DNB Bank ASA

OSE:DNB

Earnings Call Transcript 2022-Q3

[Thomas Midteide, executive]

Good morning, everyone. So good to see you all again. Welcome to this live presentation of DNB's Third Quarter Results. So good to see all of you here in the audience, and we're happy to have many of you watching online as well. As always, we'll have a Q&A session in about 30 minutes. And will have individual interviews from media as well.

So without further delay, I'll leave the floor to Kjerstin and then to Ida.

[Kjerstin Braathen, executive]

Thank you very much, Thomas, and a very good morning to all of you, and welcome to this third quarter presentation of our results. The third quarter has also been characterized by a high level of activity in the Norwegian economy. We continue to notice that the business activity with our customers and within our customers' business continues to remain high. There is a solid set of results we deliver, and we have a robust balance sheet as well as portfolio and see limited, if any, spillover effect from emerging challenges in the world economy and market volatility.

So more specifically on the quarterly numbers. Return on equity comes in at 12.7% for the quarter with profits of NOK 7.6 billion. The trailing 12-month return on equity continues to increase and now is at 12.3%, which means that we deliver on what we have targeted as our most important financial measure of return on equity above 12%, both for the quarter and for the past year.

There is a strong uptick in net interest income of more than 25% compared to last year and 6% compared to the previous quarter. The clearly most important driver for this is the acquisition of Sbanken if we compare to last year as well as a high profitable growth in the corporate sector and higher interest rates. There is an all-time high commission and fees for a third quarter, which is usually a slower quarter.

And there are 2 areas within commission and fees that I would like to highlight, specifically investment banking and DNB markets, which performed strongly in a seasonally slower quarter and the banking transfer and payment activity, where we, for the first time, see us being back to and above pre-pandemic levels.

Portfolio is robust. Capital position is solid, and we have a growth in earnings per share of 11.2% compared to the same quarter last year. You may have seen that there is a lower contribution from financial instruments this quarter, more particularly in addition to what you already know with basis swaps and additional Tier 1 adjustments on market to market, there is a negative market-to-market on own share investment of NOK 858 million for the quarter. Adjusted for this, earnings per share would have been NOK 5.20 per share, which underlines the strong quality of our earnings and results this year.

As already mentioned, we've seen a high activity across the Norwegian economy. And GDP growth during the summer months and early autumn has proven to be higher than previous estimates by the Central Bank. Now the estimates that we see given by macroeconomists and Central Bank and finance department for next year, they vary. And I believe they underline the difficulty at the moment to forecast the future activity in the economy.

We highlight here the estimates from DNB markets of 0.8% for next year. They're about in the middle of the pack, not the most negative, not the most optimistic. But for the Norwegian economy overall, the broad view is more 1 of stagnation than 1 of a recession. There's also a broad expectation of continued growth in investments for businesses and this relates both to the Mainland economy as well as oil and gas.

So unemployment, which is now very low, 1.8%, we do believe it to increase somewhat but not above 3% and then close to levels we saw prior to the pandemic, which is to be considered low unemployment. Inflation continues to be above the targeted level by the Central Bank. But we do start to see signs that the monetary policy is taking an effect. Fewer businesses expect to hire more people and grow. We see reduced expectations for growth in certain industry sectors, such as retail and consumer services, and we hear of fewer businesses reporting of capacity constraints.

The rate path was adjusted slightly upwards during the previous meeting of the Central Bank. Rates are now expected to top out at 3.25 basis points. Next increase is expected in November. The jury is out whether the market believes 50 or 25, but more are now pointing in the direction are believing in the 50 basis points further uptick in view of the very high activity in the economy. But altogether, despite the uncertainty that is higher than we are used to, this forms a very resilient basis for our business as we move ahead.

A few highlights from the business areas. Personal customers, we see a material uptick in revenue and pretax profit from last year. Again, as you can see from the slide, the clearly major driver of this is the acquisition and increased revenue from Sbanken. We are very pleased to see that more and more customers come to us with their business, and there is profitable growth both in -- under the DNB and Sbanken programs. Particularly, there is a very solid growth from Sbanken, which grows by 4.9% in the quarter.

