DNB ASA (OTC:DNBBY) (DNB.OL), Norway’s largest financial services group, reported a strong first quarter for 2024 during its latest earnings call. The company showcased a return on equity of 15.6% and solid results across various customer segments. Despite a slight decline in net interest income, DNB highlighted robust credit quality with low impairment provisions and a strong capital position, posting earnings per share of NOK6.48. The Norwegian economy is expected to experience steady growth, with household consumption rebounding in the latter half of 2024 and a soft landing anticipated for the overall economy.
Key Takeaways
- DNB's Q1 2024 return on equity stood at 15.6%, with earnings per share of NOK6.48.
- The Norwegian economy is expected to grow, with GDP projections at 0.8% for 2024 and 1.5% for 2025.
- Loan growth was modest at 0.7%, primarily driven by corporate banking, while personal customer loans saw a decrease.
- Deposit growth was strong at 3.9%, mainly from corporate banking.
- Net interest income decreased by 2.9%, and net commission and fees increased by 2.6%.
- The company reported robust credit quality and a strong capital position.
- DNB plans to maintain its dividend policy and optimize capital through share buybacks.
Company Outlook
- GDP growth in Norway is expected to be positive in 2024 and 2025.
- Corporate investments are likely to pick up in 2026 and 2027, driven by the energy transition.
- Household consumption is projected to rebound in the second half of 2024, supported by positive real wage growth.
- Unemployment is low but expected to rise to 2.4% by 2026.
- Inflation is declining but remains above the central bank's 2% target.
Bearish Highlights
- Net interest income suffered a 2.9% decline due to lower credit growth and fewer interest days.
- The impact of the expected central bank rate cuts on net interest income is uncertain.
Bullish Highlights
- The company has a strong capital position and plans to continue share buybacks.
- Credit quality remains robust, with low impairment provisions.
- The company is focusing on strengthening in-house competency and IT investments to improve efficiency.
Misses
- DNB experienced a decrease in personal customer loan growth.
- The bank is unable to provide guidance on future net interest income sensitivity due to market conditions and customer behavior uncertainties.
Q&A Highlights
- Ida Lerner stated that a 3.5% share count will not significantly impact the company.
- The integration of Sbanken contributed to a lower credit demand in the quarter.
- DNB is reducing risk-weighted assets through positive migration and technical changes.
- The bank plans to increase dividends and optimize capital with share buybacks.
- DNB anticipates marginal effects from Basel IV regulations on the bank's operations.
- Sverre Krog noted a small increase in Stage 2 loans from personal customers, considered a minor fluctuation.
DNB's Q1 2024 performance demonstrated resilience in a fluctuating economic environment. While facing challenges such as lower net interest income and uncertainty regarding future rate cuts, the bank remains committed to delivering shareholder value through strong capital management and strategic investments in technology. The Norwegian economy's outlook provides a favorable backdrop for DNB's continued growth and stability.
InvestingPro Insights
DNB ASA (DNBBY) continues to be a significant player in the banking industry, with a market capitalization of $28.33 billion USD and a strong presence in the Norwegian financial sector. The company's commitment to shareholder returns is evident, as it has raised its dividend for four consecutive years, which aligns with its plan to maintain a robust dividend policy. Additionally, the dividend yield as of the latest data stands at an attractive 6.64%.
Investors may also take note of the company's price-to-earnings (P/E) ratio, which stands at 8.39, indicating that the company's shares might be reasonably valued compared to industry peers. This is further supported by an adjusted P/E ratio for the last twelve months as of Q1 2024 at 8.17. The PEG ratio during the same period is 0.46, suggesting that the company's stock price may be undervalued relative to its earnings growth potential.
According to InvestingPro Tips, two analysts have recently revised their earnings estimates upwards for DNB ASA, reflecting a positive sentiment regarding the company's future performance. This optimism is also backed by analysts' predictions that the company will be profitable this year, a continuation of its profitability over the last twelve months.
For investors seeking more in-depth analysis and additional InvestingPro Tips on DNB ASA, they can explore a total of 7 tips available at https://www.investing.com/pro/DNBBY. And for those looking to get even more value from their InvestingPro subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - DNB ASA (DNBBY) Q1 2024:
Operator: Hello and welcome to DNB Q1 Conference Call. My name is Alan. I'll be your coordinator for today's event. [Operator Instructions] I'll now hand you to your host, Rune Helland, to begin today's conference. Thank you.
