Dnb ASA

OTC:DNBBY

Earnings Call Analysis

Strong Q1 results with impressive return on equity

DNB reported strong Q1 results for 2024 with a NOK 10.2 billion profit. The return on equity was 15.6%, surpassing the 13% target, and earnings per share increased by 9.3% from the previous quarter to NOK 6.48. Despite a 2.9% decline in net interest income due to lower credit demand, fee and commission income saw its best first quarter, especially in asset management. With a robust capital position and a 19% core equity ratio, DNB remains on solid footing. The Norwegian economy's stronger-than-expected start and projected growth of 0.8% for the year underpin the bank's positive outlook.

A Strong Start to the Year

DNB reported a robust start to the year, with the Norwegian economy performing better than anticipated. Profits for the period reached NOK 10.2 billion, a return on equity of 15.6%, well above the minimum targeted level of 13%, and an earnings per share increase of 9.3% from the previous quarter.

Loan and Deposit Growth

Loan volumes saw a modest increase of 0.7%, with corporate customers up 2.8% amid strong end-of-quarter momentum. Conversely, personal customer volumes were down by 1.4%, primarily due to lower average market growth and the integration of Sbanken. Deposit volumes rose notably by 3.9%, with corporate deposits surging by 7.2%, while deposits from personal customers saw a slight decline of 0.9%.

Integration of Sbanken

The integration of Sbanken into DNB had a noticeable effect this quarter, particularly affecting retail growth. Despite the initial disruptions, the integration is now complete, marking a significant milestone that is expected to foster innovation and long-term synergies valued at NOK 300 million.

Net Interest Income and Margins

Net interest income (NII) experienced a decline of NOK 471 million for the quarter due to lower credit demand, decreased refinancing activity, and increased competition. The net interest margin fell by 3 basis points, now at 1.87%, influenced by lower average volumes and product mix effects.

Fee and Commission Income

DNB posted a record first quarter in fee and commission income at NOK 2.7 billion, a 2.6% increase from the previous year. This growth was driven by strong gains in asset management and custodial services, which rose by 30%, buoyed by a NOK 157 billion increase in assets under management.

Corporate Banking Highlights

Corporate banking displayed high activity, especially in export-related industries and renewable energy. Lending volumes increased by 2.8%, while deposit volumes surged by 7.2%. Despite a slight dip in pre-tax profit due to market-to-market adjustments, DNB maintained its top position, with clients rating it as the #1 bank for payment services and trade finance.

Operating Expenses and Efficiency

Operating expenses decreased by NOK 419 million from the fourth quarter, aligned with seasonally lower activities and cost management initiatives. DNB continues its dedication to efficiency and modernization of IT systems without significantly increasing costs.

Credit Portfolio Quality

The credit portfolio remains strong and well-diversified, with 99.3% of the portfolio in Stage 1 or 2. Impairment provisions totaled NOK 323 million, epitomizing a relatively low risk cost for the quarter. Both personal and corporate customer portfolios exhibit resilience and robustness, with no significant negative trends noted.

Capital Position and Dividend Policy

DNB's capital position remains robust, with a core equity ratio of 19% and a leverage ratio of 6.2%. The bank completed its latest share buyback program and is seeking approval for further buybacks. This capital strength underpins DNB's commitment to its dividend policy.

Economic Outlook and Guidance

Looking ahead, DNB expects the positive economic trajectory to continue, with projected growth for the Norwegian economy now at 0.8% for the year. Inflation levels are expected to decrease further, with the policy rate stabilizing at 4.5%. Wage growth and a robust housing market signal an improvement in consumer spending and disposable income towards the latter half of the year. DNB guides for a long-term profitable annual loan growth of 3-4%, anticipating a slower first half followed by a more dynamic second half.

Earnings Call Transcript 2024-Q1

[Even Westerveld, executive]

Good morning, everyone. Hello, everyone. Welcome to the Presentation of the Results for the First Quarter for DNB. And thanks to the DJ for the dance music this morning. Also, welcome, everyone, on the stream following us online.And first, a few safety instructions. There is a safety exit back here and in the back on your left side, and there are no planned safety drills today.We will be presenting the results; our CEO and CFO. And then afterwards, there will be ample time for questions. Members of the press will be able to meet management outside as usual afterwards.Kjerstin, the floor is yours.

