DNB Bank (Oslo:DNB) Q3 2026 Earnings Call

0:00 Hello, and welcome to the DNB Q3 conference call. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in the listen-only mode. However, you'll have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star 1 on your tablet or keypad to answer your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. I can call out your host, Ms. Mitra Hagen, head of IR to be at this conference. Please go ahead, Mitra.

0:38 Thank you. Hi, everyone, and welcome to our third quarter 26 analyst call. I am Mitra Hagen-Megoy, head of investor relations. With me today, I have our CEO, Kjerstin Braathen, CFO Rasmus Figenschou, EVP of personal banking, Maria Loevold, EVP of DNB Carnegie, Alexander Opstad, EVP of Risk Management, Elinus Gramstad, and my colleague in IR, Anna Engebrigtsen. We will begin with a brief recap from Kjerstin on the key highlights of today's results before opening the floor for Q&A.

1:16 Thank you Mitra and thanks for spending an hour with us today. I'll repeat a couple of the highlights from this morning's webcast and start with a few words on the Norwegian economy which continues to show its resilience this quarter. And as you may remember we had a rate hike in the springtime where we repriced and most of the impact of this repricing you can see in today's numbers. Then again there was an additional rate hike by the central bank in September with an additional announced repricing which will take effect sometime towards the end of November. But that is on the backdrop of an inflation that has come down but is proving stickier than expected to Get down to the completely to the two percent level which is targeted by the by the central bank and the key policy rate in Norway is now four and a half percent.

2:23 Beyond that nothing really changes to report in the economy still resilient growth of 1.1 percent this year unemployment around the two percent level and households and and many other industries that show resilience and strong performance. This plays into our numbers and we believe that we put down a strong set of results today for our third quarter earnings. Return on equity comes in at 14.5% which is above our minimum targeted return of 14%. We feel it makes sense also to show you the adjusted number If we take out our share of profits from the Luminar transaction, which was announced this quarter, which is then the return of 15,500 for the quarter.

3:17 This is the result of profitable growth across the business areas. NII is up compared to the previous quarter by 2.5%. A strong point this quarter is net commission and fees, which is up by 14.6% from the same quarter in previous years, where again we highlight investment banking and asset management as the two strong growth drivers in the fee and commission category. Investment banking is up by 38% compared to the same quarter last year, and asset management 11 and a half percentage points.

4:04 Third quarter is usually a somewhat slower quarter on the fee side, so it's worth pointing out that the numbers are also impacted by certain larger transactions that were more or less done in the second quarter, but very much towards the end and closed early into the third quarter and reflected in these numbers. Portfolios well diversified, costs are down 355 million, both reflecting a reduction in fixed salaries as well as variable salaries, but again, a higher level of variable salaries compared to the same quarter last year, reflecting that this has been an active third quarter for us. Portfolio's robust impairments come in at 529 million, nothing to report of in terms of industry sector specific news nor migration in the portfolio.

5:08 It remains robust and well diversified. And then lastly, maybe reiterate our capital, which is very strong, 17.3%, 100 basis points above the required unexpected level of the FSA. and this core equity is also after deducting the 30 basis points that has been deducted to account for the share buyback of 75 basis points of the share that were announced earlier today. So with that, I think we're ready to open up for your questions. And thank you very much. Ladies and gentlemen, once again, if you wish to ask any audio questions, please press star 1 on your temple keypad and also just ensure that your line is not muted to allow you to reach our equipment.

6:01 Our very first question today is coming from Gunara Saikulova, calling from Morgan Stanley. Please go ahead.

6:09 Hi, good afternoon. Thank you for the presentation and taking my questions. So, at the press conference, you highlighted that the competitive Pressure had a more limited impact on margins this quarter, providing some support to NAI. Could you help us better understand the underlying drivers of this improvement and how sustainable you believe it is going forward? More specifically, if you were to decompose the Q3 spread contribution, how much of the impact was attributable to competitive dynamics versus the rate effects, portfolio mix and any other effects? And looking ahead, how should we think about the relative contribution of these factors to NII and the trajectory of their customer spreads over the coming quarters? Thank you.