Rune Helland: Thank you very much and a warm welcome to all of you for DNB's analyst call for the first quarter of 2024. Around the table here in Oslo, we have the CEO, Kjerstin, the CFO, Ida, Head of Personal Banking, Ingjerd, and Corporate, Harald, Head of Wealth, Hakon, and the Chief Risk Officer, Sverre. Before we start the Q&A, Ida will give you the highlights for the quarter. Ida?
Ida Lerner: Thank you, Rune, and a warm welcome to all of you listening in. The Norwegian economy continues to show strength and clear signs of soft landing ahead. Mainland GDP growth is expected to be 0.8% in 2024 and 1.5% in 2025, and then pick up further towards 2027. Mainland corporate investments are expected to be muted in the short term before picking up in 2026 and 2027. The energy transition is, in addition to this, expected to continue to push investments in manufacturing and power supply in the coming years. Overall household consumption is expected to rebound in the second half of 2024 on the back of positive real wage growth, even though we haven't seen such a decline as we would have expected on the consumption bearing in mind the increased interest rates as well as the increased overall costs. Unemployment remains low at 1.8% and is expected to remain low even if it will move up towards 2.4% in 2026 and onwards. Inflation levels have gradually come down and are expected to continue to decline in the coming years, but still remain at higher levels than the Norwegian Central Bank target of 2%. This, combined with an anticipated strong wage growth of 5.2% in 2024 and 4.2% in 2025, further supports our economists' view that interest rates are expected to remain higher for longer and gradually start to trend down from the level of 4.5% to 3.25% starting in December this year and moving on to 2025. Moving over to DNB's first quarter results where we saw a continued strong performance and a solid asset quality. Return on equity is at 15.6% in the quarter and we see solid results across customer segments as well as product areas. We are recognizing a loan growth of plus 0.7% stemming from corporate banking of up 2.8% and 1.1% currency adjusted and personal customers a decrease of 0.7%. Deposit, we also saw a growth of 3.9% in the quarter coming from corporate banking of 7.2% and 4.8% currency adjusted and personal customer a decrease of 0.9%. Net interest income was down by 2.9% from the fourth quarter, driven by lower credit growth, product mix effects and fewer interest days. But NII was also negatively impacted by a number of other items totaling NOK322 million, including interest on impaired loans and amortization effects and fees. Net commission and fees were up 2.6% from a strong quarter similar quarter last year. All time high first quarterly result and we also would like to point to the positive development we are continuing to see in assets under management, which now surpassed NOK1,000 billion during the first quarter. The credit quality continues to be robust and we have low impairment provisions in the quarter. 99.3% of our portfolio is in stages 1 and 2 and we have a total of impairment provisions of NOK323 million in the quarter. A strong capital position of quarter one capital ratio of 19% and leverage ratio of 6.2% as well as earnings per share that is up at now NOK6.48 in the quarter also provides a strong foundation to continue to deliver on our dividend policy also in the years ahead. And with that, we open up for questions.
Kjerstin Braathen: Hello, we will open up for questions.
Operator: [Operator Instructions] We'll take our first question from Sofie Peterzens, JPMorgan (NYSE:JPM). Your line is open. Please go ahead.
Sofie Peterzens: Yes, hi, here is Sofie from JPMorgan. Thank you for taking my question. So I would just go back to net interest income. It was down quarter-on-quarter, loans in personnel customers are also down quarter-on-quarter. Over the past year, you continue to see some market share loss. Your customer satisfaction details that you give in the factbook also look that they are going in the wrong direction. Cut off the net interest income trajectory from here, how should we think about it? Is there something structurally going on at DNB that makes net interest income weaker going forward? Or should we go to fix customer satisfaction and market share gains to come back? Or if you could maybe just talk about those structural factors around your net interest income and kind of operationally how it's performing?
