DNB Bank ASA

OSE:DNB

Earnings Call Transcript 2022-Q4

[Thomas Midteide, executive]

Good morning everyone, and welcome to this presentation of DNB's Fourth Quarter and the Year 2022. Good to see you all again, we have been looking forward to see here in Oslo. [Foreign Language]. We have had the thousands of customer meetings the last quarter and are eager to show you the results of all our activity in DNB for the last quarter.As always, we'll have a Q&A session in about 30 minutes and individual interviews with media. So Kjerstin take it away.

[Kjerstin Braathen, executive]

Thank you very much, Thomas, and a very warm welcome to all of you to this presentation of our fourth quarter and annual results for the year 2022. 2022 is a rather difficult year to sum up in a very brief few remarks. So I'm not going to endeavor even to do that. I will focus on the performance and the results we are here to share with you today. They bear witness of a resilient and strong Norwegian economy. They bear witness of a strong reopening post the COVID pandemic that lasted all the way through the fourth quarter. We delivered today a strong set of results that do reflect our strong position across the markets that we are active in and we are grateful for the customers that continue to trust us with their business and those the new ones that have trusted us with our business during this quarter. So a few highlights for the quarter. Return on equity came in at 16.2% in the quarter, representing very strong performance and results across all of the customer activity within the group. There is also a one-off effect related to tax in relation to the restructuring of our business in Singapore. Excluding the tax effect we still have a return on equity of 13% for the quarter, that is in line with the targeted level. Net interest income up by 14.8% from the third quarter. This is driven both by continued growth during the quarter and also from seeing the impacts of previously announced rate hikes coming through to the figures.Net commission and fees show a flat development compared to the fourth quarter last year. Bearing in mind that this was a record quarter, we qualify the fourth quarter as a strong quarter within commission and fees that show the strength in the diversified and resilient platform for our fees. We have taken reserves of NOK 674 million within the quarter, somewhat higher than the previous quarter but still at a low level. And we have a robust and well diversified portfolio. Earnings per share show a growth of close to 30% in the quarter. And on the basis of these annual results the Board of Directors propose a dividend per share of NOK 12.5 and we also announced today the initiation of a share buyback program.I would like to continue talking about them the Norwegian economy and the Norwegian economy continued to outgrow expectations also all the way through the fourth quarter. And is expected to land in the area of 3.7%. We are closing in on the end or topping out of the inflationary pressure and nearing what is believed to be the two last rate hikes during this period. A possible and expected decrease again of rates have been pushed out in time and the rates are expected to stay around the current levels throughout the forecasting period.A shift in the economy is to be expected. As we see the impact of increasing prices, inflation and higher rates. We expect to see a lower activity but continue to talk about a stagnation more than a recession. It is interesting to note that the Norwegian households continue to look very robust, growth and consumption held up all the way through the fourth quarter. And one of the indicators of this is a record sale of new cars that happened during the months of November and December.What remains the single most important factor in an economy is that people actually have a job to go to. And unemployment continues to be very low. But the intense pressure that we have seen in the job market is expected to level somewhat off, but we're still talking about expected low levels of unemployment going forward. This provides a resilient backdrop for our business going forward. But we are bearing in mind that we are in special circumstances and I would like to highlight that the level of uncertainty is higher than normal.Looking at the key business areas. 2022 came in as a very strong year for personal customers. What are the drivers? I've talked about them. We see growth in both loans and deposits. We see strong reopening effects and high activity across the business products. We see increasing rates. And in addition to all this, of course, we have the acquisition of Sbanken. Across this leads to a 24.5% increase in pretax operating profit for the business. And given the particularly strong trend we have seen in deposits over the past few years, we are following that with a close interest. What we see towards the fourth quarter is a normalization of development of deposits, but no normal outflows or movements within the deposit base.Even more interesting is to note that people mostly stay within their savings agreements. Naturally, as