We continue to be excited about the opportunity. But then what we already see now is the value of a very strong performing organization that is allowed to focus on the customer activity. The rest of the organization picking up more of the administrative tasks, and this leads to a growth in income for Sbanken more than 13% for the quarter, while costs are more or less flat.

There is a growth in pretax profit also from the previous quarter. This is driven by a growth in other income as net interest income is down from the previous quarter in view of increasing money market rates. Again, here, you can see in more detail the high level of activity in payments and banking transactions. We show that this is at a higher level than it was in 2019, prior to the pandemic. And part of the reason for this is the result of a resilient efforts and initiatives to increase efficiency and reduce cost across all of the products that are in this category, which now materializes when the market is back to normal.

Well, is it back to normal? I have to put some nuances on to that. Bear in mind that third quarter is when most people in Norway go on holiday. It is when we're more actively traveling abroad and using our credit cards, and the outlook is more uncertain in terms of consumer behavior going forward. But nonetheless, it's a strong, strong quarter for money transfer and banking services. And I think very good to see the efforts also of the work that has been put down over the past couple of years.

Now over to Corporate Banking. Despite not having the impact of an acquisition, we see an even stronger growth in earnings in Corporate Banking. The revenue in Corporate Banking surpasses NOK 10 billion this year and is close to double the revenues in the personal banking area. Profits are up by 27.2% compared to last year and 3.5% from the previous quarter. Also here, we continue to see profitable growth. Slower growth with large corporates, which is in line with what we have indicated previously, but we highlight the growth in SME that we always prioritize. It is year-to-date now at 7.4%, underlining both the solid activity level across the economy and also our solid position, we believe, in this very attractive segment.

There is a substantial increase in revenue from other areas than lending in corporate banking. And again, highlighting the performance of DNB markets, strong in an economically slow quarter and less activity or less active capital markets. We believe this shows the resilience in the business model, which we've talked about many times, high activity across mergers and acquisitions, high in equities and a very strong cooperation within our market activities as well as between markets and Corporate Banking. The pretax in markets of NOK 704 million for the quarter is 17.5% higher than the same quarter last year. To sum up for Corporate Banking, I would say that it's solid across the Board and return on allocated capital in Corporate Banking for the quarter is 17.9%.

So with these few comments, I will leave the floor to Ida.

[Ida Lerner, executive]

Thank you, Kjerstin. So we noted a profitable currency-adjusted loan growth, which ended up at 0.9% in the quarter. In the Personal Customer segment, we had a growth of 1.1%. The growth was found both in DNB, as in Sbanken, as Kjerstin pointed to. The growth in Corporate Customer segment of 0.7% relates to both SME and large corporates and are in -- both in geographies as well as in sectors where we have a long-term strategic ambition.

We noted also a currency adjusted growth in deposits of 3.7% in the quarter. Personal customer with a slight decrease of 2%, which is very much in line with normal seasonal effects, while deposits in Corporate Banking increased by 8%. This leads to a strong deposit to loan ratio of 78.3%. We reiterate our long-term ambition of a growth between 3% to 4% on an annual basis. But in light of the strong activity we've seen year-to-date, we expect to grow a bit more than 4% this year.

Growth in the fourth quarter is expected to be lower. The net interest margin was up by 2 basis points in the quarter. The increase comes as a result of the 2 customer repricings implemented in the second quarter, mid-May as well as mid-August. Combined spreads decreased by 3 basis points affected by the steep increase in NOK money market rates and the 6 to 8 weeks lag effect we see on customer repricing.

Net interest income comes in -- increased by NOK 728 million, up 6.3%, driven by profitable loan growth as well as customer repricings. We noted effects from the repricings, including interest on equity of NOK 466 million, increased average loans and deposit volumes contributed positively by NOK 230 million, and 1 additional interest day as well as currency effect contributes positively with NOK 101 million and NOK 77 million, respectively.