Ida Lerner: Thank you for your question, Sofie. I wouldn't say that there's anything structural beyond where we are in the cycle in the market and the fact that we have topped out at the 14 rate hike and are moving into a more stable environment and eventually expectation of some rate cuts, that is expected to bring rates down to 3.25%. The economic cycle has gradually led to some reduced activity and some reduced demand for credit, which has impacted our numbers that we talked about both in fourth quarter and this quarter. This is expected. I think it's also seen in other areas. And I would like to add in terms of our position and competitive strength, we are typically stronger in the market when people buy new homes and when they refinance. Both of these demands have reduced more and there is a higher activity in bank swapping in general, and we have not historically been as strong in this part of the market. But Sbanken is now sailing up to be a front runner in that market, in addition to us strengthening our offering also on the DNB side. Customer satisfaction, I would very much tie it to what you've also seen in other countries, an increased focus on banks with a negative tone and people taking their frustrations from inflationary pressure and so on out on bank. We particularly are in focus in Norway in that perspective, given that we are a very clear market leader and we have seen this in previous periods. And this does blow over in a way when there is less focus, and we've already started to see how this develops in accordance with previous experience. There are many moving bits and pieces in the NII in the first quarter that is important to talk about. But furthermore, I would also like to reiterate what we said from the stage today, that there is one particular DNB element also to bear in mind for the first quarter, and that is a negative impact from the technical integration of Sbanken, a technical integration that went very well from a technical point of view, and it really strengthens our competitive position ahead. But of course, we have introduced a lot of changes to our customers that they have not asked for. We also have to close the shop a while before running the integration, and have just recently now turned up the volume again for receiving new traffic. So there's a clear negative impact from that piece. Beyond that NII for the quarter is in addition to being impacted by volume and margin development, there is a reduction in number of interest days. As you know there is a material impact from lower activity, lower income on - from amortization and fees, from lower activity, a number of these being closed this quarter. That's more on the corporate banking side, where we have a very strong pipeline going into the second quarter and there is an impact with less income from treasury that is stemming from a shift in the yield curve, having gone from an increasing interest rate environment to a more stable interest rate environment. How does the picture look ahead? I think the best indication you can look through is macro development and the fact that the economy is performing better than anticipated. We have talked about more of a muted first half, but with expectations for this to pick up in the second half. We did see growth coming through on the corporate side towards the end of the quarter and are in a period where we've been talking about our ability to balance out a slower period in the Norwegian economy with our growth platforms more internationally and sector-specific as you've also seen when you look at which areas we've actually been growing into. So not structural, but cyclically, we are in a different time than we have been for many, many years. And I think this has been broadly expected, what we're seeing, the development of that.
Sofie Peterzens: Yes, thank you. That's very clear. If I could just have one follow-up question. I know you don't - at least in the past, you haven't given rate sensitivity guidance, but with rates expected to come down and also DNB expecting some rate cuts in the coming quarters, how should we think about the moving forward in net interest income from lower interest rates? And also when I look in the factbook, I can see that your deposit spread was a quite big swing factor already in the fourth quarter. And in the first quarter it also contributed negatively to net interest income. Like how should we think about the deposit spread as rates come down? Will it be an offset? Or if you could maybe just talk about that as well. Thank you.
Ida Lerner: First of all, I just remind you that you may remember when we show spread to the customers in the Factbook, it is spread towards the money market rate. And there has constantly for the past two and a half years, until the past couple of quarters, been a substantial lag effect from the fact that the market rate moves ahead of the move of the central bank. And again, that moves ahead of our repricing larger part of the move that you see on the deposit margin is related to the fact that the market has caught up and we're now in a more stable environment. In addition to that, there is also an impact from the fact - a product mix effect that we have talked about where we see customers more actively focusing on optimizing the return on their deposits. Initially in the fourth quarter, we saw some move from transaction accounts to saving accounts. What we're seeing now is more moving in between different types of savings accounts and time deposits and so on. I think NII sensitivity for us is very difficult to give since we are under very strict guidelines to talk about our future action on pricing, and it's actually our future action on pricing that impact how the NII will move. And again, I reiterate that the expected rate cut has now been - the first one has been postponed until the end of the year, December is now believed to be the most likely case, and then for the following year and a half we're looking or the belief is that the central bank will take rates down to 3.25%, way above where we were historically pre-pandemic. We can't really give any sensitivity, but I think it wouldn't be, I mean the best reference point you have is that we just have a period behind us with 14 rate hikes. You have been able to observe the impact on the way up. So I think that's the best we can give you.
Sofie Peterzens: But should we expect a linear or a symmetrical kind of impact on net interest income on the way down if you use that as a proxy?