expected, the savings rate goes down, but those who have committed to savings agreements continue to put down money on a monthly basis. So in addition to the high activity level, the Sbanken acquisition was closed in the month of March, and we continue to see a strong performance from Sbanken also in the fourth quarter with a 3.5% growth in the quarter. It has been a slower market or a quarter in the housing market for the fourth quarter, but we are pleased to see that we have been able to strengthen our position as an economic adviser to our customers during the quarter and have a record high activity of talking to our customers in times that are also challenging for some.The asset quality remains robust. We do see a slight uptick in requests for installment deferrals. But they remain to be at a very low level. So with this, the business and personal customers is again in an area delivering attractive return on capital. A strong quarter and year for personal customers is equaled or surpassed even by an even stronger year in corporate banking. They deliver an all-time high results both for the year as well as for the quarter. And corporate banking for '22 represents close to 3x the size of our results in the personal customer area. We've seen a growth of more than 10%, both for lending and deposits.On the lending side, as indicated, the growth in large corporates were less capital intense during the second half of the year, but we're particularly pleased to see that the strong growth with SMEs continued, and we had a record growth during the year of more than 10%. We are a very robust bank and as an attractive bank for our corporate customers on the deposit side that we can see across all sectors. The growth continued for the year. There was a slight outflow in the fourth quarter, but these are related to sector-specific tax payments that occurred during the quarter.It's a high growth in revenue from other areas than interest, particularly high activity in the FICC business with interest rate hedging and FX business, very active markets across pension and asset management for our customers in this area. And we also recognized both in the fourth quarter and for the year, positive mark-to-market values on positions that we have taken as equity through restructurings that again, we think bear witness of a high-quality work in these important processes.For the year, it's a positive contribution from impairments, while some reserves are recognized in the fourth quarter. While we do see that businesses are noticing, of course, higher energy prices and inflationary pressure, we see no meaningful negative migration in the portfolio and find no sectorial changes that we feel is worth highlighting to you. We have a robust and well-diversified portfolio, but the company specific risk is increasing in times like these.So some key numbers for the year. Our growth for the year on the lending side is 12.3%. Excluding Sbanken, it's at 6.3% that's higher than the 3% to 4% we're guiding for through the cycle. This is attractive and profitable growth within the sectors that we are targeting. On the deposit side, we have a 10.7% growth, 5.4% up, excluding Sbanken. Our deposit to loan ratio is 75%, indicating that the savings, the extraordinary savings and deposit that have been made through the pandemic actually are still sitting on our customer's accounts and on our balance sheets.Cost are up but income is up even more than that growing by close to the double pace of our cost leaving an attractive growth in terms of positive draws for the year. This lands at an increase in pre-tax profit of 22% and even higher growth after tax. Return on equity for the year, 13.8% in line of -- in line with our target but above the minimum target that we have set at 13%. Cost income at 40.1% roughly in line with our target of having a cost based of less than 40% of our revenue. And out earnings per share are up by a strong 30% both impacted by the very strong results as well as the one tax effect in the fourth quarter.So, on the basis of these numbers and the performance as well as the assessment of the outlook ahead of us, the board of directors are proposing a dividend of NOK 12.5 per share. We further announced today a share buyback program of buying back 0.5 percentage points of our shares and do expect that we also this year will go to the general assembly to ask for a proxy to use share buyback as a tool to optimize around the desired capital position. Our balance sheet remains rock solid with an ample headroom to the buffer and the mobility both to support customers and pay out excess capital to shareholders.Our dividend policy remains the same. And we deliver for the year '22 in line with our dividend policy. So all of the team is highly committed, and we're motivated by delivering results and value to our shareholders. And we find it even more rewarding during these times to know that roughly half of the capital that we're distributing is transferred back to society at large.So with those remarks, I will leave the floor to our CFO, Ida, to comment more on the quarter in detail.

