DNB Bank ASA

OSE:DNB

Earnings Call Analysis

Significant Growth and Solid Capital in Q3

The company reported a strong quarter with net interest income (NII) up 3.2% and a near 30% year-on-year increase. Losses rose by NOK 937 million in the quarter, while earnings per share soared over 30% from last year. A robust Tier 1 capital ratio of 18.3% surpasses regulatory expectations by 110 basis points. With a commitment to a robust dividend policy, the firm promises over 50% cash dividends per share, increasing nominal payouts, and conducting a third share buyback program.

Sustainable Investment Targets Being Met

The company is progressing well on its environmental goals, having already allocated more than NOK 500 billion toward sustainable investments, which shows strong adherence to its plan of NOK 1,500 billion by 2030.

Profit Growth Across Customer Segments

Both personal and corporate customer segments have experienced a rise in profits. Despite a shift towards slower growth in lending and deposits, the company highlighted a strong pipeline and high activity levels. They indicated that the slower growth in personal customer lending was due to higher interest rates leading to prepayments and reduced refinancing activity. Corporate activity initially slowed but picked up towards the quarter's end.

Market Activity and Profitable Loan Growth Outlook

Loan volumes decreased slightly due to reduced market activity; however, the company maintains a healthy deposit to loan ratio of 75%. The company reiterated its profitable loan growth expectation of 3% to 4% annually despite the headwinds.

Net Interest Margin and Income Rising

The net interest margin increased by 6 basis points to 187 basis points, partially attributed to recent key policy rate hikes by the Norwegian Central Bank. Net interest income saw an uptick of 3.2% from the previous quarter.

Increased Revenue from Commissions and Fees

Revenue from commissions and fees climbed by 10.5% year-over-year to NOK 2.7 billion, credited to high customer activity and robust product delivery.

Decrease in Operating Expenses

The company reported a reduction in operating expenses of NOK 225 million, reflecting lower activity that is seasonal for the quarter. The decrease in expenses included lowered personnel costs and IT expenses. They also emphasized that the credit portfolio stays robust and well-diversified with 99.3% in the early stages of possible credit impairment.

Solid Capital Position and Share Buyback

A strong core Tier 1 capital ratio of 18.3% signals the bank's robust capital health, which is 110 basis points above regulatory expectations. The bank completed a share buyback program and announced another amounting to 1% of outstanding shares. Acknowledgments from an EBA stress test and an upgrade from Moody's further underline the bank's solid position.

Robust Third-Quarter Financial Performance

The third-quarter results showed significant improvements with a 16.3% return on capital, increased earnings per share by 7.8% from the previous quarter, and a 31.2% rise from the same quarter in the previous year. The cost-income ratio was reported at 32.7%.

Earnings Call Transcript 2023-Q3

[Unknown Executive]

Welcome everyone, to the third quarter result presentation from DNB. And also a hearty welcome to everyone following us live on I'm Evan Westerveld, and I'm happy to present the CEO and the CFO of DNB who will walk us through the numbers today. First, Kjerstin Braathen will go through the overall picture, and then Ida Lerner, our CFO, will go through the numbers more in detail. There will be a Q&A session afterwards and for the press. It's also possible to have one-to-one after the session, and please make note to Katy, who is in the back there, who is in charge of the list.

So Kjerstin, the floor is yours.

[Kjerstin Braathen, executive]

Thank you very much, Evan, and a warm welcome and a very good morning to all of you. We are presenting today our third quarter results yet again, another strong set of results, reflecting what is a very robust and resilient Norwegian economy and also that we experience a high level of activity across many areas of our business. If we dive a little bit beneath the numbers and the trends, we are also seeing that 2 years of monetary policy is starting to have an effect with growth slowing and people rationally adapting their behavior to a higher interest rate environment. But overall, and also as expected, we continue to see a Norwegian economy that is resilient and very able to manage a higher interest rate environment.

With economy being top of mind for an increasing number of people staying close to our customers is a top priority. And we have a record number of dialogues with our customers in the quarters that we're now putting behind us. And yet again, I'm proud to say that the team is strong, and I'm proud of their performance and achievements throughout the quarter. Now more specifically to the numbers, the financial numbers and performance are strong. Profit for the quarter NOK 10.1 billion return on equity of 16.3%. Also, if you look at the graph and the rolling 12-month development of return on equity, you will see that, that is also increasing and now at 16.6% for the quarter. NII is up 3.2% for the quarter, close to 30% increase if we compare to last year, driven by both growth and increasing rates.

