down payments on pension agreements that many of our corporate customers are making on behalf of their employees.
I'm not sure we can say exactly the same, but it's a healthy outlook.
Okay, yeah, thanks. Thanks for that. And then if I may, a second and also a third question. Given that January 2025 is approaching, so Basel IV is approaching, would you be able to indicate what is the expected impact on first-time adoption, January 2025, and fully loaded impact? And would you be able to give us an indication where most of the impact is expected to come from? Can be credit risk, op risk, FRTB? Thanks for that. And then I have a third question. If I remember correctly, you stated in previous occasions that term deposits in retail accounted for roughly speaking 80%, maybe 85% of the total. This morning, you stated that this shift is kind of tapering. So I am just wondering if the 80%-85% should have remained more or less stable in the quarter. Is that correct to say? Thanks.
I'll quickly do the last one, and then Ida can comment on Basel IV. The mix that we have referred to on retail customers is not specifically on term deposits, but it's on saving accounts versus transaction accounts, where 75% roughly has been on savings accounts and 25% on transaction accounts. There has been a shift in asset mix that has impacted a couple of previous quarters, with more funds being moved into the savings accounts. But that impact has tapered over the course of this quarter, so we see less of that towards the end of the quarter. I'm not sure that we have a new mix number to give you. It should be around between 75-ish.
Yes, yes, yes, still. In terms of your question on CRR3, there are two elements that we need to keep in mind here.
First of all, the NFSA has come out with a proposal of increasing the risk-weighted floors on mortgages as well as commercial real estate. That in isolation, if that was approved, would have a negative impact of around between 80-90 basis points. That is a hearing process, as you know. It's similar to what the NFSA proposed in late 2022. It's a hearing process whereby the Norwegian Central Bank, as well as the other banks and other stakeholders, will provide their response in terms of what they believe as a response to this proposal. And then the Norwegian Ministry of Finance will make a final decision later on this fall.
We don't know the outcome of that, but bearing in mind that the only thing that we can point to is that we can't see that there is anything that has changed in terms of macro or underlying risk that would indicate that that would be a different view than what it was in 2022. But again, that is an outstanding question. In addition to that, it's more the underlying effect from the implementation of CRR3 that is expected to come in the first of January, where we've said that it will have, following mitigating actions from our side, it will have some negative effects, but not to the extent that that would impact our dividend policy or our ability to pay our dividends. We've said that that would have a relatively modest negative impact.
But again, that also is dependent on final documentation, and there's still continuous information coming out in terms of interpretation. The absolute majority of the impact is related to risk exposure amounts coming in corporate banking. In terms of FRTB, that doesn't impact. Now, that has been postponed, but that doesn't in isolation impact us as much as it does for other banks, but that's purely based on the product mix in DNB compared to other banks.
Okay, so I've understood.
FRTB has been postponed.
Yeah, yeah, no, no, no, thanks. Yeah, no, no, no, sure. So I understand that even on a fully loaded basis, imagine we are in 2030, most of the impact would be on the corporate risk exposure amount. That would be mostly the impact, if I understand it correctly.
Yes, that is correct. FRTB does not impact us.
FRTB, so I imagine the op risk should be kind of residual from what you say. I mean, maybe not zero, but not that relevant.
Op risk is a small element. I would say I would point more to the op risk element relating to what comes as an automatic response to this or effect as an effect of us increasing our income base. But that's not related to CRR3. That's what you also saw at the end of last year where the op risk element.
Okay, yeah, very, very, very helpful.
We also maintain the view and belief, given that we have a conservative framework and onerous capital on our balance sheet, we believe that the full implementation of Basel III will actually lead to a harmonization of capital rules that would benefit us over time.
Okay. Just to finish on this, let's assume for a second that the proposal by the Norwegian FSA on floors, mortgages, and CRE comes into effect, that only partially would impact the Basel IV effect that you've just mentioned on the corporate side, maybe just on the CRE side, not on the mortgage side, right?
It has an impact on both, but that's what I pointed to in isolation has an immediate impact of approximately between 80-90 basis points.
Yeah, okay. All right. Okay, thanks. Thanks a lot.
Thank you.
Thank you. We will take the next question from line Sofie Peterzens from J.P. Morgan. The line is open now. Please go ahead.
