Earnings call transcript: DNB Q2 2025 sees strong equity returns amid NII decline

DNB, with a market capitalization of $4.06 billion, reported its Q2 2025 earnings, showcasing a robust return on equity at 15.4%, surpassing its long-term goal of 14%. Despite a decline in net interest income (NII), the company maintained strong capital ratios and loan growth. DNB’s stock price increased by 0.61%, closing at 197.45, reflecting investor confidence in its strategic initiatives and financial resilience. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations.

Key Takeaways

• Return on equity achieved 15.4%, exceeding the company’s target.
• Core equity tier one capital ratio stood at 18.3%, well above regulatory requirements.
• Loan growth reached 1.7% year-to-date, driven by profitable expansion across customer segments.
• The Norwegian economy remains robust, supporting DNB’s growth prospects.

Company Performance

DNB’s Q2 2025 performance highlighted a strategic focus on maintaining profitability while navigating a competitive banking landscape. The company’s return on equity of 15.4% indicates strong financial health, particularly as it surpasses the long-term ambition of 14%. Loan growth of 1.7% year-to-date underscores DNB’s ability to expand its lending portfolio profitably across various customer segments.

Financial Highlights

• Net Interest Income: Declined quarter-on-quarter
• Return on Equity: 15.4%, above the long-term goal of 14%
• Core Equity Tier One Capital Ratio: 18.3%, 180 basis points above regulatory expectations
• Loan Growth: 1.7% year-to-date

Outlook & Guidance

DNB is targeting an annual loan growth of 3-4% and expects fee and commission income to rise by 9% annually. The company anticipates continued momentum in capital markets and sees potential for increased credit demand in the housing and SME sectors.

Executive Commentary

CEO Kristi Brotin emphasized the company’s commitment to profitability, stating, "We always prioritize profitability over growth." She also highlighted the competitive nature of the market, saying, "Competition is good and healthy. It makes us stay on our toes." CFO remarked on risk management, noting, "We believe the cost of risk will generally come in below the twenty-year historical average."

Risks and Challenges

• Declining Net Interest Income: Could pressure margins if the trend continues.
• Competitive Banking Environment: Intense pricing dynamics may impact profitability.
• Economic Conditions: Changes in GDP growth or unemployment levels could affect loan demand.
• Regulatory Changes: Potential impacts from future regulatory adjustments.
• Interest Rate Cuts: Central Bank’s expected rate cuts may influence interest income.

Q&A

Analysts inquired about the rate outlook and potential future cuts, the provisions for the Polish portfolio, and the impact of interest rate swaps on financial results. The integration progress of Carnegie and staff retention were also key topics of discussion.

DNB’s Q2 2025 earnings call reflects a company poised for growth despite challenges in the banking sector. With a strong capital position and strategic focus on profitability, DNB is well-positioned to navigate the competitive landscape and capitalize on economic opportunities.

Full transcript - DnB ASA CFD (DNB) Q2 2025:

Conference Operator: Hello, and welcome to the DNB Q2 Conference Call. Please note that this call is being recorded. And for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. I will now hand you over to your host, Mr.

Rune Heland, to begin today’s conference. Thank you.

Rune Heland, Host, DNB: Thank you very much, and hello, everyone, and welcome to DNB’s analyst call for the second quarter. Around the table here in Oslo, we are in addition to the CEO, Kristi Brotin and CFO, Ivar Larni. We have Maria Ariklevo, Head of Personal Banking Haralfa Kansson, Head of Large Corporate Alex Opska, Head of D and D, Carnegie and also Helene Skramska, Head of Risk Management. Ida will now start giving you the highlights for the quarter before we open up for questions. Ida?

Ida, CFO, DNB: Thank you, Rune, and thanks, everyone, for taking the time to participate in this call. The Norwegian economy continues to be robust with a strong and healthy GDP growth this year expected to be at 1.31.5% next year. Unemployment remains low at around two percent and is expected to remain at this level in the coming years. As you know, the Central Bank cut the key policy rate by 25 basis points in June to now being 4.25. Our economists expect two further rate cuts this year and then to see a key policy rate to stabilize at 3.75.

For DNB, this quarter is characterized by continued high activity level with profitable loan growth in all customer segments and strong contribution from capital light income. Higher margin deposit volumes were up in personal customers, while we noted a decrease in low margin short term deposits in large corporates. NII was down in the quarter, affected by the profitable loan growth, which accelerated towards the end of the quarter as well as the product mix effect within deposits earlier mentioned as well as other elements, non customer related elements in NII. We continue to have a robust and well diversified portfolio across industries and geographies and taking payment provisions of EUR $677,000,000 in the quarter, predominantly in the large corporate and corporate banking corporate customer Norway area with still very specific customer specific situations. We maintain a strong capital position with a core equity Tier one capital ratio of 18.3%, 180 basis points above the regulatory expectation and also marked this quarter a return on equity of 15.4%, well above the long term ambition of being above 14%.

With that, we open up for questions.

