Danske Bank, in its recent earnings call, announced a positive revision of its 2024 net profit outlook, now expecting to reach between DKK21 billion to DKK23 billion. CEO Carsten Egeriis highlighted the bank's strong performance in the first half of 2024, with a net profit of DKK11.5 billion, and an interim dividend of DKK7.5 per share.
The bank's strategic priorities are on track, aiming to meet their financial targets by 2026. Key drivers include increased customer activity, particularly in corporate lending and investment products, and a robust capital position with a CET1 capital ratio of 18.5%.
Danske Bank also plans to distribute capital from the sale of its Norwegian personal customer business through an extraordinary dividend, subject to the completion of the sale to Nordea.
Key Takeaways
- Danske Bank reports a strong first half of 2024 with a net profit of DKK11.5 billion.
- The interim dividend is set at DKK7.5 per share.
- Net profit outlook for 2024 has been revised upwards to DKK21 billion to DKK23 billion.
- The bank plans to distribute all 2024 earnings as dividends.
- CET1 capital ratio stands strong at 18.5%.
- Sale of Norwegian personal customer business to Nordea expected to result in an extraordinary dividend.
Company Outlook
- Danske Bank is on track to meet its 2026 financial targets.
- CET1 target of above 16% by the end of 2026.
- Capital base of DKK170 billion by 2026 is anticipated to support future business and balance sheet.
Bearish Highlights
- Net trading income was lower due to high customer activity in Q1.
- Statutory deduction for insurance subsidiaries decreased.
- Margins are expected to remain flat with pressures on deposit margins.
Bullish Highlights
- Customer activity in corporate lending and investment products has increased.
- Fee income in Q2 was the highest in 2.5 years, showing a 13% increase year-over-year.
- Investment fees and capital markets fees experienced positive growth.
- Net interest income is expected to improve in Q3.
Misses
- There was a decrease of DKK500 million in policy rates in the first year, with additional effects in subsequent years.
Q&A Highlights
- Danske Bank expects to earn around DKK1.6 billion from Danica during the strategy period.
- The company is optimistic about a soft landing, with no significant deterioration in asset quality.
- Loan impairment charges are expected to undergo post-model adjustments as needed.
Danske Bank (DANSKE.CO) remains focused on maintaining a strong capital base, with plans to distribute all earnings for 2024 as dividends, and additional capital from the sale of their Norway retail business. The bank's dividend policy includes paying at the upper end of their target range and transitioning to an annual dividend in the future. Despite the sale of their Norwegian business, the capital requirement for 2026 has not been lowered, except for the release already observed. Danske Bank's financial performance has shown resilience with stable operating expenses and low loan impairment charges, underpinned by strong credit quality. The bank's management team concluded the call with an invitation for further engagement through the IR department.
Full transcript - None (DNSKF) Q2 2024:
Claus Ingar Jensen: Good morning, everyone. Welcome to the Conference Call for Danske Bank's Financial Results for the First Half of 2024. My name is Claus Ingar Jensen and I'm Head of Danske Bank's Investor Relations. With me today, I have our CEO, Carsten Egeriis; and our CFO, Stephan Engels. We aim to keep this presentation to around 25 minutes. After the presentation, we will open up for a Q&A session as usual. And afterwards, feel free to contact the Investor Relations department if you have any more questions. I will now hand over to Carsten. Slide 1, please.