[Ida Lerner, executive]

Thank you, Kjerstin. I would now like to return to the quarterly results. We noted a profitable loan growth of 1.1% in the quarter. In the personal customer segment, the lending grew by 0.9%. Adjusted for the portfolio repurchased from DNB Life Insurance, the underlying organic growth was 0.3%. The growth in the Corporate Customer segment was 1.3%, of which SME accounted for 1.9% and large corporate for 0.7%. The growth in Corporate Banking continues to be predominantly in low-risk customers and in sectors and geographies where we have a long-term strategy.This quarter, we noted a currency-adjusted decrease in deposits of minus 2.1%. The development was stable in personal customers, as Kjerstin pointed to, while deposits in Corporate Banking decreased by 3.4%. Predominantly driven by lower volumes from our customers within the oil and gas industry as a result of payments of the petroleum tax in the beginning of the quarter. We maintained a strong deposit to loan ratio of 75.1%, and we reiterate our long-term expectation of an annual loan growth of between 3% to 4%.The net interest margin was up 20 basis points and is now at 170 basis points. The increase comes as a result of the full effect of the re-pricing implemented mid-August and partial effects of the re-pricings implemented beginning of October, beginning of November and mid-December. Combined spreads increased by 14 basis points. Average NOK money market rates were up 92 basis points in the quarter. The Norwegian Central Bank has hiked the interest rate twice of 25 basis points in the quarter, while customer re-pricings following these hikes will have an effect in the first quarter. This lag effect gives a temporary reduction in lending spreads and increase in deposit spreads.Net interest income increased by NOK 1.8 billion or 14.8%. Spreads increased by NOK 1,178 million and income on equity increased by NOK 537 million, reflecting the increased money market rates. Underlying changes in the volumes reduced NII by NOK 13 million in the quarter. Following the Norwegian Central Bank's latest announcement of a further 25 basis points increase in the key policy rate, DNB announced re-pricings with effect from end of January, which is estimated to have an annual NII effect of NOK 1.2 billion.Please note that these indicated effects are based on the current composition of the portfolio. Net commission and fees comes in at NOK 3 billion, reflecting strong performance across the product areas and close to the record high level we saw in the fourth quarter 2021. The results from real estate broking reflects a market with fewer properties out for sale. Investment banking delivers a solid underlying results, mainly driven by M&A and debt capital markets, up from the third quarter, but down from the corresponding quarter in 2021. That was, however, an all-time high quarter driven by extraordinary high activity level in the capital markets as we didn't see in 2022.Asset management and custodial services were up 27.9%, driven by performance fees. In the fourth quarter, we also saw a positive net inflow of NOK 17 billion, both from institutional customers as well as retail customers. We note, as Kjerstin pointed to, that our personal customers remain committed to their savings schemes, but that they, on average, save a little less each month. Money transfer and banking services continues to increase, up 58.7%. The positive development is driven by increased use of cards above pre-pandemic levels, combined with lower costs.Fees from sale of insurance product is up 9.3%. There was a stable underlying development, so the result in the fourth quarter was positively affected by a change in the fee structure related to the closed defined benefit scheme, which added the full year effect in the fourth quarter. Operating expenses were up NOK 1,075 million compared to the previous quarter, reflecting seasonally high level. This led to an increase in activity and variable-based expenses of NOK 323 million. We also recognized NOK 125 million of nonrecurring items, which is predominantly related to an one-off expense in Poland as well as the full year effect of the part of the increased employer's national insurance contribution that are related to bonus earned during 2022, but being paid out in 2023.Pension expenses are up NOK 199 million, approximately NOK 85 million above what is normalized levels, reflecting higher return on the closed defined benefit scheme. The scheme, as you know, is partly hedged, and you can therefore find a corresponding net gain on financial instruments. Salaries reflect higher activity levels and further strengthening of strategically important competence. The credit portfolio remains robust and well diversified with 99.1% of the portfolio in Stage 1 and 2. We do not see any significant structural change in the behavior among our customers, but note that our personal customers to an increasing degree are in contact with us to seek advice on how to handle increased costs and interest rates.We note a slight increase in request for installment holidays but not to the extent that, that would cause a concern about the credit quality. For the personal customers, impairment provisions were NOK 147 million, mainly driven by our small portfolio in unsecured lending. For the corporate customers, impairments were NOK 527 million. For Stage 1 and 2, there are some additional reserves in commercial real estate, retail industries and service industries, but these are offset by some reversals for offshore, where we over time, have seen an improved market condition.The increased impairment provisions we note in Stage 3 is mainly driven by a shift to model-based impairment provision for smaller exposures in the small to medium-sized enterprises and is thereby connected to the additional reserves mentioned in Stage 1 and 2 related to commercial real estate, retail and services. We reiterate that our 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 customer-specific events has increased.Now moving on to capital. Our capital position remains strong at 18.3%. This gives a headroom to the current NFSA expectation of 175 basis points and 130 basis points above the long-term expectation of 17%. Solid profit generation, FX effect and decreased counterparty risk contributed positively to the core Tier 1 capital ratio during the quarter, which was offset by increased payout ratio and the share buyback program we announced today. The leverage ratio was 6.8%, well above the regulatory requirement. With a strong core Tier 1 capital ratio and strong profit generation, we remain committed to our dividend policy as proven by the Board of Directors' decision proposed dividend and announced share buyback program today.Summing up, we delivered a strong result in the fourth quarter driven by high-quality income and good performance across customer segments and product areas. Return on equity came in extraordinarily high at 16.2%, driven by the recognized positive tax effects related to the closing of our subsidiary in Singapore. But with a normalized tax level of 23% return on equity would still have been 13%. Earnings per share came in at 6.2%, an increase of 31.2% from the last quarter and 65.2% from the corresponding quarter last year.With that, I would like to thank you for your attention.