6:53 Thank you so much for your question. We did point out that there was a lower impact to our NII this quarter from competitive pressure compared to what we stated for our second quarter number. We also iterated and underlined when asked that this was not signaling a lower competitive pressure in general in the market. I think across the business we would assess that as rather the same level of competition as we reported in the second quarter. But this also has to do of course with how we manage the portfolio, how disciplined we are In terms of allocation of capital, and we continue to focus on profitable growth across the business. And this has year on year resulted in a growth of 5% for the group as a whole, which we are quite happy with. So competition continues to be fierce.

7:59 I would reiterate also that we have no reason to believe that the market has changed. So we reiterate that the market is rational and all the large players active in this market have a specific return on equity as their most important financial targets. I think we have probably also said earlier that the most intense pressure is In the personal customer area as well as the lower end of businesses and also medium-sized enterprises is where we see the highest intensity and competitive pressure. So no relief but no increased intensity either. I think that would be a good way to describe it.

8:47 But do you have an approximate breakdown of what exactly the competition erosion was for NAI this quarter? Because in the previous quarter it was roughly 1%. For this quarter, how are you thinking about it? Do you have a rough breakdown?

9:03 I do not recognize the 1%. I think last quarter we talked about a third of the spread movement being reflective of competition. This quarter we have not We have not broken down the details any further.

9:23 Thank you. Thank you very much, ma'am. Next, we'll go to Shrey Srivstav of Citi. Shrey, please go ahead. Your hand is open.

9:34 Hi, and thank you very much for taking my questions. My first one is actually on the strategic change you announced with some redundancies in technology and services. When you think about the potential of AI to transform your business, is this largely from headcount perspective, just non-client facing functions being reduced and to be replaced by client facing functions as some other banks have talked about? And internally, when you review the success of your AI initiatives, is it absolute cost reduction? Is it operating jewels? Or is it something else? And my second question, Thank you, Shrey.

10:37 With regards to the strategic change related to AI, we think there is a broad potential in AI spanning anywhere from the ability to increase efficiency of our operations to improve our processes and to enhance customer value substantially. In addition to this, there is also areas where AI is creating new jobs and new opportunities. So it's a little bit all of the above. The changes that we have done so far, the areas where we have seen the most impact is definitely related both to real operational draws, that means cost reduction through lower and a number of FTEs but also enhanced customer values. I'll shortly develop on a couple of examples.

11:32 One of them is not related to the recently announced restructuring but is related to our customer services activity. There we see that our chatbots for both our brands is increasingly handling more requests without people being involved and our customers are increasingly happy with the services that they get. They actually prefer The chat box to our people answering on chat because they think the people are too slow. The people that we have in the call centers are also better advisors and more efficient. They have automatic transcripts of all their conversations with their customers. We are able to pass that information around so we have a fully updated picture of our dialogue with the customer at all times.

12:22 and this has also led to the need for fewer people in the call center. Another process that we have talked about is know your customer where this is an internal process but it's also customer facing I would argue because we ask our customers a lot of questions and I think sometimes we may have asked them to give us information we already have but we were not historically good enough to extract all the information we have. With now the automatic processes it's a better experience for customers and certainly a more efficient process for us. With regards to the number of products and our deposit position I will hand it over to Maria.

13:11 Thank you Kjerstin. I could say I could speak for the retail banking area and we can see an increase in number of products for customers from 4.7 to 4.8 and I don't have the numbers from other banks but I know that D&B customers at large they have less than 1.7 relationships with other banks and if you compare with the digital only brand for example they usually have around 2.5 So you can say that a D&B customer, they have fewer banking relationships and at least 4.8 products per customer of today.

13:54 Thank you very much. I can ask a final one about how much of that improvement is driven by S-banking customers being onboarded to the broader D&B platform over the past few years.

14:07 Thank you.

14:11 It's difficult to say, but for example, when it comes to saving agreements, we see that our mortgage customers, they are increasing their investment in mutual funds. So for me, it's all about be able to selling more products to our existing customers. But I don't have that number.

14:27 Thank you very much. Really helpful. Thank you much, sir. Our next question will be coming from Sophie Petersena of Goldman Sachs. Please go ahead.