[Kjerstin Braathen, executive]

Thank you so much, Even, and a very good morning to all of you. So pleased to see so many of you here for the announcement of our first quarter result in this year 2024.It's been a good start to the year for the Norwegian economy, and the start has actually been better than anticipated. Inflationary pressure is somewhat lower than expected, a continued low unemployment, and we see some improvement in certain sectors who have been more challenged. We see improvements in the retail trade as well as the servicing industry. It has indeed also been a very active quarter across the group, which is demonstrated by the strong set of results that we deliver today.As usual, I'll take you through some of the highlights from the numbers. The profit for the period is NOK 10.2 billion and the return on equity, 15.6%; a level that is well above the minimum targeted level of 13%. Our net interest income is down by 2.9% compared to the fourth quarter, substantially up from the first quarter last year, but the downtick this quarter is impacted by a lower credit demand and lower refinancing activity.Over to fees. This is the strongest first quarter we've ever seen on the fee and commission side. It is a strong and diversified fee platform that we build gradually bit by bit. And the real strong point this quarter, I would highlight, assets under management, a continued very active saving markets that we've been working systematically with for a long time.Portfolio continues to be very robust, 99.3% of the portfolio in Stages 1 or 2. Impairment provisions for the quarter, NOK 323 million and nothing in particular to highlight from that relatively low cost of risk for the quarter. Capital position remains rock solid, 19% core equity ratio. That should be seen also in combination with our earnings per share, which has increased close to 10%, 9.3% from the previous quarter, 6.48% for the quarter. And that, in combination with a rock solid balance sheet provides a very solid base for delivering on our dividend policy.Back to the economy, as I said, a stronger start to the year than anticipated. This has led to a projected uptick in the expected growth for the year. DNB Markets previously said 0.5%, they now believe in a growth for the Norwegian economy overall for 0.8%. The activity also from the corporates and the businesses is expected to hold steady during the first half of the year and thereafter gradually pick up. Inflation levels are continuing to come down, both headline and core inflation. Headline inflation was at 3.9% for the month of March, expected to continue downwards also in the year ahead of us.Key policy rate was kept stable at 4.5% in the Central Bank's meeting during the month of March, further confirming that we have now reached the top of interest rate hikes. But DNB Markets, on the back of a stronger start in the economy, lower inflation pressure and expectations of higher spending, has pushed out their expectations for the first rate hike that was in September, and now it has been pushed out towards December this year. Rates are thereafter gradually expected to come down towards 3.25% that is seen more as the longer-term equilibrium in this cycle.Looking again at households, unemployment has remained very low and households indeed very, very resilient in this economic cycle with increasing inflation and increasing rates. They are expected to remain low. They might take slightly upwards from 1.8% unemployment, up towards 2.4%, but still at levels which are considered to be very low.This year's wage negotiations have not yet been fully completed for all sectors, but the most important wage negotiation that happens in Norway is with the industry, and they have finalized their negotiations with an agreed level of 5.2% wage growth. Others are expected to follow their lead. And this strengthens the belief and the outlook for growth this year in real wage and a growth in disposable income. This is likely to strengthen confidence. It strengthens purchasing power, and it strengthens consumer spending towards the second half and the end of the year.If we look at the housing market, there hasn't been a decrease. It's constantly been moving more positively than expected. This has also been the case so far this year. The expectations from markets is now for house prices to grow 3% this