Ida Lerner: I think what you've put as a proxy, Sofie, you actually have to make that decision on your own. I think we've given you the help that we can. This is a live market with customers who change behavior and adapt alongside. And I think, again we have just seen 14 hikes on the way up. It hasn't been completely linear then if you see what we have guided for, and the decisions we make if and when the market starts moving downwards will have to be taken at that time. I'm not sure we can give more guidance than already have.
Sofie Peterzens: Thank you. That's very clear. Thank you.
Operator: We will take our next question from Riccardo Rovere, Mediobanca (OTC:MDIBY). Your line is open. Please go ahead.
Riccardo Rovere: Thanks. Thanks a lot for taking my questions. So three, if I may. Sorry to get back to NII and somehow to reconnect to what Sofie just asked, but it is not clear, I think, to any one of us, or most of us, or at least myself, whether the fact that when you show the slide on NII on the bridge between Q4 and Q1, all the pieces, all the various bits are all negative. Now, when you look at past slides you know some were positive, some were negative. This time they are all negative. Now is this - is there anything unusual in the fact that all the various bits and pieces here in this quarter are negative? So here, I'm not asking you any guidance and nothing at all. I'm just asking you to try to give us a better understanding whether there is something that maybe is temporary in numbers that you have disclosed six hours ago. Okay. Just to give us a flavor, because I don't think it's really that clear. This is the first question. The second question I have still on NII. When you look at the progression of margins, over the past two, maybe three quarters, let's say Q3, Q4, Q1, they are kind of flattish, which my understanding means that the recent rate hikes did not bring too much positive contribution to the NII and the repricing effort after the hikes. So I was wondering whether this is the case, and I am wondering whether your commercial, let's say, approach, you know, would work exactly in the other way around, because the beta in the - over the past three quarters seems to be 100% or something like close to 100%. The other question I have is on credit losses. They've been extremely volatile. You got reversals in 2022, then all of a sudden it became negative in 2000 - in the last quarter of 2022, then you had three quarters of around NOK900 million. Now all of a sudden they become NOK300 million. I understand that there are bits and pieces, you know, large corporates, a single position, whatever, but the volatility of your credit losses is really striking, considering that Norway is probably the most stable country we have in Europe. And I was wondering, if I take the NOK300 million that we have seen today, is it a good reflection of what you see on the ground, or is the NOK900 million a better reflection or - so, just to give us an idea of how we should look at your credit losses, should we focus on the recent data through the cycle, taking the very few quarters - last few quarters, and then on the buyback. The stock trades - the stock still trades with dividends, so the price is actually similar - more similar to NOK190 than NOK207, when you will start trading without the dividend. Should this be, let's say, an incentive for you to try to speed up as much as possible the execution of the buyback once you got - once you have approval? Because generally what you have done was always in little installments, bits and pieces. It took quite a long time. Thanks.
Ida Lerner: Thank you, Ricardo. A lot of very good questions. I'll try to start to answer them, and then you'll need to fill in with further comments, Sverre, if I don't manage, I can see where you're coming from in terms of the NII bridge, and that's also why we wanted to be as detailed as we were this quarter. First of all, I would like to say that you see a positive effect of the repricing, the full effect that you saw from the repricing being done in end of last year, October and November this quarter. In addition to that, you see a part effect of the repricing being implemented in February. Then you're right in saying that there are a number of different items that moved negative this quarter. I wouldn't point to any of them being extraordinary or one-off, but it's important to say - point to what Kjerstin also commented on in Sofie's question, what is related to activity. Amortization effects and fees are of course related to lower refinancing activity in the first quarter. And when that picks up that should also have a positive element towards NII. When looking at interest on impaired loans, that's also an effect of the volumes we have as being impaired and that is of course a result of that as well. Volumes are an effect of decreased average volumes, as you know. But we also saw, as we pointed to, the positive momentum we saw in corporate banking towards the end of this quarter, with increased volumes coming in at the end of the quarter would have a positive, everything else being equal, a positive impact on NII moving forward. When it comes to the treasury effect that Kjerstin also pointed to, we are seeing a negative delta compared to what we saw in the fourth quarter, mainly driven by the fact that we now have a flatter yield curve. So those are the elements that I can point you to in terms of directing where we are. When looking at the margin, you're right in saying that you see the flat margin development, but what you need to look at is the net interest margin and there you see a slight decrease from still high levels, 190 basis points or 187 basis points this quarter, stemming also from the fact that we're seeing average volumes coming down, but also the mix effect that we pointed to in terms of the fact that our customers are moving, are being bit more active in moving