[Thomas Midteide, executive]

Thank you, Ida. As usual, we'll open up for questions. And our online views, my type in questions as well. We'll start off with Johan Strom on this row behind Harald and then Vegard Toverud.

[Johan Ström, analyst]

Thomas, two questions. First, on the buybacks, 0.5%, 18.3% CET1 ratio that gives you, of course, a very strong capital position. So why not more? And then also timing-wise, when do you expect to complete the buyback program? Second question is on costs. It's a high number even if we adjust for the nonrecurring items. So is this some kind of new run rate? Any color on this will be very good to get.

[Kjerstin Braathen, executive]

On the buybacks, the -- first of all, you're right, our capital position is very strong with 130 basis points headroom compared to the long-term expected and the required level by the FSA. Why 0.5%, that is a more practical reason due to the timing until the next general assembly, and we are currently operating under the proxy given by the general assembly last year. So, as I also pointed out, we do expect to again go to the general assembly to ask for new proxy and will evaluate further share buybacks throughout the year.Cost. Yes, costs are roughly up by NOK 1 billion in the quarter, listening to EDA statement, approximately NOK 500 million of that is seasonal or one-off related, but there are elements reflecting that we have grown our investments in targeted areas throughout the year, and we are impacted by the same inflationary pressure and trends that are also impacting our top line. We remind you of our commitment announced on the Capital Markets Day, NOK 1.5 billion to NOK 2 billion gross cost initiatives. We will continue to work also beyond that, and we'll continue working towards our target longer term also to stay below the 40% that we've targeted.

[Thomas Midteide, executive]

And Vegard Toverud from Pareto.

[Vegard Toverud, analyst]

Just following up on the cost side there and especially on activity-driven costs. Should we consider this a normal level for Q4 quarter going forward? I acknowledge there are seasonalities in costs of travel and certain IT expenses and so on could be higher in Q4. So the question is more, is this a normal Q4 for you going forward?

[Ida Lerner, executive]

Well, first of all, you need to look at the one-off costs that are NOK 125 million, so of course, those can be deducted from that. There are interesting elements moving into 2023 that we all kind of are aware of in terms of inflationary pressure as well as, if you look at wage inflation that for Norway is expected to be 4.8%. That of course -- it means that we need to work even tougher and harder on further cost initiatives across the board, which we are and continuously are working on and will continue to develop on. We aren't guiding on nominal costs as you know in terms of where would a normalized Q4 level be, but what we're trying to give you is, what are seasonal effects? There was an extraordinary high activity, as Kjerstin pointed to, both in terms of customer relativity, traveling and also internal events coming up to the second half of 2022 that we don't expect to be the same in 2023 due to the fact that we are now into more of a normalized level but we are not going to guide on explicit costs in that sense but just to give you the kind of level field in terms of what's more of a normalize seasonal affect as well as extraordinary.