Probably one of the stronger elements in these quarterly results are the fee and commission income. All-time high fee and commission income for the third quarter, 10.2% higher than that we saw during the same quarter last year. Losses are up NOK 937 million for the quarter. Nothing structural trends to remark with some more customer-specific situations as well as lower reversals during this quarter. Very robust capital ratio that is affected both from the share buyback program that we announced right after our second quarter results, and we are today announcing that, that buyback program has been complete, and we are announcing a new program of buying back an additional 1% of our shares. So both of these deducted in capital as well as a technical change in the accounting practice that Ida will come further back to. But a rock-solid capital position with 110 basis points buffer towards the expected required level.

Earnings per share up by more than 30% since last year, 6.39% for the quarter and year-to-date, a little above NOK 18 per share materially underpinning our robust ability to deliver on our dividend policy. Now moving on to macro. If we consider the world picture, there is a dramatic development in the geopolitics. And I'm, of course, referring to the terrible war that we are all seeing in the Middle East. Capital markets have had a muted response to the turmoil that we see in the Middle East. From that, we can see that there seems to be a belief that the risk of an escalation of the situation is limited and thus a limited impact on the world economy. If we take it closer to home, there's nothing dramatic in the development that we see in the Norwegian macro economy. Growth is slowing, consumption is more muted and inflation is moving downwards. But we continue to see growth, and we expect growth also in the coming years, and we expect this to be supported by corporate investments, in particular in the oil and gas sectors.

So if we look at the business environment, it's kind of a mixed picture. There are several industries that are performing very well in today's market. anything that is energy-related. Seafood as well as the maritime industries are among those who are doing very well with a high level of activity. In other areas, we can see more effects from increasing rates as well as increasing prices and building and construction being 1 of them with a substantial decrease in activity and fewer projects being started. Rates have been hiked by the Central Bank on 2 occasions during this quarter. For the latter, Norwegian Central Bank also announced the likelihood of 1 more hike in December and rates to top out at 4.5%, where they are expected to stay throughout the year 2024. So like many other Western countries, they are painting a picture of higher rates for longer.

Now taking this back to the households, no doubt, we are also seeing hearing from our customers that more are feeling the effect of increasing rates and prices for quite some time now. All the same, we continue to see a strong resilience and a very sound financial health in average for Norwegian households. And the most important factor for financial stability as well as social and financial health is that people have a job. And unemployment remains low, 1.9% and we are expecting that we'll potentially see some increase in unemployment, but up to a level of 2.4%, which in every context, both in a relative and historical context must be seen as still a very low level of unemployment. Now to the debt service burden. Many people in Norway own their own home, and they have a mortgage and what is relevant is their ratio of disposable income that they spend to service this debt.

If we look at interest rate payments only, you will see more than a doubling from 4.0% at the low point during the pandemic to 10.4% top out when rates go to 4.5% as the burden provided by interest rate payments. However, most Norwegians they pay installments and if we look at the increased burden on their disposable income from debt service, including installments, we saw a low point of 13.7% during the pandemic. It's expected to top out at 16.6% and this is a level that is very much deemed to be manageable in general from an economic point of view. Then what matters is the wage growth and not necessarily the nominal, but the real wage growth, which has seen a slight decrease and expected to see a slight decrease this year. But as from next year, real wage is again expected to grow.

So all in all, this plays into a picture that we have talked about for the Norwegian economy, namely, we are believing that a soft landing for the economy is the most likely scenario. That is still the case, and this is a benign environment supporting our business going forward. Now in times like these, staying close to our customers is a top priority. Interest in economy is higher. We are focused on being available and being being proactive, and we have had a record number of conversations with our customers with 1.5 million conversations throughout the quarter. Two main topics. Some are looking just to go through their economy to figure out how they can adjust consumption and adapt to a higher cost levels. Others would like to run through to make sure that they have the product and services they need at competitive terms.

