DNB ASA Q2 2024 Earnings Call - Prioritizing Profitable, Capital-Efficient Growth Over Volume Amid Rational Nordic Competition

Rasmus Järvinen, CFO, DNB ASA: Let’s go just directly to the Q&A.

Operator: Okay, perfect. Thank you very much. Okay, ladies and gentlemen, just as a quick reminder, if you have any questions, please press star one on your telephone keypad. Thank you. Our very first question today is coming from Shrey Srivastava of Citi. Please go ahead.

Shrey Srivastava, Analyst, Citi: Hi, thank you for taking my question. This point has come a bit earlier than I expected. My first question is on the competitive dynamic in the large corporate segment. I understand the margin decline this quarter is to do with the mix of business you are pursuing, but it’s clear not only from yourselves but also from what your peers have said, that environment is becoming increasingly more competitive. Is there anything you can share on the outlook going forward for margins, potentially across the Nordics, since you particularly highlighted outside of Norway? My second one is, you’ve seen an interesting dynamic where you obviously have this pressure on margins in personal customers, but you also have this very strong flow dynamic as well. Obviously that’s margin dilutive since you learn a lot more on deposits, certainly current accounts.

I just wanted an update, sort of from a sector perspective on how the customer is thinking about that decision between deposits and fund savings, and how it affects your sort of margin outlook going forward. Thank you.

Kjerstin Braathen, CEO, DNB ASA: Thank you for your questions. As a general statement, I would just reiterate across all the parts of our business. At the same time, my assessment is that all of the areas is managing this competitive pressure in a very rational manner, and we can confirm that the growth that we take on our books also in this quarter, represents profitable volumes to the bank. Just to reiterate the movements in NII, when you consider the movements on spreads, you have to look at the movements net of increased interest on equity and treasury, which leads to 184 as a movement, and approximately half of this is related to competitive pressure. Approximately one and a half basis points across the entire book. For large corporates in particular, when asked, Harald, he can develop if he feels like it, but we are winning transactions not purely on price.

We are winning transactions on areas where we have industry expertise, where we combine this with products and services on the advisory side from DNB Carnegie or in other areas such as commodity derivatives or trade finance or supply value chain financing, where are areas where we find that we have differentiating offerings to competitors. We are talking about part of the product mix effect stemming from the fact that the growth being delivered this quarter in large corporates comes from lower risk volumes than we have in average on the portfolio. This can be seen twofold in our numbers in other areas. One is through then a positive migration and a lower share of high-risk exposures in the LCIC book. Secondly, through the fact that the growth is capital efficient this quarter.

A 3% growth in large corporates, but only a 20% consumption of capital net of migration and other instruments applied to increase efficiency of the growth. Again, these are lower margins nominally, but profitable to the bank. In relation to personal customers, if you look at the segment in isolation, there are lag effects stemming from the movements in the money market rates coming prior to actually the rate hike from the central bank in expectation of it, and then a notice period from the repricing being announced up until it takes effect. There was an announcement of a repricing towards customers, but this will start taking effect from mid July only. We are, as a group, more or less IBOR neutral, so this will have different impact if you look at the different segments as such.

Personal customers is really the area that gets the increased funding cost before they get the impact from the repricing. Above and beyond this neutrality, it’s really the repricing impact of the customer that gives a positive effect for the bank as such. Maybe just a last comment on clients. We find that our clients are very rational and focused on, in particular, the rates on their mortgages. We have seen also an increased awareness of the type of accounts that they hold their deposits within. I would say the Norwegian market is very immature when it comes to considering savings in interest rate funds compared to bank savings. It’s very much still a bank savings environment.

Even though we see an increasing interest and activity in saving in mutual funds. It’s not so much driven by the price difference as such, but more an increasing pattern of behavior. Movements are relatively slow on the deposit side, and the mix still roughly 25/75 transactional accounts versus savings accounts.

Shrey Srivastava, Analyst, Citi: Great. Thank you very much.

Operator: Thank you very much for your question, Shrey. We’ll go to Gulnara Saitkulova calling from Morgan Stanley. Please go ahead.