[Vegard Toverud, analyst]

[indiscernible] open with your thousands of customers meetings, so I was wondering if there were any pent-up demand for customer meetings there so you can -- to explain.

[Kjerstin Braathen, executive]

I wouldn't call it pent-up demand. But again, we are focusing very much on strengthening our position as an economic adviser and believe that we actually have relevant competence in an area that is of increasing interest to people, not related to the pent-up demand due to the pandemic, I would say, but rather related to the times that we're in, where uncertainty is higher, consumer confidence is lower and people are paying more attention to the planning of their economy.Going forward, 1 of the things that we see is also substantial uptick in the use of our budgeting tool that we have in the mobile banking app. So, these are times where we also see that we can deliver lot of advice digitally but we also do so physically and see this as an opportunity to deliver customer log that is also accretive for value creation longer term.

[Vegard Toverud, analyst]

And Ida mention if I understood you correctly that you have increase some provisions on the consumer finance book in the retail segment. Could you give some details to why you have done this? And also, connected to that, are you using the unemployment projections from DNB markets in your loan loss provision models?

[Ida Lerner, executive]

Yes, that's right. We are -- in our macro estimates we primarily use DNB markets and then we also balance that up against if there are big deviations across the board then we look upon those as well. But you're right in terms of it's DNB market's projections that are in there. When it comes to the unsecured lending, first of all it's important for me not to over highlight, this is a small increase overall in the portfolio, but it's more to say that we aren't seeing any negative developments in the mortgage portfolio at all. And we have a very, very small unsecured lending business and that's more macro driven than anything else.

[Kjerstin Braathen, executive]

On unemployment though, important to bear in mind that yes, we are talking about the expectation of somewhat higher level of unemployment but still a very low level. So, we -- I mean, it's not only about the delta, it's also about the nominal level we're at and it's now expected by markets and I believe most other economist to top out around the area of 3% which used to be full employment when I was in school. It's a long time ago. But these are not levels that triggers severe migration or losses from a modeling perspective.

[Thomas Midteide, executive]

Next up is Jan Gjerland, ABG. Row #4, economy plus.

[Jan Gjerland, analyst]

Follow up on the first question about capital distribution. You were at the 75 before the pandemic and then you went out to 63 and now just 65. Was it hard to get out sort of this level from the FSA or the Board of Directors or how should we read your sort of long-term distribution policy? Is 75 the old one or 65 the new or is actually 75 the new one going forward? Just to understand where you stand on the capital direction?

[Kjerstin Braathen, executive]

And as you well know, Jan Erik, our dividend policy is not built up around a specific payout ratio. It is built up by the component of a cash dividend, which is above 50% of the result as well as a commitment to grow nominal cash paid out per share per year, which we have been doing all the way through the pandemic, now including a substantial pick up for the year 2022. In addition to this, we use share buyback as a tool to optimize around the desired capital level. We haven't used share buybacks for a while due to the pandemic and reasons related to also regulatory restrictions for a while. I think today is a sign that we have a very strong capital position. And as for our Board, they have a very solid and insightful view both of the performance and the results and also the sound environment that we're operating within.

[Jan Gjerland, analyst]

Follow-up on costs then. The run rate here, it seems to be somewhat lower than what you showed us due to some high variable payments as well as some one-off costs. But how should we read your sort of cost increase in the AML and IT situation? Is this a new level? Or is it -- have you invested more this quarter? Or is it just that you know about a plateau level and you should sustain it from there rather than sort of increase it from this level? How should we read you there?