14:40 Yeah, hi, here is Sofie from Goldman Sachs. Thanks a lot for taking my question. So my first question is on the share buyback. It was 0.75% this quarter. At the press conference you mentioned that the share buybacks will be a bit faster going forward. Could you maybe just elaborate on this, like how much faster will they be and should we expect like Inter quarter share buyback announcements going forward. So if you could kind of comment on this. And then my second question is when I look at the personal customer division net interest income is exceptionally strong this quarter.

15:27 Is that like a sustainable level and how should we think about the internal transfer pricing within this? Division, and is that kind of a good run, right, going forward? Thank you.

15:46 Thank you, Sophie. I'll quickly do your second one. The improvement in NII and personal customers is related to the first customer repricing that took close to a full effect in this quarter. And then, as I stated in the beginning, there is one more repricing that has been announced that will start to take effect towards the end of November. I think Rasmus can answer the buyback.

16:12 There's no change to our capital allocation strategy and we continue to allocate excess capital and announce share buyback programs when we are comfortable with our buffer to FSA expectations. Relating to the question this morning, I felt it more of a technical We will continue to make these assessments and announce new programs when we see fit. That's very clear.

17:00 Just on the personal customer division so is it just fair to assume that when you have like a rate hike that most of the benefit just comes in the personal customer segment and we should expect less NII benefits in the other segments or maybe if you could just walk us through how we should think about the The NII improvement that we will see again in Q4 from the repricing.

17:31 Well, what we can walk you through, Sophie, is the structure of our portfolio. And of course, it's primarily the personal customers that have the floating rate priced loans, namely the mortgages, where more than 95% of the mortgages are based on the floating rate basis. And here is where we adjust the prices. And then you have Excluding the real estate book in Corporate Customers Norway, I believe it's 30% of the loans towards SMEs that are also based on the floating rate basis. The loans in large corporates are priced on reference rates plus a margin, so a rate change will not impact them. and then of course it's also the impact on the deposit side which is primarily also personal customers and corporate customers Norway.

18:28 So on the NII effect this would impact the numbers. As for internal pricing, I mean there's no transfer pricing as such but of course there is an element of Funding costs for the business areas and personal customers is charged sort of the money market rate when we look at their margins on the loans and also then the NII. The additional element to keep in mind is that higher rates leads to an improved Revenue for the equity that they deploy in the funding. So in such a manner, there would be a share of equity in large corporates.

19:20 That's very clear. Thank you. Thank you, ma'am. Next question will be coming from Ricardo Rovere of Mediabanca. Please go ahead. Your line is open, sir.

19:33 Thanks. Thanks a lot for taking my questions. A couple, if I may. The first one is on longer Q2 was, well, in your fact book, you show the average lending volumes by division, which is helpful, I have to say. Now, in Q2, it was stagnant, more or less, in all the various three divisions. Now, in Q3, it seems to have picked up again. So the question is, was Q2 the anomaly or is Q3 the anomaly? The second question I have is, I know you will never ever provide any guidance on these, but just as a qualitative statement, Three months or a little less than three months after the first rate hike, do you see any big difference in respect of the previous tightening cycle when it comes to passing rate hikes onto the customer base? Thank you.

20:44 On your question on loan growth, Riccardo, We invite you to think a bit differently with regards to the growth in personal customers versus corporate customers in Norway and large corporates. Personal customers, there's more of a gradual growth. I believe the growth in the second quarter was 0.3%, this quarter is 0.4%, and year over year is 1.4%, so slightly less Thank you very much. Thank you. can vary from quarter to quarter. If we look at the broader SME portfolio that sort of reflects the level of activity in the Norwegian market, the growth has been more in the area of between 3 and 4% if we look over time. This is a bit low in a longer-term historical context, because one of the important elements of this portfolio used to be

22:18 the construction finance, and that has been very slow now for several years. This used to add approximately 3% volume in terms of short-term borrowings onto this portfolio, so you can say, adjusting for that, it reflects a level of activity across SMEs of 6%, which is a very healthy growth level. We do expect the construction We have been expecting it for some time. It's still too early to say actually when it will start to materialize. Now large corporates can be much more a bigger variation from quarter to quarter. This depends on the actual deals that are being done.