Carsten Egeriis: Thanks, Claus. I would also like to welcome you to our conference call for the financial report for the first half of 2024. We're now 6 months into our new strategy period and I'm pleased that we continue to execute on our strategic priorities according to plan. We're clearly making progress on our four 28 strategy [ph] and we see a satisfactory development in our financial performance which clearly is on track to meet our 2026 financial targets. Our performance in the first 6 months of the year was characterized by an increase in customer activity that gained momentum in the second quarter, primarily from corporate lending demand and demand for investment products but also from a broad increase in daily customer transactions. Our ability to leverage our strong position within debt capital markets activities added to the positive performance in the first six months. This included continually strong traction for -- sorry, I think we've had some technical problems but I will pick up and hopefully we're going live through and obviously, we will take our questions if there's something you missed I was on the capital piece this is similar to. And if I just pick up from the capital distribution piece, based on our strong performance in the first half of 2024 and our strong capital position, I'm pleased to announce that the Board of Directors has decided to distribute an interim dividend of DKK7.5 per share and that's based on net profit of DKK11.5 billion for the first 6 months of 2024, it is equivalent to a payout ratio of 56%. This is similar to the dividend payment scheduled for the first half of 2023 and should be seen as a one-off event similar to last year's dividend payout following years with no or limited payout. Please note that from the financial year 2025, this payout frequency will cease and we will resume annual dividend payments on the basis of the full year result announced in February. In respect of the sale of our personal customer business in our Norway business, it is our intention to distribute the release of capital of approximately DKK5.5 billion through an extraordinary dividend once the sale to Nordea has closed in Q4. And then finally, for full year 2024, we intend to distribute all of the net profit, subject to continued delivery of strong financial performance and relevant approvals. Important to emphasize that our combined distributions will not exceed capital generated through the net profits of from divestments before the end of 2025. So, on this background, I'm pleased with the execution on capital distribution of DKK30 billion by year end and this is slightly ahead of the ambition that we announced at our Capital Markets Day last year. We maintain a CET1 target of above 16% by the end of 2026; we do so on the basis of a prudent assessment that also takes into account the probation period that applies to Danske Bank until the end of next year. It's important for me to emphasize that with the current target, we believe that we strike a good balance between our ambition to grow the business and our ambition to distribute capital. For now, it reflects a prudent level of capitalization based on an ongoing and a constructive dialogue with our local regulators. And I'll talk about the performance of our business units before I hand over to Stefan. And this is now Slide 2, please. At personal customers, we have seen improved financial performance, driven by higher total income which grew another 3% in Q2. The top line growth in Q2 was driven by a resilient contribution from net interest income and a positive trend in core banking income benefited further from higher fee income on the back of customer activity, activity driven fees, therefore continue to improve and investment fees also provided a solid contribution, a direct result of the strategic ramp-up within wealth management and private banking. The increase in income, coupled with continually strong credit quality, along with prudent cost management in line with our investment plan, underpinned a satisfactory level of return on allocated capital and cost income ratio in line with our targets. Looking at volumes in our core markets, the development in our deposit position remained strong with positive inflow into both transaction accounts and savings products has total deposits increased by DKK15 billion, of which DKK8 billion was attributed to our recognized savings products. Generally, we find that migration effects have moderated and the positive trend should also be seen in light of an increase in retail assets under management of more than DKK10 billion. In terms of lending volumes, activity in the housing market started to recover as many households are starting to experience real wage growth and there is more clarity around property taxes and the path for policy rates. The stock of residential lending in Denmark was, however, impacted by redemptions and amortization, largely countered by our customers' preference for the Danske Bolig Fri home loans with another quarterly increase of 4% in Q2. And then at the same time, I also believe we have an untapped potential and need to regain our fair share of mortgage market in Denmark. In respect to our strategic KPIs, we see our improved position reflected in the traction we have with our existing customer base, along with a net inflow of new customers in the growth segments, combined with tangible progress in customer satisfaction and also reputational aspects in general. And now Slide 3, please. At business customers. Our financial performance was supported by our enhanced product offerings and customer focus, as well as higher activity with improved sentiment across our business. Core banking income benefited from sustained level of NII and a continued fee contribution related to daily banking activities as well as our subscription-based service model which is gradually taking hold. Profitability rebounded