Yeah, hi. Here is Sofie from J.P. Morgan. Sorry to go back to the fees, but if I look in your factbook and kind of look at the corporate finance fees, they are up over 100% compared to the previous 8-quarter average. They are up 165% quarter-over-quarter. How should I think about the run rate when I make the modeling going forward? Is it fair to assume that it will be significantly higher compared to the previous run rate that we have seen through the last 8 quarters, or that the current level that we saw now in the second quarter is kind of sustainable? Kind of similar question, if I look at the insurance results, it's also significantly up quarter-over-quarter compared to the previous run rate. And same goes for the equity method income.
The print that you had in the second quarter was impressive, but is it kind of here to stay, or is it fair to assume that some of it was exceptionally strong equity markets, and maybe going forward, it will normalize and converge somewhere closer to historic average? So that would be my kind of first question. And then the second question would be that on the press conference earlier today, you kind of mentioned that also some of the growth that you're seeing is coming from outside of Norway. Could you elaborate a little bit kind of which products, which markets, which currencies, and how do you think about this growth going forward? And yeah, so a little bit more details around the growth going forward.
And then just going back to the kind of margin development, we saw higher kind of lending spreads in the quarter, but the deposit spread declined, and the combined spread was marginally down. But how should we kind of think about the net interest margin going forward if your rate assumptions are correct for the next few years? What are the moving forwards? I know you can't guide, but how should we think about the margin development going forward? Thank you.
I think I'll ask Alex to try to shed some light on the fee side, but just start by saying that over time, we have communicated how we invest in a broader and more diversified activity, both from a geographic point of view as well as from a product point of view. So the average over time has been continuously growing, well above the target that we've set for the total fee base, 45%. So it's important to keep that in mind. But Alex, maybe you can try to give some more.
So I have done, Sofie, the question being on the fee side of the investment banking business, if that was correct. And of course, it will fluctuate with the market activity and seasonality. As Kjerstin mentioned, we are continuously investing in this platform. I'd say we invest across geographies, of which Sweden is the most important one to us. We invest across products, and then it's typically on the technology side, on the capital market side. And we invest in sector competence on the advisory side. And those investments are recently steady, and we expect the sort of structural growth to continue along the same levels, which, as Kjerstin mentioned, is above the sort of guided growth in fees. And historically, this has fluctuated around 10% growth over time. So the sort of long-term average, around 10%. And for the short-term fluctuations, of course, very difficult to say.
The pickup in market activity, you should see reflected in our numbers as with our peers and competitors.
And when it comes to growth outside of Norway, I think what we pointed to there is also the activity, not least in debt capital markets, where we've seen an uptick in activity. And as Alex also pointed to in terms of the platform, both geographically as well as on an industrial perspective, we're seeing a growth in income stemming from industries that still have a strong activity. And that's primarily related to renewables and renewable financing, where we have a very high turnover of capital, and therefore also an increasing income stemming from originating distribution. And then, of course, also related to debt capital markets, as well as, I would say, in terms of the bond origination side, of course.
When you had a question in relation to the margins, I think you know it's difficult for us to give any kind of guidance on future outlooks, but what we can point to, first of all, it's important to say that the combined spreads were stable this quarter compared to the first quarter. The only thing that changed this quarter was that we made a change in internal principles related to internal margins, calculation of margins on short-term deposits in corporate customers. That does not have an impact on group level in terms of NII or net interest margins. As you can see from the net interest margins, it's actually an uptick of 2 basis points. That's also what we say, that's the most accurate number to look at in terms of looking at the development of margins.
When looking ahead, there are a number of different items that impact margins and spreads, of course. You know that that's related to customer activity and what the customer behavior, what we talked about in the fourth quarter, and to some extent in the first quarter, that our customers were actively moving deposits from transactional accounts to savings accounts, as well as in between different savings accounts. That trend seems to have been tapering off this quarter, and we see less of that within the deposit portfolio. Therefore, that also doesn't impact the margins to the same degree that we have seen before. The other element that is, of course, important when looking at the margins is the competitive behavior among our competitors or how the competitive environment is developing.