23:05 There is a rapid turnover of capital in the portfolio. The duration of that capital is approximately two years, which gives you an idea of actually how quickly that portfolio is turned around. The growth this quarter was 3.4% if we do not adjust for the currency, and growth year-on-year is 10.8%. So altogether, across the platform, we deliver a 5% growth year-on-year. and this is exactly how we think about our platform and talk about it that we can balance across the different parts of the business in order to grow profitably we're saying three to four percent but also of course here showing you that if we can grow a little bit faster and we can do so profitably we are more than happy to do so. As for your question on difference in terms of passing on rates I'm not Sure, I can actually give you any more color than we already gave when we announced the price increases where we said we have adjusted prices by up to 25 basis points both on loans and deposits. And again, I referred to Rasmus' comments earlier today on the press conference where he invites you to look at both the changes on the spreads as well as the interest on equity to gauge A picture of the repricing effect on the net interest income.

24:39 Thanks. Thanks a lot, Kjerstin. Just to get back one second to the first question. So from what I understand from your wording, I understand that the 3 to 4% loan growth in your mind, that number is invalid. Do I get it right?

25:01 Yes. Thank you. Thank you very much for your question, sir. Next, we'll be going to Namita Samthani of Barclays. Please go ahead, Namita. Your line is open.

25:13 Thank you. Good afternoon, and thanks for taking my questions. My first one, thanks for your comments on products per customer at D&B. I just wondered how do you see competition for deposits just more broadly as AI products? It makes more of an impact, which could make the more highly remunerated deposits across different competitors more transparent to customers. Just wondered if you're taking any initiatives there to protect your deposits? And secondly, just on expenses, I noticed the line employers national insurance contributions, that's up 15% year on year. So I just wondered what's driving that or if there's any reclassification there. And then just lastly, rates in Norway are at 4.5%.

26:05 How do you see corporates responding to that in terms of their appetite to borrow, with rates being quite elevated? Thank you.

26:15 Thank you, Namita. I will try on the first and third, and I'll leave the second one to Rasmus. I think a relevant question on AI, I mean, we've been talking about Muse as the most I would say AI agents so far to consumers and we are preparing for a changed competitive environment through investing into our platform building loyalty we see that and we have been doing so for years I mean we have half the Norwegian population actually actively using our banking app while only having a fourth of the population having mortgages with us so I So the loyalty and brand value is important and Maria is also working on launching AI features directly towards customers.

27:12 So this is a scenario that we are preparing for. We will have to see how this plays out in terms of Regulatory environment, I think that is yet to be seen and also authorization through bank ID and other verification. So I would say that we see that this is a trend. It's still uncertain how large the impact will be and how fast it can possibly go. but we are also preparing to compete and to continue to earn the customer's trust and have their loyalty. Would you like to add Maria something?

28:03 I think you covered it.

28:04 I covered. Okay, good. I'm learning from Maria. Four and a half, I wouldn't say it's restraining appetite for corporates to lend but we can I see in the market that some businesses decide to postpone investment decisions. I would more lay that on the broader uncertainty in the global environment if this is related to companies involved in export activity than actually to the interest rate level as such.

28:40 Relating to the cost question on employers' national insurance contributions, this is a technical adjustment in Q3, and it's done for the year-to-date figures, so we are expecting a negative delta in Q4 on this year. Thank you. Thank you, Ben. Next we'll be going to Isabel Hetrick of Autonomous Research. Please go ahead.

29:12 Hi, thank you. It's Isabel Hetrick from Autonomous Research. I have two questions, please. So my first, we can see group asset management net inflows have clearly taken a large step up in the last two quarters. And so could you just provide some more colour here about what's driven that change? What customer segments and markets and are there any internal actions you've taken that you think have influenced this, whether that's new product launches, cross selling initiatives, any big mandate wins? And then my second question is on investment banking fees. I note your comments at the start of the presentation that you saw some slippage from 2Q, but could you provide some colour as to what the pipeline looks like into year end and how do you think recent market volatility and maybe fears over fiscal sustainability AI bubble is influencing market behaviour here? Thank you.