year and 6% next year. There is an increased activity in the market. There is low activity in construction. And both of these elements underlines the likelihood of continued increasing prices in the housing markets going forward.All in all, the outlook for the Norwegian economy provides a very healthy backdrop for our business going forward. All the same, we again highlight the elevated geopolitical risks and the conflicts that are ongoing, which does provide a higher level of uncertainty than we have been used to having for quite some years. And that is important to keep in mind.Turning to some of the highlights for the key business areas. In personal customers, they delivered solid financial results. Pretax profits are up 8.3% from last year, 4.6% from the previous quarter. It has been a slower quarter on growth. This is impacted by a slower credit demand and a lower activity in refinancing among others. The growth in the quarter has also been negatively impacted by the technical integration of Sbanken onto the DNB platform. This is, all the same, a very important milestone in our journey of strengthening our competitive position and our ability to both build better services for our customers as well as take out synergies from Sbanken, which is still a very strong business case and improves our competitive position overall.We continue to see very attractive growth in savings gradually quarter-by-quarter, as you can see. We continue to have net growth in sales of saving agreements. We continue to have an increased number of users in our savings app that receives very good ratings. And our retail position alongside the strong distribution position and good management has been key drivers for enabling asset management to now pass through the level of NOK 1,000 billion that they have under their actively managed portfolio.Another highlight to mention from private banking is that they have systematically, for some time, been working to build portfolio that are discretionarily mandated from their customers. That portfolio is now NOK 19 billion, closing in on NOK 20 billion, and the growth that we have seen for the past year has been at 34%. So there are many important drivers that build systematically our position and grow our presence in the savings and asset management market.Another thing to highlight strongly for personal customers is the resilience and robustness of the portfolio. Very, very few situations that are challenging and very low reserves on that portfolio overall. So overall, a very strong performance for the team in a quarter with very, very high customer activity.Moving on to corporate banking, also an area with high activity and increasing activity during the quarter, in particular in the export-related industries in Norway and in renewable and anything related to companies investing into the energy transition. We have seen a growth in lending volumes of 2.8% for the quarter on the lending side and 7.2% on the deposit side, where we continue to see that the quality and robustness of DNB provides us the trust from customers to put their deposits with us.There's been also, I'd say, a high activity from other areas than lending. Pretax profit is down and revenue also in this area is down. But if you adjust for the market-to-market elements in the previous quarters, earnings from non-lending-related activity is at par with the first quarter last year, and this was a very, very strong quarter.We have further also strengthened our position with our customers. Last year, Prospera rated us the #1 bank for corporates in general. This first quarter, we are humbled to see that our clients rate us as the #1 bank for payment services as well as trade finance. And these are areas that we have invested into both through technology and people for quite a while to continue to build services and value for our customers.A strong start to the year for DNB Markets surpassing the NOK 1 billion also in pretax profit for the first quarter this year. Strong elements being more on the debt capital market side, credit broking as well as customer-related revenue, and we continue to see how this business benefits from a broad diversified platform that reduces volatility compared to some of our peers in this area.All in all, a good quarter in both the main areas. And with that, I will leave the floor to you, Ida.