Competition continues to be strong in Norway with very well-capitalized banks operating in Norway that want to see that capital being moved around. On the other hand, I wouldn't say that we've seen any change in competitive behavior among the largest competitors, but it remains fierce and strong as it did in the first quarter. And then the last element is, of course, relating to how and when we reprice and also the behavior from the Norwegian central bank. And there, I think they've been quite clear in their communication around higher for longer. And our macroeconomists have pushed out the expectation of a decrease in key policy rates from December to now being March in 2025.
I believe it's clear signs that the Norwegian central bank will remain higher for longer, also relatively speaking, bearing in mind the strength of the economy in Norway and also their focus on the Norwegian framework.
Thank you.
Thank you. We will take the next question from line Namita Samtani from Barclays. The line is open now. Please go ahead.
Hi, thanks for taking my questions. I've got three, please. Firstly, you've got a 30% market share in retail and corporate deposits, and deposits are actually quite profitable in this rate environment. But we can see Nordea, for example, pricing very aggressively in Norway on the retail side. So my question is, how are you going to protect your deposit franchise? Do you need to use price as a tool, or is there something else you can do? Secondly, you've kept your stance of loan growth to pick up in the second half of this year, yet base rate cut expectations have been shifted out. I just want to ask what makes you so confident you can achieve loan growth in the second half of this year, and why are you more positive on retail customers transacting now if rates are elevated? Won't people just wait till next year?
Lastly, is this proposal by the Norwegian FSA related to the increased risk weights? Is this something that is going to pop up every two years, i.e., there's going to be an overhang on DNB every two years to deal with this? I want to ask related to this proposal, why do you say not much has changed since the proposal was rejected in November 2022? Because the base rate of 4.5% is quite different to what it was in 2022. Thank you.
Thank you. The first question related to market share in deposits, we certainly feel that we also have attractive pricing points. So the main movement that we have seen is not so much funds moving elsewhere, but moving from transaction and current accounts towards savings accounts and placement accounts with businesses that yield some better return. And I think we've experienced that depending on whether it's retail or corporate, the deposit market is somewhat different to the lending market. It's also less elastic on pricing. One example that we can share on the corporate side is that we have a lot of the public sector in Norway as customers, and we have won a lot of customers that have a high transactional activity and attractive deposits after having invested in our position on solutions on the payment side for many years now.
This is an area that we note some increased interest from competitors, but it hasn't been an area where we have been particularly challenged over the past few years. This is an area where it's not price that is our biggest competitive advantage, but the services that we offer. Why confident for loan growth? I think what we are sharing is the read that we have through this quarter and the outlook for the economy in general. And then, of course, it always remains to be seen how will that actually translate into the markets. But why now when rates are topping out? Keep in mind that wage growth for the second year in a row has also been north of 5% in Norway.
For the past couple of years, we've been accustomed to no growth in disposable income and purchasing power for people, whereas now, this year, we expect the majority of households to actually get an increased purchasing power from the wage inflation. This is combined with a very, very low level of unemployment, meaning that now that rates have stabilized, it seems like people have been able to make the necessary adjustments and are more positive and optimistic. This also supports the broader market view and expectations that consumption, which we saw rise in the months of May and June, will continue to rise also in the second half of the year compared to what we've seen first half. The proposal from the NFSA, I think the comment that we're making in terms of changes is more related to the overall risk in the Norwegian economy.
Despite rates having moved from 0 to 4.5%, the general view and observation is that the economy has been very resilient, surprisingly resilient, I would say, in the view of many towards this increase. The reason why we're seeing a higher for longer scenario on rates is because the economy has developed better than expected this year. It's hard to read through that now where we are in the cycle that there should be indications demonstrating or underpinning that the risk in the Norwegian economy overall is higher than what we have seen and expected so far.
Thanks very much.
Thank you. We will take the next question from line Hugh Moorhead from Berenberg. The line is open now. Please go ahead.
Good afternoon, and thanks for taking my questions. Three from me as well, please. First one on asset management, strong retail net flows, but you are seeing your retail commission margins declining. Please, could you give us a bit of commentary on what's causing this, whether it's competition, customer behavior? And also, do you have a sense of what a stable longer-term commission margin here might look like? The second one is on Luminor. There's obviously been a bit of press speculation about whether Blackstone might divest of its stake. Would DNB consider doing the same if the price was right? Or do you see it more as a long-term strategic stake? And then a third one, please, on tax. I know that you've guided for your effective tax rate to reduce to 20% this year from 23% normally.