from Q1 as impairments also recovered, lifting the return on allocated capital back above our target. Also with continually prudent cost management, we maintained a cost income ratio ahead of our 2026 target which altogether is encouraging when we are ramping up our commercial focus and investing in up-skilling specialized advisors, along with our analytical capabilities. In respect to volume development, the commercial momentum is also reflected in a solid uplift in lending growth which was evident across all Nordic markets and Q2 deposit levels were largely stable in Q2 as a positive development in Finland was offset primarily by Norway. We already see progress on the commercial ambitions we have highlighted as part of our strategy. And while I continue to see a potential to further leverage our strong corporate franchise in the SME space, we're starting to see the growth potential along with more efficient ways of operating. For example, in our credit decision making process. And ultimately, this should support the increasing number of customers that are highly satisfied with ambition, advisory services. And then Slide 4, please. Turning to LC&I, where our market-leading franchise continue to gain momentum, highlighted by our ability to actively support our customers with advisory services backed by our strong product offering and balance sheet. In the second quarter, we continued to deliver solid total income and strong profitability. Also relative to our 2026 target, despite a lower contribution from net trading income, core banking income benefited in particular from higher fee income up 15% from the preceding quarter and 22% relative to the same quarter last year. The positive development was underpinned by strong activity and improved diversification which in turn was supported by our leading cash management offerings that enabled us to win new house Bank mandates. We also saw a sustained strong contribution to fee income from high capital markets activity as conditions have been attractive. And we continue to be the leading Nordic bank in both Nordic and European debt capital markets in terms of volume supported. In addition to the strong DCM activity, we also saw positive demand for lending in the quarter. Deposits were largely stable and altogether, the sound development of volumes contributed to the uplift in NII. And then finally, our asset management business continued the positive trend, underpinned by a positive inflow of both institutional mandates, along with net sales for retail customers. And this also contributed positively to the increase in assets under management which further benefited from higher asset prices. And then with that, I'll hand over to Stephan for a detailed review of our financials. And then that's Slide 5, please.
Stephan Engels: Thank you. Good morning. So as Carsten just mentioned, we saw a strong improvement on our financial results relative to the same period last year as well as the preceding quarter. Profit before tax was up 18% and 3% respectively relative to the first half of last year. The improvement in total income was driven by stronger core income lines and a recovery in net income from insurance business, whereas net trading income in the same period last year benefited from extraordinarily good market conditions. Furthermore, other income was impacted by lower sales on assets related to our leasing activities. Operating expenses remained stable as prudent cost management mitigated the expected wage inflation. Loan impairment charges came in at a very low level and resulted in a net reversal due to continued strong credit quality. Relative to last quarter fee income, in particular gain momentum driven by increased customer activity. Total income was slightly up as the higher fee income more than offset the softer development in income from trading activities, insurance and other income. The result for the period of DKK11.5 billion equivalent to an ROE of 13.1% and 13.3% in Q2. Slide 6, please. Let's take a closer look at the development in net interest income. During the quarter, we saw the first rate cut from the ECB and the Danish Central Bank as the inflation outlook appears to be under control, while market expectations around timing and number of future rate cuts have changed frequently. Our NII development remains constructive in line with our expectations. For the third quarter. We thus expect slightly higher NII subject to volume growth and possible rate cuts. Importantly, I would like to highlight that I showed the expected resilience in Q2 as our portfolio hedge and positive contribution from both lending and deposit volumes mitigated the impact on margins from lower market rates. The favorable development and deposit volumes was supplemented by a large inflow into asset savings products which offset the impact from policy rates. While our adjustment for deposit pricing has yet to flow through due to the timing of implementation. On the asset side, lending margins have stabilized and together with the volume uplift, this contributed positively to the development in NII in Q2. As such, the sustained uplift in NII is expected to continue. And in terms of our NII sensitivity, we continue to expect around plus or minus DKK500 million or 25 points change in policy rates in the first year with an additional year two and year three effect of DKK300 million and DKK200 million respectively, given our structural hedges and the portfolio of fixed rate assets. Slide 7, please. Overall, the positive trend in fee income we have seen since Q4 last year continue to reflect strong customer activity and gained further momentum in the second quarter, supported by our attractive product offerings. As Carsten mentioned earlier, the fee income we have reported in the second quarter is the highest level for 2.5 years relative to the same period last year as well as the preceding quarter, fee income rose 