Conference Operator: The first question comes from the line of Jo Anne Ekblom calling from UBS. Please go ahead.

Speaker 3: Thank you. I just wanted to come back a little bit on the interest rate outlook and if you can say anything on the impact of the price changes that you’ve announced. So first, on the rate outlook. I mean, I think you’ve stuck with your call of a 3.75% kind of trough rate even though the cut we had came a bit sooner. But when I look at Nordisk Bank forecast, they have three more cuts beyond that in their baseline.

And I know that the numbers you quote is the E and B Carnegie’s. But can you help us understand what makes them so different? Do you have a dramatically different view on inflationary pressures? Do you have a very different view on the growth dynamics in Norway? Or why does Nordisk Bank see rates so much lower than what you think?

And then maybe slightly related to the cut that we’ve had. When rates were going up, you would give us some guidance as to the impact of already announced price changes. Would you be willing to do that for the price changes you’ve announced so far, please?

Kristi Brotin, CEO, DNB: Thank you, Johan. First, on the rate outlook and the rate cut, which I would rather say came a bit later than expected, more than it came sooner than expected because the market expected this to be in March, and the Central Bank decided not to and postpone it then until June, where when most people actually expected the postponement to be until September. But that’s just a detail. But our view was that it was to be expected already in March. As for the future outlook, it’s been a while where the view of our economists has differed somewhat from Nordgesbank, but I believe our view to be more in line with the consensus in the market.

And the primary differentiator is on the inflationary outlook, not so much the growth perspective, the unemployment or activity, but rather more on the stickiness of the inflation. And I believe also the uncertainty and the turmoils and the discussions around tariffs alongside the debt levels across various states in the Western part of the world in addition to the investment outlooks on defense and other areas, are all expected to be believed to be drivers of inflation. And this is the primary reason, I believe, for DNB Carnegie maintaining their view of further two rate cuts rather than several more, as outlined by Nordisk Bank. We have decided not to give a nominal guidance on the impact of

Harald, Head of Large Corporate, DNB: the

Kristi Brotin, CEO, DNB: repricing this time. We did so, as you’re participating, on many occasions when rates went up. And I guess the best sort of reference we can give you is to refer back to the nominal impacts we talked about at the time between SEK 1,000,000,000 and SEK 1,500,000,000.0 was what we commented on for the 25 bps rate hikes that we saw at the time.

Speaker 3: Thank you. And then maybe just secondly, I think you commented this morning that you’re happy with the progress of the Carnegie integration and things like that. I mean, now that we can’t see the contribution of that alone, can you give us a bit more color on what are you seeing in terms of, I guess, pipeline? And did Q2 conversions come in as expected? I mean we’ve seen various press stories of activity being delayed maybe until after summer at least.

And maybe give us an update if there is any on staff retention. I think we spoke about it last quarter, and that you were very happy that you kind of kept the people that you wanted. There any change on that front, please?

Kristi Brotin, CEO, DNB: Good. I’ll have Alex answer.

Rune Heland, Host, DNB: Yes. Thanks, Johan, first starting on sort of business momentum throughout the quarter. Of course, very little happened in April. And I think commenting on various products, M and A processes were pushed out in time or delayed somewhat. We haven’t really had any M and A processes being canceled as such, but they were slow moving as clients sort of took a wait and see approach throughout April and early May.

We’ve seen some ECM mandates both being postponed and some altogether called likely to return at some point, but they were due to be executed in the second quarter. And then, of course, a very strong business momentum sort of May or mid May onwards. And in the middle of all of this, we have launched sort of the common D and B Carnegie brand and organization. And the sort of six weeks that we have experienced from, we feel that the competitiveness of the platform is as or even better as expected. And we’ve had a very busy sort of capital markets period from sort of mid May.

But some of the transactions then have been delayed and really moved into the second half of the year. With regards to staff retention, there has been very limited turnover, quite frankly, somewhat less turnover than we would have expected. And no sort of really unwanted turnover at all so far.

Conference Operator: Thank you. The next question comes from the line of Namita Santani calling from Barclays. Please go ahead.

Speaker 6: Hi, and thanks for taking my questions. I’ve got three, please. Firstly, are there any timing impacts on when you reprice your mortgages downwards and when that flows into the P and L? So I. E.

Mortgages reprice sometime after the 25 bps rate cut is announced? Or are there any factors which would make the rate sensitivity of 25 bps to your NII a bit lower than one might expect? Secondly, I just wondered how much were the Polish provisions this quarter? And can you remind us what this was taken for? And is this the end of taking these provisions?

And my last question is just in relation to the output floor of 72.5% when it’s fully loaded. Should we expect your RWA inflation to be lower than the average bank given you’ve already have risk weight floors? I think the EBA has disclosed the average RWA inflation is around 6%. So would you be expected to be around that or lower? Thanks very much.

Ida, CFO, DNB: Sure. So if we start with the timing, we have said that as I said in the presentation, we have the full effect from the repricing being implemented on the August 25. That means that we have the same delay or lag effect as we had on the way up in terms of eight weeks lag effect, both on deposits as well as on mortgage lending. When it comes to the Polish portfolio, as you know, we’ve talked about this before. We have a currently outstanding exposure of EUR 4,100,000,000.0.