Amortization effect and fees decreased by NOK 70 million due to lower refinancing activity in the quarter. NII effects come -- NII effect from increased interest rates comes if and when we change customer prices. The notice period on repricing of loans to customer gives lag effects. In the third quarter, we experienced the full effect from the third repricing implemented mid-May and partial effects from the fourth implemented mid-August. DNB has since then announced 2 additional repricings with effect from the beginning of October and beginning of November. These will therefore only have partial effects from the fourth quarter, while we will see the full effect from the fourth repricing in that quarter.

The 2 announced repricings each estimated to have an annual effect of approximately NOK 2.4 billion. But please note that these indicated levels are based on the current composition of the portfolio. Net commission and fees comes in at NOK 2.7 billion, up 12% from the corresponding quarter last year. And as Kjerstin pointed to, we delivered an all-time high third quarter. The results from real estate broking reflects the markets where we experienced fewer properties being sold. Investment banking fees are up 10.7% from the same quarter last year, solid performance across product areas in a seasonally low quarter.

Continued high activity within M&A and equities drives these results. Asset management and custodial services decreased by 4.1%. customers remain committed to their savings schemes despite the market turmoil, reflecting the positive inflow we see in the quarter. The positive inflow was, however, offset by the reduced market values.

Guarantee commissions showed a positive development, up 11.3%, driven by increased demand for trade finance products. Money transfer and banking services continues to increase, up 93.7% from the corresponding quarter last year. We noted increased international traveling as well as high card usage among our personal customers. Fees from sale of insurance products decreased by 3.8%. The positive development in both non-life and personal risk insurance was offset by reduced fee income generated from DNB Life Insurance as a consequence of the repricing effect stemming from the pension reform.

Operating expenses are down by NOK 51 million compared to the previous quarter and reflect a seasonally low quarter. Marketing expenses was down by NOK 52 million, reflecting seasonally lower activity in Personal Banking as well as real estate broking. Pension expenses are down compared to the previous quarter as a consequence of the one-off costs we reported in the second quarter related to the U.K. pension scheme. Underlying, we do, however, have an increase in pension cost of NOK 68 million. The closed defined benefit scheme is partly hedged and you can therefore find a corresponding item in net gains on financial instruments.

Depreciation of fixed and intangible assets are up NOK 25 million, reflecting increased income from operational leasing in DNB Finance. Other expenses are up NOK 25 million. As mentioned before, we enter into a period with increased inflation and higher activity overall, this will have an impact on our cost levels. However, we remain committed to our communicated target of having a cost income ratio below 40%.

The credit portfolio remains robust and well diversified. We are not seeing any adverse change in customer behavior and the underlying credit quality in the portfolio remains solid. 99.8% of the portfolio is now in Stage 1 and 2. For personal customers, you can see that the impairment provision increased by NOK 136 million. There is no underlying change in the portfolio, but a minor update of our internal models.

For the corporate customers, we had reversals of NOK 284 million, predominantly related to restructuring processes in offshore. Stage 1 and 2 reversals in the corporate portfolio are stable. We reiterate that the overall portfolio is robust and well diversified. But please bear in mind that losses will vary from quarter-to-quarter and that the uncertainty in relation to the geopolitical and macroeconomic and development has increased.

Our capital position remains strong at 18.1% with a headroom to the current FSA expectation of 130 basis points. The current requirement and the expectation increased by 10 basis points in the quarter to 16.8% due to the increased countercyclical buffer in several countries, of which Sweden has the largest impact.

In our capital planning, we assume long-term capital expectation of 17.7%, which include full pre-COVID countercyclical buffers across geographies. A solid profit generation contributed positively to the Tier 1 capital ratio of 36 basis points in the quarter. Volume growth and currency effects negatively impacted Tier 1 capital ratio by 14 basis points and 11 basis points, respectively. The leverage ratio is solid at 6.4% in the quarter, well above the regulatory requirement. With a strong Tier 1 capital ratio profitable growth, we remain committed to our dividend policy.