[Ida Lerner, executive]

Thank you, Kjerstin.I would now like to take you through the quarterly results in a bit more detail. Loan volumes are up 0.7% in the quarter, with corporate customers up 2.8% and 1.1% FX-adjusted. Personal customers are down 1.4%. There was a strong momentum in the Corporate Customers segment towards the end of the quarter, which provides us with a strong pipeline moving into the second quarter. Volumes in personal customers are primarily affected by lower average growth that you see in the overall market, lower refinancing activity and the technical integration of Sbanken onto the same IT platform as DNB. The latter is expected to level off and the integration is important for us, primarily from -- to ensure innovation going forward, but also to take out synergies further down the line.This is an important milestone, and we are now well positioned to create customer value and profitable growth, also supported by the increased activity that we have seen during the end of the quarter in the real estate market. We reiterate our long-term ambition of a profitable annual loan growth of between 3% to 4% over time. But as mentioned earlier, we expect this to vary year-on-year. We still expect muted growth in the first half of this year and then start to pick up in the second half, driven by the strong Norwegian economy as Kjerstin pointed to, increase in real wages as well as the underlying growth in market activity.Deposit volumes are up by 3.9%. Deposits from corporate customers are up by 7.2%, while we see a decrease in the personal customers of 0.9%. We continue to maintain a strong deposit to loan ratio of 77.3%.The net interest margin was down by 3 basis points in the quarter, now amounting to [ 187 ], driven by lower average volumes in the quarter, strong competition and product mix effects. The combined spreads in the customer segments are up 1 basis points. This includes the full effect of the repricings implemented in October as well as in November and partial effects of the repricing implemented end of February.That takes me to net interest income, which decreased by NOK 471 million in the quarter. Total effects from customer repricings and product mix effects amounts to NOK 105 million in the quarter. The effect of change in spreads amounted to NOK 162 million. Development in spreads reflects effects of repricings combined with a relatively stable money market rates. This was somewhat counteracted by lower average volumes, strong competition and the product mix effect I mentioned related to deposits, which we also saw in the fourth quarter.The decrease in NII coming from treasury relates to a flatter yield curve. Fewer interest days negatively affected NII by NOK 161 million, somewhat higher due to the effect that we see of the leap year. Volumes and FX effects decreased NII by NOK 93 million. Lending growth coming from the Corporate Customers segment came late in the quarter. FX effects was driven by a stronger average NOK during the quarter. NII in the quarter was also negatively impacted by a number of other items totaling NOK 322 million, among others, interest on impaired loans as well as amortization effects and fees.We continue to note a strong contribution from our customer-related fee income stemming from a diversified product platform. In addition to what's shown on the slide behind me, we also see a continued strong development in FICC. We delivered an all-time high first quarter results when it comes to net commission and fees at NOK 2.7 billion, up 2.6% from, as Kjerstin mentioned, a solid quarter last year.The results from real estate broking was down 14%, reflecting lower activity and the fact that Easter came in the first quarter this year compared to last year when Easter was in the second quarter. Investment banking was down 7% compared to a strong first quarter 2023. We noted a strong contribution from debt capital markets, somewhat lower activity in relation to M&A and equity capital markets. Bond issuance picked up during the quarter, and we saw that bringing increased activity towards the end.Asset management and custodial services was up 30% compared to the same period last year. Assets under management was up NOK 157 billion, driven by positive market developments but also positive net inflow effects from both our retail customers as well as institutional customers. As Kjerstin mentioned, we have now surpassed NOK 1,000 billion in assets under management. This is a solid proof that our customers continue to be committed to their long-term savings schemes, and we also see increased number of saving schemes in addition to increased savings on a monthly basis.Guarantee commission was up 0.3%, reflecting a solid demand for trade finance products also in this quarter. Money transfer and banking services was up 1.4%, driven by higher travel activity and increased income from banking services. Sale of insurance product was down by 3.6%, where we recognized the continued positive development in the non-guaranteed pension side, which is somewhat offset by a decrease in nonlife insurance.Moving on to cost. Operating expenses are down by NOK 419 million compared to the fourth quarter, reflecting a seasonally lower activity in the quarter. This is exemplified by the decrease in expenses related to variable salaries, travel and training as well as IT. Due to seasonality, the second quarter generally carries higher activity-related costs than the first quarter.Now over to the portfolio quality, which remains robust and well diversified with 99.3% of the portfolio in Stage 1 and 2. The personal customer portfolio, which accounts for approximately 50% of our exposure at default remains strong. We do not see a negative development in the portfolio, and there have been fewer requests for interest-only periods in the quarter. For the corporate customers, impairment provisions totaled NOK 212 million. The portfolio remains robust and well diversified, and there are no structural changes in the portfolio or general negative migration to note.The impairments in Stage 3 are related to customer-specific situation both in large corporates as well as in the small and medium-sized enterprises. We remain comfortable with the credit portfolio -- credit quality in the portfolio, but I would like to remind you that losses will vary quarter-to-quarter in light of the current macroeconomic environment.Now moving on to capital. Our core Tier 1 capital remains strong at 19%, with a 214 basis points headroom to NFSA's expectation. The increase in core Tier 1 capital ratio is supported by profit generation as well as the ordinary dividend stemming from the DNB life insurance business, accounting for 31 and 8 basis points, respectively. Portfolio growth and currency effects was offset by positive migration in the credit portfolio.The latest share buyback program was completed during the quarter, and the Board of Directors will seek an approval from the Annual General Assembly of buying back up to 3.5% of outstanding shares. Leverage ratio remains strong at 6.2% and with a core Tier 1 capital ratio of 19% and a leverage ratio of 6.2%, our capital position remains strong, and we are -- which will also enable us to continue to deliver on our dividend policy in the years ahead.Summing up, we delivered a strong result in the first quarter, which also reflected in our key numbers. Return on equity came in at 15.6%, earnings per share at NOK 6.48, cost/income ratio at 35.7%. I also want to point to the fact that the tax rate for 2024 is expected to be 20%, but our long-term guiding remains unchanged at 23%.Thank you. And then we open up for questions.

