DNB Bank ASA

OSE:DNB

Earnings Call Transcript 2021-Q3

[Operator]

Hello, and welcome to the DNB Q3 2021 Conference Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded [Operator Instructions] And I will now hand you over to your host, Rune Helland, Head of Investor Relations, to begin today's conference. Thank you.

[Rune Helland, Head of Investor Relations]

Thank you very much. And hello, everyone, and welcome to DNB's third quarter analyst call here in Oslo. Around the table here in Oslo, we are a full executive team, including, of course, the CEO, Kjerstin Braathen; and the CFO, Ottar Ertzeid. Ottar, before we start to open up for Q&A, Ottar will give you a summary of the highlights for the third quarter. So please, Ottar?

[Ottar Ertzeid]

Thank you, Rune. We're happy today to present the best third quarter so far. The positive development reflects improved and strong outlook for the Norwegian economy, with the reopening of the society from September and also reflecting that unemployment is back to the pre-pandemic levels and the economy actually has a higher activity level than before the pandemic. It was already reflected in Bloomberg's Resilience Index Ranking, Norway #1 in handling the COVID situation.As expected, the Central Bank increased the key policy rate by 25 basis points in September and also increased the policy rate going forward, forecasting 6 additional rate hikes.Looking at the numbers for the third quarter. Net interest income grew 3.8% from the second quarter. It was helped by higher average loan and deposit volumes, a significant uptick in amortization and fees from a low level in the second quarter, also lower funding costs. The higher NOK money market rate had no effect on the account as we are neutral towards the NIBOR money market rate. But we have announced customer repricing effective from mid-November and with an expected positive impact of approximately NOK 1.5 billion annual rate.This is somewhat a higher number than we have seen historically and reflects the higher deposit volumes and higher deposit-to-loan ratio and also the fact that the negative core effect on deposit margins was strongest for the last key policy rated last year, and thus, the opposite is the case for the first rate hike.Now looking at commission and fees, they show seasonal fluctuations and increased 3.2% from the same quarter last year, lifted by mostly Asset Management, up 25%, but also investment banking, up 3.3%, and also insurance and non -- defined-contribution pension providing support to that growth number.Looking at operating expenses, they are down almost 5% from the second quarter, which was unusually high. This quarter, we have NOK 60 million lower pension expenses than normal and also lower IT expenses due to capitalization of IT development and also lower variable salaries due to the lower commission and fee income compared to the second quarter. We also remind you that the third quarter is usually seasonally lower than, for example, the second and the fourth.Looking at asset quality, it reflects the strong development in Norwegian macro and also improved credit quality, and we had NOK 200 million of net reversals in the quarter related to the corporate segment in particular.With regard to capital, strong capital generation continued with a healthy profit and the ratio, common equity Tier 1 ratio increased 15 basis points, also taking into account future increases in countercyclical buffer requirements. We have a 210 basis point headroom to the expected future capital expectation and giving out room for our bid for Sbanken, which is still to be concluded.To sum up, we ended the quarter with a total income of 5.5% from the second quarter, 7% from the same quarter last year; return on equity, 11.4%. It would have been more than 12% if dividends had been paid in the second quarter. And looking forward, of course, the repricing from mid-November, the 6 additional rate hikes from the Central Bank and the cash offer for Sbanken should all be helpful in delivering on the financial ambitions.And finally, just to reiterate that the Board of Directors has now decided to pay out a dividend of NOK 9 per share for 2020, ex-dividend date 1 week from now, 28th of October. And we're, of course, very happy to be able to deliver on our dividend policy and also the ambition of increasing the nominal dividend per share every year, also through the pandemic years.

[Rune Helland, Head of Investor Relations]

Thank you, Ottar. And we'll open up for questions.

[Operator]

[Operator Instructions] And our first question comes in from the line of Maria Semikhatova calling from Citibank.

[Maria Semikhatova, VP & Analyst]

A couple of questions. First of all, on capital distribution, you have a very strong capital position, and you're now planning to pay extra dividends. Just going forward, should we expect a buyback once you receive final decision on Sbanken? Or there is like any other lingering uncertainty that you want to clear up first? That will be the first question.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

The priority, as we have said, had been for the cash dividend, which is now being paid, then we await the final decision on Sbanken. In addition, you need to bear in mind that we are also still awaiting the [ SRP ] conclusion for this year, which comes in a bit later. That's a qualitative process on Pillar 2, which means that the requirement can go up or down. I mean this is an annual process you just need to bear in mind. Beyond that, there are no known other elements that will impact the capital other than earnings and the business and the growth, as usual, a very limited impact expected from the so-called bank package that is expected to impact sometime next year.But our dividend policy stands firm. The share buyback is an integral part of our dividend policy, used as a tool to optimize around the capital situation. And we reaffirm our commitment towards paying out excess capital over time by using and delivering on our dividend policy.