So summing up, we delivered a strong result driven by high-quality income and good underlying performance across customer segments and product areas as well as a robust credit portfolio. Cost income ratio for the quarter ends at 40.1%, return on equity came in at 12.7%, impacted by negative market-to-market effects in the quarter, but supported by increased income and net reversals on impairment provisions. Earnings per share came in at 4.77%, an increase of 11.2% compared to the same quarter last year.

With that, I would like to thank you for your attention and would also like to welcome you to our Capital Markets Day in London on the 15th of November.

[Thomas Midteide, executive]

Thank you, Ida. We will open up for questions.

[Thomas Midteide, executive]

[Operator Instructions] So we'll start off with Jan Erik Gjerland from ABG.

[Jan Gjerland, analyst]

Jan Erik Gjerland from ABG. A couple of questions from my side. Firstly, on the cost side and synergies, would you state and give any numbers of what you expect to have synergies from the Sbanken transaction? And I can see that you still can increase your number of FTEs by roughly 170 people or something Q-on-Q. So what should we expect going forward from number of employees. Should it still continue to increase or should it decrease?

And finally, on customers' behavior. Is there any sign of customers repaying their mortgage faster because they take out from the deposit account? Or do they actually ask for an amortization-free period and how many are doing so.

[Ida Lerner, executive]

Would you like me to start with the first question?

[Kjerstin Braathen, executive]

Yes.

[Ida Lerner, executive]

Yes. So in terms of synergies, when it comes to Sbanken, we've said that we will come back to that later on this fall, and that still stays. In terms of the FTEs, what we have said historically and remain to say is that we -- first of all, the number of FTEs you'll see year-to-date is also, of course, impacted both by Uni Micro and Sbanken as such.

In addition to that, what we are targeting and working very, very diligently on is to also make sure that we are not underinvesting in strategically important areas, such as, for instance, technology as well as compliance. But we are -- what we are doing on the technology side is mainly focusing on converting external consultants into internal FTEs, and that has continued also in this quarter.

[Kjerstin Braathen, executive]

As to customer behavior, we do not see a larger shift of customer behavior. We continue to see a normal development on deposits. There's a slight reduction this quarter, but that is a normal seasonal variation for personal customers. So there aren't really material signs of the customers using their borrowings to nor savings to repay on mortgages.

And we follow, of course, very closely also the demand for payment holidays, installment deferrals, see very small variations, but really nothing material that would be right to highlight. Again, stressing that unsecured credit is a very, very small part of our portfolio for personal customers. That has been decreasing over time, and we see no deterioration of quality in that portfolio either.

[Thomas Midteide, executive]

Thank you, Jan Erik. Then we have Vegard Toverud from Pareto.

[Vegard Toverud, analyst]

Ida, you mentioned that you see increased uncertainty going forward. Yet on your loan loss provisions, you're continuing to in some reverse. Could you please provide us some details into when or how your models are adapting to the increased uncertainty and when we can potentially see that in provisions?

[Ida Lerner, executive]

Yes. No, that's a very good question. And just to point to what I mentioned in terms of the increased uncertainty, we aren't seeing any changes in terms of customer behavior. We're also not seeing any structural changes as that would make us believe that there are things happening in the portfolio that we need to take into account when looking at the impairments.

What I indicate more is that the fact that we see a larger degree of uncertainty going forward, is more that we might have customer-specific situations that we can't see today and that we also can't really take impairment for today. So that's more that the uncertainty has increased.

In our models, we, of course, have a long variety of macroeconomical factors that we adjust and account for every quarter and so has been done this quarter as well. The main element in the macroeconomic development that has the largest impact on our portfolio and impairment levels is unemployment.

And unemployment is as Kjerstin pointed to, today, very low, but we also take into account the expected unemployment levels going forward in our assessment of the impairment levels in Stage 1 and 2. And unemployment levels around 3% or even slightly above that is more back to normalized levels and therefore, wouldn't have a significant negative impact in our loan book. In addition to that, the fact that the subsidy comes from the state in terms of the energy prices is also a support to the largest part of our portfolio.