within different types of savings accounts. But what is important to point to in terms of what's different this quarter compared to what we saw in the fourth quarter is that we're not seeing the same movements that we saw in the fourth quarter, moving out of transactional accounts into savings accounts or using your money you have on transactional account to repaying debt. That is no longer the case this quarter as it was in the fourth quarter. When pointing to the beta effect on deposits, you know that we aren't providing full details in terms of the beta. But that is also, of course, an element of the active behavior among our customers in terms of moving between different savings accounts on the personal customer side. In addition to that, in corporate banking, what we pointed to in the presentation as well is that, yes, we are seeing a positive inflow on deposits in corporate banking in the quarter that is also related to public sector as well as to the oil and gas related industries that are generally having lower margins, which, of course, is an element that brings into the combined spreads as well as the net interest margin going forward. On credit losses, you're saying that we have been extremely volatile. I think we will need to look at this also with the glasses on, looking where we came from during the pandemic. Yes. Then we saw a strong volatility in 2020, which meant that we also took larger impairments related to the offshore industry. As you remember, those have to some extent been reversed. And this is something that we've taken quarter-on-quarter bringing into 2022, which supported the reversals. The underlying - If you look at the underlying development in terms of cost of risk, if you take out the effects we saw of the reversals, I would actually say that we've been fairly stable in terms of the impairment levels overall. But, of course, you have the element of the reversals kicking in from the offshore segment. When thinking about impairment levels going forward, we are not guiding on impairments or costs of risk. But I would like to point you to the fact that we have rebalanced the portfolio significantly if you compare it to 2015, but also 2017, where we've reduced our exposure to the more volatile and cyclical industries and are now having a significant larger portion of our portfolio in the personal customer segment and then, more importantly, in mortgage lending, where we haven't seen a negative development, and we also haven't seen a negative effect. Also, looking at the broad-based diversification we have in the corporate customer segment today, we'll hopefully, and in our view, also reduce the volatility going forward. I think the levels we are seeing today, with the impairment levels of NOK323 million in total in the quarter, is also showing a strength in the overall portfolio. Buybacks when looking - you know that we aren't thinking short-term when it comes to our dividend policy. We have a very long-term view on honoring our dividend policy in terms of prioritizing increased nominal cash dividend year-on-year and using share buybacks as a flexibility tool. The stock price as such is not a driver in terms of deciding this. This is more an element that we use to optimize the capital position long-term.
Kjerstin Braathen: And just adding to that we are mindful of not buying in such volumes that it does impact the share on a daily basis. So that will limit the magnitude of volume we will look at buying in one single day.
Riccardo Rovere: Okay. Now that's fair, but, you know at the very end of the day understand what you say, Kjerstin, that it's 3.5% of your share count so it will never have a particular effect you know because at the end of the day, we're talking about 3.5% in the share count. And if I may just one second just a quick follow-up, if I understand, well understand, if I guess you're awarded on NII, what I grabbed from your statement is that what was unusual in the quarter was the low level of activity, the slower level of activity, including the Sbanken integration. Is it a fair assessment?
Ida Lerner: The fair assessment, yes. I mean, Sbanken is more of a one-off because of the technical integration and the fact that that part of the business wasn't really open for new customers for quite a while, and some decided to leave up on the changes. So that's more a particular one. The other impact is more a lower level of growth - a lower level of credit demand in the market. So they're a bit different and we are for the credit demand we are saying more muted first half and then expect it to pick up.
Riccardo Rovere: All right. Okay. Thanks.
Operator: We will take our next question from Hugh Moorhead, Berenberg. Your line is open. Please go ahead.
Hugh Moorhead: Good afternoon. Thanks for taking my questions today. Another one on buyback if that's all right, please. Given that you utilized your full 3.5% mandate last year, would it not give you even more flexibility if you asked for a larger mandate this year? My understanding is you're asking for 3.5% again. And then on costs, I think up year-on-year at Q1 by 6.5%, roughly on an underlying basis, is that a run rate you'd be comfortable with for the rest of 2024? Thank you.
Ida Lerner: Well, in terms of buybacks, we utilized 3.25% of the total limit of 3.50% last year. Our assessment is that 3.50% is what's doable for us. Also, bearing in mind what Kjerstin pointed to for a year, and that's why we are, or the board is asking for that authority and that limit. When looking at cost, we are not guiding on nominal costs per se, but are still focusing on having a long-term sustainable cost income ratio below 40%. And there we are today. That, of course, also means that long-term, we need to continue working with our cost base and actively investing in further automation as well as efficiency. But I wouldn't - we're not providing guidance in terms of nominal costs per year.