We’ve taken accumulated provisions of EUR 1,400,000,000.0. As you know, 88% of that portfolio is in euros and only 2.3% is in Swiss francs. That means that we’ve written off the entirety of the Swiss franc portfolio and are also then following very closely the development we’re seeing in the rest of the portfolio. And the provisions that we’ve taken to is our best estimate in terms of provisions also looking ahead. But this is something that we follow very closely.

This quarter, we take impairment provisions around SEK 152,000,000, which is lower than what we took last quarter. When looking at the fully loaded, we are providing the information in our Pillar three report being published in August. So we haven’t got the numbers kind of ready for you today, but overall, you are right in your assumptions given the calibration in our portfolio and our risk weighted assets today. But I wouldn’t I would more point in terms of the where the Nordic banks have also commented on their effects, and we would be in the mid range of that is my best estimate today.

Speaker 6: That’s helpful. Thanks very much.

Conference Operator: The next question comes from the line of Jan Gjeran calling from ABG. Please go ahead.

Kristi Brotin, CEO, DNB: Are you on mute, Jean Eric? We can’t hear you.

Ida, CFO, DNB: Can you hear us? We can’t hear you.

Kristi Brotin, CEO, DNB: Just we move to the next.

Conference Operator: Yes. We will move to the next. The next question comes from the line Patrick Nelson. Please go ahead. And that we currently have a technical issue and then

Ida, CFO, DNB: We’re just waiting. So you just let us know if the if we’re able to sort it out or if we should redial.

Conference Operator: Yeah. Please bear with me while we are sorting out.

Rune Heland, Host, DNB: Hello, can you hear us?

Speaker 7: Yes, we can hear you, sir. Could you please can I ask everyone who wants to ask a question, please press one now again as we have some technical issues and we will put you a question through? You. And our next question is from Riccardo Rovare from Mediobanca. Please go ahead.

Your line is open.

Speaker 8: Thank you. I hope you can hear me well.

Kristi Brotin, CEO, DNB: Now then, clear. Okay,

Speaker 8: perfect. I was looking at your fact book, specifically, table one point two point five. And I was looking at the very, very towards the end of the table, which shows in the line other interest expenses, which has always been positive with different numbers, but always been positive over the past twenty four months, couple of years. And then all of a sudden, in the second quarter of twenty twenty five, it got negative by $500,000,000 So there is a swing in that line of almost 700,000,000 more than $700,000,000 All in that line and there is a footnote that says that interest rate swaps are included there. Can you explain why that line, that small little line at the P and L had a swing of more than €700,000,000 quarter?

Because that the NII decline Q on Q seems to be completely driven by that. So what’s in there? And what are those interest rate swaps? If you can clarify that, please.

Ida, CFO, DNB: Yes, Ricardo. Thanks for the question. So I mean, apart from what you’re seeing in terms of the footnote on number two, this interest expenses needs to be seen in connection connection with the total interest income because there is a counteracting mechanism in terms of that you would see that in the numbers above. But we’re not specifying them specifically. So that’s kind of you will see a matching number on the interest income, which is spread out between the different elements there.

Speaker 8: So, Ida, just to be clear here, there is nothing particularly odd in minus five seventeen No. Nothing. Okay. All right. Okay.

Thanks. And the other question I wanted ask is, if I’m not mistaken, I understand that your Polish provisions amounted to €150,000,000 in the quarter. So basically, the underlying provisions, I don’t know, are those Polish provisions to be considered a sort of one off or not?

Ida, CFO, DNB: Well, I think when looking at the Polish provisions as all provisions, we always make an estimate in terms of best assessment of the provisions at any given point of time. And that’s depending on the development in the portfolio. It’s also depending on how we actively handle the development in that portfolio. The Polish provision is a the consequence is that we’ve started initiated a bit of a different approach to part of that portfolio. So it’s no change in the underlying portfolio.

There’s no change in the outlook per se in the portfolio, but it’s more a reflection of our best estimate given how we have approached that portfolio today.

Speaker 8: Okay. This is something that happens also in other banks in Europe. Other banks in Europe say that we should be more or less close to the end or the amount of this provision should come down significantly over the next quarter or so, maybe a year or whatever. Would you share this thought or not?

Ida, CFO, DNB: I think that’s very difficult for me to say in terms of outlook. The provisions that we’re taking are always a reflection of what we believe are the right amount of provisions. And therefore, to have any thoughts around what we think will happen in the future would mean that we would have to take those provisions today. So or reversals of those provisions today. So this is the best estimate that we have in terms of also looking at the accumulated provisions of, as I mentioned, of EUR 1,400,000,000.0, looking at the overall portfolio.

And you also need to think about when assessing what other banks are doing, and again, I’m not an expert in terms of their portfolios, of course, you need to also look at portion of Swiss franc loans and euro loan. And in our portfolio, 88% is euro loans, which are assessed to be less exposed in the periods or in the Polish situation.