[Vegard Toverud, analyst]

Okay. So if I could then have a couple of follow-up questions on this topic. As far as I understand, significant parts of the negative market-to-market adjustment this quarter comes from equity that you hold and potentially converted them from loans. At the same time, you are reversing loan loss provisions, which I assume is from the same segments. And previously, you also stated that in addition to the oil price, access to equity markets have been important for the provision levels for this segment. So I'm just trying to see how the market is interpreting these -- the macroeconomic uncertainty differently than your loan loss provision models.

[Kjerstin Braathen, executive]

I would like to develop, starting by the market to market, and thank you for the question because that gives me an opportunity to develop a little bit because you're absolutely right, the -- when we refer to own share investments, these are the position that we've talked about that we've taken in companies that have been subject to restructuring at a previous point in time.

And you may remember that we, for the past couple of quarters, have talked about a positive impact from these same positions. And again, let me stress that we are not strategically targeting to hold these over time. We hold them as long as it's deemed appropriate in relation to the specific situation of each company. So obviously, these react to the market volatility that we see day by day in capital markets.

There is a difference between capital markets and the -- what people may call the real economy and also referring to our comments related to the impact of the monetary policy, it's more the sentiment, the belief about the future. It's not seen in the actual economic activity yet. The restructurings that have led to taking back provisions this quarter is underlying and specific to those customers, and they are in the offshore sector, as Ida pointed to. And there is a high and increasing activity level in that sector.

So these are situations over time that we have worked with that may very well develop differently than the day-to-day volatility in listed capital markets. Again, what the model, as Ida explained, what the model captures is systematic changes, systematic macro indicators, whereof the most important is unemployment and also industry-specific views but we are not seeing any industry-specific trends. It's more complex to see how this picture impacts various industries than the pandemic. So while saying that we acknowledge there's an increased uncertainty, it's much harder to see how it will hit. And what you will see in the Stage 1 and 2 is systematic trends and these we cannot see nor in the personal customer portfolio nor in the corporate portfolio at the moment.

[Thomas Midteide, executive]

Next in line is Johan Ström from Carnegie at the back, sitting behind Andre, heading up our second largest owner, celebrating 200 years yesterday. Thank you for hosting a wonderful dinner.

[Johan Ström, analyst]

Thank you, Thomas. Two questions. Ida, did I hear you say that Q4 loan growth will be slower. And in that case, why? If I'm looking at the average balance sheet and the quarter end numbers, it looks like you had a really strong pace out of Q3.

[Ida Lerner, executive]

Yes. What we're saying is that in large corporate, as we've indicated before, we've had a very strong growth, in particular, in Corporate Banking in the first half, and that has, to some extent, continued in the third quarter. What we're saying is that large corp, we expect to see less of a loan growth in large corporate. We'll continue to focus on profitable loan growth in personal customers as well as in SME, and of course, also in large corporates.

But what we're saying is that development going forward, looking at the activity level we've had year-to-date, we expect to see a lower growth in corporate customers in the second -- in the fourth quarter. But I agree with you. We have a very kind of strong growth coming into that and a strong activity level. And of course, profitability is important for us in terms of focusing on -- when focusing on growth.

[Johan Ström, analyst]

And with all the repricing events we've seen and perhaps slightly slower growth, capital could end up very strong at year end. So how do you feel about the balance between keeping a very conservative capital position and increasing our payout ratio.

[Ida Lerner, executive]

Well, first of all, we live in uncertain times as we stand today. We believe that the capital ratio of 18.1% is very solid and strong and also shows the robustness as does the leverage ratio of 6.4%. What we have said is that we will focus on maintaining loyalty to our dividend policy, and we definitely are. In addition to that, we will use share buyback to optimize the capital position, and that's something that we maintain in terms of our focus on capital planning as well.