Hugh Moorhead: Okay. Thank you.
Ida Lerner: Yes, and I just like to add a comment, and I fully appreciate the questions on buyback, and I suppose they are in view of our very robust capital position where we have a core equity ratio of 19%. And I just want to reiterate very firmly our commitment to our dividend policy that is a combination of our cash dividend that we look to increase every year. We upped it considerably this year compared to last, but are also looking for a long term, not necessarily linear, but a long-term trajectory of increasing on an annual basis and then using share buyback to optimize. So repaying excess capital to shareholders has very long been a core of our story in order to also optimize and deliver the best possible return on equity. And I'll just assure you that this remains so very much the fact. At some point, it can take us more than a year to pay out the excess. But rest assured that that is still very much top of mind and a part of our strategy to repay the capital that we do not reinvest into the business.
Hugh Moorhead: Thank you.
Operator: We will take our next question from Jacob Kruse, Autonomous. Your line is open. Please go ahead.
Jacob Kruse: Hi, thank you. Jacob from Autonomous. Just a couple of follow-ups, I guess. First, on the capital and the buybacks, could you - the risk-weighted asset decline in the quarter, was that impacted by FX or was that a negative effect in this quarter, as it turned out? And then secondly, on the NII, I know you didn't really want to comment on the Sbanken impact, but is that purely a volume impact or is it also impacting that amortization and fee line in the factbook? And would you be able, just given the focus on this line in this quarter and the volatility seen, could you give any kind of indication of the sort of scale we're talking about when we look at the Q4 versus, sorry, Q1 versus Q4 figures. And then finally, just on the NII from impairments, for that to go up, what needs to happen? Is that - how does its dynamics? How does it work? What do you need to see for that NII line to rebound? Thank you.
Kjerstin Braathen: I'll leave the risk weighted to Ida or Sverre. And I can start with the NII for impairment. The way this works, when we have volumes that are a part of our non-performing portfolio, we do not account for running interest until they again are moved back into the healthy portfolio. And you had a very meaningful, positive uptick in the fourth quarter because there were substantial volumes being moved from the non-performing portfolio back into the healthy portfolio. And then you don't only get the interest income from that quarter, you also get - for the full period they have been in the non-performing portfolio. Now, the reserve portfolio is low and I think we've depleted most of the potential for taking back write-downs that we have on the offshore side. As for Sbanken, we are not able to quantify other than say that it's a volume effect. It is not represented in the other moving bits and pieces of the bridge. And it is a meaningful part of the 1.3% reduction that we saw in the quarter. Beyond that, we can also say very firmly that number of customers in the portfolio is higher than at the time when we made the offer for Sbanken. And that the business case is still very solid and has strengthened alongside a very strong macro development as well. That's not very detailed numbers for first quarter compared to fourth. I'm sorry.
Sverre Krog: When it comes to the REA development and reduction, that is the result of positive migration in portfolio. Some of it is technical, some of it is migration from standard method to the IRB method. And some is underlying improvement in risk of the portfolio.
Jacob Kruse: Okay. Thank you very much.
Operator: We will take our next question from Vegard Toverud, Pareto. Your line is open. Please go ahead.
Vegard Toverud: Thank you. I have three questions. The first one follows up on the last answer there. So maybe this one is for you, Sverre. But the risk weights for SMEs on the IRB model seem to drop quarter-on-quarter to 40% from 46%. And standard risk weights for corporates are also down. So could you provide us with some more detail to understand this movement quarter-on-quarter, that's the first question. Second, on marketing, the marketing spend in Q1 is somewhat down from the level that we saw last year. So could you help us with potentially indicating the budget for marketing in 2024? And then lastly on the amortization, the Q4 numbers were then higher and then lower in Q1. And this will of course pick up with the activity again. But would you consider Q1 to be a more normal or Q4 of last year to be a more normal level for these fees in the NII? Thank you.
Sverre Krog: I can start with the risk weight assets. The split that I was indicating earlier was the one is main driver for the SME drop. We do have positive migration in the portfolio. Some companies moving from high risk to low risk, which is a contributor. We do have technical model changes which are minor, which adds up. And we do have migrate - changing volumes between standard and IRB portfolios. So those three effects are the ones that contribute to the REA decrease.