Speaker 8: Okay. Thanks. And sorry to get back to the NII question, one second. Because when I look at the asset side of the table, it doesn’t I just cannot see anything that offset that EUR 700,000,000 or more than EUR 700,000,000 swing.

Ida, CFO, DNB: No. And that’s why I’m saying it’s distributed in between the different lines, where I see that I’m not helping you here, Riccardo. But this is kind of if you look at interest on amounts due from credit institutions, for instance, you see an uptick there, and you also see a movement in between the different lines. So you need to look at the total interest income and look at also the total interest expenses as a whole.

Speaker 8: Sorry to bother you. But everyone was, how can interest rate swap all of a sudden can become negative? Everyone was expecting rates to go down at some point in Norway. So your balance sheet should have been somehow prepared, if I may say so, to this kind

Speaker 9: of

Ida, CFO, DNB: Ricardo, scenario I’m sorry for interrupting you here. But as it says on the footnote, it includes interest rate adjustments resulting from interest rate swaps. That doesn’t mean that the entirety of this is related to interest rate swaps. So it includes that element in addition to other elements as well.

Speaker 8: And the other elements are?

Ida, CFO, DNB: I’m sorry, Ricardo, I don’t have that information.

Speaker 8: Okay. All right. Okay. No worries. No problem.

I’ll take I’ll try to take it offline. No worries. Okay.

Speaker 7: Thank you very much. And we’ll now take our next question from Gunnarah Sytkulova from Morgan Stanley. Please go ahead. Your line is open.

Rune Heland, Host, DNB0: Hi, good afternoon. Thank you for taking my question. So my question is on fee income. We saw that investment banking activity has remained resilient and you mentioned in your previous answer that mid May you’ve seen the relatively strong business momentum. How sustainable do you think this can be in the context of elevated uncertainty and tariff risks?

And can you comment more broadly what you see in terms of the key moving parts for the coming quarters on the fee income more broadly? Where do you see most potential to grow your fees in the near term? And separately related to that on commission margins in the asset management. So we saw in the previous quarters they have been under pressure. Can you comment what you’re seeing this quarter and what is your outlook for commission margins going forward?

Thank you.

Kristi Brotin, CEO, DNB: Alex can comment on the Investment Banking part, and I can take the rest of the fee base more broadly.

Rune Heland, Host, DNB: Thank you, Jasin. If I should start. So momentum, very strong from mid May onwards, as mentioned. And it’s, of course, tightly linked to the fact that risk sentiment has gradually improved throughout the quarter in capital markets in general. We sort of feel that optimism has carried into the summer in the Nordic region.

Business is slower now during July. But as long as capital markets stay constructive, we expect that the business momentum to continue once we sort of get into the later part of August and early September.

Kristi Brotin, CEO, DNB: Thank you, Alex. And largely, I would just reiterate that we maintain our guidance on growth in fee and commission income by 9% annually, and we maintain our commitment to delivering on the synergies as outlined on DNB Konege. And as we’ve said before, our two main engines, so to speak, in the fee growth are indeed investment banking as well as asset management. We did provide you with some additional information on the asset management position in the fact that this time around, we also had a substantial inflow this quarter, more than SEK 10,000,000,000, but have not seen margin pressure to speak of. Approximately 50% of the inflows were retail funds and 50% institutional funds.

And in general, as you know, retail funds comes at a higher margin. There is a more global trend of a move towards index related products in our region. So over time, that may put some pressure. But on the other hand, we have systematically been building the retail share in our assets under management and benefited from that. But we do expect that to be a key driver for fee growth also as we move ahead.

The assets under management in the defined contribution bucket now have surpassed SEK 200,000,000,000. So that is growing recurringly every month. We continue to see customers staying in their savings agreements, putting savings down in their mutual fund products every month. And we continue to expect saving growth to be two to three times as high as GDP growth for Norway in the years ahead of us. Real estate brokerage, more seasonal impact, but this is a high quarter seasonally high quarter second quarter, and we are taking market share in that area.

Money transfer and banking services. Money transfer, very steady. Third quarter should be an active quarter. People, even with a relatively weak Norwegian kroner, they book their vacations and they travel and they spend money. And there is also a good sentiment on the insurance side, not the least, non life insurance, where combined ratios have come back considerably.

This is a positive contributor this quarter on the fee side, but also on the associated companies line for this quarter, and we expect that business to be in a better place also in the coming quarters and years than we have seen in the previous few quarters.

Rune Heland, Host, DNB0: Thank you.

Speaker 7: Thank you. We’ll now move to our next question from Patrick Nelson from Goldman Sachs. Please go ahead. Your line is open.

Speaker 9: Yes. Thank you very much for taking my question. It was also on fee income, and I appreciate you gave a very comprehensive answer now to the last question. But I just wanted to follow-up on that. Is there anything in terms of the seasonality that you expect to be different this year, given that there were quite some challenges in the second quarter following the April?