[Kjerstin Braathen, executive]

So there's no change in our signaling. 17.7% expected and targeted level with a buffer on top that we have not specified in view of the increasing countercyclical buffer. Dividend policy stays the same and our attitude towards returning excess capital to shareholders is consistent.

[Johan Ström, analyst]

Thank you, Kjerstin. And then finally, just Ida, can you just repeat what you said on the NOK 2.4 billion effect from repricing? And then on the 50 basis point rate hike that we've seen, I think it's 3 of them. Can you give me the nominal amount on earnings impact from each expected rate hike?

[Ida Lerner, executive]

What I can give you is the assessed effect on NII on an annual NII effect. The first 50 basis points, we anticipated an effect of NOK 2.5 billion and now the ones that haven't been implemented yet, the 2 50s that are coming in beginning of October and November, NOK 2.4 billion each of an annual effect. What we also indicate is then that is kind of based on the composition of the portfolio we see today.

[Thomas Midteide, executive]

Okay. Next in line, Thomas Svendsen, SEB. On this side and then Vegard again on this side.

[Thomas Svendsen, analyst]

Three questions. First of all, given the accrued loan we see in the housing market in Norway, do you have any view on the market growth for household mortgages, the direction on that in the next couple of years.

And second question, given what we see in commercial real estate, when looking around, at least in financial markets. Why shouldn't we be concerned that you need to strengthen your loan loss reserves there? And finally, do you see any flows from savings deposits into money market funds that offers a higher rate than you offer.

[Kjerstin Braathen, executive]

I can answer 1 and 3, and I'll ask you to address the commercial real estate. I think in line with what we've seen in terms of credit growth for households, this has come down. It's still above 4% for the market, but it has come down. And I think it's difficult to say exactly how that will develop ahead. But some of the trends we are seeing may indicate that we would be likely to see a slower credit demand in households.

We focus on sustaining profitable growth for the business across our various areas. So when we say 3% to 4% growth, this is a growth pace that we believe is sustainable for us over time, with a varying mix of the various pieces. So in the event, we would have a slower demand from households, we see that we have a platform across industries in Norway and internationally related to the energy transition, which is likely to allow for higher growth in the corporate area.

But I think what we focus on in terms of households and personal customers is our relative position to the market. And we do believe there will be growth but it might be less than what we've seen in the previous years. In relation to savings, we -- I think the positive news is that we actually see no material change in behavior. We see a continued stickiness in savings agreements, which we've talked about.

We've had a very healthy growth in savings agreements of people deciding to put aside a specific amount of money and put it into interest rate funds or mutual funds every month. And that is a behavior that has continued. There has been no change in behavior with people taking savings out of the market, but there's been less ad hoc saving. But altogether, there is an impact on the total assets under management from change in market values, but this has been offset actually by a positive flow also in this quarter.

[Ida Lerner, executive]

When it comes to commercial real estate, we, of course, follow the developments very closely, and this is 1 of the portfolios that we are diligently scrutinizing on a monthly basis, I would say. But it's important to, first of all, point to the fact that the situation in commercial real estate and the lending situation, not least in the commercial real estate is completely different than what it has been in previous crisis or in economic downturns.

Also, when looking into our portfolio, 75% of the portfolio is in low risk, 94% is in Norway. And looking at the Norwegian market as such, it's also important to highlight the fact that there are less bond financing in terms of the exposure -- total exposure towards commercial real estate than what it is in, for instance, Sweden, which, of course, makes the refinancing risk less vulnerable.

Also, when looking at the bonds that matures in 2022 and 2023, there are significantly less amount in the Norwegian commercial real estate portfolio or area than what it is elsewhere. In addition to that, we've had a very strict credit policy when it comes to commercial real estate. We focus on corporate lending, and we focus on cash flow, residual value and strong owners that have injected significant amounts of equities. So therefore, we have limited exposure towards financial investments and no speculation in that area.

[Thomas Midteide, executive]

Thank you, Thomas. Next in line, Vegard again on the fourth row, on this side, Jan. Thank you. And then we have Jan Erik again on the second one, yes.