Gulnara Saitkulova, Analyst, Morgan Stanley: Hi. Good afternoon. Thank you for taking my questions. A follow-up on the spreads. As the rate hike feeds through with another rate hike possible later this year, could the higher rates help to ease the competitive pressure, or do you think the pressure and the customer switching will continue to intensify around the periods of change in the interest rates? What needs to change, in your view, for spreads to begin recovering? Do you think the net interest margins have now bottomed, or is there still further downside to come? Can you further elaborate how DNB is responding to more competitive environment across the different areas and divisions of DNB Group, and what actions can the bank take to mitigate the ongoing margin pressure? Thank you.

Kjerstin Braathen, CEO, DNB ASA: Thank you for your question that revolves around competitive pressure and margins. I would start by highlighting that we are very clear in prioritizing profitability over growth as a starting point. Also add that, of course, it’s important for us to see that we are competitive and win customers also in an increasingly competitive environment. We do get confirmation that this is indeed the case. One example of this is if you look at personal customers, we have the same volume of inflow of requests for financing certificates this quarter as we had in the same quarter last year. We are more selective on the business we decide to write as we do focus on profitability. Another testament to this is talking about the record number of new customers in the large corporate area in the Nordics outside of Norway.

We already see that these customers use our products more broadly and all on average, have a return that is above the return requirement. I would say our way to respond to a competitive environment is to be very targeted, in terms of focusing where we believe we have our competitive advantages. This is also how we win businesses through preference and not price in its entirety. On the margins, it’s limited how specific we can be, but, of course, as you know, an announced repricing will have a positive impact to our net interest income. The fact that the volumes added this quarter comes late in the quarter should also have a positive impact on our net interest income, all being equal in the third quarter.

As for customer behavior, we have also stated that this quarter it’s more related to house swapping or actually customers buying new homes than bank swapping as such, as people are sitting a bit more still when we are in the announcement period of a rate increase. How this will develop, it’s a bit difficult to say. It depends on if and when there will be another rate hike from the central bank. All in all, I think we continue to expect Norwegians to be very focused and interested in how much they pay for their mortgage. We also continue to expect the Norwegian market to be a rational market. All the major players being active in this market is targeting return on equity as their most important financial metric.

Of course, competitive pressure will vary somewhat from quarter to quarter, over time, we still definitely continue to expect this to be a rational market.

Gulnara Saitkulova, Analyst, Morgan Stanley: Thank you. Can I follow up with a second question? With your Capital Markets Day coming up later this year, could you give us an early sense of the key strategic themes and priorities you expect to address? Should we anticipate an update to your financial ambitions, or is the focus likely to be more on reaffirming the current strategy? Thank you.

Kjerstin Braathen, CEO, DNB ASA: I think there’s nothing new to provide at this point in time with regards to our Capital Markets Day. We do them every second year. Every Capital Markets Day, we review and look at our financial ambitions for the coming period, and we try to give you a more detailed guidance as to the outlook. I think you can expect us to address our future ambitions as well as building up to our strategic initiatives in order to deliver on those.

Gulnara Saitkulova, Analyst, Morgan Stanley: Thank you.

Operator: Thank you. Much your questions, ma’am. Next question will be coming from Namita Samtani calling from Barclays. Please go ahead. Your line is open.

Namita Samtani, Analyst, Barclays: Good afternoon. Thanks on corporate customers, Norway and commercial real estate growing strongly there. I just wanted to understand the rationale for that. Do you see good pricing there or what attracts you to that segment as I would have thought it’s quite a competitive space to be in. My second question, I understand growing in Large Corporates is lower margin business, and it’s impacting NII, but the rationale is that it’s high ROE business. Is this a strategy that you expect to persist for some quarters? I’m just wondering how you think about this strategy and whether it’s a long-term strategy, or are you being opportunistic here? My last question, when you think about rate sensitivity to 25 basis points, I think just previously over the past few years, it’s been in the range of NOK 0.8 billion-NOK 1.2 billion.