[Even Westerveld, executive]

Thank you, Ida, and Kjerstin, and we will take some questions from the audience. Please bear in mind to use the microphone that is handed to you so our online viewers also can listen to the question.Vegard Toverud, Pareto, first.

[Vegard Toverud, analyst]

I wonder if I could start with 2 questions here. You mentioned around NOK 300 million or more other effects in the NII in the quarter. Are those all temporary in nature so we could expect some reversals next quarter? Or is the NII for Q1 a good baseline going from here? That's the first one. And secondly, Kjerstin, you mentioned that the integration with Sbanken has weighed on the retail growth in the quarter. Is it possible to put a number on the volumes either converted into your systems or the Sbanken mortgage volumes at the end of Q1? So if we could just have a number for reference?

[Kjerstin Braathen, executive]

I'll start with the latter, and then Ida can take the various pieces in NII. We are not -- now that Sbanken is integrated into DNB, it doesn't really make sense to sort of split them out because that would be comparing apple and pears. So I can't give you specific numbers but we can confirm that it has had an impact both related to the fact that we have had to close shop for some days to do it as well as the clients experiencing a lot of changes that some reacted negatively to. It is a meaningful impact in the first quarter figure as such. Now the integration is complete. We are working on repairing what we in Norwegian would call childhood diseases and focusing on continuously improving the offering to customers, but we're not really able to give you the exact specific number.

[Vegard Toverud, analyst]

Understood. Just is it then possible to say how much volume was converted from Sbanken systems and into DNB in March?

[Kjerstin Braathen, executive]

I'm afraid I can't sort of give you any more specific details. So that -- other than saying just on a broader basis, the volumes in Sbanken are still substantially higher than when we made the initial offering in that sense, sort of confirming still a positive development. But movements more particularly month by month, we're not able to provide.

[Vegard Toverud, analyst]

No, but that's a helpful number.

[Ida Lerner, executive]

When it comes to the NII effects, there are several factors here in the other element that has moved negatively this quarter. I wouldn't say that there is necessarily a one-off. But of course, if you look at the interest on impaired loans, that's a reflection of what we're seeing in the underlying credit quality and how that has changed over time. And also, if you look at the loans or the amortization effect of fees, that's more relative to the activity in terms of the refinancing market. When we see that picking up, that should also bring about increased NII effects here.Looking at what we're seeing on the treasury side, I would say that we saw a positive development related to the yield curve last year that we are not seeing this year due to the fact that that's more stabilized today.

[Even Westerveld, executive]

Johan Strom from Carnegie.

[Johan Ström, analyst]

Two questions from my side as well. I noticed one comment on the NII slide that you gave: increased competition. Just wondering if you can elaborate a little bit about that? And then secondly, I guess many of us were positively surprised by the strong CET1 ratio in the quarter. So the quarterly bridge, can you help us a little bit on the development there, especially on the risk-weighted asset side?