[Maria Semikhatova, VP & Analyst]

Great. This is very clear. And on cost, just a couple of clarifications. You made this adjustment in risk capitalization for the previous quarter. At the same time, one of your peers is actually capitalizing less, explaining this by nature of the project, with more focus on clients from cloud services. Do you foresee any changes to your capitalization rate next year, and maybe, more generally, if there are any other cost increases foreseen in 2022 because of the lifting restrictions or kind of other changes relative to this year?

[Ottar Ertzeid]

With regard to capitalization of IT, I think we have the lowest level of such capitalization among our peers and actually decreased by 20% in the first half of this year due to -- what we now see in the third quarter, I think, is representative of our year-to-date, of what we should expect going forward. So looking at the year-to-date number, they should be representative of what we expect. We do not provide any cost guidance, but I mentioned some unusual items in the third quarter on pension and variable pay, if you need to take into account and looking forward.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

We do expect some impact of the opening. I mean people haven't traveled or we haven't seen clients physically for months and months, and there is a need. So there's a lot of activity going on at the moment, so that also will have an effect.

[Maria Semikhatova, VP & Analyst]

Okay. Just one more, if I may, on real estate brokering fees. Just if you can give us a sense of the run rate here. I understand that it's a very high base effect of third quarter 2020, but there is also some seasonality. So what's your outlook for this line?

[Ottar Ertzeid]

I mean the third quarter was back to, what I would say, a more normal level for real estate brokering. And on top of that, this vertical is seasonally slower due to the holiday season. So it's normal, but it's, at the same time, it is lower due to season. The third quarter last year was exceptional due to lifting of our lending regulations, combined with about 160 basis points just in interest rates at that time.

[Operator]

The next question comes in from the line of Sofie Peterzens calling from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Here is Sofie from JPMorgan. You're now good for 25 basis points. You have a NOK 1.5 billion positive impact. But I was wondering, with the market expecting quite a few rate hikes over the next 2 to 3 years, should we expect NOK 1.5 billion per rate hike going forward? Or how should we think about the sensitivity to higher interest rates?

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you, Sofie. A very important question, and it's very important to differ. We are not guiding on the impact of a 25 basis point rate increase. What we are providing now is an estimate as to the effect of the rate adjustment that we have recently announced. We are not able nor allowed to speak about what may and will happen in the future. We are more or less money market rate-neutral, so an impact comes from changes to the prices towards our customers. And we cannot talk to that.But I'm sure that you may have noticed that the NOK 1.5 billion is slightly higher than what we have referred to as the historical impact of rate adjustments when rates have been hiked by the Central Bank of 25 basis points.And you need to take into consideration that we have a somewhat higher deposit level than we had, but there is also the so-called floor effect, that's the rates on the way down. The further down it goes, the harder it is to compensate, to call it that, with lowering deposit rates from lowering lending rates. So this is also an impact that you see coming from a level of 0 in this repricing that has taken place.So you should see the NOK 1.5 billion specifically related to this adjustment, and then you have to make your view as to the forecasting of the Central Bank of another 6 rate hikes and what you think is likely to happen as a consequence in the market at best.

[Sofie Caroline Elisabet Peterzens, Analyst]

[ But I mean, you got ] -- when you -- when we saw the rate [indiscernible] the first [indiscernible] [ tended ] to be more [indiscernible] [ accretive than in ] the last few months [indiscernible] I'm just wondering maybe...

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

You are breaking up, Sofie, but I think you're asking for something that we cannot provide. We are stating clearly that there is an impact of the floor effect, and you need to bear this in mind. But you are breaking up. So it's a little bit hard to hear what you're saying.

[Sofie Caroline Elisabet Peterzens, Analyst]

Okay. Okay. No, that's fine. Okay. And my second question would be in terms of the net interest income. There were some elements from the [ fee ] [indiscernible] [ fee ] of NOK 71 million. Kind of what's this? And is it some reallocation from fees into net interest income? Or is it just a normal ongoing [indiscernible] And so if you could just clarify what that NOK 71 million is.