30:15 Thank you Isabel. In AUM we are very pleased with the development not only in the past two quarters I would say but also now for a series of five, six, seven quarters in a row and I think I would like to say that we have worked with a series of initiatives over time that is now paying off. First of all in relation to this quarter and the previous quarter I should I highlight that there is one big mandate win in these numbers. So a single institutional investor that provided a flow of 30 billion in the third quarter and 30 billion in the second quarter. But even without that, the flow has been positive with more than 20 billion kroner. and this quarter the flow from retail investors was six and a half billion and I think not too far from that also in the second quarter and this has been a clear strategy on our side to prioritize the more sticky and higher margin volumes under asset management. One area that we have pointed to is the savings agreements with our personal customers. This is at an all-time high.

31:32 They are now saving in their savings agreements more than one billion kroner a month. We also have a market leading position in defined contribution that we have built over time. And of course, there the companies are paying down more money into these funds for their employees on a monthly basis. and we have scaled the pace of innovation I would say onto our digital platforms both the savings specific platform that we have but now also increasingly integrating the savings products into the mobile banking platform now that the position has been built. Beyond that we are continuing to advise on an individual basis but also on a collective basis and this quarter we've had a lot of Thank you very much.

32:53 in terms of savings into mutual funds. So this is a series of activities that has led to increased inflows in funds, but also stable margins despite the trend from active to index, and also the trend with pressure of margins from certain reforms in the past, whereas we have seen very stable margins over time in our assets under management business. In terms of investment banking, I will start and hand over to Alex also to talk about the sentiment in the markets given what we see today.

33:39 Third quarter, again, I reiterate a very strong quarter with many large deals. I also made the comment with some of these deals being done towards the end of the second quarter and booked in the third quarter because it's true it is an exceptional quarter. and a third quarter which is usually a bit slower. This was an all-time high revenue in terms of bonds for D&B market and I would describe the pipeline as strong and invite Alex to put his comments on it. But of course we had a very strong fourth quarter last year so I'm a little bit also alluding to the The pace of growth from third quarter to fourth quarter that you should bear this in mind that the third quarter was exceptionally strong when you think about how this goes forward.

34:37 Thanks Kjerstin. I can provide some extra color. It's about if I start with the third quarter as you point to Kjerstin a few Transactions closed in July. That was for the majority executed throughout the second quarter. But that being said, it's still quite broad-based. No sort of single fee event is more than a single digit of overall fees within investment banking. And maybe also point out that so far this year, about half of our say top 10 mandates are Nordic mandates and most are really outside of our traditional stronghold market of Norway.

35:28 If we look into the fourth quarter clearly with the sort of market volatility we do see the IPO pipeline being pushed out somewhat and a bit slower Thank you very much. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star 1 at this time. Our next question will be coming from Rebecca Ken of Bank of America.

36:19 Please go ahead.

36:23 Hi, this is Rebecca Ken from Bank of America. I have two questions. So one is regarding your new retail business. You mentioned about competitive landscapes are not working in Q3 versus Q2. If I just read this back, were down and there was more pressure than lending spread. Given we saw another rate hike in late September, this comparison situation did not change in Q4. Should we expect a similar direction of travel for both lending spread and deposit spread in Q4 and therefore further expansion in your Personal Banking in Norway. So that's my first question.

37:18 Okay, it's a little bit difficult. Oh yeah, okay, go ahead if you want to do it again.

37:24 Yeah, so my second question is also related to corporate finance. You mentioned there was some delay from Q2, but if we exclude that impact, have you observed any structural changes in terms of consolidating content and therefore Further penetration across Nordics were just more deals in Finland and Denmark where cultural activities have picked up. Thanks.

37:54 Thank you, Rebecca. I'll answer the first one and introduce slightly the second one and leave that one to Alex. With the subject of it being slightly difficult to hear what you asked in the first one I will try to answer as best I can and then you follow up if you don't feel that we are hitting what you were talking about. Again with regards to the competitive landscape I reiterate that the competitive landscape is unchanged largely and as fierce as we have commented upon before. The comment that was made during our press conference today was that the impact on our numbers as such were slightly less than what we saw in the second quarter.