In some cases, we do provide installment relief and we have seen a slight increase in the number of customers wanting or needing this throughout the quarter. But as you can also see from the top right level of the graph, the levels that we're providing installment relief at are only slightly higher than the level that we saw prior to the pandemic. We have also set up a specialized team who work with customers who have a more challenging situation in their economy as well, a specialized team supporting young people who are in the process of maybe buying their first home or entering their first job. And we're motivated by the very good feedback that we get from the customers who make use of these services. And yet again, even savings is a top of the agenda for some customers. We continue to see a growth in number of customers who want to enter into longer-term savings agreements and are proactively reaching out to customers, both businesses and the individuals as these are the first times in a long time where you can actually get also a decent return on your excess liquidity.

Another topic of strategic importance where we believe that we have an important responsibility is in relation to the energy transition. Now more than 2 years ago, we came out with our sustainable strategy where we committed to be a driving force and an accelerator in the transition. We have now taken our efforts 1 step further this quarter by 2 days ago, launching our transition plan. In this transition plan by using science-based approach, we set interim targets for reduction of 70% of our financed emissions in our lending portfolio. We also set interim targets for a larger part of our equity exposures as well as our bond investments. Now reaching these targets is nothing that we can achieve alone. We do need cooperation. We do need policy development, and we are dependent on individual decision making, both with individuals and businesses. And we do not expect the development to be linear, but we do expect the development to move in the right direction.

But as such, this will be a dynamic plan that we will use as a tool to continue to push, build competence and improve the dialogue and efforts together with our customers to make the development move in the right direction. More than 2 years ago, we said that 1 of our targets was lending or raising capital in the amount of NOK 1,500 billion for sustainable investments towards 2030. And we are happy to share with you that we are on or maybe slightly ahead of plan, having funded in the past years, in aggregate, more than NOK 500 billion worth of sustainable investments. Now taking it a little bit back to the quarter and shortly leaving the floor to Ida, just a couple of highlights from the business areas. Where here, you see Personal customers and Corporate customers in aggregate with the development and profits. Profits are up for both areas in Personal customers as well as Corporate customers. We do see a shift in both areas in this quarter in the direction of slightly slower growth both in lending and deposits.

But I would like to highlight that the backdrop of the slowdown, we believe to be quite different considering Personal customers and Corporate. Rationally, we do see customers in the Personal area responding to higher rates, more using excess liquidity to prepay loans, lesser demand for refinancings and lower transactions in the housing market. The slight reduction in deposits is seasonal and related to the third quarter being the quarter where most Norwegians actually go on vacation. In the corporate area, third quarter is also a slower period. And what we've seen this year is a slightly longer time for the activity to pick up after the summer. We do, however, see a very decent pickup in activity towards the end of the quarter and have a very healthy pipeline and high level of activity in the quarter as such.

Other products and activity areas, savings, we continue to see growth in a number of savings agreements this quarter for individuals, we continue to see a high level of activity in payments on the real estate brokerage side, we do relatively better, but the market is slower. Fewer people are buying a new home. And we've seen low acquisition of new builds for quite a while. This quarter, we've also seen a lower number of transactions for secondary homes. Turning over to the corporate side. We are putting behind us a quarter with very high activity in anything that is fee related. I talked about it on the key numbers slide, but a record level of activity and numbers in investment banking. They are advising companies and raising debt, and there are many who are looking to develop and invest in their business. There's also a record activity and numbers from FICC with interest rate hedging as well as commodity derivatives. The portfolios remain robust across the segments. So all in all, a very strong performance and delivery from both our main customer segments.

And with those remarks, I'll leave the floor to Ida.

[Ida Lerner, executive]

Thank you, Kjerstin, and good morning, everyone. As Kjerstin pointed to in her presentation, volumes are affected by lower market activity this quarter with London volumes down by 0.3%. As expected, we recognized a tapering credit demand in Personal Customers, reflecting slower housing market, increased amortization as well as less refinancing activity. We also notice slower activity in corporate banking coming out of the summer months. But as Kjerstin pointed to, that has picked up quite significantly towards the end of the quarter and a strong pipeline ahead. Currency adjusted lending volumes are down by 0.4% in the Personal Customer segment and by 0.2% in the Corporate Customer segment. The overall currency adjusted deposits are stable with a seasonal decrease in the Personal Customer segment of 2.5% and an increase in the Corporate Customer segment of 1.7%.