Is that a one-off for 2024, or should we see that as a sustained rate into future years? Thanks very much.
Thank you for the questions. When it comes to the retail margins, they are actually flat quarter over since the last quarter, the first quarter of the year. But you're right, it's down 3 basis points since the similar quarter last year. That's mainly due to the index trend that we have seen over the last few years. This quarter, we see it flattening out, and we have a higher increase or inflow in the active funds than in the index funds that we have seen over the last few quarters. So it's impossible to say exactly, but we feel to see that or we see that the trend is flattening out when it comes to the index trend at least. So I think the margins are close to what we could expect in the future.
Okay. Thank you.
When it comes to Luminor, I think we also read the rumors that are out there, but we can't comment on that more than that. And I think we'll just leave it at that comment. It has been, we have maintained a stake in Luminor, but of course, we will take part in any discussions relating to that. But more than that, I don't think we can comment on it. When it comes to the tax, we've said that that's the guidance for this year, and then we expect to move up towards 23% again. And that's, of course, related to the debt distribution. What do you call this? Debt distribution.
Interest allocation.
Debt interest allocation. It's driven also by the level of the interest rates and, more importantly, the difference between interest rates in Norway and the U.S.
Okay. Thanks very much. Sorry, just to clarify on the asset management one, that was probably looking on a multi-year view. So I think it's down from about 60 basis points in 2021 to 46 basis points now. Is that just a continuation of that shift into passive products?
Yes, it's been that over the last few years. But when it comes to the retail segment, you also have to add the platform fee that the retail channel is paying to the distributor. And in DNB, that's between 15 and 30 basis points, depending on whether it's a money market fund or an equity fund.
So there are two shifts to be aware of when you're looking at the development in the longer-term trend that Håkon is pointing out. One is the trend of funding fees increasingly being allocated into index funds, which has a lower margin. That seems to be tapering from what we see in the second quarter. And secondly, it's a change in business models where the payment from the customer is split towards the product separately that you can see in the asset management margin and a platform fee that will be accounted for as a fee in the personal customer account as such. So this is not really a reduced margin, but it is a reduced margin if you look at isolation at the asset management company.
Understood. Thanks very much.
We should also highlight that despite both of these trends, the growth and volume increase has more than weighed up for the margin pressure, the limited margin pressure, I would say, that we've seen over the past few years.
Thank you. We will take the next question from line Jacob Kruse from Autonomous Research. The line is open now. Please go ahead.
Hi. Thank you for taking my call question. So just two questions. Firstly, on the NII, could you just set out how much did delayed pricing benefits on mortgages contribute to Q2? And offsetting that, how much price changes in Sbanken and other areas in Q1 kind of had a spillover effect in Q2, just to understand what the kind of those changes did to the quarter. And then on the capital side, this 80-90 basis points potential hit from floors. Does that mean, given where you are on capital today, and I guess I'm sorry to bustle forward, that buybacks are unlikely until you get full clarity on capital, in addition to obviously the one you just announced? Thank you.
Should I start with the capital side? I think, first of all, we are now at the 210 basis points headroom to the NFSA's expectation. That is a significant headroom, I would say, to the expectation, as the expectation also includes a pillar two guidance of 125 basis points, which is important to take into account. We have an ongoing share buyback program of up to 1%, which we are continuing to deliver on or that is continuing. Sorry. In addition to that, we will, of course, we have said that we will look at utilizing share buybacks to optimize the capital position. And we have also said, as we saw last year, we're splitting it to smaller pieces. And that's what I expect that we will do this year as well going forward if we continue to be overcapitalized, which we are today.
We'll try to help you a little bit on the first one. In the second quarter, we are getting the impact roughly from half a quarter of the last repricing that was done. That would be a positive contribution. And then there's a negative contribution from our change of rate that we did in the Sbanken concept. And we also did some smaller changes to our pricing toward the youngest segments that we're particularly focused on, the first one being slightly higher than the second one. So I can't give you exact numbers, but that would be the general idea. And then you have some asset mix effects also impacting the second quarter. But we have said that they're tapering toward the end.