13% and 10% respectively. The increase was driven by activity related income which also included a positive impact of DKK0.1 billion due to a non-recurring reduction in fee expenses in Q2. Investment fees continued its positive trend and we also saw a strong contribution from capital markets fees in the quarter. The continually high activity in Q2 came primarily from our corporate customers from whom we continue to see strong demand for our cash management solutions. Investment fees benefited from an increase in assets under management including positive net sales, fee income from lending activities was both year on year as well as quarter on quarter impacted by the subdued housing market activity. Although we saw a gradual improvement towards the end of the period, income from the refinance of adjustable-rate mortgages in the first half of the year partly mitigated the low housing market activity. Income from our capital markets activities increased in Q2 was up 38% from the level in Q1 and 21% from the level last year. Our DCM business in particular was a strong contributor of income and our other business areas within capital markets. So, a positive development in the recent quarter. Slide 8, please. Now let me briefly comment on net trading income relative to last year. Income came in lower due to exceptionally high customer activity in in Q1 2023 and a one-off gain of DKK0.3 billion. When we look at the quarter-on-quarter development, the contribution from LC&I declines from seasonally higher customer activity in Q1. The fall in activity in the second quarter was largely attributed to our fixed income and derivatives business in Sweden. For comparison, please be aware that most of our income from automated FX is now booked as fee income at LC&I. As such, trading income for the first half of the year amounted to DKK1.4 billion and was just slightly lower compared to our soft guidance for normalized trading income of around DKK3 billion per annum. The higher contribution from Group Functions quarter on quarter came primarily from valuation adjustments on our currency portfolios within Treasury. That concludes my comments on the income lines. Let's now move on to expenses on Slide 9. Please reported expenses were up slightly from the level in the first half of last year and 2% higher compared to the preceding quarter. I'm pleased to see that we continue to manage our costs in line with our plans and guidance for the year between DKK26 billion and DKK26.5 billion relative to the first half of last year. Staff costs were impacted by wage inflation which was, however, partly mitigated by a 6% reduction in the number of FTEs as a result of our stronger performance, performance-based compensation increased, whereas the expected decrease in cost for legacy cases, had a positive effect. The increase in other costs in the second quarter related mainly to the ramp up of investments, including our digital priorities and IT partnerships as a key part of our Forward 28 strategy. Overall, I feel comfortable with the cost performance in the first half of the year. And on this basis, we reiterate our full year cost outlook of between DKK26 billion and DKK26.5 billion. Slide 10, please. Let's look at our credit portfolio and the trend in impairments are well diversified and low-risk balance sheet benefited further from the improved macro-economic environment which led to reversals from our macro models. Although we continue to incorporate a severe downturn scenario, actual credit deterioration remains very limited and we saw net reversals of single name charges in Q2, driven by recoveries from work out workout cases. We continue to cater for potential tail risks and uncertainties not captured on a single name basis or through our macro-economic models by carrying a sizable amount of PMAs. This buffer was kept stable at DKK6.7 billion, equivalent to four years of normalized through the cycle loan loss level. Let's continue on the next slide and cover our capital position on slide 11. Please our capital position remains strong with a reported CET1 capital ratio standing firm at 18.5%. This reflects another quarter in which we have accumulated capital and saw a healthy contribution from retained earnings after accruing for dividends. In addition, due to a change in methodology for how Danica's solvency requirements are being set, we have seen a decrease in the group's statutory deduction for insurance subsidiaries. These positive contributions were countered by a prudent front-loading of the majority of our anticipated CRR3 impact, adding DKK20 billion of REA in Q2 in addition to an increase from credit risk REA, we therefore outsourced our risk exposure amount increase of DKK37 billion in total to DKK846 billion by the end of Q2. Our CET1 capital requirement was at 14.5% at the end of Q2 and continues to include the retail exposures in Norway. As Carsten mentioned earlier, we have taken this opportunity to reaffirm our capital target of above 16 which reflects a prudent buffer to the regulatory requirements. Finally, with the announcement we have made today regarding distribution, we are also tangibly executing towards our targets with a capital distribution that is mindful of all our stakeholders. Now let us turn to the final Slide 12, please. The financial outlook at the end of June, we revised the outlook for 2024 upwards to a net profit in the range of DKK21billion to DKK23 billion from previously DKK20 billion to DKK22 billion. The upgrade follows our continuous strong credit quality and net reversals of loan impairment charges in the first half of the year. As such, we now expect full-year loan impairment charges to be up to DKK0.6 billion for the financial targets for 2026, we maintain our assumption for loan impairment charges of approximately 8 basis points through the cycle. The outlook for income remained unchanged. Slide 13, please and back to Claus.