We maintain a strong deposit to loan ratio of 75.2%, and we reiterate our long-term expectation of an annual profitable loan growth of between 3% to 4%. The net interest margin was up by 6 basis points, now amounting to 187 basis points. The combined spreads in the customer segment was up 1 basis points. This includes the full effect of the repricing implemented mid-May as well as end of June and partial effects from the repricing early August. The Norwegian Central Bank has raised the key policy rate twice during this quarter, 1 time in August and one in September with 25 basis points each. And the average NOK money market rate was up 73 basis points this quarter. As for previous repricing, this gives the lag effect leading to a temporary reduction in lending spreads and increase in deposit spreads.

Net interest income increased by NOK 486 million, up 3.2% from the last quarter. The effects of spreads reprice and interest on equity amounted to NOK 602 million. Here, we note an impact from spreads and primarily within deposits and corporate customers. One additional interest rate increased in NII by NOK 125 million. Currency and volumes negatively affected NII by NOK 86 million and the reversals of fees on the -- to the deposit guarantee and resolution fund in Poland that we saw in the second quarter gives a negative effect this quarter. There are a number of different items under other, such as treasury, long-term funding as well as interest on loans subject to impairments, which will vary from quarter-to-quarter. Following the Norwegian Central Bank's increase in key policy rate in August and September of 25 basis points each, we announced repricings with effect end of October and end of November, respectively.

As expected, we are starting to see a tapering effect compared to previous repricings. We still note material positive effects from the announced repricings, but there are more moving parts which creates higher uncertainty. And we will, therefore, not give a nominal effect for these 2 last repricings, but ensure you that they have a positive tailwind ahead. We maintain strong deliveries from our product areas and continue to see high activity amongst our customers, confirmed by the all-time high deliveries from commission and fees as well as the strong contribution from FICC reported under financial instruments. Net commission and fee comes in at NOK 2.7 billion, up 10.5% from the corresponding quarter last year. an all-time high third quarter results, reflecting strong performance across the product areas.

The results from real estate broking was up 3.4%, due to a stronger relative performance in a slower market. The results from investment banking, they deliver an all-time high third quarter, up 6.4% driven by higher debt capital markets as well as advisory activity. Asset management and custodial services are up 11.8%. Assets under management are up 14.3% compared to the corresponding quarter last year, driven by inflow from retail customers, institutional customers as well as increased market values. Our customers, as Kjerstin pointed to, are staying committed to their long-term savings schemes. And we note a positive development, both in the number of savings agreements as well as the amount saved on a monthly basis. Guarantee commissions are stable, reflecting a stable demand for trade finance products. Money transfer and banking services was up 24.5%, driven by solid development in income. Sale of insurance products are up 0.6%, with positive development in nonguaranteed pension.

Moving on to costs. Operating expenses are down by NOK 225 million, reflecting seasonally lower activity this quarter. Salaries and other personnel expenses were down NOK 78 million reflecting lower variable salaries as well as lower higher helps. IT expenses are down NOK 56 million. Other expenses are down NOK 92 million, both reflecting seasonally lower activity. We like to remind you that the fourth quarter generally has higher activity-based costs. We recognize the uncertainty related to the macroeconomic development as well as the geopolitical situation around us. But the credit portfolio remains robust and well diversified with 99.3% of the portfolio still in stage 1 and 2. The personal customers, as Kjerstin already mentioned, remains strong. Our customers continues to be in dialogue with us, mainly seeking advice on how to handle increased costs as well as increased interest rates. But they are overall still stable. We see a modest uptick in request for interest-only periods and past due payments but again at low levels.

For the Corporate Customers, impairment provisions totaled NOK 851 million. The increase in Stage 3 impairments relates to customers specific events that we've been followed for quite some time and monitored closely. Overall, the portfolio remains robust, and there are no structural changes to point to in the portfolio. We remain comfortable with the credit quality, but please bear in mind that losses will vary from quarter-to-quarter and the macroeconomic development that we are seeing will increase uncertainty related to customer-specific events. Sorry, I'm losing the mic. Now moving on to capital. This quarter, we note a core Tier 1 capital of 18.3%, 110 basis points above the regulatory expectation.