[Kjerstin Braathen, executive]

Yes, we talked about competition. I think we even did so during the last quarter, and it's not unexpected, I would say, in view of a market where the credit demand has slowed down. It's been a slowing market during the second half in terms of activity related to house purchasing and an increased activity and awareness, I would say, from clients in terms of moving around. So at the moment, always we're used to having very strong competition in the Norwegian market, but now even more so as I think that the growth appetite is somewhat higher than what the demand is. So there is intense competition. No reason to believe that this changes in nature from being a rational market to anything else, but we expect competition to continue to be intense, and we expect growth to be somewhat muted in the first half due to lower demand. And then thereafter looking at the Norwegian economy with a wage settlement of 5.2%, the growth in house prices, a gradually improving outlook and a stronger sentiment for the economy. I mean this should positively impact the picture overall.

[Johan Ström, analyst]

Can I just squeeze in that Nordea was very explicit yesterday saying that they aim to grow at the size of DNB, which sounds very unrealistic. But have you seen a step-up from Nordea's competition or their behavior in the market as a reason?

[Kjerstin Braathen, executive]

I think we'll keep our comments general that competition is intense. And I would also say that we believe that is a good thing. It's a good thing about this market, and it keeps actors -- all of the banks that are active on our toes and the only way to win is by being good, both in terms of having competitive pricing, but certainly also in having a competitive offering. And we have seen varied success from different players across these markets. We believe systematically thoroughly building positions and value over time is at least our way, and we continue to focus also on profitable growth. And we have earlier said as well, in periods with larger turmoils in the markets, steep interest rate increases [ or ] a lot of focus, these tends to be the periods where we do not necessarily perform at our best. What we are seeing ahead of us are more a period where gradually economy improves. Most people have made the adjustment into a different level and an environment where all of our focus will be just on that, delivering value and improve our offerings to customers.

[Ida Lerner, executive]

On the capital side, the most important element is, as you know, the generation of the first line of defense in terms of profit generation, 31 basis points, adding to the core Tier 1 capital ratio. In addition to that, the ordinary dividend from DNB Life of NOK 887 million coming in this quarter is, of course, a positive element in terms of bringing 8 basis points. And then you rightly point to positive migration. Positive migration, we haven't specified how much that adds in, in core Tier 1 capital ratio. But I would say that, that's more customer-specific in terms of what's happened during the quarter, which has a positive element bringing to the core Tier 1 capital ratio.

[Even Westerveld, executive]

Next question from Jan Erik Gjerland in ABG.

[Jan Gjerland, analyst]

Yes. I have a couple of questions as well. When it comes to your deposit growth, you seem to be growing there quite nicely on the corporate side, especially. What kind of corporate deposits are you actually winning? Is it public sector? Is it abroad? Is it -- which kind of level [ is it as this ] shrinking in the retail area? Is the retail change a positive impact provided by the mutual funds net inflow so we actually see migration from retail savings accounts into the mutual funds since you haven't sort of picked up your pricing? And secondly, on the IT system, you have been very strong at cost over many, many years. I read an article yesterday about you changing your IT system over the next 10 years. So could you elaborate a little bit on what kind of spend [ you're thinking ] about and what kind of situation you want to see on the IT side going forward from that?

[Kjerstin Braathen, executive]

On the deposit side, you're quite right. It's a very attractive growth overall, and it's combined with some different bits and pieces. Yes, there is a higher growth in the larger corporates. These are attractive volumes at lower prices than you would see for the average deposit margins, but still very accretive to our return on equity. We manage this very carefully in view of funding and attractivity in terms of taking deposits in. It's a bit difficult to comment specifically on what were exactly the volumes this quarter. But yes, public sector, that is also tied to our position -- very strong position now as a payment services bank and attractive products that we have invested into on the IT side for quite some time. That gives us a lot of public sector clients who choose us not necessarily because of our being best on pricing, but we are the best one on the total offering. So these are very attractive volumes.Now on the retail side, as we have said, I think this goes for both SMEs and personal customers. There is an increased awareness and focus on moving money around to get the best return. Of course, we do see savings overall. So some clients choose to put money into mutual funds, and we actively encourage that and advise on a sensible sort of long-term savings strategy for our customers. But I wouldn't -- overall, there is growth. And first quarter on the retail side is usually not a very strong quarter on deposits. So there's nothing extraordinarily on the deposit side beyond, I would say, the increased awareness and moving around from -- between different types of accounts and still a very, very strong trend on savings, which we've been talking to you about for a long time in this area.IT systems, I think we've been quite clear for quite some time that we are accelerating modernization of our IT systems. This has been going on for quite a while already. We have invested a lot, as I've been mentioning, on the payment side. We're moving on to other areas. We have not indicated any substantial uptick on the cost side. I think we've been saying to you on the tech side that we don't want to spend too much. We don't want to spend too little either. And there has been a focus of strengthening the competency in-house. But we're not signaling any substantial changes in the cost level other than saying that, that area as well as the rest of the cost base is obviously impacted by the inflationary pressure in the market that we're working to offset by a lot of initiatives related to increased efficiency.