Claus Ingar Jensen: Thank you, Stephen. Those were our initial comments and messages. We are now ready for your questions, please limit yourself to two questions. If you are listening to the conference call from our website, you're welcome to ask questions by e-mail. A transcript of this conference will be added to our website within the next few days. Operator, we are ready for the Q&A session.
Operator: [Operator Instructions] The first question is coming from the line of Sofie Peterzens from JPMorgan (NYSE:JPM). Please go ahead.
Sofie Peterzens: Thanks a lot for taking my question. And I've got a quick question; first, on net interest income. Regarding that you net interest income, you believe slightly better maybe in the third quarter. But how should we think about kind of net interest income for the full year? Are you still comfortable with the guidance of around DKK37 billion which would kind of imply and relatively strong growth in the second half? So maybe if you could just comment on this? And then and also related restate, how should we think about the hedge benefits still to come in net interest income, especially in '24 and '25. And then the second question would be and in the capital bridge that you provide, I can see that the Danica tail wind is quite big this quarter. It has been quite volatile in recent years. How should we think about the Danica deduction going forward and kind of the movements at the from Danica? Thank you.
Carsten Egeriis: Sophie, let me take the first question then Stephen and you can just talk into the accounting change in Danica from an NII perspective, we continue to feel comfortable with the trend and the guidance around the NII being roughly around the consensus. Clearly, growth was a little bit more muted in the first half but it has improved in the second quarter and therefore, with the current sort of growth trajectory that we see as well as sort of the general NII dynamics that we've updated on before which are a DKK500 million year one, DKK300 million year two and DKK200 million year three. We continue to feel comfortable with the NII and therefore we expect NII to peak sometime in the second half, obviously, depending on timing of rate, Stephan you want to talk on that.
Stephan Engels: So Danica, as you may remember, changed to stochastic models like a year ago, we have now reviewed those and there is a component in that which creates losses which you can convert into DTAs. And if we apply these DTAs which we haven't applied before, that reduces the deduction from the statutory capital of the group by roughly DKK3 billion. This reduction is permanent and defines basically a new level of the deduction but it doesn't affect the volatility. So the volatility component will still be a bit with us going forward.
Sofie Peterzens: Is that we could see some kind of reversal potentially in coming quarters or potentially even by [indiscernible].
Stephan Engels: No with the call of the effect that you saw in Q2 as the effect is a permanent one still the deduction may fluctuate but then on the lower level.
Sofie Peterzens: Okay. Thank you.
Carsten Egeriis: Just to be clear, this accounting change is a permanent accounting change, so it does not affect volatility. So ongoing volatility will be part of the business as usual, FX coming from investment results and other things.
Stephan Engels: Yes. But on the lower side [ph].
Sofie Peterzens: Okay. Thank you.
Operator: Thank you. We will now take the next question. The next question is from the line of Martin Ekstedt from Handelsbanken. Please go ahead.
Martin Ekstedt: So, first question. In light of significant capital distribution near to medium term, why didn't you take this opportunity to tighten the dividend payout ratio target range and which remains at 40% to 60%. So large-cap Nordic banking peers of yours are generally at 50% or above and you will remain above as well from what I can tell. And then my second question, could you share your reasons for abandoning the interim dividend policy and moving back to an annual dividend again.