Solid profit in the quarter contributed to strengthening the core Tier 1 capital ratio. Following a clarification from the Norwegian FSA, we are changing the percentage of retained earnings included in the core Tier 1 capital ratio from 50% to instead reflect the average from the last 3 years. This should not be seen as a change in our current dividend policy, but it's purely a change in accounting practice. The effect will be adjusted in the fourth quarter annually once the Board has made a decision on what cash dividend they would like to propose for the annual general assembly. This change taking the first and second quarter into account leads to a reduction in the core Tier 1 capital ratio of 30 basis points. The buyback program, as Kjerstin pointed to 1.5% of outstanding shares initiated in July was completed as of yesterday and reduces the core Tier 1 capital ratio by 50 basis points.

We are now also announcing a new share buyback program amounting to 1% which decreased the core Tier 1 capital ratio by 30 basis points. With a core Tier 1 capital ratio of 18.3% and a leverage ratio of 6.3 the solidity remains to be very strong. There have also been several acknowledgment on our solid capital position during the quarter. in the EBA stress test released in July, we came out as 1 of the absolutely strongest banks in terms of handling the adverse scenarios put in place. In addition, Moody's has upgraded the rating on D&B senior nonpreferred, leaving us 1 of the best rated banks globally. With a strong core Tier 1 capital ratio and a strong position we are in, we remain committed to our dividend policy.

So summing up, we delivered a strong result in the third quarter reflected in the key figures. Return on capital at 16.3%, earnings per share at 6.39%, an increase of 7.8% from the last quarter and up 31.2% from the corresponding quarter last year. Cost-income ratio comes in at 32.7%. And with that, I would like to thank you for your attention.

[Unknown Executive]

Thank you so much, Kjerstin and Ida. We will open up for questions. Jan Erik Gjerland. Please hand the guy a mic so that we can hear him also on the stream.

[Jan Gjerland, analyst]

I have a couple of questions, if I may. The lending growth was sort of a subdue, and you pointed to a lot of actions that the households and corporates are doing. But have you lost out of competition? Is Sbanken not aggressive enough into the refinancing market at all have actually you missed out of that bank's best efforts. Secondly, on the risk-weighted assets, have you been given any IRB portfolios into Sbanken, or are you still that on a standard basis? So is there more to come on the CET1? And finally, on the deposit side, you all pointed to a very strong asset management growth inflow. Is that partly from your own deposit book that you actually get inflow from savings? Or how should we read that?

[Kjerstin Braathen, executive]

Thank you, Jan Erik. No, we definitely do not feel that we have lost out competition. We have attractive services and competitive prices, and we do see an increasing activity also through the quarter. Again, I can reiterate, it's a combination of behavior and as expected a somewhat lower demand for credit in line with lower number of transactions in the market. And we also see customers to a certain larger extent, actually prepaying their loans using excess liquidity, which is rational in today's market. So you've heard Ida stating that we do stick to our 3% to 4%. But as we've said on a couple of previous quarters, it may be that the mix of this growth will look slightly different as we move forward with a lower demand and growth from personal customers and somewhat higher from corporate.

What is important for us is that we continue to grow and support our customers. But given our size, we are looking to grow more or less in line with the market. There is no positive effects as of yet for Sbanken's volumes being over to IRB approved model. So that advantage that we have pointed to previously, that is yet to come. With regards to whether the growth under asset management flows through from existing deposits or new money, I think it's a bit difficult to isolate as there are many moving bits and pieces in our deposit base as well as asset management. But I think it's a sign of strength and as well of solid products that we have more than 10,000 of our customers signing on to new longer-term savings agreements, partly account-based but partly also in other products such as mutual funds and an increasing interest also very rationally for interest rate funds in the past quarter.

[Ida Lerner, executive]

And for just 1 comment on Sbanken moving into IRB models. We've sent in an application, but we've already said before that we expect that to be coming in, in 2024.

[Unknown Executive]

Thank you. Next question from Johan Strom from Carnegie.