[Kjerstin Braathen, executive]

We aren't referring to AML or KYC at all in terms of the cost guidance or what we talk about in terms of increase of cost. What we have said is that we have increased in staff and competence in areas that are strategically important for us, of which one is, of course, going back to what we've said in terms of converting external consultants to internal employees when it comes to engineering and technology. So that's one of the drivers. And then, of course, compliance is an area that we continuously work on and want to ensure that we don't underinvest in.But there is no, and we also don't communicate kind of what is the level of AML KYC. We integrate AML, KYC and all kind of regulatory requirements into our core processes and work systematically with those towards our customers and in our customer segments as well.

[Jan Gjerland, analyst]

Just have one follow up the. How many people are then employed just purely on the financial AML situation in your bank?

[Ida Lerner, executive]

We don't explicitly say that because, as I said, we integrate AML and KYC into all our core processes. So that means that we could either account for all account managers and say that, that's part of the AML and KYC process but actually, it's kind of far more than that. And it's included in everything that we do and in all dialogue with our customers and also in -- both in terms of on-boarding, but systematically also in the credit process, for instance.

[Kjerstin Braathen, executive]

But we can add that the number of people working on this today compared to a few years ago is substantially higher, as you would find in any banks, I would say. I think 1 way to look at your -- or to try to answer your question is to say that anything and any buildup leaves room for increased efficiency, building processes and strengthening areas, you establish the processes and procedures. And then you look at how to optimize and how to increase efficiency, which is why I always say that we will never run out of opportunities to increase efficiency. And we are at a different level than we have been. And I think we expect that ending this year, there will be fewer people in total than what we are today.

[Thomas Midteide, executive]

Okay. Next up, Thomas Svendsen, SEB.

[Thomas Svendsen, analyst]

Yes. Maybe the final question on costs. Looking at the numbers where we have been successful in outsourcing the IT people and reduced IT consultant costs. Is it fair to assume that this process is over or mostly over or could you say to what degree is it over, this in-sourcing process?

[Kjerstin Braathen, executive]

We continue to look for opportunities to convert consultants over to internal employees and to strengthen the in-house competence on tech. I would like to highlight that for tech, we're much more focused on the value we extract from the activity than the cost. Both are important, but the difference between having good competence and working well together versus the opposite, far outweighs, I'd say, the number of head count in the area. And this is an area where I must say, I'm particularly pleased to see the development across business and tech and the results that we see of having changed our model towards a more agile family-oriented way of operating over the past couple of years. We did highlight under the Capital Markets Day that we will step up our initiatives under -- in modernizing our IT setup.We will continue to innovate and increase the pace of innovation to customers. So technology will continue to be an ever more important piece of our business. We are excited but not fully read up on the opportunities by ChatGPT being an organization that uses chatbot services, to a large extent, to create value for our customers. So this will be an important area. And again, I would highlight the commitment of a cost base of less than 40% as the target we are committed to and working on tech for maximizing value extraction, both for customers and other stakeholders.

[Thomas Svendsen, analyst]

Okay. And just on the number of employees, it continued up in the quarter. So did I hear you right, it's fair to assume it's stabilizing now, the total number of employees?

[Kjerstin Braathen, executive]

Yes.

[Thomas Midteide, executive]

Okay. So following our online views, we have Head of Investor Relations, Rune Helland, and he needs a microphone. Rune loves DNB so much that he's celebrating his birthday today with us. In addition to the NOK 10 billion you got this morning, we have baked you a birthday cake. So this is for you. The line is open Rune.

[Rune Helland, executive]

Thank you so much. Okay. Over to the Q&A. Question from Sofie Peterzens from JPMorgan on deposits. Could you please detail your deposit split between transactions and saving accounts? How much of the quarter-over-quarter deposit outflow was from transactions and savings accounts, respectively?

[Ida Lerner, executive]

Yes, absolutely. So as I believe we mentioned before, the split is approximately 25-75, where we have 75% of some kind of savings accounts and that remains to be the same. There aren't any change in terms of what we're seeing in movements there. We see some movements in between savings accounts and in terms of that focus, but not any particular change on the overall deposit base. When it comes to -- sorry, I forgot the last part of the question.

[Rune Helland, executive]

That was, how much of the quarter-over-quarter deposit outlook was from transaction and savings accounts, respectively.