Do you include interest on equity and the treasury impact in that? What are the factors in the past that have made it NOK 0.8 billion or NOK 1.2 billion? Is it just purely competition I need to think about there? Thank you.

Kjerstin Braathen, CEO, DNB ASA: Thank you. I’ll ask Marianne to comment a little bit more in detail on corporate customers in Norway. Please bear in mind that we have talked about this growth as a combination of increased volumes across commercial real estate as well as the growth across the various regions in Norway. With regards to Large Corporates, I would say, of course, we have an overall strategy of maintaining a very strong asset quality and diversified exposure in our book. We do not specifically target specific buckets of risk. Our strategy is based on profitability. After Marianne, maybe Harald also can comment a little bit more on that and I can come back to the rate sensitivity.

Marianne Tønnesen, Executive, DNB ASA: We can see the growth through the whole Norway, and it reflects the market in Norway as a whole. There is growth in all different areas geographically and also in the industries concerning both in the seafood area, DNB Finans, and also in the industry concerning the coastline of Norway. We can see it through all sectors and all geographical areas of Norway, and it reflects the market as a whole.

Harald Serck-Hanssen, Executive, DNB ASA: I think on the large corporate side, I think you’re correct, Namita, because we focus on total risk-adjusted return on the client over time. As you point out, the margin is slightly down, but you will see that the cross-selling or the non-lending income is up in the quarter. That means although the average margin is down, our return on equity is up on the large corporate side in the quarter. That is really what is our primary ambition.

Kjerstin Braathen, CEO, DNB ASA: A short comment on rate sensitivity that we do not comment specifically as such, but we have said that the historical movements should be a good reference, and I think you’re correctly referring to what the movements have been. With regards to the various moving bits and pieces in the P&L, we’ve said that we are more or less neutral to IBOR movements. In order to achieve that neutrality over time, it impacts also interest on equity and treasury. Which means that the net impact to us as a bank stems from the actual repricing towards customers, and only that. That will be the combined impact from repricing loans and deposits towards personal customers, where still more than 90% of the lending book is floating and a large part of the deposits.

In corporate customers Norway, also a larger portion of the deposits and a small portion of the loans are floating-based priced. These are the impacts that will hit our book. Movements on interest on equity and treasury needs to be seen in context with the IBOR neutrality.

Namita Samtani, Analyst, Barclays: That’s helpful. Thanks very much.

Operator: Thank you. We’ll now go to Marcus Stengarn of Carnegie. Please go ahead, Marcus. Line is open.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Yeah. Hi, everyone. I was also having a question around margins, but not so much for the quarter, but more big picture. Margins in Norway has always been much higher than in Sweden and Denmark, for example. I get it totally that you have much higher rates, but nevertheless, the margin seems to be much higher regardless of what the level is. How is your thinking about when competition is picking up and you have several of the other big banks in the Nordics that wants to go into Norway, and they can apparently live with much lower margins in the other countries. What do you expect that to bring to the competitive situation in Norway longer term that is, not for the next quarter? That’s my first question.

Kjerstin Braathen, CEO, DNB ASA: Okay. I’m not sure what data points you are referring to. To my knowledge, we’ve had periods where margins in Norway have been more competitive than in Sweden, and we’ve had also vice versa for a certain period. The most recent statistics we were looking at, I believe the mortgage margins in Norway dropped below the level that we have seen in Sweden. I’m not sure that I have the exact same data points as you have. We have everything else being equal or higher level of capital than certain of our peers. We have been having that, and we’ve dealt with that for years. Beyond that, there is a harmonization of risk weights being applied. We are confident that we are able to compete in this market at rational levels. We understand that this market is attractive because it is a rational market.

I think the closest comparison would be Sweden, because Finland and Denmark are a bit atypical on mortgages. We continue to expect fierce competition, both from local and Nordic players, but are also confident that we will be able to continue to grow profitably in these market circumstances as we feel that we show in this quarter as a testament to that. It was also maybe worth noting what many of you probably also saw after the release of the first quarter earnings, a narrative from some of these players that they were seeing the competition in the Norwegian market as fierce and indicating maybe an increased focus on profitability.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Okay, thanks. Secondly, on capital. Now with the new buyback program, you’re coming down to 1% in CET1 buffer. Is that what we should use as buffer going forward, or are you heading somewhere else?