[Johan Ström, analyst]

Thank you, Evan. Two questions from my side. I would like to follow up on Jan Erik's question. And Kjerstin, I appreciate your comments on the elements that drives the negative growth in volumes. But you seem to be losing a little bit of market share in this quarter. So I'm just curious if there's an element of stricter underwriting from your side as well? And then secondly, on the life insurance side, the capital position looks very high. So do you think that this capital position is necessary? Or should we expect a higher contribution from life insurance to the group?

[Kjerstin Braathen, executive]

Thank you, Johan. I'll leave the second 1 to Ida. I wouldn't say that there is an element of stricter underwriting, but we are very responsible in our underwriting and credit admittance to customers. And obviously, as rates have gone higher, the test that you need to sustain through your cash flow is stricter and we are mindful of not providing credit to people who might come into a difficult position. We feel that is an important part of our responsibility, but there has been no material shift in our underwriting policy. And we -- I think you will have to look at our performance over time. And I think if you look at the past couple of years, our performance towards market growth has been strong. We do feel and what I hear from the teams around when I travel is that we do certainly have attractive and competitive offerings, and we believe in our ability to grow at or close to the market over time. Yes. I think I'll leave it at that.

[Ida Lerner, executive]

And you're right in saying that the DNB Life Insurance business is overcapitalized at the moment, and we recognize that as well. And of course, that's not a long-term solution. So we have started to initiate in terms of paying excess dividends to -- back to the mother company. And we'll continue doing that. But that also needs to be matched with the guaranteed part of the portfolio to ensure that we do this. So this will be done gradually over time.

[Unknown Executive]

Thank you. Next question from Vegard Toverud in Pareto.

[Vegard Toverud, analyst]

Thank you. You have now then stopped guiding on the impact from rate hikes, and there are a lot of moving parts. But could you give some more color on the main uncertainties, so which of these moving parts is -- or have the uncertainty increased so much for that you have stopped giving the guidance? Secondly, on the corporate growth that picks up at the end of Q3, could you give us some more color also there in which sectors that is?

[Kjerstin Braathen, executive]

Yes. I wouldn't say that there is a massive shift in uncertainty, but there's a higher level of dynamism in the market. And as such, I mean, we, of course, evaluate to what extent a nominal, everything else being equal, guidance is useful to the market. I think it's very important to say that we have a very material and clear tailwind to our NII from rate hikes that have been announced but not yet implemented. What are the moving parts? I think we've talked to a couple of them in terms of behavior of customers. That's always very difficult to predict how their behavior will continue to develop. There is also an increased interest, which is very healthy, I believe, in terms of return on surplus liquidity.

We are also increasingly proactively reaching out to customers to make them aware of alternatives that might suit better and be somewhat more attractive in terms of financial return as a part of our responsibility to provide good advice I would not qualify it as a high level of uncertainty, but more like you said in your question, more moving bits and pieces who makes it a bit less easy, I would say, to paint a direct line. But again, a very positive tailwind into the fourth quarter. Pickup in the corporate sector very much ties into the sector that I alluded to in the macro part of my presentation, the sectors who are doing well. Energy sectors overall. In particular, I would think that you would find that we have higher activity than many other players in investment banking, if you look at other countries because there is an energy cycle with a very high activity also in oil and gas.

The maritime sector, we increasingly see activity coming from a very -- from a situation with a very low order book across sectors. It's not that we have now gone into a situation with a high order book, but some more investment activity and more opportunities. We also see in that sector. Seafood, renewable, health, all activities and sectors that are important to us, not only in Norway, but internationally, and who are supported by, I would say, longer-term trends than just the economic cycle that we may say that we are in at the moment. And this growth platform is what provides comfort in our guiding that we should be able to deliver profitable growth also ahead.

[Vegard Toverud, analyst]

And just a follow-up on the first point. Is it -- did I understand you correctly, if it's more uncertainty on the deposit side rather than the lending side?

[Kjerstin Braathen, executive]

Well, I'm not calibrating level of uncertainty other than saying it's not what we would call a big shift, but there is a shift in both areas, rationally so in an economy with increasing rates both actively managing excess liquidity as well as using -- and part of that is, of course, using excess liquidity to prepay. But I don't think you should read too much into the variation that we see this quarter. Typically, what you see in deposits for Personal Customers is seasonally normal third quarter. That is when people go on vacation and spend part of the liquidity that they accumulated during the second quarter. It's a flat development on the corporate side. In lending and deposits, the volatility mainly stems from the larger corporates. So it's a slight shift, but I wouldn't call it a very material trend shift that we see.

