Q3 2021 pre-closing call
October 1, 2021
Danske Bank – Investor Relations
Claus I. Jensen
Danske Bank – Head of RI
Danske Bank – Director of IR
Danske Bank – Director of IR
Patrick Laii Skydsgaard
Danske Bank – Senior RI Manager
Sofie heerup friis
Danske Bank – Senior RI Manager
Claus I. Jensen – Danske Bank – Head of RI
Hello and welcome to the Danske Bank Q3 2021 pre-closing call. My name is Claus Ingar Jensen and I am responsible for investor relations. With me I have Olav Jørgensen, Patrick Skydsgaard, Sofie Friis and Nicolai Tvernø from our IR team. Please note that this call is being recorded for compliance reasons, and the script used for this call will be posted on the Investor Relations website following the call.
In today’s call, I will highlight relevant public data and macroeconomic trends in our markets as well as one-off events you should be aware of before the period of silence begins on the 8th.e October before the publication of our Q3 report on the 29the October. I will go through the statement of the income statement line by line and make a note on the capital at the end. Then we’ll open up for a question-and-answer session.
But before we begin, for the sake of order, I would like to highlight the following. I will only answer questions relating to information already disclosed and ad hoc as well as publicly available data from the 27e September unless otherwise indicated. In this regard, I would like to stress that the evolution of specific indices may not always have the same effect on our performance.
Let’s talk briefly about the macroeconomic outlook, before moving on to the sections. I would like to point out that a number of macro forecasters, including the Danish central bank, continue to have a positive outlook for the remainder of 2021 as the global economy normalizes and the Nordic economies achieve a full recovery. or almost complete economic activity after COVID -19 restrictions. The data points indicate that consumers are quickly reverting to their old spending habits once they have the chance, and the main concerns now relate to inflationary pressures and the risk of overheating, as a number of indicators point to that the global recovery has reached its peak. .
That said; let’s start by looking at net interest income.
Remember that T3 has 1 day more interest than T2 with an NII impact of around DKK 30-40 million per day. In the quarter up to this week, the Swedish krona and the pound sterling have been roughly stable against the Danish krone, while the exchange rate for the Norwegian krone has appreciated by about 1% per against the Danish krone based on public data. Regarding the evolution of volumes, we refer to the sectoral statistics available to the public as the only source of information available externally. According to these statistics, loan volumes in Denmark remained stable while business deposits were lower and household deposits declined somewhat after the reopening of companies. We have nothing to add to these statistics.
Regarding the evolution of margins, we also refer to publicly available sector statistics as the only source of information available externally. In general, we are seeing sustained pressure on margins.
Since the second quarter, 3-month STIBOR has increased by around 1 basis point while NIBOR has increased by around 10 basis points and CIBOR has been close to stability, all on the basis of quarterly averages .
Regarding deposit re-pricing, we haven’t announced any other changes since the initiatives we took prior to the Q1 release. The initiatives announced on the 26the April took effect on 1st July and should have a positive impact of
approximately DKK 250 million, all other things being equal, in the second half of 2021. In addition, we reiterate our previous comment on continued pressure on margins. In addition, the Norwegian central bank raised its key rate to 0.25% on 23rd September. In addition, we have increased our lending rates up to 30 bps and our deposit rates up to 15 bps for certain clients with effective dates of November 10 and November 24, respectively.
Then on the funding side, we issued a senior two-tranche unsecured USD benchmark in the third quarter. The two tranches amounted to $ 1bn and were valued at T + 55 (Euribor + 36bp) for 4NC3 and T + 73 (Euribor + 54bp) for 6NC5, respectively. On the redemption side, we gave notice on the 7the September of the early redemption of our USD 1 billion NPS notes with a coupon rate of 3.001%. The tickets were effectively redeemed at par on the 20the September. Please see page 31 of our second quarter 2021 conference call presentation to view the repayment profile for maturing funding.