But these are some of the moving bits and pieces that would impact the bucket of roughly -50 that you see impacting the NII quarter-over-quarter.
Okay. Great. Thank you very much.
Thank you. We will take the next question from the line Martin Ekstedt from Handelsbanken. The line is open now. Please go ahead.
Hi. Thank you for taking my questions. Two, if I may. So looking first at loan loss provisions, commercial real estate swings from net reversals of NOK 64 million in Q1 to NOK 141 million of net losses in Q2. I just wanted to check if this is just reactive to situation-specific data, if there are other dynamics at play, and how do you see the CRE sector handling higher-for-longer rates overall? And then perhaps a side question along the same lines. So what areas of the loan portfolio do you see as particularly exposed in a higher-for-longer rate scenario in Norway? And then my second question, then you mentioned capital and that you have a 2.1% buffer to regulatory expectations. If you look at your Swedish peers, they have management buffers, express management buffer ranges on top of the P2G pillar two guidances, right?
I don't think you have one. Do you have a working assumption internally, a range or a buffer above which you consider yourselves to be overcapitalized? Thank you.
I'll start with the last question, which is important to highlight. The Swedish banks have a Pillar 2 Guidance, if I'm not mistaken, of 50 basis points. Our Pillar 2 Guidance is 125 basis points. So even in that, there is a significant buffer. We've said that we don't want to operate with too much of a buffer on top of the already existing buffer, but we, of course, don't want to move into the Pillar 2 Guidance buffer that is there because that means that we will need to go into dialogue with the NFSA and lose room to maneuver. We haven't quantified what that buffer on top of the buffer is, but that's more to manage continued opportunities to be able to deliver profitable loan growth as well as handle potential FX effects.
But again, I just want to say that there is not a significant buffer on top of the buffer, even though we haven't quantified it. When looking at the commercial real estate portfolio, I think we are continuing to see, and actually even more so this quarter, where we see that there's more, if anything, a positive outlook in the commercial real estate market in Norway. It seems to be more of a level where both buyers and sellers are finding themselves, and we're also seeing more transactions being done than what we have seen before. And so there's no negative development in the commercial real estate portfolio.
The numbers you point to, I would say, are still, in looking at a broader perspective and also bearing in mind that this accounts for approximately 10% of our total exposure to default, are still fairly modest numbers and are things that I would expect to see changing quarter-on-quarter. 94% of our exposure in commercial real estate is in Norway. 75% of the portfolio is still in low risk. This is a portfolio that we scrutinize on a quarterly basis, purely because we know that it historically has caused issues for banks in periods where interest rates have increased quickly, because that's really the most important thing to point to. The largest commercial real estate corporates in Norway have hedged a large part of their interest rates or their interest rate costs. That has also what you saw in the fourth quarter.
We had a significant uptick in FICC income related to hedging of interest rates in the commercial real estate portfolio, which, of course, kind of takes down the downside risk related to also impairments. I would say that what we're seeing in terms of commercial real estate is, as I said, more positive, if anything, even though we haven't seen such a negative development that one could have expected. But we're also seeing that vacancy rates remain very low. We're seeing that rental or lease prices are increasing in line with CPI. And we're also seeing that our fairly conservative credit policy of lending to corporates and focusing on corporate risk with strong owners, residual value, and stable cash flow has been, so far, a very strong commitment also and delivery in terms of commercial real estate.
When looking at other sectors, I would say that we are, of course, following the development in the portfolio very closely. We've previously pointed to construction as being an area that has been more vulnerable. That accounts for around 1.1% of our total exposure at default, so a relatively modest part of our overall portfolio, but it's an area that we've been following closer. And we've also seen some impairments over the past few quarters. Also there, I would say, if anything, there is a positive outlook where we're seeing that more corporates are looking at new build projects and looking at actually investing rather than the negative side of the story. So if anything, I would say that there is less focus on that.