[Unknown Executive]

Next question from Thomas Svendsen in SAB, and then we will open up from online questions from Rune.

[Thomas Svendsen, analyst]

First, a question on household deposits because you said the decline -- the sharp decline we saw in this quarter was as expected. So what do you expect for the coming quarters? And secondly, on the mortgage lending product and household savings account product, do you see any changed behavior from competition? Or is it the same?

[Kjerstin Braathen, executive]

When I say as expected, I would say a more muted development is as expected, and then it's extremely hard to be very clear on how this will pan out in terms of percent. But of course, a benign and soft landing development for the Norwegian economy that is expected by most macroeconomists is also dependent on collectively Norwegians actually spending some of the excess savings built up during the pandemic to carry through to an environment where there will again be real wage growth. Seasonally, it corresponds to third quarter last year, where we also saw a slight decrease. The decrease is a little bit higher this year. But the more subdued development, I think we can say we expect with customers I see no reason why they should stop spending excess liquidity to repay more on their loans compared to what they did last year and at the beginning of this year. In terms of account, I'm not sure I fully remember the nuances. I don't know Ida if you...

[Ida Lerner, executive]

No, I think -- I mean, in terms of products, what we're seeing from competitors and I would say we aren't seeing a big shift. The competitive landscape continues to be very rational in Norway as far as we see it. We're seeing that some banks are providing interest on the transaction accounts, while others are not. And that -- but apart from that, I wouldn't see a big trend shift there either. We believe and see that the other banks are focusing on profitability and continue to do so also in this period of time. I would just like to add to the household deposit side. You need to keep in mind that we have quite a sharp increase in the second quarter due to the extraordinary holiday payment. So that is kind of if you look at through the 2 quarters, it's not a massive decrease as you pointed to in this quarter overall.

[Thomas Svendsen, analyst]

And the final question on loan losses. Could you just repeat what is your normalized loan losses? And how do you see this picture of a soft landing, although with positive real interest rates in relation to a normal level.

[Ida Lerner, executive]

We are not giving guidance on normal losses, normalized losses. So you need to look at in terms of what we've seen over the past few years. And what we are pointing to is that if we historically have been on the higher end in terms of losses or cost of risk, the rebalancing of the portfolio that has been done quite diligently over the past years in terms of reducing our exposure towards cyclical industries and increasing our relative proportion towards retail and mortgages that should, in itself, of course, smoothen that out and decrease the overall cost of risk, but we are not giving any guidance on nominal cost of risk.

[Unknown Executive]

Okay. Thank you. Told, there is no online questions this time. So okay Jan Erik, one last question for you, and then we will close for this time.

[Jan Gjerland, analyst]

Was limited myself to 3 only. What's important now for the dividend and the buyback stuff is how should we read your sort of very strong CET1 going forward? You're now implementing another buyback program? How should you read your extraordinary dividend potential this spring and also a further share buyback. How should we read you into that? And is it so that you want to become down to the 17.2% level? Is that sort of aim or is it just an aim to be just below 18%, so to speak? How should we read it differently this time around than what we have read it previously?

[Kjerstin Braathen, executive]

I think we clearly said and Ida stated during her presentation, is that there is no change to our dividend policy. We have a very robust capital situation, and we are committed overall to distribute excess capital over time. We have also said that we are likely to need to hold some buffer above the required unexpected level, but we haven't been specific as to the exact size of the buffer. So again, more than 50% cash dividend per share and increasing nominal payment per share and deploying share buyback, not a targeted level of share buyback, but share buyback to optimize around the desired level. And I think today, now we launched again the third program in the past year showing that we're actively again using that tool to deliver on our dividend policy.

[Unknown Executive]

Thank you, Kjerstin. Thank you, Ida, and thank you, everyone, who attended. Also on the stream that will close the presentation now and for the press we will meet in the couches in that end of the area later. And see you back in 3 months.