Carsten Egeriis: Hi, Martin. Thanks for that. So your first question, look, we were very clear at Capital Markets Day last year and that is also what we've showed that in the plan period, we plan to pay at the upper end of the dividend range, 40% to 60%. So fair question on why we keep a broader range. But, you know, I think that just keeps flexibility as we go forward. But again, with a clear intention to pay at the upper side of that range. And then in terms of the semi-annual dividend, look, we did that last year. We're doing it this year. It's not the common that is done in Nordic banking but we have decided to do it given both several years of not having distributed capital due to reasons, you know well and therefore, we wanted to send a very clear signal but we have a strong capital base that we're very comfortable with where we are and that we want to execute on this distribution plan. But in general, our policy is to pay an annual dividend. And that's why we're communicating clearly not to expect that we do that as we go forward.
Operator: We will now take the next question from the line of Jan Erik Gjerland from ABG SC. Please go ahead.
Jan Erik Gjerland: Thank you for taking my questions as well. I had two. The first one was on capital. It was a little bit unclear because the line was sort of disrupted, etcetera. Could you just clarify on the capital side, what do you intend to pay for 2024? If I understood you correctly, you said you will payout all of your earnings for 2024 in connection with your full year results in January, February 2025? Or did I miss something that and then you will have this extraordinary dividend of DKK5.5 billion on top of it, just to clarify what you intended to distribute for the full year and how and when we should see it and then an aspect to the part of the question. You now moving back to an annual level of dividends after this last semi-annual, that wasn't my capital on net interest income you mentioned something I think, on savings products that wasn't fully into the numbers into the second half of this year. Can you just allude a little bit more to how much that is intended to contribute well, is the peak in NII or should we think about this second and third year as changes to the DKK200 million and DKK300 million versus the 25 basis point change. So if that interest rates got down 25 basis points, you would change your NII by minus DKK500 million for the first year. And then DKK300 million and DKK200 million. This is that how we should read it because of the hedges. So it's low winds in the second and third year. Just to clarify this deviation to the NII going forward? Thank you.
Carsten Egeriis: Yes, thanks for that. And yes, again, apologies for the technical difficulties at the start of the call. But you're absolutely right in terms of the way you reiterated the capital plan. So again, we plan to distribute all of 2024 earnings. And what we don't do as a dividend, we will do otherwise. And we will announce that as part of the year-end results. But again, that we will pay out all of '24 earnings. And in addition to that, we will distribute the capital from the sale of the Norway retail business when the deal closes currently expected towards end of Q4. And we would do that as an extraordinary dividend in terms of NII. I think on the first point, the point on savings products, I believe was that point, the repricing that we've done on the savings products on the back of the last weight increase. Those will come through in Q3 because of the time lag. And that then offset some of the immediate downside, if you will, when the rate happens -- when the rate decrease happened. And in terms of the NII Q2 we said towards Q3 items in general sometime in the second half, depending on timing of further rate decreases. I think the year two year three, it's a bit more complicated than that, right. Because at the end of the day, again, it goes back to that, we've got a hedge of roughly DKK150 billion. It's roughly an average term of just over three years. And it basically matures and then gets have replenished on a rolling basis and that's why you have the DKK500 million and DKK300 million and DKK200million. So you can think about it as linearly black and white as you mentioned it there but our IR department is happy to go through sort of the dynamics on how it works over the three years.
Jan Erik Gjerland: Very clear. Thank you.
Operator: We will now take the next question from the line of Martin Gregers Birk from SEB. Please go ahead.
Martin Gregers Brik: A couple of questions from my side. First question goes on where do you see your risk exposure amount going from there DKK846 billion until 2026? And then sort of the second question also goes in the lines of because customer, I think you lift the epitope, clipping it here by being very specific for 2024 and 2025. You would only distribute earned capital and in the light of that, you see that once we go beyond the probation period, there could be room or there could be room for is capital distributions exceeding 100% and also in light of your reaffirmed above 16% CET1 target, those are going to be my two questions.