Rasmus Järvinen, CFO, DNB ASA: We continuously work to optimize our capital position to return excess capital to our shareholders. We do not provide or have a spoken buffer on top of the capital requirements from the FSA. When you see that we are initiating share buyback programs, it is a signal that we are more than comfortable with the buffer that we do have. Yeah.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Yeah. Okay. There’s no known head or tailwinds on capital requirements?

Rasmus Järvinen, CFO, DNB ASA: We see no headwinds or tailwinds to know of in the future. Correct.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Okay, thanks a lot, and good luck, Rune, with your new endeavors.

Rasmus Järvinen, CFO, DNB ASA: Thank you, Marcus. Thank you.

Operator: Thank you very much, sir. Our next question will be coming from Sofie Peterzens of Goldman Sachs. Please go ahead, Sofie, your line is open. Thank you.

Sofie Peterzens, Analyst, Goldman Sachs: Yeah. Hi. Thanks a lot for taking my question. Here is Sofie from Goldman Sachs. I would start just going back to the competition. When I look in your fact book on your market shares, it seems that you have been quite consistently losing some market share in Norway, both on the lending and deposit side, and retail customers and corporate customers. How should we think about the market shares going forward? Do you expect market shares to stabilize, or is it fair to assume that you will continue to give up some market share to ensure that you just capture the profitable growth? That would be my first question. My second question would be on the press conference earlier today, you mentioned that 50% of your corporate loan growth comes from outside of Norway.

Could you just elaborate why you wanted to grow LCIC outside of Norway and where the focus is? Is it mainly Sweden, or is it also some of the other Nordic countries, U.K. maybe, or U.S.? If you could just maybe comment a little bit around the 50% of the corporate loan growth that comes from outside of Norway.

Kjerstin Braathen, CEO, DNB ASA: Sure, Sofie. Thank you for your questions. With relation to growth, our focus number 1 is really on profitable growth. Of course, we are also focused on keeping the relative value of our position, which is a leading position across all of the markets we are active in within Norway. From that perspective, there has been no material weakening of our position. On the contrary, we are able to deliver growth, and we capitalize on the diversity of our growth platform in order to deliver on that throughout different cycles, I would say, with varying competitive pressure. With regards to the growth in the quarter in the large corporate book and internationally, I will hand it over to Harald.

You are right, it’s a diversified growth across Norway and international, I think this robustifies the growth platform also above and beyond the pace of economic growth in Norway, where the Nordics also has been an increasing strategic target for us. Harald can comment some more on this quarter specifically.

Harald Serck-Hanssen, Executive, DNB ASA: Thank you, Kjerstin. I think if you look at the first half of this year, there’s been a strong growth in the Nordic, and it’s not limited to Sweden. We also take advantage of the strong position that DNB Carnegie has in Finland and Denmark to grow our business there, albeit from a lower level than we started in Sweden. We have a lot of success stories also in Denmark and Finland, there will be more to come. When it comes to the rest of our international platform, we aim to maximize returns over time and to support our clients. It will vary. If you look at 2024, we had a very strong growth in North America. If you look at 2025, we had a strong growth in the U.K. and the countries handled from our London office.

I think that will vary and be based also on which industries are most active in that period.

Sofie Peterzens, Analyst, Goldman Sachs: Okay, thank you. That’s very clear. If I may, just one final question. On Luminor, could you just comment what your plans are with Luminor, and would you consider buying back the company?

Kjerstin Braathen, CEO, DNB ASA: As you all know, we are a 20% owner in Luminor, where Blackstone owns the other 80%. We still believe that there is strategic attractiveness in those markets, but have no comments beyond that as to future plans for that investment.

Sofie Peterzens, Analyst, Goldman Sachs: Thank you.