Also looking at the retail industry, which is an area that we have looked very deeply into, purely because consumption or decreased consumption could potentially affect the retail industry. Also there, we haven't seen a negative development to speak of apart from customer-specific situations that is expected in a situation where we aren't today. But looking at our overall portfolio in retail, which accounts for approximately 3%, I think it's 2.8% of our overall exposure at default. There, the largest part of the portfolio is fast-moving consumer goods, and that hasn't been impacted, of course, by decreased consumption. And consumption has also upheld fairly well in Norway, in spite of increased inflation and interest rates.
Okay. Thank you very much.
Thank you.
Thank you. We will take the next question from line Riccardo Rovere from Mediobanca. Thank you. The line is open now. Please go ahead.
Thanks for taking my couple of 2, 3 follow-ups, if I may. The first one is on the maturity of your loan booking. In your annual report, you show that you got, at the end of 2023, you had roughly NOK 379 billion of loans with a maturity between 1 and 5 years, and you had another roughly NOK 1 trillion, a little bit more than NOK 1 trillion, with a maturity over 5 years. Would you be in the position to give us a ballpark of what part of this amount, roughly NOK 1.4 trillion, will actually reprice more or less in accordance with their maturity? So say maybe the fixed rate instead of being variable. The other question I have is, again, on the floors. When these discussions about floors in commercial real estate, mortgages arise, does the Norwegian FSA consider the leverage ratio?
Do they care about the fact that your leverage ratio keeps over and over 6.5%, 7%, depending on the quarters? Or do they realize, do they care about the fact that this number is well ahead of the European average? Or is it something they just don't care? They only look at risk-weighted assets, and they want to push up your capital requirement at any cost? And the very final question is just a curiosity. This morning, if I got it correctly, you mentioned the fact that costs were somehow affected by some integration related to Sbanken, if I got it right. Did I get it right? And if I got it right, would you be in the position to say how much that was? Thank you.
So if we start with the first question, what I can say is that you know that more than 90% of our mortgage book is fully floating. So that is, of course, the largest part of the portfolio. And then 30% of the small and medium-sized enterprises' portfolio is also on fully floating rates. So that's kind of, if you talk about, if that's what you mean in terms of repricing and how that should be affected, that is really the only thing I can point to.
I wonder, Ricardo, were you referring to our funding, or was it the customer book?
No, no, no. I was referring to the asset side, not the funding, the asset side. You got a table, G16, the annual report, page 173, if I remember well. Yeah.
Okay. I thought it was liability side. Perfect. Well then.
So then in terms of that's really where you see the repricing mechanism and how that's impacted. It's more than 90% of our mortgage lending book, and that is the absolute majority of what you see in personal customers is mortgage lending, as you know. And 30% of our small and medium-sized enterprises is also fully floating. The rest is related to one, yeah. In terms of how the NFSA thinks, I think that's very difficult for me to comment on. We have a very strong leverage ratio, as you rightly point to, of 6.5%. I don't think there's anything else that I can comment on than that. When it comes to the integration of Sbanken, that is actually smaller numbers.
That's more relating to overtime paid and also some IT expenses that were extraordinary in relation to the technical integration of Sbanken. But again, not major in any way, but more smaller costs. But what's more related to the actual technical migration.
Okay, okay. That's very clear. Very helpful. Thank you very much.
Thank you. We will take the next question from line 3, Shrey Srivastava from Citi. The line is open now. Please go ahead.
Hi, and thank you very much for taking my question. It's sort of a follow-up on one earlier on market shares. So if I look at your loan and deposit market shares going back to the second quarter of 2022, you've actually been losing market share at a fairly consistent clip. The same is true for corporate deposits. My question is, how do you look at your business in terms of market share versus profitability? Would you be content to sacrifice market share further if it meant maintaining your margins? Or is there a steady state level of market share that you'd look to maintain, or if you could provide a bit more color of that? The second one is to do with Sbanken. I mean, in the first quarter, you mentioned that you saw an impact in terms of customers from the integration of Sbanken onto your platform.
I'd just like to ask how that's progressed in the second quarter and if you're seeing further outflows or not. Thank you.
Thank you for your questions. Our most important principle for the way we look at our business is by combining the importance of having a market lead position and growing the business profitably. Both of these are true on the lending and deposit side that we have a comfortable market lead position in the market. Beyond that, we look for our growth to be profitable. It is true to say that we have lost some market share and relatively not had as good a performance the last year compared to the two previous years, for example. Typically, this is the case when banks are being more scrutinized and criticized. As the largest player, we tend to get more than our share of that attention in the Norwegian market, which does have an impact.