Or do you expect or do you think that the second quarter is a good sort of proxy of the second quarter and then how we can think about the seasonality for the remainder of the year? Or was there or is there some kind of catch up effect we should expect? Thank you.

Kristi Brotin, CEO, DNB: I think Alex’s run through gave a pretty good picture of a slower start and a much better finish to the second quarter. I think we have seen the same also on the mortgages that pays have picked up activity. That’s not so much on the fee side, but still, we have seen increasing activity throughout the quarter. A lot of the lending activity also on the large corporate side came towards the end of the quarter. So I would say we have unusually high activity going into July.

How long that will last and whether it will lead to a very different picture for the third quarter or not, I mean, we’re at a level of detail that I think is hard to comment upon beyond saying what I just said. But there could be a sentiment that part of the activity is pushed into July and thus third quarter compared to what we would see in a more normal year.

Speaker 9: Okay. Thank you very much.

Speaker 7: Thank you. And we’ll now move to our next question Please go ahead.

Rune Heland, Host, DNB1: Hi, and thank you for taking my questions. Two for me, please, today. The first is I wanted to ask about the competitive impact to your sales from the consolidation of the smaller players, both in the SME and personal customer market. How do you view the sort of margin versus volume debate in these markets? That is to say, could we see further pressure on lending margins in personal customers or SMEs going forward independent of the level of rates?

That’s my first one. I

Kristi Brotin, CEO, DNB: think we comment on the competitive situation in general that it is indeed very fierce. Banks have a lot of capital. There is ample supply in the market. It’s nothing new in the Norwegian market that the competition is fierce. But we always remind you that it’s also rational market, saying that all the banks with a material size have return on equity as their most important financial target.

There is a shifting dynamic in the market, as you are pointing to, with several of the middle sized players merging and growing in size. On the one hand, you can argue this will intensify competition. On the other hand, we always know that these mergers open up windows of opportunities where banks are busy with the integrations and mergers. So the way we see it, we do prioritize profitability over growth, which is why we’re also specifying this quarter that we are growing profitably and that overall customer margins are roughly stable. We see that we have a product offering and a way to deliver services that where it is more than a single pricing point, so that is of value to customers.

And one of the proof points is that we saw a sharp uptick in number of customers considering to move their mortgage to us after the Central Bank reduced the key policy rate. So we would always target profitable growth. This quarter, we do deliver this in all customer segments in a very competitive environment. So we like to say that competition is good and healthy. It makes us on our toes.

And the only way to win and earn customers’ trust is by being competitive, and we expect to continue to be that in the future.

Rune Heland, Host, DNB1: That’s understood. And one more from me, please. Can you speak a little bit more about the big quarter on quarter decline in large corporate deposits? I know it’s not a big NII driver, but could you speak about the dynamic there in terms of the large corporate willingness to do business with yourselves? And is this based on a change in pricing or change in competitive pricing?

And how do you see this evolving going forward, both on the deposit and loan side? Yes.

Kristi Brotin, CEO, DNB: Well, your question more specifically on deposits, I’d be happy to comment on that. And it is due to pricing and how attractively we choose to price these deposits. I think we’ve commented on several occasions in the years after the pandemic that we have been seen increasingly attractive as a counterpart for larger corporates for their deposits, being one of the very few banks with a AA rating. So this has been one of the reasons for a large deposit growth and why we have a close to 100% deposit coverage in the large corporate area. We have also repeatedly said that we price these in close cooperation with Treasury, and we never pay more than what makes sense for us.

So these have never been presented as very sticky deposits. Now we did some changes to our pricing on these deposits in the second quarter that resulted in some of these customers choosing to place some of their deposits with other institutions. These are, as you’re saying, low margin deposits. So they are primarily reflected in our volumes, not so much in the revenue line.

Rune Heland, Host, DNB1: That’s understood. Thank you very much.

Speaker 7: Thank you. And we’ll now go to our next question from Jacob from JPMorgan. Sorry,

Ida, CFO, DNB: we can’t hear you.

Speaker 7: We will now take our next question from Jacob Kruse from Autonomous Research. Please go ahead. Great.

Rune Heland, Host, DNB: Thank you.

Rune Heland, Host, DNB2: I hope you can hear me. So I had one question, really. So just on the net interest income. If I look at the divisional disclosure, firstly, a lot of the negative is in the other division this quarter. Most of the kind of business lines are relatively stable.

Is that just the total funds pricing that we see there? Or are there other factors driving it? And then on the related question, I guess, if I look at the corporate customers Norway business in the quarter, is there some kind of restatement or something going on here? I’m just looking at the SME business having NII growing from SEK 3,700,000,000.0 to SEK 3,400,000,000.0 within that division, whilst the overall is slightly down, which seems to say that the kind of balancing item is moving very drastically. So I just wanted to kind of understand what’s going that line.