[Ottar Ertzeid]

The NOK 71 million is the increase from the similar amount in the second quarter, which was then lower than normal. So it's partly a normalization. The fees are coming but also reflecting higher activity. These are -- NOK 47 million of the increase is just commitment fees from new loan facilities. NOK 21 million is fees which have been amortized and then being booked because of early redemption of the loans [indiscernible] related fees.

[Operator]

The next question comes in from the line of Geoff Dawes calling from SocGen.

[Geoff Victor Charles Dawes, Equity Analyst]

A couple of questions from myself. The first one is on lending volumes. It's obviously been quite a lot of volumes added so far year-to-date. Can you give us an indication, particularly on the corporate book, of what kind of ROE you see the new loans coming in at? As in are they ROE-accretive to the corporate business and more than 12%, 13% ROE that you're targeting? And I guess, the same question for the personal book, but I think it's probably much more dependent on the shape of the rate curve.And then the second question would be around the stage 3 lending exposure. It's been fairly flat most of the year. There was a bit of a tick higher in the third quarter by about NOK 3 billion, I think. Any particular indications around that or particular themes? Or is it just quarterly noise that we're seeing coming through there? So those are the 2 questions.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you. A short answer to the first question is yes. It is ROE-accretive. And I would say more, that both of our business segments have now a return on allocated capital well above the 12%; 14.6%, that would be for personal customers; and 15.6% in the corporate banking. But marginally, the transactions are tested and the new business that we do is above 12%.Volumes are coming in at a pace where we expect them to, I would say. We prioritize the growth on the SME sector. And we focus very hard on the "originate and distribute" ambition in large corporate, where the return on capital also is highly sort of correlated with our ability to turn the capital quickly, quickly around. So we actively use our balance sheet with the rapid turnover of capital that leads to a good return on equity in the corporate lending side.I would say stage 3 lending exposure, more of a quarterly [indiscernible]. I think there is 1 customer that is -- that has migrated from stage 2 to 3. The other elements are more currency-related or smaller adjustments on existing names. There are no trends or no structural movements in those figures to be aware of. I'll just hand over to Harald to see if he wants to say something more about the new business. Or do you think that covered it?

[Harald Serck-Hanssen]

Well, I think it's important to emphasize the biggest growth is on the SME side, 8.4% on an annualized basis. That's even slightly above the 7% to 8% target that we announced on the Capital Markets Day. I think that's a strong point. In terms of the large corporate business, the growth has been mainly, in the quarter, on the exposure at default level coming from shipping and fisheries. Seafood is up by 5% over the quarter. And then we also have a slight increase in -- on the renewables side, which is also in line with our expectations.

[Operator]

The next question comes in from the line of Jacob Kruse calling from Autonomous.

[Jacob Max Kruse, Senior Analyst at Scandinavian Banks]

It's Jacob from Autonomous. So just 2 questions. First, on cost. You still have relatively high wage inflation in Norway. I guess that's not coming down. How do you think about staff levels going forward and the cost development going forward? And do you see any need for additional investments in either IT or -- and like control systems, like we've seen in quite a lot of the other Nordic banks? Or are you quite comfortable that you have the cost base that you need?And then my second question was just on the NII. The benefits of the net interest income, the kind of return on free equity, how does that square with you saying that you don't have any sensitivity to money market rates? I thought this was the impact of basically market rates on your free equity.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you, Jacob. Good questions. On cost, we are working towards our longer-term ambition of having a cost base of less than 40% of our revenue. And this is a target that underpins the most important financial target, which is to deliver a return on equity of minimum 12%.Within the cost bank -- cost bucket, there are moving pieces as you are correctly referring to. Wage inflation is going up. And I would say, yes, we have areas where we want to invest. I mean we are a part of a very dynamic industry, where competition is fair. We are investing in digital, we have been for a while. And we've also been and we are investing to strengthen on the compliance side. That's been a gradual development.So we are continuously dependent on identifying and working on efficiency measures, which we are doing, particularly we've been doing so in the call centers and on the distribution, still on our personal customer. And we've been doing it on our international network. We've been doing it in our payment structure, where we've taken out an expensive agreement we had with postal offices. And now, more likely, we've also sold the part of machines where people get cash and can make deposits. So -- and we work with third-party agreements to increase efficiency and reduce costs.So the endgame is related to our ability to balance all of these items, and we are committed to working towards the [ sub-40s ] account. Headcount has gone up a little bit, might go up a little bit more. But again, the important thing is really the -- the 2 words below, [indiscernible]. But in addition to sort of focusing on efficiency through cost, I would say we are focused on investing correctly in order to manage and run this business profitably, both for the shorter and longer term.