Operator: Thank you for your questions, ma’am. We’ll now go to Johan Ekblom of UBS. Please go ahead, Johan.

Johan Ekblom, Analyst, UBS: Thank you very much. Just two quick questions. First, on asset quality, we’re clearly seeing lower than expected credit losses in the income statement. If we look at this development in Stage 2 loans, there was a very big increase in the quarter that looks to be broadly spread on everything except for personal customers. Is there any methodological change or anything that’s driving that, or is this just quarterly volatility? I think it’s a 20% increase in overall and 40% increase in corporate Stage 2. That’s the first question. Maybe super quick on margins. I know we’ve spoken a lot about it, but if I look at the waterfall you provide in your facts book and add together the margin on lending and margin on deposits, it used to be NOK 100 million headwind a quarter.

It’s been NOK 500 million a quarter the last three quarters. If you’re IBOR neutral, I guess we can ignore what happened to market rates there. Is it only a step up in competition that has driven that change over the last three quarters, or is there anything else we should bear in mind when we think about the walk forward on NII?

Kjerstin Braathen, CEO, DNB ASA: Thank you, Johan. Eline will look further into Stage 2, I can’t say I recognize the numbers. It seems a very large increase compared to the fact that we have a positive migration movement in capital. They will look into that and come back to you. I think for margins, again, IBOR neutrality overall, over time is the key message. I’m not saying that it’s 100% that, given the combination of our assets and liability mix, the broad part of our margin-based funded loans goes to fund our margin-based customer loans. That also means that you cannot only look at the spread development, you also need to look at interest on equity and treasury. I’m quite sure you’ll find a different number than the delta of NOK 500 per quarter in the past three quarters.

What has been the main characteristic in the previous three quarters? It’s been, yes, a competitive environment, but also reducing interest rates and the impact of the repricing from that by the central bank. Even though we are saying that we are more or less IBOR neutral over time, we are not neutral to the absolute level of the key policy rates. This is the key explanation for the movement.

Johan Ekblom, Analyst, UBS: Thank you.

Kjerstin Braathen, CEO, DNB ASA: Okay. To your question number 1 on Stage 2, I think we need to come back to you on the migration there. If you look at the numbers for this quarter, the impairments are linked to the Polish legacy portfolio mainly. We will come back to the migration.

Johan Ekblom, Analyst, UBS: I’m just looking at table 1.5.1, Stage 2 went from NOK 130 billion in March to NOK 154 billion while personal customers went down. The increase is all on the corporate side. We can follow up on that later.

Kjerstin Braathen, CEO, DNB ASA: Yeah.

Johan Ekblom, Analyst, UBS: Thank you.

Kjerstin Braathen, CEO, DNB ASA: Yes. I think this should be related to the growth in the quarter, which comes in all its majority across corporate customers, Norway, and large corporates. They come towards the end of the quarter. This is also maximum exposure amounts. They may vary somewhat from the drawn amounts, which are the volumes that we are referring to when we talk about growth for the quarter as such. Again, if you look at the risk composition of the portfolio overall, that is all accounted for through the development in the capital and the risk-exposed amounts. You will see from those numbers that the growth we deliver this quarter, both drawn and in terms of risk-exposed amounts, that these are capital-efficient developments. There shouldn’t be any reason for concern regarding that development.

Johan Ekblom, Analyst, UBS: Thank you.

Operator: Thank you very much, Johan. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one on your telephone keypad at this time. We’ll now go to Riccardo Rovere of Mediobanca. Please go ahead.

Riccardo Rovere, Analyst, Mediobanca: Thanks. Thanks a lot for taking my question. Good afternoon to everybody. A couple if I may. The first one is, the loan book is, at least the one on the balance sheet, is down first half versus the end of the year. You stated that you are prioritizing profitability versus growth. I was wondering what should we do with the 3%-4% loan growth that you have always had in mind. Is that still kind of valid? This is the first question. The second question I have is something somehow related to that. The loan book is down a bit in the semester. As far as I understand, you have executed another SRT, as you stated, if I am not mistaken, during the press conference this morning.