Thank

Kristi Brotin, CEO, DNB: you, Jakob. NII, I think your overall assessment is correct. The customer activity is benign and growing, which is why we’re also commenting very clearly that customer spreads are roughly stable. And the elements that are reducing NII is the lower contribution from other net interest income elements such as the interest on equity, such as a somewhat higher funding cost and a smaller bucket of other interest net interest related elements. As for the

Banking

Ida, CFO, DNB: That is very well spotted. It’s actually more a reshuffling in terms of how we have identified the different exposures related to CRR3. So it’s more the fact that we’ve now registered these corporates in a more similar way. You will see the same movement in, for instance, in large corporates or in other areas that is more of a matching element here. So more

Kristi Brotin, CEO, DNB: companies are doing that.

Rune Heland, Host, DNB2: Okay. So that number is really we should start in Q2 as a kind of base?

Rune Heland, Host, DNB3: Yes. Okay.

Ida, CFO, DNB: No. Exactly. Great.

Rune Heland, Host, DNB4: Thank you so much.

Speaker 3: Thank you. Thank you.

Speaker 7: And we will now move to our next question from Martin Ekstad from Handelsbanken. Please go ahead. Your line is open.

Rune Heland, Host, DNB2: Thank you. Can you hear me?

Speaker 3: Yes, Yes.

Rune Heland, Host, DNB2: Great. So could I just ask, could you let us know a little bit more about in what industries you saw loan losses this quarter in particular? Are there any concentrations to any portfolios, for example, given what’s happening geopolitically and with global trade tariffs and so on, I had a specifically of myself at your shipping portfolio. And I wanted to check if you could add some color to the stage migrations you’ve seen quarter, where, for example, stage three impairments dropped sharply and exposures in stage two increased a lot over the last two quarters. If you could give us some more color on that location.

Ida, CFO, DNB: Yes.

Rune Heland, Host, DNB3: Need to start out to

Kristi Brotin, CEO, DNB: say that I truly believe that we have

Rune Heland, Host, DNB3: a very overall robust and solid portfolio. And that 99.3% of our exposures are within Stage one and two and without any legal provisions. And in a historical perspective, I think we are on very low levels when

Kristi Brotin, CEO, DNB: it comes to Stage three provisions.

Rune Heland, Host, DNB3: And then we looked at what is within the provision this quarter. These are really customer specific situations and that’s not something that we think are already trend on any kind of customer specific situations or incidents. That said, of course, it’s a somewhat turmoil geopolitical situation. And of course, we need to foresee that impairments might increase going forward if the turmoil continues or if we need to foresee that there will be more volatility probably. Furthermore, given this higher geopolitical unrest and uncertainty, it would be natural to see more company specific impairments as well in the longer term perspective.

But we believe that the cost of risk will generally come in below the twenty year historical average.

Kristi Brotin, CEO, DNB: And we can just maybe add some I mean, there are really it’s spread across maybe not a large number, but a moderate number of companies. And there are some names related to residential construction activity and property. But we still do not comment this as an industrial trend because we’ve looked at all of them and see that this is not systematic across the portfolio. There is no negative migration in this portfolio. These are particular companies who have taken specific risks that have led to this situation.

So again, I reiterate that the portfolio is robust and well diversified. No systematic weakening, no migration and no deterioration in any area compared to what we’ve been reporting in the previous couple of quarters.

Ida, CFO, DNB: Should I make a comment on shipping Yes. In So as you can see, the shipping portfolio is very strong. And I think that’s also due to the fact that Harald and the team has worked diligently on choosing customers within shipping that have strong ownership and also have a strong cash flow ability and don’t have any oversupply. So I think move if you look on historical average shipping used to be more volatile and cyclical industry for us and has also then imposed more impairments historically than what we see today. This is actually now a low risk portfolio, but of course, shipping is exposed to geopolitical uncertainty and macroeconomic developments.

And therefore,

Rune Heland, Host, DNB3: we follow

Ida, CFO, DNB: this industry closer. But as you can see, very low risk in this portfolio and also, as again, pointing to the fact that I believe that Harald and the team has worked very diligently on choosing the right customers here.

Harald, Head of Large Corporate, DNB: Yes. I can just add this is Harald. I can just add that the area of shipping most exposed to the changes in trade and tariffs will be container shipping, and we have very limited exposure on the container shipments.

Rune Heland, Host, DNB2: Great. Thank you very much. That’s a very, very clear answer. That was all for me.

Rune Heland, Host, DNB0: Thank you.

Speaker 7: Apologies. We’ll now move to our next question from Jan Erik Girland from ABG. Please go ahead.

Rune Heland, Host, DNB4: Thank you for taking my questions. Hope you can read it now.

Ida, CFO, DNB: We can hear and read you well. And again, apologies for not seeing your questions earlier today.

Rune Heland, Host, DNB4: No, no, no problem at all. I just have a couple of questions. The first one is to this insurance coverage you use on your to cover your exposure at default. Is this a new thing you have entered into? Or is this something you have been going on for a number of years?