[Ottar Ertzeid]

With regard to money market rates. The increase in money markets, its rate has the effect of reducing lending margin and increasing deposit margins. But since the lending volumes are higher than the deposit volumes, the rate spread is decreasing with increasing money market rates. This is compensated by higher interest on the free equity. The total and the combined effect of these 2 is approximately 0 as you can see in our net interest income for the quarter. So the net, approximately 0 effect we are talking about with regard to sensitivity towards money market rates just for loans, deposits and equity combined.

[Jacob Max Kruse, Senior Analyst at Scandinavian Banks]

Okay. All right. And can I just -- on the cost side, would it be fair to say that the 40% cost income ambition is more about making sure that you have revenue growth that outpaces cost growth rather than taking out cost or keeping costs flat at this point?

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

I would say we are very mindful of having a relative target. And you're correctly pointing out that the revenue piece of that is an important piece. But I would rather not be more specific. I mean we're not running the business to target a specific amount on cost, I think. But we are committed to -- with the relative target, and the revenue piece of that is a very important part of it.

[Operator]

The next question comes in from the line of Riccardo Rovere calling from Mediobanca.

[Riccardo Rovere, Research Analyst]

If I may, I wanted to get back 1 second to the NOK 1.5 billion effect on NII from the repricing. If I understand it correctly, now you explained the NOK 1.5 million not as a sensitivity to rate, but rather the effect of the repricing that you have done this time.Now if I understand it -- if what I understood is correct, the repricing that you have executed this time, did it involve also the liability side, so something on deposit, or it was purely on the asset side, on the repricing of the mortgage book and so on? And if I'm not mistaken, every time the Norges Bank moves up or down rates, your response the day after is -- has always been fairly similar over the past years. So why should we not pay the NOK 1.5 billion as a reference for eventually any other movements in ways that the Norges Bank may execute over the next quarters, if you have moved also the liability side of the equation?

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you, Riccardo. It involves both the impact on assets and liability, and we have made repricings in the personal customer, a part of the business, where more than 90% of the volumes on the lending side is based on floating prices that can be adjusted. And we have repriced on the SME side both assets and liabilities.Again, I would like to reiterate the floor effect. Once we approach on the way down a level of 0 interest rate, it is hard, i.e., not possible, to compensate from reduced lending margins by taking down the profit margin further. And this element is being referred to in the NOK 1.5 billion, which is a higher amount than you have seen historically. When it comes to what you -- so this is extremely important to keep in mind.As for how this would pan out next time the Central Bank changes rates, unfortunately, we cannot tell you what you assume in terms of you would go at what time and what the banks should do. But I think what we are -- what we feel is important to convey is the rational behavior of the banking markets in Norway.If you go more than a couple of years back, you would see that behavior had shifted over time. There have even been banks that have gone out and repriced without any movement from central banks, purely based on the movements from money market rates. But now, we have sort of a fairly concentrated history in the past 3 years, where rates have gone both up and down.So we have to take into account the market situation, the competitive environment, if there are other relevant elements. And we cannot speak to the future as to how we would view this. Butt he rational behavior from banks, despite there being plenty of capital there, I think it's important banks are focused on return on equity. It's competitive. That's good for clients. But it is also a rational market.

[Riccardo Rovere, Research Analyst]

Very, very clear. If I may, a second question, with regard to credit losses. In 2020, especially Q1 and Q2, DNB charged, roughly speaking, NOK 8 billion of provisions in 6 months, which if I remember well, was kind of 60% of the amount of provisions that the banks charged in '15, '18 or '15, '17, when the oil price plunged in -- to $30 per barrel. Now since then, the cost of risk, especially this year, has been a constant progressive positive.Given the amount of provisions that you have taken in only 6 months at that time, in that time in 2020, is it fair to assume, given the asset quality and the macro ARPU outlook that you had picked, including the unemployment for your mortgage book and the real estate prices, that risk costs will or may stay at very, very low levels unless something really -- something goes really wrong or a fairly longer period of time?