[Jan Gjerland, analyst]

But would you scrap your old system, the sort of the core basis, which is heading back to the '80s or early '90s?

[Kjerstin Braathen, executive]

Well, you know we have more than one IT system. So we innovate and build new and modernize our tech stack continuously. And I think one of the thing that we have done that we see a lot of benefit from today is that we as well are a result of having merged a lot of entities over the years, but we have one core together on these. When we modernize, we turn off some systems, and this is a portfolio that we manage gradually. And we believe the best quality comes from having the best people, and we are fortunate to have a lot of excellent people on the team and working systematically and very closely with our business to develop over time. But yes, we will turn off gradually some of the systems.

[Jan Gjerland, analyst]

Turning off system, you turned off the Sbanken system. What kind of cost benefit did you have from that, if you can elaborate?

[Kjerstin Braathen, executive]

We are not sort of giving any other specifics beyond saying that the synergies that we have announced for Sbanken is certainly still a part of the plan. We have announced NOK 300 million in total. And obviously, bringing all of our concepts and offerings onto the same platform is one important step to realize those synergies. I would say it's also even more important to build an increased attractiveness for the customers and in a pace of innovation ahead of us.

[Even Westerveld, executive]

Thomas Svendsen from SEB.

[Thomas Svendsen, analyst]

Yes. So when looking at the supplementary information, we can see that the deposit margin for personal clients declined by 20 bps last quarter and now another 30 bps for Q1. Are there any seasonality or technicalities there, accumulated deposits getting interest-bearing or something like that? Or is this just a underlying decline of 30 bps in the quarter?

[Kjerstin Braathen, executive]

Good question. I think the key driver is the lag effect leveling off that we have seen in an increasing interest rate environment. When you look at the deposits for -- or the margin, sorry, for deposits and lending, it's measured towards the money market rate, which is ahead of the repricings. And this creates a lag effect. We've seen a more stable money market rate in the past 2 quarters. So then the repricings are seen more clearly in the margin. So that would be the absolute largest impact, and then you have the additional impact of customers moving their money around and more stable volume development than we saw until the third quarter last year.

[Thomas Svendsen, analyst]

And second question, you had earlier talked about the jaws or the income growing faster than costs. And now you are pointing to this attractive high above 5% wage increase. Do you think it's possible to the next 12 months, grow income faster than costs?

[Kjerstin Braathen, executive]

We always focus to grow our -- to have profitable growth in the business and to grow our nonlending-related activity faster than we grow our volumes. We've had a very high -- much higher pace on the revenue than the cost side for the past couple of years, and we'll work hard to set off impacts related to cost inflation, but we're not sort of nominally guiding on where that will end up.

[Even Westerveld, executive]

And then, Rune, any questions from our viewers online? Okay. So let's give the guy a microphone.

[Rune Helland, executive]

There's a question from Sofie Peterzens from JPMorgan. And in general, the question is, the NII decline, is it more structural? And should we expect NII weakness to continue?