And is this roughly SEK 100,000,000 you pay for this insurance coverage lowering your basis? How much is it lowering your CET1 there or increasing this CET1 this time around versus what you pay for it? And you have a high CET1 ratio. So why are you actually paying to getting it higher than actually using utilizing your growth ability to lower it when you have strong growth? That’s my first question.

Kristi Brotin, CEO, DNB: Just in general, I mean, have been using insurance

Rune Heland, Host, DNB3: as one of

Kristi Brotin, CEO, DNB: the items in the toolbox in originate to distribute and increase the turnover of capital. And of course, we would look at every individual transaction and the price of such coverage and from a profitability point of view to make sure that it’s accretive to the bank. I don’t think it makes sense to think about that in terms of how much it’s costing to the core equity Tier one ratio, but it’s one of the instruments that can be considered in the originate to distribute toolbox. Yes, we have a very strong capital ratio, identical headroom to what we presented in the previous quarter. And as you know, we do reinvest this into growth partly and into distribution of dividend or capital back to shareholders to the extent we do not use it for growth.

We have grown 1.7% year to date, which puts us in the bucket of 3% to 4% as is our guiding for the annual growth. And I’d say we rather believe in growing sustainably and building valuable positions over time rather than just trying to grow very short term on the more easier than usually lower return opportunities if we were more erratic. Mean, focus on profitable growth within the strategic areas that we are targeting and again see ample opportunities. I mean, we’re growing 3.3% also in the large corporates this quarter. But our business model is more longer term systematically building value rather than growing in accordance with what our capital ratio is at all times.

Rune Heland, Host, DNB4: Okay, clear.

Kristi Brotin, CEO, DNB: A few comments from Harald too, maybe.

Harald, Head of Large Corporate, DNB: Jan Erik, just if you look at the growth over time in the LCI segment, you will see that growth in volumes and income is much higher than the growth in risk weighted assets. So that’s how we try to manage the growth by and the insurance is a very flexible tool. It’s because you can actually cancel the insurance after a period of time. It’s a way to manage concentration risk as well on single transactions, single clients and even industries. It’s a good way of maintaining the full share of wallet on the cross selling side without inviting competitors into a syndicate.

And it’s a good way for certain types of transactions to boost the yield on that transaction. So it’s actually a good combination, something we’re very pleased to use as a part of the originate and distribute model.

Rune Heland, Host, DNB4: Very good. That leads me to the next question about the lending growth in your area then. You had a sort of slow start to the quarter probably and that’s why the average lending growth in the LCI is down Q on Q, but it looks like it’s up, as you just pointed to, on the end to end levels. Could you shed some more light into which countries and region and type of clients you have been gaining this time around in probably June? And if this is going to be kept going forward and point to a net interest income contribution?

Or is it so that you want to make it into a syndicate and sell it into the bonds market as you said to Harald?

Harald, Head of Large Corporate, DNB: Yes. I can’t really give a concise answer to the second part of your question because we that’s an ongoing process in terms of originate and distribute models. So that’s why volumes will vary over time. And of course, the flattish volumes we had in the first quarter must be seen against the very strong growth we had in the second half of twenty twenty four. So you’re right, the most of the growth in the second quarter came towards the end of the quarter.

And again, you can’t really because of the regional and distributor model, you can’t really look at the changes in exposure at default to conclude which sectors will be most active. But I would say that 50% comes in Norway and 50% comes outside Norway. So that’s roughly in line with our overall portfolio distribution. If you look at it in terms of activity, I would say the most active sectors have been power and renewables, fishing fish farming, and we’ve also been active on increasingly active on manufacturing as a part of our Nordic ambitions following the acquisition of Carnegie. We’ve also had very high activity level on oil and gas, but the exposure at default is actually down, partly because there’s been a CRR3 effect on revolvers, which means that the capital weight has come down on the revolvers.

Rune Heland, Host, DNB4: Okay. Then just one more kind of a clarification on the other income. You have a very strong revision of the francigality and insurance part. But also in the other income, it seems like that line is growing from to roughly SEK700 million run rate from, let’s say, SEK500 million, SEK600 million over the last couple of quarters. Is it some gain hidden there, something we have missed out on either or when there were a transaction done on late?

Or is it just the new run rate?

Ida, CFO, DNB: No. Under other income and other income, there is an effect of an increased contribution from the corporate portfolio in D and D Life. So there, you have an extraordinary high contribution, I would say, this quarter, but it’s generally a run rate that I would say would be in more normalized levels, 50,000,000 below the level today. But apart from that, there is no nothing that is kind of sticking out in terms of extraordinary. There is a positive development in the corporate portfolio and deemed alike.

Rune Heland, Host, DNB4: Okay. So your equity in the Life boutique is booked there as contribution from the from whatever you have as a gain there? Thank you.

Kristi Brotin, CEO, DNB: That is it.

Rune Heland, Host, DNB4: Perfect. Thanks a lot.

Speaker 7: Thank you. And we will now take our follow-up question from Riccardo Rovere from Mediobanca. Please go ahead.