You stated that you prioritize profitability versus growth, and you stated that the product mix in the margins also is due to the fact that in Large Corporates, there is some sort of maybe better growth in low-margin areas or lower-risk. Why are their credit risk risk-weighted assets up quarter-on-quarter and in the semester? Up by NOK 15 billion. It is not any material number considering that the book is down and considering this sort of low risk appetite that you have mentioned. How do I square the circle here?

Kjerstin Braathen, CEO, DNB ASA: Yes. Riccardo, just let me.

Riccardo Rovere, Analyst, Mediobanca: Yeah.

Kjerstin Braathen, CEO, DNB ASA: The book is not down. Average volumes are flat, but the group as a whole ultimo quarter grows by 1.4%. There is a 3% growth in Large Corporates this quarter. There is 1.5% growth in corporate customers, Norway, if you look at the volumes at the end of the quarter, and a 0.6% growth in personal customers. We still maintain our ambition to grow 3%-4% a year. If you look at our growth in the last 12 months, we have delivered 4.3% growth in lending and 5% growth in deposits. I think that what we show in this quarter is that we are growing according to plan and that we are able to leverage the growth platform that we have within and outside of Norway, being a bit more selective on the personal customer side, and focusing on profitability in the markets where competition has been pretty intense.

This is also, of course, then the explanation for the growth in the risk-exposed amounts, which is less than the nominal growth. The SRT should also be seen in that context.

Riccardo Rovere, Analyst, Mediobanca: Well, okay, fine. If you look at the balance sheet in the quarterly figures, which is table 1.1.5, the book was NOK 2.4 trillion.

Kjerstin Braathen, CEO, DNB ASA: Yeah, okay.

Riccardo Rovere, Analyst, Mediobanca: Now it’s NOK 2.33 trillion.

Kjerstin Braathen, CEO, DNB ASA: Yeah.

Riccardo Rovere, Analyst, Mediobanca: I’m just looking at your numbers, okay?

Kjerstin Braathen, CEO, DNB ASA: Yes. Well, it’s also safe to say.

Riccardo Rovere, Analyst, Mediobanca: Maybe it’s the repos, I don’t know.

Kjerstin Braathen, CEO, DNB ASA: It’s the repos.

Riccardo Rovere, Analyst, Mediobanca: Still down NOK 70 billion. Okay, fine. Fair enough.

Kjerstin Braathen, CEO, DNB ASA: Exactly.

Riccardo Rovere, Analyst, Mediobanca: Okay. All right.

Kjerstin Braathen, CEO, DNB ASA: I apologize. That was where the delta is. If you’re looking at the outright balance sheet numbers, it’s the reduced activities in repos this quarter.

Riccardo Rovere, Analyst, Mediobanca: All right. Okay. Fair enough.

Kjerstin Braathen, CEO, DNB ASA: What we are reporting.

Riccardo Rovere, Analyst, Mediobanca: The 3%-4%, that’s unchanged, that stays.

Kjerstin Braathen, CEO, DNB ASA: That’s unchanged, and that has been delivered upon and a little more in the previous 12-month period. I would say so far this year as well, we are on track to delivering on that, and we continue to see opportunities for profitable growth across all of the customer segments. We think that we have a pretty positive message on growth this quarter. It’s more meaningful for you to look at the development in the segments as there can be a higher volatility in the volumes related to repos without that really impacting the flow and the P&L numbers as much.

Riccardo Rovere, Analyst, Mediobanca: All right. Okay. Thanks for that. The other maybe very quick question I have is, at these levels, do you still see the buyback as the best way to return capital for shareholders? Don’t you think that at 17% return on equity, maybe you could redeploy this capital within the business rather than through buybacks at 1.8, 1.7 times the tangible equity?