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

The -- we do not sort of guide specifically on cost of risk. It's hard to project. But of course, you are very right saying that we have a very solid, robust and diversified portfolio across the business, and there is a strong macroeconomic outlook. This quarter, NOK 25 million of losses in the mortgage portfolio, which is substantial, sort of indicates the robustness of the portfolio. So we're very comfortable with the asset quality and our exposure across personal customers and corporate customers.We continue to say that offshore is challenging. We're comfortable with the reserves we've protectively taken. But the market is still away from -- a bit away from being balanced. And it doesn't bounce back in view of a higher oil price. We need activity to increase, but we also need capacity to be taken out of the market in order for the market to balance. So even this quarter, we took a small amount in additional reserves and are saying that you should be cautious by way of expecting substantial reversals in this sector, offshore. In the oil and gas portfolio, there were some reversals as there also were on the shipping side.Macro-wise, which is important for the modeling in IFRS 9, looks good if we refer to expectations both from the Central Bank and our own macro economist. So on the basis of that, the outlook is solid, but it's extremely important to keep in mind, in the corporate sector with the loss portfolio, that there can be company-specific situations. We don't see anything to be of -- concerned of in terms of the 3 trends or developments. The company-specific situation can and will, in the future, also occur, which is why we're very clear in saying that losses will vary from quarter-to-quarter.

[Operator]

The next question comes in from the line of Joakim Svingen calling from Arctic Securities.

[Joakim Svingen, Analyst]

And sorry, I have 2 quick questions as well. The first one is on deposits. Given the ramp-up in deposits, both within the corporate and personal customers, the last few quarters and reopening from the end of Q3, how do you expect these to -- the deposit volumes to develop in the coming quarters? And just a quick other question is regarding [indiscernible], which is progressing quite well, is your intention still to increase the ownership to 40%? Or where is that situation standing?

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you. Deposits, I'm looking at both Harald and Ingjerd, but we've talked about this. We have a substantial higher level of deposits now than we had a year ago. We are not seeing any indications or signs thus far that this is being corrected downwards. We are seeing a quarterly pattern in personal customers that we recognize from prior to the pandemic but without shifting the level.So it seems to hold, but I think this is one of the items that we need to follow in the future. Over time, I think it's not unnatural to expect that there will be a move towards where we were prior to the pandemic. But for now, it's holding up, and we have very healthy growth in deposits in the corporate banking segment also this quarter, all the way through. So there's no immediate effect of the business, is actually spending this money rather than borrowing for their future investments.With regards to [indiscernible], there's no news. There's no option or commitment out there. Right now, we're happy about the development of the business as such, promising sales activity across both the personal customer and corporate customer part of the business. And then we will just wait and see how that develops.

[Operator]

The next question in the queue comes in from the line of Adrian Cighi calling from Credit Suisse.

[Adrian Cighi, Research Analyst]

I have a follow-up question on capital. You noted that you expect a positive impact from the CRDV package coming in force in the first half of next year. Can you maybe help us quantify this impact? And do you expect the regulator to offset this benefit with potentially higher requirements like they've done in the past? Or is this additional capital that, in theory, could be repatriated?

[Ottar Ertzeid]

We expect already a small net effect from this package. It will be some increased SME discounts, infrastructure discounts, et cetera, but increased capital requirements of counterparties quite a bit. So the net effect is not material. And -- but it might be a small positive, most likely. And there's no reason to have to do anything to offset that one way or another. Yes.

[Operator]

That was the final question in the queue. [Operator Instructions] And our next question comes in from the line of Martin Leitgeb calling from Goldman Sachs.

[Martin Leitgeb, Analyst]

Just one follow-up question, please, on the rate sensitivity. And remember, the guidance was such that a rate sensitivity, the beneficial impact of rate hikes, come through, I think, relatively quickly within a quarter or something in terms of time line, which is different to some of the other banks within the European banking space, which -- where it seems to take a number of years for some of the benefit to come through. Why is that the case? Are there any consideration to potentially change this and essentially invest some of the rate sensitivity over kind of longer tenor?And my second question, I was just wondering in terms of M&A. There has been the announcement of one of the Nordic peers to divest some of the operations in certain countries. Would this be something DNB would potentially look at?

[Ottar Ertzeid]

To start with the rates issue, the P&L impact, the NII impact, comes from adjusting customer rates on loans and deposits. And in Norway, we have loan and deposit products. At our discretion, we can change the deposit rate and the loan rates in the personal customer segment and part of the SME segment. And these are the products where we have now announced new prices taking effect 8 weeks into the future.We have to give an 8-weeks notice period before we are allowed to change the rate upwards. And that's why the impact is coming only on mid-November even though the Central Bank has already implemented the rate hike. So we have a lag effect on the way up and in the rate adjustments of 8 weeks from the time we notify the customers.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

In terms of M&A, our strategy is unchanged. I mean primarily, we are looking for organic growth and M&A, we've said, to scale existing business or build strategic acquisitions, but very mindful of our most important financial target, which is to deliver 12% return on equity. And we saw the news that came out, but it doesn't appear to be a very natural fit with that strategy.