[Vegard Toverud, analyst]

First of all, on the deposit growth, I think corporate. Could you give some more detail to what this is? Is this more of a temporary nature? Or is this -- or how should we think about growth there going forward? That's a question. Then more on the models, again, sorry about that. But if you look at the corporate real estate, are you able to provide us with some sensitivity for the provision level given, for instance, 10% or 20% drop in real estate prices.

And also, if you can, how often are you updating your prices for the counterparties security in corporate real estate. And then just thirdly, another bank, Sparebanken Vest, have gotten some pushback on the use of a different bank sub-brand. Will this impact the way you think about the Sbanken brand?

[Kjerstin Braathen, executive]

Thank you, Vegard. Deposit in corporates, there is 1 important driver, and that is increased revenue in the oil and gas sector. That is clearly a driver to increased deposits in the corporate sector this quarter. Important to underline that these are profitable deposits for us, but less sticky than deposits you would see in SME and retail. There was an outflow also in the quarter when tax were paid. But we believe also the trends supporting future development in this area is quite strong.

Another event or important feature this quarter was that Moody's also changed their negative outlook on our AA rating to a neutral 1 which we are pleased to see that they acknowledge the resilience in the business. And there are a few banks that are at this rating level. It makes us very attractive in the corporate markets.

We noted the decision on Sparebanken Vest with interest. I think the key message in the feedback from the Department of Finance as we read it, is that there needs to be a very strong clarity on the ownership. And that is not leading to any change in terms of how we view the opportunities around Sbanken and DNB that clearly has the same owner, and this will be very clear.

[Ida Lerner, executive]

On commercial real estate. First of all, I think it's important to distinguish between what we've seen in terms of the normal situation. In a normal situation, you would have an annual review of each customer where you assess both the security and, of course, the values. If you have an increased focus on a specific sector, we also increased our focus in terms of ensuring that we have the right valuation as well as the right valuation, not least in terms of security.

For commercial real estate, that is the case today. So now we have a more frequent update in terms of the valuation. If we see a significant decrease, which is important and then so far in the Norwegian market, it's been very slow and low activity in terms of actually sale of commercial real estates overall, which means that there might be in to see a bit more in terms of what's happening in terms of the valuation of the real estates. When looking at the -- and I'll try to give you a bit more kind of information in terms of what we see in the portfolio where the portfolio is. If you look at the large corporate area where we have the largest single exposure, loan-to-values have decreased significantly over the past few years and is approximately in between 50% to 55% today. So that gives quite a lot of comfort as well if you look at the overall portfolio.

[Vegard Toverud, analyst]

I'm sorry if we're not letting it go, but isn't there a risk then that you will increase the scrutiny and the speed of updates as well as the valuation and the impact for the provision model. First, when the market moves and not currently, I'm not an expert on...

[Ida Lerner, executive]

Sorry, I'll interrupt you there. But what we do in addition to that is the valuation we set into our models in terms of assessing the security already involves a significant amount in terms of conservatism. So it's not like we take the external valuation, just put it into our models, and that's fine. What we do is that when we assess loan to values and the security level, we take own decisions in terms of also have a conservatism on top of that. So that means that even though you will have negative developments in the overall market in terms of valuation, that itself does not have a significant impact on our portfolio or our valuation.

[Kjerstin Braathen, executive]

We feel very confident with the robustness and the resilience of the portfolio, Vegard. But it's important to point out that these are models with objective reference points. It is not a factor of us speculating as to things that we haven't seen or nobody else have seen that you may believe in and scenario testing any case.

Of course, there are management overlays to a limited degree, which was used also during the pandemic, but it needs to be specifically related. And again, we have a conservative leverage. We focus on low-risk customers with strong debt servicing ability. So that also needs to be factored in.

[Thomas Midteide, executive]

Let it go. Let it go. It's a beautiful Disney song, isn't it? Okay. Jan Erik. Second line.

[Kjerstin Braathen, executive]

Didn't know you could sing, Thomas.