Rasmus Järvinen, CFO, DNB ASA: Well, we do not have any perspective on the value of our share when we initiate our buyback programs. What we have is a strong track record on delivering on our dividend policy, stating more than 50% of annual net profits and year-over-year increase in dividend per share. That remains our key priority. When it comes to opportunities beyond the 3%-4% stated volume growth, we try to optimize our capital the best way, and we still see share buyback as an efficient tool in this way.

Riccardo Rovere, Analyst, Mediobanca: Sorry, Rasmus, you said what tool? I missed that.

Rasmus Järvinen, CFO, DNB ASA: The share buyback that you’re referring to. We see that as-

Riccardo Rovere, Analyst, Mediobanca: Yes

Rasmus Järvinen, CFO, DNB ASA: an efficient tool on returning excess capital to our shareholders.

Riccardo Rovere, Analyst, Mediobanca: Okay.

Rasmus Järvinen, CFO, DNB ASA: We also have.

Riccardo Rovere, Analyst, Mediobanca: Efficient, you’re saying. Thanks.

Rasmus Järvinen, CFO, DNB ASA: Efficient. Yes, correct.

Riccardo Rovere, Analyst, Mediobanca: Okay. Got it. All right. Okay, thanks for the answers.

Kjerstin Braathen, CEO, DNB ASA: Riccardo, just maybe one more thing, just reconfirming that we’re very committed to the originate to distribute model that puts a high focus on turning the capital quickly around and generating a higher growth in fee-related advisory and other type business, rather than maximizing credit growth. We believe, made the experience that this is the best way to optimize on return on capital over time, in particular in the large corporate and international area.

Riccardo Rovere, Analyst, Mediobanca: Okay. Thanks.

Operator: Thank you very much, sir. Next question will be coming from Jacob Kruse who’s calling from Autonomous. Please go ahead, Jacob. Your line is open.

Jacob Kruse, Analyst, Autonomous: Thank you. I guess two questions. Firstly, on the commission income, you had this target back in 2014 of 9% over the cycle. Could you just update on how you think about that in light of the current environment and in light of what you’re seeing in your business? Secondly, on the margin and I guess commission income side, you have this margin pressure here, and as I understood it, you talk about some of the pressure on the margin being offset by better fee revenues. They seem to be tracking below your ambitions. I guess my question is, when you do that kind of fee business for cheaper lending, do you risk ending up with a lower long-term profitability book on the lending side in exchange for potentially less sustainable fee revenues? Thank you.

Kjerstin Braathen, CEO, DNB ASA: Thank you, Jacob. The answer to the second question would be no. It’s not that we compromise and do non-profitable lending business on the back of increased fee business. Nominally, the margins can be lower while the return is attractive for low-risk exposure. This has been one of the characteristics of the growth in the large corporate area in the 2 previous quarters. This is not a strategy as such. This has just been where we have seen the most profitable opportunities in the 2 recent quarters. We do try, regardless of which level of risk the exposure is at, to maximize the cross-sell and the pocket of revenue on each and every client, also finding that they are more satisfied the more they use the breadth of our products. We maintain the ambition to grow fees and commissions by 9%.

Of course, the backdrop of the 9% was based on executing on the communicated synergies from the Carnegie transaction that was closed now a little more than a year ago. I think we are pleased to see the development in both of these 2 areas, asset management and investment banking, in this quarter as such. I think it’s also fair to say that we have not taken fully into account the headwind of the credit insurance that is more of a capital efficiency tool, and the cost of the SRT that also lands in the fee bucket to that extent. I think I can add that this is really a very good quarter that brings testament to the potential and the value from the merger between Carnegie and DNB Markets.

We also see that driving attractive business on the large corporate side in the Nordics across all of the 3 Nordic countries outside of Norway. We think it’s a very promising development. We are just in the starting phase, so to say, of realizing the value and the potential in that combination.

Jacob Kruse, Analyst, Autonomous: Okay. Thank you very much.

Operator: Thank you very much, sir. Our next question will be coming from Simon Rønne of ABG. Please go ahead.