Carsten Egeriis: Thanks for that. I think first of all on the risk earning assets on the RIA side of things. And I would think about it this way, the sort of front loading of BCR. three impacts of DKK20 billion, as you know, is within what we said at the Capital Markets Day of roughly 1% of regulation and other effects that we gave in the summer of last year. And we actually believe we are roughly there and there might be a little bit more but it will be well within what we said last year in terms of regulation and other effects; so that's one piece. Then the other piece is, of course, what growth will look like when you think about the re-development over the next couple of years. And we continue to believe that the growth rates that we gave last year, even though we've started out more muted, are still very well within reach. And in fact, when we look at annualized lending in Q2 in the corporate banking book, more generally, we feel pretty comfortable about that. So again, to extrapolate we are out, I would look at the regulation impacts that I just mentioned, and then, I would just look at growth from thereon. And I think it's important in terms of sort of as we look out into beyond '25 to look at it, first of all, the growth opportunities because we would like to of course, absorb it excess capital that isn't derived from ongoing earnings by growth in line with our strategy. Then, you know, to what extent there is further excess capital we will update and talk about that when we get to that period.
Martin Gregers Brik: This a fair assumption. I mean also given how your asset quality is developing. I mean your annual reinflation is probably not going to be above 3%. And if you need to walk the talk on the then by 2026, I mean plus payout ratio should be the base case?
Carsten Egeriis: Yes. Look, looking again, I mean, I hope the growth will be somewhat higher than what you see there, right? Because you're talking -- we said 3% kegger over the period which means there is a bit of catch-up to do. And then we'll see when we get to that period, what opportunity there is on the capital side. But just to be clear, I think the capital distribution that we're communicating today. It's entirely aligned with what we promised last summer. If anything, it's slightly ahead.
Operator: Thank you. We will now take the next question from the line of Riccardo Rovere from Mediobanca (OTC:MDIBY). Please go ahead.
Riccardo Rovere: Thanks for taking my questions and good morning, everybody. A couple of -- a couple, if I may add the DKK20 billion, the risk-weighted assets from loading in this quarter is the, let's say, front-loading impact of Basel four on January 2025 bank. Could you if and if that is the case, could you please and eventually shed some light. If implementation of Basel four over the next few years is going to bring more out of the inflation in '26 with the and then going and then go into Q4. And the other question I have is the capital requirement that you have in mind which was above 16%. Certainly stay is going to stay more or less unchanged for the next over the next few years because I remember, well, if I remember well, at some point, you stated that for the moment, we want to keep it at be above 16%. In the short, I don't remember if you said short or medium term, if you just could please clarify. Thank you so much.
Carsten Egeriis: Sure. Thanks, Riccardo. Yes, I think remember, we already had front loaded roughly DKK100 billion of We that was -- that have been in the numbers for the guidelines. So we largely had already front-loaded what we saw the Basel four impacts would be. And this DKK20 billion, we are sort of more or less the last piece of that. FRTB, we actually believe will be largely neutral. So again, I think we're largely there on and front-loading Basel 4 for '25 '26. Yes. And then in terms of above 16% CET1 over the next few years; I think look, there's three components. One is the fact that we want to ensure that we have a prudent capital target to absorb growth. As I talked about before, then there is clearly the probation period. We're roughly halfway through that. And we feel good about where we are in terms of the dialogue with the authorities and all the work we've done on financial crime. But again, about 1.5 years left of that probation period. And then, of course, there is ongoing discussions with regulators on stress testing and the like. And there are as we continue to execute on our plans and show solid earnings and solid credit. Then we will also, I'm sure get to an even better clarity on sort of stress testing and ongoing excess capital. But for now, the above 16% is, I think, a good prudent place to be for the next couple of years.
Riccardo Rovere: And just a clarification, it's very clear what you said on the budget for '25 and '26 with regard to anything beyond when the output floors is going to be, let's say, is that going to be more impact going forward on top of beyond '26 -- beyond top [ph]?
Carsten Egeriis: I mean, not from what we know at this stage.
Operator: Thank you. We will now take the next question from the line of Mattias Nilsson from Nordea. Please go ahead.
Mattias Nilsson: Thank you very much and congratulations on decent results today, the share price reaction as well. My question, most of my questions have already been asked but my questions go around the margin pressure in the different countries but do you actually see on lending margin pressure in the different countries? And then secondly, on daily count, what would you what should we pencil in at the expected run rate on income from the insurance business?