This concludes our posts on net interest income.
When it comes to net commission income, we want to highlight four factors: investment costs, business costs, housing market costs, and capital market costs.
We can see that the equity markets experienced a positive development during the quarter, with an increase of around 4% in the OMX C25 index in Copenhagen and an increase of around 4% in the S&P 500 index, which will support probably the investment costs and the activity. in our Capital Markets franchise, just to give a few examples, please note that the third quarter could be affected by the holiday season.
Second, activity fee income is supported by the economic recovery after the final stage of reopening, particularly in Denmark, where consumer spending remains above pre-Covid levels. In addition, the remortgaging activity remains at a low level. We also note again that the evolution of interest rates could affect borrowers’ lending preferences as we saw in Q2. Apart from these factors, Danske Bank’s commission income depends, as always, on market developments in relation to our asset management business and activity levels in relation to our banking operations.
As for net business income, please note that the third quarter is generally affected by lower activity due to the summer vacation period. Additionally, we saw higher interest rates, a steepening of the yield curve and a significant widening of mortgage bond spreads, where callables widened by around 20-30bp, while spreads widened by around 20-30bp. on non-callable bonds remained unchanged from the level of the last quarter. The yield spread between Danish bonds and German government bonds widened by around 3 to 4 basis points over the 10-year segment.
The 7e In September, Danske Bank A / S announced the sale of its shares in Aiia to Mastercard, subject to final approval, which is expected by the end of 2021. The sale has no operational effects and will lead to a one-time gain of around DKK 0.1 billion in the fourth quarter.
Regarding the net result from insurance activities, we expect a negative one-off result of around DKK 0.2 billion in the third quarter, while the previously announced one-off result related to PAL tax in Danica H&A is expected in the fourth quarter.
We have no specific comments on other income.
This concludes our comments on income lines.
As far as our costs are concerned, be aware that the second quarter figures included a one-time negative item of DKK 350 million related to changes to our VAT setup. Apart from this, we have no specific comments regarding the evolution of our costs.
With respect to credit quality, we have nothing to add since the release of our second quarter report.
We do not have specific comments on the Non-core and tax lines.
This concludes our comments on the P&L.
Finally, I would like to address capital. As always, our capital will be impacted by earnings minus the payment of dividends.
We reiterate our advice on the implementation of the EBA guidelines, where we foresee an increase in the REA from DKK 50 to 70 billion for 2021. Of this amount, around 35 billion was implemented in H1-21 , and we are forecasting around DKK 17 billion in the third quarter. The amount of risk exposure is, as always, subject to general market volatility and currency movements as well as growth.
Regarding the Norwegian buffer for systemic risk, the Danish Ministry of Industry, Business and Financial Affairs will wait for the implementation of the CRD V directive in Norway. We will comment on the impact for the Group once we have more clarity from the Danish ministry.
On September 29, 2021, the Swedish FSA announced its decision to increase the counter-cyclical buffer from 0% to 1% as of the third quarter of 2022, which is preliminarily assessed to increase the Group’s fully phased CET1 capital requirement. ‘around 0.2 point in Q3 2021, all other things being equal.
Note that the reactivation of the counter-cyclical buffer in Denmark at 1.0% from September 30, 2022, and the increase in the counter-cyclical buffer rate in Norway from 1.0% to 1.5% from June 2022, were already included in the Capital requirement CET1 in Q2 2021.
This concludes our initial comments in this pre-closing call. Before moving on to the question-and-answer session, I would like to point out that we are entering our period of silence on the 8the October. Soon we will also start collecting consensus estimates with a contribution deadline of the 14th.e October EOB. Please note that we will be releasing our Q3 2021 report on the 29the October at 8:00 a.m. CET and the conference call for investors and analysts will take place at 8:30 a.m.
Operator, we are now ready for the question-and-answer session.
Danske Bank A / S published this content on 01 October 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 01 October 2021 14:21:02 UTC.