Simon Rønne, Analyst, ABG: Yes. Thank you. Hi again, everyone. Maybe more of a housekeeping question. On the corporate customer Norway deposit margins, I had expected some temporary benefit from the increase in IBOR on the non-IBOR linked deposits before the customer rates reprice. Yet the reported margin was stable, basically flat quarter-on-quarter. Is there anything special offsetting that expected tailwind? Should we think of the portfolio now being largely repriced, or should there still be some repricing to come in Q3 and then turning a slight headwind on the margin? Thank you.

Kjerstin Braathen, CEO, DNB ASA: Thank you, Simon. Very good question. There is a particular reason for why the deposit margin on corporate customers is stable. You were quite right to expect that it should have improved. There is a couple of movements that we do think about when we talk about the portfolio and asset mix effect, particularly in the deposit base of Corporate Customers Norway. Firstly, all employers in Norway pay out extra salary to their employees in the month of June, the so-called holiday payments. These usually sit in accounts which are very attractive to us and low yielding to the client. That is an outflow of deposits from Corporate Customers Norway. In addition to this, corporate customers have taken on new deposit growth from the customer category larger organizations.

These are profitable deposits, but they are much more competitive in terms of margin, thus they are nominally taken on at a lower margin than the average deposit base in corporate customers. These are the two elements that leads to a stable deposit margin. As for the repricing, it has taken effect in corporate customers, but only for two weeks in the second quarter. The majority of the repricing impact, also in Corporate Customer Norway, is coming in the third quarter.

Simon Rønne, Analyst, ABG: Okay, understood. Thank you very much. Have a great summer.

Operator: Thank you much, sir. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star one at this time. We do have one follow-up question coming from Marcus Stengarn of Capital Schroders. Please go ahead, sir.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Yeah. Hi, thanks. Just a quick follow-up. On tax, it seems like it’s bouncing up again. Is it 23% still what you expect going forward?

Rasmus Järvinen, CFO, DNB ASA: We expect 23% for the year and also in future years. Correct.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Okay. What was the reason for the higher tax rate this quarter?

Rasmus Järvinen, CFO, DNB ASA: This quarter was due to GloBE Tax, which is a fairly new regulation here in Europe, coined to address the big tech companies, but also hitting across industries, and it’s relating to a one-time cost tax effect that actually dates back to 2024.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Okay, very good. Thanks.

Rasmus Järvinen, CFO, DNB ASA: Which drove a higher cost this tax this quarter, and we’re expecting 22% in the next two quarters.

Marcus Stengarn, Analyst, Carnegie / Capital Schroders: Okay, thanks.

Operator: Thank you much, sir. We have another follow-up question. This one coming from Riccardo Rovere of Mediobanca. Please go ahead.

Riccardo Rovere, Analyst, Mediobanca: Thanks. Just a quick one on SRTs. Could you please shed a little bit of color on the risk-weighted assets saving that you achieved with that in the second quarter? In general terms, do you still see a fairly large room to utilize this tool to mitigate RWA growth on top of the loan growth? Thanks.

Kjerstin Braathen, CEO, DNB ASA: The impact of the SRT this quarter is roughly 10 basis points. We will consider deploying this tool further but have no concrete plans. We will do this in a gradual and careful manner.

Riccardo Rovere, Analyst, Mediobanca: Let’s say, you can still do something. You have not used all the available resources to do this.

Kjerstin Braathen, CEO, DNB ASA: No. We have done a couple of transactions, but we’re taking a pretty conservative approach on this.

Riccardo Rovere, Analyst, Mediobanca: Okay, fair enough. Thank you.

Operator: Thank you much, sir. We do not appear to have any further questions at this time. I’ll turn the call back over to the speakers for any additional or closing remarks. Thank you.

Rasmus Järvinen, CFO, DNB ASA: If there are no further questions, I would like to take the opportunity to hope and wish you all a great summer. Thank you so much.

Kjerstin Braathen, CEO, DNB ASA: Thank you. Bye.

Simon Rønne, Analyst, ABG: Thank you.

Operator: Bye-bye. Thank you. Ladies and gentlemen, that was your today’s conference. Thank you for attending. You may now disconnect. Have a good day and goodbye.