[Operator]

The next question comes in from the line of Nick Davey calling from Exane.

[Nick Davey, Research Analyst]

Just a couple of final questions, please. The first one, just on DNB Life. So you've had solvency margins rising with bond yields. And I know -- I think you're now above where you typically start to pay dividends to the group. So could you just remind us the timing of that process? And any thoughts on the scale of moving down the solvency margin to 140%, which I think is what you normally do?And the second one, please, just on the Asset Management side. So you're not the only bank to be showing great asset management figures and fees. But it does seem like your retail flow numbers have been very good this year. And it's hard to disaggregate what is -- because markets are good and what is some of the kind of strategic efforts that you've talked about in previous Capital Markets Days. So I don't know if there's any kind of updates that you can give on whether you think there's a nice or more sustainable trend in AUM flows from your retail customers given that so much deposits are sitting in bank accounts at the moment.

[Ottar Ertzeid]

With regard to the DNB Life, the solvency margin without transitional rules was at 158% at the end of the third quarter. We have a policy whereby when it's above 140%, we may pay out up to 100% of profits in dividends, upstream it to the bank. And we are just presently in a situation where that is possible. This will be an annual decision in the first quarter of every year, what to do.The amount we're talking about, if you look at the third quarter, will be in the range of 10 to 15 basis points, and common equity Tier 1 is paying 100%. So that is the ballpark numbers we are talking about if the Life Insurance company decides to upstream 100% of profit.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

In terms of Asset Management, there is an underlying structural change with a very high growth related to several factors primarily driven by, I would say, the pension reform and the introduction of one pension account and the continued trend of converting from the client benefit to defined contribution, where each individual must take more responsibility to saving for their own retirement.This was the basis for us targeting this market specifically, expecting a much higher growth rate than GDP. And it's fair to say that, with the pandemic, this has outgrown even our expectations, with the previous year, having a growth rate of 15% and this year, estimated to be 12%. So the value and the improvement that you read across is a strong combination both of inflows as well as market value increase.Now we do expect growth to be high also going forward, maybe not as high as 12%. But the area of between 6% to 8% is expected. So we do expect high saving growth also going forward. So this is an area where we will continue to target and grow. But the market valuations also play in. That's important to keep in mind.

[Operator]

The next question comes in from the line of Riccardo Rovere calling from Mediobanca.

[Riccardo Rovere, Research Analyst]

Just a follow-up. If it does not get postponed further, if I'm not mistaken, at the beginning of 2023, IFRS 17 should come into force for insurance operations. Do you maybe have an idea on how this could eventually impact the profitability of and eventually the capital of DNB Life?

[Ottar Ertzeid]

It is not expected to impact the capital of the group since it's -- the capital situation is held separately for the Life Insurance company. The introduction might include some more volatility in the numbers from the Life Insurance operations, but it's still too early to conclude on those effects. We are working on how to implement it in the most efficient way.

[Operator]

And the final question in the queue comes in from the line of Jan Erik Gjerland calling from ABG.

[Jan Erik Gjerland, Research Analyst]

The NOK 1.5 billion of increased spread on your NII, is this due to the 3 months NIBOR running faster than the sort of the 25 basis point hike impact from the Central Bank so you will have sort of a better base effect on your deposits as well as your equity? Or how sure could you read out when you're now also repricing your asset side?

[Ottar Ertzeid]

I just have to remind you that we have enough sensitivity towards NIBOR, as I tried to anticipate earlier on. So the NII or P&L effect is coming purely from adjusting customer rates. And we should announce we will increase on -- it will adjust on both loan and deposits, with an effect from mid-November. So that is the response.

[Operator]

That was the final question in the queue. So I shall turn the call back across to yourselves for any concluding remarks.

[Rune Helland, Head of Investor Relations]

All right. Thank you so much for your valuable questions and your participation. We would like to wish you all a great day. Thank you.

[Kjerstin Rasmussen Braathen, Group Chief Executive Officer]

Thank you. Bye.

[Ottar Ertzeid]

Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect your handsets.