But over time, I think we have proven our ability to deliver on the annual growth guidance of 3%-4% and be very disciplined and focused on profitability, which is important for the sustainability of our business over time. It is true that it was negative reactions on some customers who chose to leave us once we integrated Sbanken. There have been discussions in the press that the solution wasn't as good as customers expected. There's been sort of startup challenges for some on the new solutions that we issued in the market. That has also tapered over time, I would say, and belongs to the total picture that we presented today, where volumes are flat through the quarter, deposits are up. New savings customers under the shared savings program this year, net for DNB, so far has been more than 14,000 new customers.
So the new activity now more than outweighs the negative development that we see. And we have a very high priority and activity in improving and further developing the solution that we have offered to the Sbanken customers and are very focused on spending the next years to prove our most important ambition with this acquisition, that this should be a win-win and that we definitely believe that this will lead to much better services and products for our customers over time.
Thank you very much for that. That's very helpful. If I may just have one very quick follow-up. Within your 3%-4% loan deposit growth ambition, I mean, how do you think about this? How do you differentiate it between system volume growth and your volume growth? So if you were to make a split within the 3%-4% between where you think the system will grow at and where you will grow at relative to peers, what would that be and how would you think about that?
We don't share that as specifically, but keep in mind that we have roughly 80% of our revenue from the Norwegian market, 20% from outside, which means that we will prioritize to grow as close to market growth in Norway as we can and even above where we can. I think SMEs in Norway is the sector where we have taken market share for quite some years now and seen that sustainably develop in a very healthy manner. When we get into the large corporate area, it is an area where we can mobilize much more in the originate to distribute fare. So to reduce the average duration of our portfolio, we've been working systematically on that for the last few years. This has a very positive impact also on profitability. That means we're turning the portfolio very quickly around.
But the dynamic in that is also such that if and when we are in periods where the Norwegian economy is going slower, we can leverage that part of the business to deliver some more profitable growth. I would say that's typically where we are today, where we have mobilized that business. We are seeing an increasing pipeline and increasing activity in that business. That is also demonstrated by the 1.1% growth this quarter, despite also quite active prepayments from customers. The reason it takes a while is because some of these are larger transactions, and they can take anything from 6-18 months from your start until they actually materialize. But it's that Norwegian activity combined with that international growth platform that underpins our guiding of 3%-4% over time yearly.
Understood. It's very helpful. Thank you very much.
Thank you. We will take the last question from line Jan Erik Gjerland from ABG. The line is open now. Please go ahead.
Hello. It's Jan Erik Gjerland from ABG. I have a question on the money transfer and Vipps, which is sort of your Sbanken. Last year, it was a big loss in Vipps. Should that sort of be continued this year, or is that one-off character when it comes to the big loss which you showed in the annual report? Just so we understand where the associate line could head. And secondly, on the money transfers, which was very strong, it seems like it's a jump there. Is it anything there that is related to or relates back to Vipps when it comes to more income given from Vipps to the banks in any way? So we can understand how that money transfer line could move on going forward. Thank you.
Thank you, Jan Erik Gjerland. There is no element of revenue inflow from Vipps in the money transfer, but a more active market, particularly on the payment side in corporate banking that relates back to what we talked about earlier with having a strong competitive position to its corporate clients with a high payments activity. With regards to the guidance and the expectations for Vipps, we do own this company together with several other owners and prefer for them to comment directly. But I believe they have been out in the market saying that they are working to materially reduce the negative results in the capital company with the ambition of having black numbers within a few years.
As an owner, I would also like to point out the strategic importance of Vipps and the ownerships and the positions that we have in payments infrastructure in Norway that differentiates Norwegian banks from many European banks who now see, I would call, painful losses of market share and valuable customer information to other third-party providers.
Perfect. Thanks a lot for your time.
Thank you. There's no further question at this time. I'll hand it back over to host for closing remarks.
Thank you very much. Thank you all for your participation. We will take this opportunity to wish you all excellent, good, nice, sunny summer. Thank you.
Take care.
Thank you for joining today's call. You may now disconnect.