[Kjerstin Braathen, executive]

The NII decline is related to a series of factors that I think we've outlined quite in detail. I mean there are more temporary impacts, such as the number of interest rate days and there is a lower credit demand and lower refinancing activity and increased competition. I think there are also activity-related elements that Ida has pointed to in relation to amortization and fees that are more activity-based that will vary from quarter-to-quarter. I think the important thing to look at is the development in the housing market that is improving in terms of activity. That lines up with the growth in disposable income and the outlook for the Norwegian economy that is expected to strengthen throughout the year. So I wouldn't point to anything structural other than the fact that we have -- we seem to have reached the top in terms of interest rate hikes this time around and consumer activity is impacted by absorbing the impacts of inflation and interest rates, but seems very resilient, and we expect growth to gradually pick up again.

[Rune Helland, executive]

We do have a question from Shrey from Citibank. How are you seeing deposit composition and mix shift from transaction accounts to saving accounts progressing from here?

[Ida Lerner, executive]

Well, progressing from here, what we saw last quarter, I would like to point to that, that's when we said that we saw a shift in terms of how much of our deposit volumes that were in transaction accounts in the Personal Customers segment, then we moved from saying that we had 25% of all deposits on transactional accounts and 75% on savings accounts. That mix shifted to 23-77 last quarter. I wouldn't say that we've seen a similar activity and a shift from transactional account to savings account, but more in relation to what Kjerstin pointed to from different types of savings accounts in between types of savings account rather than moving from the transaction accounts to savings accounts.

[Rune Helland, executive]

Then we have a question from Roy Tilley in Arctic.

[Roy Tilley, analyst]

I have 2 actually. Quickly on Sbanken. I noticed you got mortgage rates by 15 basis points yesterday. Just wondering kind of the reasoning behind the decision. And as a follow-up, at what level of mortgage rates would kind of growth not be accretive anymore? Is this still a profitable level or not? And then secondly, on the migration effects on capital, if you could just touch upon which sectors you're seeing the positive migration and what's driving that?

[Kjerstin Braathen, executive]

On Sbanken, it's an initiative related to demonstrating the offensive attitude of Sbanken being a challenger, and we acknowledge that our customers have been patient. They've lived through a lot of changes that they haven't asked for. We have had very strong and competitive prices in Sbanken, but we're doing an initial effort to show that we are serious saying we are going to build the best customer offering that is out there. And this is just the start. With regards to accretiveness and profitability, I mean, we manage a portfolio with different offerings and different prices, and we do not sort of specifically state on individual elements, but I can assure you that we do focus on profitable growth and development of the business.

[Ida Lerner, executive]

And when it comes to the positive migration that you saw in the quarter, I think you can see from the fact book that, that was partly -- it's customer-specific, but it's partly commercial real estate, but you also see it in the oil-related industries similar to offshore.

[Rune Helland, executive]

We have a last follow-up question from Vegard, still on? You can get the benefit of the doubt to have one extra question today.

[Vegard Toverud, analyst]

You mentioned the lower fee contribution -- you mentioned the lower contribution from nonlife. Is that from a volume or margin? And can you then, in your answer, since it's only one question, elaborate on how your growth efforts there are going? And in connection with the merger, if there's any change to the level of fees?

[Kjerstin Braathen, executive]

We're still very happy with the merger, and we're merging with more in the nonlife area with [ Sbanken ]. And we do continue to see it as a very important element into our product sector. And we believe one of the strong points is where we see we offer our customers a lot of products that tends to drive satisfaction. So that's more of a general comment.Having said that, I mean this year and part of last year was a tough year for the nonlife business where we have seen an increase in events both related to nature and other, bringing up the cost of injuries, by lack of a better term. So that industry is repricing the products. It makes it challenging on the sales side because it's hard to compare an offering. This happens gradually into the markets. I think that is one element that certainly impacts the activity level. It is still a very attractive and profitable business, and we're still very much committed to continuing working on that. But the activity on the sales side is impacted a little bit by how this price development is moving.Was there another question? No?

[Ida Lerner, executive]

No, I don't think so.

[Even Westerveld, executive]

He seems satisfied. Thank you so much, everyone. Thank you, Kjerstin. Thank you, Ida. And for those of you from the press, if you are not on the list yet, then you can contact [indiscernible] in the back there, and he will put you on the list. Thank you, everyone, for listening in, and have a good day.