Ida Lerner: On marketing spend, this will of course fluctuate quarter on quarter. I can't really comment on kind of the level where we should be in terms of Q1, but I mean in terms of what we're seeing now and the activity we have towards our customers, it could also be - to see that as a need to increase it somewhat. But again, this is not a big part of our overall expenditure. Fees in NII, as you know the that's more relative to the refinancing activities and amortization effects and fees come if and when our companies refinance earlier than what we have anticipated in terms of how we've structured this in the financial numbers. So that's difficult to say. But generally I would say there is more activity in the fourth quarter and there's generally more activity in the second quarter than what it is in the first quarter.
Vegard Toverud: Okay. And thank you. Could I just have a follow-up on the first one? As I understand it now, the risk weights are lower than it has been previously on the SME segment. I might be wrong about this, but if so, does that mean that the risk on the SME book is better than ever before for you?
Sverre Krog: It has improved. So that is correct conclusion, but not all of the reduction is a reflection of the underlying risk of the portfolio. As I said, some of it is technical, some of it is fluctuation between the different standard and IRB portfolios. So not all is a reflection of the underlying credit quality, but there is an improvement of the underlying credit quality. That is correct.
Vegard Toverud: Okay. Thank you.
Operator: We will take our next question from Shrey Srivastava, Citi. Your line is open. Please go ahead.
Shrey Srivastava: Hi, good afternoon and thanks very much for taking my questions. You mentioned in an answer to me in the first call, that you haven't really seen something like in the fourth quarter where the proportion of transaction accounts fell from 25% to 23%. However, you have been seeing migration within the savings book. Is it possible that you could quantify this at all? Specifically, what proportion of your savings have historically carried no withdrawal restrictions? And how has this evolved in recent quarters? Thanks very much.
Ida Lerner: In terms of no withdrawal restrictions, first of all, we have a number of different savings accounts in the personal customer segment. First, what we have talked about before is the further split between transactional accounts and then savings accounts. Most of our savings accounts have full flexibility in terms of withdrawals. Then we've started to introduce more fixed interest rate savings accounts, but that's still very small part of our overall savings account structure or deposit structure.
Shrey Srivastava: Understood. Thank you very much.
Operator: We will take our next question from Namita Samtani, Barclay. Your line is open. Please go ahead.
Namita Samtani: Hi, thanks for taking my questions. I've got three, please. Firstly, why was there such an increase in Stage 2 loans from personal customers in the first quarter of 2024 on a quarter-on-quarter basis? And secondly, are you speaking to regulators about the Basel IV impact? I think before it should be a fairly neutral impact. Any update there would be great. And lastly, sorry, I have to go back because I think I missed your answer earlier, but do you expect net interest income sensitivity to be symmetrical on the way down as it has been on the way up? Or is that the completely wrong way to think about it. Thank you.
Sverre Krog: Go ahead, Ida.
Ida Lerner: Yes.
Sverre Krog: Yes, I'll start with the Stage 2 fluctuations in personal customers. That is a good observation. It does increase from fourth quarter to first quarter, but if you look further back, that is fluctuations that come from quarter to quarter. It is very small share in regard to total portfolio, you have personal customers of around NOK1,200 billion and stage 2 is NOK63 million. So these are small. So even though it's from quarter to quarter, it seems like the growth it is as a part of the whole portfolio, a small volume.
Ida Lerner: Yes. On the Basel IV, I think what we have said before, and that still accounts, is that we expect to have very marginal negative effects on - from the implementation of Basel IV when that comes. In terms of looking at the NII, I think Kjerstin was quite clear in her comments in saying that it's difficult for us, or actually not possible for us to give any guidance on what we believe will happen if and when we reprice towards our customers and how that will impact NII going forward.
Namita Samtani: Okay Thanks very much.
Operator: [Operator Instructions] We'll take our next question from Riccardo Rovere, Mediobanca. Your line is open. Please go ahead.