38:42 In other words, it's more a comment as to how we are managing the environment and our ability to continue to grow in all the sectors across the business while also being mindful and disciplined about how we allocate capital. There is a meaningful impact on our NII and thus margins then from the repricing that took effect mid-July. We haven't specifically commented as to the size of the impact of this beyond referring to historical rate hikes where the impact from a 25 basis point rate hike or rate cut has been in the area between 800 million and 1.2 billion. Now, with regards to future margins, we are not commenting or guiding specifically, but of course we can talk about what we know, and we know that we have announced the repricing towards our customers on the floating parts of our portfolio, that we have repriced loans and deposits by up to 25 basis points, and that will take effect in the end of November. so everything else equal this will have a positive impact on our NII and then of course there are other impacts such as market development, growth, potential portfolio

40:13 mixed effects and also effects which are the typical elements that you follow and think about in order to assess the future development. With regards to corporate finance I will hand directly over to Alex.

40:33 Thanks Kjerstin. So if I heard the question correctly there's no sort of structural changes in the market that I would point to. But in terms of sort of a combined D&D Carnegie platform we do feel that we have a very competitive Thank you very much. but we're also then communicating now that on the investment banking advisory side sort of all integration is complete so we're entering a phase where we are less internally focused and that's sort of contributing to good time dialogues.

41:38 Thank you, very helpful. Thank you much, Rebecca. Our next question will be coming from Ricardo Rovere, colleague from Mediobanca. Please go ahead.

41:50 Thanks again for taking my questions. A couple if I may. The first one is on risk-weighted assets, pretty flat if quarter-on-quarter. Just wanted to be sure that is there anything with regard to modus approval, recalibration, reassessment, that we should be aware of when it comes to your IRB models even though this has been a pretty hot topic over the past week or so. The other question I have is in the amount of bonds or in general medium long-term funding on your balance sheet has gone up quite significantly in the quarter. I was wondering if there has been any kind of pre-funding activity in the quarter you know expecting higher rates in the in the coming quarters and then maybe just just a quick quick quick follow-up in my understanding from all the comments that have been made on investment banking point to a sort of know how to say sort of maybe A little bit super normal this quarter, if I understand it correctly, but I'm not sure this is the message you want to convey.

43:08 But if this is the message you want to convey, has this affected more fee income or trading or both of them? Thank you.

43:20 Thank you, Ricardo. RWA is fairly flat. There is some capital being reinvested into the business for the growth that we are delivering in the quarter, but nothing in particular to highlight with regards to structural changes or migration or shifts in the portfolio to speak of. I hear that you also refer to discussions we know have taken place around and other institutions during these earnings seasons and the message from us is that we have nothing in particular new to highlight this quarter with regards to our dialogues or models or other with the FSA other than to say what we would say every quarter that there is a continuous and ongoing dialogue with the FSA on these and other elements and you know there are moving bits and pieces in the and capital stacks such as the Pillar 2 and SREP process that we often refer to.

44:24 On the investment banking, there was no intention from my side to talk about a super normal quarter. I just highlighted the fact that the third quarter usually is a somewhat quieter quarter. and that the results are very strong this quarter. But again, to reiterate what Alex said, the revenue is diversified across products, across customers and across geographies. So there is a sound distribution of revenue. And my comment was more to point to a direction in the future where yes, we say that the pipeline is strong. But given the nature of this business, there shouldn't be sort of an automatic extrapolation either. I think that is all that we tried to nuance without signaling strongly that there was anything unnormal about what we saw this quarter.

45:22 And Rasmus on the funding.

45:24 Yes, DNB is fulfilling all MRL requirements with good margin. Well, the stronger NOC currency in Q2 reduced the value of outstanding emerald debt in currency. So as a result, we had to accelerate some transactions planned for the second half to secure sufficient emerald buffer. And it did influence long-term funding costs somewhat negatively in Q3.

45:53 Rasmus, these transactions have been put in place at the beginning of the quarter or end of the quarter?

46:02 I'm not quite sure.

46:03 Throughout the quarter. Sorry?

46:08 Throughout the quarter. There's no one specific, so I would say throughout the quarter, if anything.

46:15 Right. Okay. Fair enough. Thank you. Thank you very much for your question, sir. We do not appear to have any further questions at this time. I turn the call back over to Mitra for any additional or closing remarks. Thank you.

46:33 Everyone, thank you for joining today's call and for your questions. Should you have any further questions, please don't hesitate to contact Anna or myself. Have a good day. Thank you very much. Ladies and gentlemen, that concludes today's call. We thank you for your attendance. May I disconnect? Have a good day and goodbye.