Speaker 8: Thanks for taking my two follow ups, if I may. The first one is to get back one second to what Generic was asking before on loan growth. In general, the growth in the semester is running below the three percent to 4%. It is just above 1% in personal customers. It’s kind of 1.5% in Nordic corporate and it’s kind of 1% or even a little less than large corporate.

So this is for the semester, so June and December, we’re applying it by two basically even more land in the 3% to 4% region. Was wondering if rate cuts that may be the one that has already happened and the ones that may occur in the next quarters could eventually move up. And in general terms, if you’re still confident on the 3% to 4%? This is the first question. And the second question I had is on the solvency of DNB LEAP, which continues to remain at 200%, actually above 260%.

Shouldn’t these go down at some point? I remember this should be brought to 140. That’s what I have in the back of my mind. After two years that keeps traveling around 260% and the equity base of the NBV actually never goes down, it never goes down. So but it should go down theoretically with the dividend upstream to the current company, no, at some point?

Kristi Brotin, CEO, DNB: Thank you, Riccardo. I’d say we’re confident in our ability to deliver the 3% to 4% growth this year. As it stands, we have grown 1.7% so far this year. And just by doubling that pace, we would be at 3.2%. That being said, we do start to see signs of an uptick in activity in house constructions that could lead to a further increase in credit demand in the SME corporate customer Norway sector.

And there is a very active housing market and with additional couple of rate hikes. The expectation is for the credit demand in the personal customer area to continue to grow, and we should take our fair share of that. It’s always more difficult on the large corporate side because it will vary more from quarter to quarter. What we can say is that we are positioned in industries and sectors that are driven by long term trends and that we are able to find opportunities where we can add value and that are profitable to us. So we will continue to work on them.

But three to four should be well within reach this year. As for the solvency, the solvency ratio is high. We are not targeting to go down to 140. 140 is the minimum level we say, at which point we will consider to dividend up to 100% of the results from the life insurance company. But we have additionally talked about the expectations to allocate SEK 10,000,000,000 back to shareholders towards 02/1930.

And we are at the beginning of this period, having done this for the second time this year. And over time, everything else being equal, this should lead to a reduction in the solvency ratio. That being said, Ida just commented to Jan Erik about the improved results in the life insurance business. We have seen also this quarter an improvement in the risk result in the Life Insurance business that we expect to continue. So of course, it is also impacted positively by an improved result in the life insurance business.

And if that proves to be sustainable, well, that would add even more capital and add to the capability of distributing capital back to shareholders.

Speaker 8: Okay. Would you so the idea of upstreaming dividends from DNB to the parent company, that remains. Fact that the solvency ratio remain the solvency stays into two sixty doesn’t mean that you will not upstream capital from insurance in the parent.

Kristi Brotin, CEO, DNB: Absolutely. I mean, as you’re pointing to, the solvency ratio is way ahead of the level where we’re saying we would consider holding back regular results. So there’s an ample room to deliver on the outlined intention to distribute capital back. And as you know, our obligations under the guaranteed portfolio has topped out and gradually also comes down further adding to the capital buildup in the company. Yes.

Speaker 8: Okay. Thank you very much. Thanks for your clarification.

Speaker 7: Thank you. And have a question from Johan Ekblom from UBS. Please go ahead.

Speaker 3: Thank you. Just two quick follow ups. I saw you made a decision to demerge your leasing business. I was just wondering if there is any or what the rationale is behind that, if anything. I mean, I think the trend is towards simplifying legal structure rather than adding legal structure.

So what drove that decision? And then I just wanted to come back to Ida’s comments on the output floor. Because I think you’ve always been very clear that you don’t expect meaningful impact from Basel III finalization. But then Ida says somewhere in the average of Nordic banks, The average of your five large cap peers that have disclosed is 11%. There will be SEK 120,000,000,000 higher risk weighted assets pre mitigation.

And I’m not sure how I could square that with minimal impact. So if you can maybe give some more color there would be helpful.

Ida, CFO, DNB: Absolutely. If I start with the demerger, this is driven by the fact that we see that a lot of other leasing companies, the main competitors to DNB Finance is on a stand alone basis and are not the aggregated or part of other kind of ordinary banks, which with this new setup that we’re now establishing makes them far more competitive and also far more similar to their main competitors. So this is in one way a simplification as well in terms of streamlining and simplifying the structure for DNB finance, and that’s really the driver for this. When it comes to the output for us, as I said, we will disclose this in August in the Pillar three report. So again, you can only see my comment as being an indication of my best estimate today.

It could be lower, but it could be in that region. And I think we will just have to come back with a further clarification and description when we have the full information in August.

Speaker 3: Thank you.

Speaker 7: And thank you all for your questions today. It appears there are currently no further questions in the queue. With this, I would like to hand the call back over to our host for any additional closing remarks. Thank you.

Rune Heland, Host, DNB: Thank you very much, and thank you all for your participation. And then we all here from Oslo would like to wish you a blessed and a very good summer. Thank you so much.

Ida, CFO, DNB: Thank you.

Speaker 8: Thank you.

Speaker 7: This concludes today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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