Riccardo Rovere: Thanks. Thanks also for taking my follow-up. This one is on capital. You have a 200 basis point, actually more than 200 basis points buffer on your requirement. This is more or less the same. If you look at the buffer - the management buffer targeted by Swedish banks, which is in general between 100 basis points and 300 basis points, this is the same number, but their capital requirement is 14.5%, 16%. Yours is almost 17%. Now, when it comes to the management buffer that you have, considering that the swap ratio your Norwegian FSA expected is almost 250 basis points higher than in Sweden. The buffer that you have in mind in terms of management buffer is as large as the one of the Swedish banks. So do you have in mind a much lower number? Considering your requirement is 200 basis point higher, how should we think about. Also in light of the fact that in a quarter you generated 80 basis point of capital, this is the buyback. The whole buyback that you're going to do over the course of 2024 has been compensated in a quarter - one quarter. So how should we think about that? Should we think that your common equity tier 1 ratio will keep going higher and higher and higher indefinitely, or how should we think about it? Because the number now is 220 basis points buffer. It's high.
Ida Lerner: Yes. Thank you for your question. Thank you for your question, Riccardo. First of all, I would like to reiterate the very clear message that we continue to have that excess capital that is not reinvested into the business will be paid out to shareholders one way or the other. And I think we have proven over time that we actually deliver on that commitment. And I'm not saying within a specific timeframe, it might take at some point longer than a year. But that is a very clear principle anchored in our strategy. You know, well, our requirement, which is now 16.8, and you were very clearly pointing out that we have a very robust capital position. Also, keep in mind that a P2B of 125 basis points is included into the 16.8%. So it's not only the expected, but also the - it's not only the required, but also the expected level with the P2G buffer on top of it. Now, we have said that we are looking to have some margin on top of that. We have not been specific, but I think you've seen from where we have gone down to previously that we're not talking about a buffer in this scale or magnitude of what we're seeing with the Nordic banks. We're talking a much smaller buffer. So there is excess capital at the moment, and we are looking to reinvest it into the business and pay it out over time through our dividend policy, buyback and dividends.
Riccardo Rovere: All right. Thanks.
Operator: [Operator Instructions] We'll now take our question from Shrey Srivastava, Citi. Your line is open. Please go ahead.
Shrey Srivastava: Hello again. You mentioned a focus on strengthening your competency in house. However, if I look at your IT consultant spend, for instance, it's up 14% year-on-year, and it's also up as a percentage of your total OpEx. Do you have an approximate timeline of when we would start to see these initiatives affect the cost line? And related to this, you've said with the fourth quarter that 5% to 6% would be an acceptable amount to grow costs. If revenue were to fall quicker than you would expect, are there any levers you can pull from the cost side? And if so, could you provide specific examples? Thank you.
Ida Lerner: Well, I think, first of all, I just want to comment on we have not given a guidance on cost increasing 5% to 6%. What I said is that we are not giving any guidance on nominal costs but are continuing to focusing on cost income ratio below 40%, where we are well below at the moment. When you point to what we're seeing in terms of increased cost spend, what we did last year, and what we have done for quite some time, is that we have converted external consultants into internal engineers, where we've also seen a need and wanted to continue to invest in the times. Now, we believe that we are at a level where we believe it is a good ratio, and that's also what we also believe will give us the best foundation for continuing to invest in IT. What we have talked about is that we are continuously investing. We operate in a highly digital society. Our customers expect and require digital services and very professional and strong digital interfaces. And that's also where we have invested and will continue to invest. In addition to that, we have invested in modernizing our core systems step by step. And that is an ongoing process which will also continue going forward, which also supports our efforts to take out costs further down the line in terms of increasing efficiency and automation in our internal processes as well. And that's pretty much in terms of what we've said. In addition to that, what we talked about in terms of costs, we have the synergy effects from Sbanken that we are now starting to realize. And then also we've announced further gross cost reduction at the Capital Markets Day that we had last, where we said that we want to reduce our gross cost base by between NOK1.5 billion to NOK2 billion, where Sbanken is part of that. And that is also well underway. And of course, where we are today and with the inflationary pressure and the strong increase, we're also seeing in terms of expectation of wage growth in Norway of 5.2%. We will continue to need to work on efficiency and automation also to further reduce costs going forward.
Shrey Srivastava: Okay. Thank you very much for that.
Operator: We have no further questions on the line, so I will now hand you back to your host for closing remarks.
Rune Helland: All right. Thank you all for your questions and your participation. We here in Oslo would like you all a good rest of the day. Thank you so much. Bye, bye.
Ida Lerner: Thank you.
Sverre Krog: Bye.
Operator: Thank you for joining today's call. You may now disconnect.
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