Carsten Egeriis: So let me start with margins and thanks for that Mattias. Margins, we expect flattish margins. If you look at a net interest margin basis. And that is sort of if you decompose it slightly increasing lending margins would be our expectations and then slight pressures on the deposit margins. But overall, pretty flat net interest margins. And then from a technical perspective, I believe last summer we gave sort of an indication of roughly DKK1.6 billion of earnings from Danica through the strategy period. So I think that's a reasonable amount to use.
Mattias Nilsson: Sure. And then on the margins in the different countries, is there any anything different between the different countries.
Carsten Egeriis: And no, I think actually you would be fairly safe to use those and obviously, they're pretty high level assumptions across the markets.
Stephan Engels: Yes. There is a forecasting is always difficult. But so far, I wouldn't think that we should expect something that's substantially different between the market, both on the deposits, whereas on the lending side and it depends a little bit on whether we get back to a level that is, call it where demand and supply are in balance. If we get to that, I think pricing will be better at least the margins should be better. Currently, the volumes are still low and as there's a bit of a fierce competition out there. So that is still a bit of a drag to margins but again, we expect that to improve.
Operator: Thank you. [Operator Instructions] We will now take the next question from the line of Jan Erik Gjerland from ABG SC. Please go ahead.
Jan Erik Gjerland: Thank you for taking my follow-up. Just on the capital side. And last year, you mentioned you aim for DKK170 billion in total equity at the end of the strategy period. And that was it was sort of taking you to above 16% core equity Tier one, it's up to the DKK178 billion. And is this DKK170 billion needed for the future business, excluding Norway? Or is this DKK170 billion being lowered with the sort of the extra excess distribution for Norway if you can clarify? Thank you.
Carsten Egeriis: We believe looking at and again, we are talking '26 and growth assumptions. We still believe that DKK170 billion is probably a good basis for supporting the business and the balance sheet that we expect by then.
Jan Erik Gjerland: Okay. So no and nothing lower from excess insulating than the Norwegian business, as you then would have a growth from which we will cover that area [ph]?
Carsten Egeriis: The way I would look at this is at the Capital Markets Day, we had a clear expectation of amongst other things, income lines and cost and the income lines should be supported by our balance sheet. And we haven't cut the income lines because of the sale of Norway, nor will we cut the capital requirement for '26 because of the sale of Norway other than the release that we -- what we have seen.
Jan Erik Gjerland: Very clear. Thank you.
Claus Ingar Jensen: Can we have the last question, please, Operator?
Operator: Sure, no problem. We will now take the last question from the line of Martin Gregers Birk from SEB. Please go ahead.
Martin Gregers Brik: Perhaps just a quick up here. On loan impairment charges. When I read what you have macro-economic economists saying in their reports and also in the press, they seem to be more and more optimistic. And given that you have a DKK200 million reversal and you still maintain your post-model adjustment is that how it should be done? And then, why you're not reducing those post muscle post-model adjustments in a quarter? Where will you also see net reversals?
Carsten Egeriis: Yes, thanks. I think it's a fair question. There is no question that the so far, I think the let's call it, the soft lending has developed well and there is no question that there is nothing in our asset quality that signals any significant deterioration anywhere. And you know, if we continue to see that the soft-landing play out then of course, there is a lot of rationale and looking at it the post-model adjustments also and we'll continue to do that. But I think it's still early days, right? It's still early days, both in terms of the, you know, that's call it the final part of transmission mechanism from higher rates. But also, it's still early days actually to call when exactly those interest rates are in earnest going to start to come down and inflation rate in earnest, the coming down to a place where we all feel a little bit more comfortable but something that we're watching closely. Thank you.
Martin Gregers Brik: Thanks.
Carsten Egeriis: Everybody again, thank you for your interest. Again, apologies for the technical mishap at the start but hopefully you still got the questions that you wanted answered are done. And as always, of course, please feel free to contact our IR department, if any more questions. Thanks again, everybody. Take care.
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