[Ida Lerner, executive]

Well, as we said, personal customers had a very stable deposit during the quarter. And where we saw outflow was in large corporates, predominantly large corporates related to the oil and gas industry, where they paid the tax, and that's not on transactional accounts or savings accounts, definitely not savings account.

[Rune Helland, executive]

Very good. I got a couple of questions, there's a need to repeat the effect of the glass re-pricing from -- effective from January.

[Ida Lerner, executive]

Yes. The latest re-pricing, which will be implemented end of January has an annual, as expected have an annual NII effect of NOK 1.2 billion.

[Rune Helland, executive]

Very good. That was it.

[Thomas Midteide, executive]

Okay. Any more questions from the audience? Yes, Jan Erik Gjerland, ABG.

[Jan Gjerland, analyst]

Just back to the provision levels. You highlighted that there were some -- could be some individual corporate or exposure that could, of course, go into more difficulties. How should you read your book then? Is it the private equity firms that have leveraged up a lot? Is it commercial real estate? Is it anything else that you'd sort of get worried about outside Norway because you've been growing quite fast outside Norway? So how should we read your foreign book versus your Norwegian book?

[Kjerstin Braathen, executive]

We're very comfortable with our book overall, both internationally and in Norway. The picture and the reserves we have taken during the fourth quarter is indeed reflecting our full view on our activities and our portfolio. So you shouldn't read more into the statement of highlighting customer-specific risk than just the surroundings, which we all know have increasing inflationary pressure, higher electricity cost. But we have very clearly stated that we don't see any sectorial worsening. We don't see any material migration or any systematic development in our portfolio. We've looked very closely at various sectors of our portfolio including private equity, including LDL exposures, including commercial real estate. And what we see is what you see reflected in our numbers as of today.

[Jan Gjerland, analyst]

Could you -- just follow-up specify sort of your management overlay to your provisions?

[Ida Lerner, executive]

Yes. We don't specify the management overlays. But what we indicated that you saw in this quarter, you saw that we have added some additional impairment reserves in commercial real estate, retail industries and services. That is in Stage 1 and 2, somewhat offset by the offshore reversals that we saw. So I mean, overall, what we do is that we -- as we've talked about before, we look at the surrounding. We look at what's happening around us. What is not seen in our portfolio today that we anticipate could potentially happen on a more structural basis.And that's something that we take into account when doing the model adjustment as well in Stage 1 and 2 and now also on the SME, smaller SMEs in Stage 3. And that's, of course, also another efficiency initiatives from our part in terms of actually working automation.

[Jan Gjerland, analyst]

Can I have just one more question regarding Sbanken. If you look to the lending growth in Sbanken, if I heard you right it was 3.4 something quarter-on-quarter. And if so, you have just one in total for the personal customers. So it means that the DNB brand is probably shrinking. Is it so that it's cannibalizing on the DNB brand versus the Sbanken brand? And are you allowed to keep Sbanken brand down the road?

[Kjerstin Braathen, executive]

We did have a growth in both brands also during the fourth quarter. But you are right, the growth in Sbanken was much higher than DNB. This also goes for the year and keeping in mind that nominally, that's not necessarily true, but we're talking about percentage-wise growth in a portfolio that is much smaller. For Sbanken, we have seen a growth of, I believe, 15%-plus since we took over as owners. And I would just like to highlight that we're very pleased to see the performance of the team and the value of them being able to really focus where they are best.They are best in something else than the DNB brand. DNB brand, typically, we have a very strong market share in the home acquisition moving phase, whereas Sbanken is stronger at refinancing. And we do see the refinancing activity in the market, now also taking a bigger part of the credit growth share in the market. So moreover, we are talking complementary brands. There were some shifts between the 2 brands before. We own them. Now we're more focusing on the value creation in total and certainly feel that we have a strengthened platform and more opportunities ahead.

[Thomas Midteide, executive]

Okay. I think that is the end of the Q&A session. So customers, shareholders and hardworking analysts we wish you all a fantastic day.