[Ida Lerner, executive]

No.

[Thomas Midteide, executive]

Hidden talent, yes.

[Jan Gjerland, analyst]

Thomas has talent in every shade. Just following up on Vegard's questions and looking into DNB Life. Yesterday, I think Entra one of the largest real estate companies in Norway, a written -- wrote down some activity and properties. Why haven't you done anything similar in DNB Life, which I think still have a quite big portfolio. Could you share some light into what that portfolio is? How large is it? What's the risk and where you have the sort of exposures geographically. So we can understand how you can be certain that you can deliver a decent return to your policyholders also next quarter.

Second question is about the transformation from brown to green. How can you be able to make more money on the brown economy as you are sort of supporting that transition phase as you pointed to some order spike? And are you going to take more higher margin from the brown? Or do we really see that the brown is sort of keeping the current margins? And then the green ones actually gets the benefit and get better terms from the full market because that's where all of the money is chasing. So how can we actually be able to extract more money from that brown supporting economy, you support?

And then finally, on the ESG question, in '24, we are getting a sort of a, I don't -- a small reporting update for the taxonomy. In '25, I think you will have a full reporting. How can you be certain that you will not be screened out of important investors view because you're supporting the brown economy. That's my 3 questions.

[Kjerstin Braathen, executive]

Will you do the first, I'll do the 2.

[Ida Lerner, executive]

Sure. So in terms of -- first of all, I'll say we won't give you that much details in terms of DNB Life's portfolio. But what I can say is that DNB Life has been very good at rebalancing that. We've seen during the quarter that they sold off, I'm sorry, you've seen that as well. They've sold properties both in Sweden as well as in Norway at very good levels. And that has been, of course, a positive contribution. In addition to that, you have a solvency ratio of 202% in the life insurance company, which, of course, is a very strong deliveries. They've also worked diligently on shifting, rebalancing and now taking advantage of the increased interest rates that we're seeing in the market. I won't give you more details than that.

[Kjerstin Braathen, executive]

In relation to ESG and the transition. I think what I'd once again highlight is that we've taken a very clear position as a transition bank. We will support the customers who invest in the sustainable businesses that grow and will support our customers who need to reduce emissions, what you refer to as Brown. Overall, in this picture, what we focus on is profitability on a risk-adjusted basis. And I think referencing to the past 10 years where we've been involved in oil and gas and in particular, the offshore sector. I think you've seen our ability to reprice and adjust prices in according with increased capital consumption to the sector and in accordance with increased risk.

And the turnover of our total portfolio in the large corporate sector is below 3 years. So there's a rapid turnover. And we constantly focus on optimizing prices and profitability of growth. And this also goes for the energy transitions. It's not something completely different. We believe that this is the right business strategy. It's the right business strategy from a profitability point of view, but also the right business strategy from an economic transition and green shift point of view.

The regulator has come out and said very clearly that there will be no discount for what they call green financing. What there's not full clarity of is whether there will be an increased capital consumption for exposure to customers who are emitting. But this is a dynamic picture that we follow very clearly. We are not changing our requirement on profitability for customers who are active in areas that could be defined as green. All our activities needs to be profitable on a total customer -- from a total customer point of view.

Now taxonomy and obligation to report is something that we feel well positioned with. We have tested from a dummy point of view, what will be our green asset ratio, and it's not that different from what you would see from most other banks. The taxonomy also continues to develop and we are rated on the top levels on the sustainability ratings that are out there in the market. And we have no indication of any of our investors, excluding us in view of our activity in this area. On the contrary, we feel that many investors actually include us in view of our level of maturity with regards to working on ESG.

[Thomas Midteide, executive]

Thank you, Jan Erik and Kjerstin. If I interpret the body language of Head of IR, Rune, most of the questions are already covered coming in from our online viewers. Yes. Okay. Thank you for coming, always, and thank you for following us online and have a beautiful autumn day. Thank you.

[Ida Lerner, executive]

Thank you.