DnB NOR Group. Roar Hoff, Head of Group Risk Analysis. Nordic Bank Seminar, 3 June 2010, Copenhagen

Transcription

1 DnB NOR Group Roar Hoff, Head of Group Risk Analysis Nordic Bank Seminar, 3 June 2010, Copenhagen

2 Agenda DnB NOR and the Norwegian economy Basel III new regulations Actions ahead of Basel III 2

3 DnB NOR - Norway's leading financial services group The Bank: 30% market share of the retail market 35% market share of the corporate market lending Credit Ratings: Moody's: Aa3 (stable), S&P: A+ (stable) Norway's largest life insurance company Market capitalisation of NOK 105 billion (EUR 13.2 billion) The Norwegian government has 34% ownership 3

4 1st quarter 2010 Sound pre-tax operating profit before write-downs: NOK 4.9 billion (6.1) Continued positive cost trend Lower than expected write-downs on loans: NOK 0.9 billion (1.6) Profit to DnB NOR's shareholders: NOK 3.1 billion (3.1) Return on equity: 12.5 per cent (15.8) 4

5 Norway's economy less hit than the other Nordics. Why? GDP, seas. adj. Per cent change since 2008Q1 Q Q Q Q Q US Jap. EZ UK Den. Fin. Sw e. Nor Unemployment rates, % Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 EZ Sweden USA Denm ark Finland Norw ay 5

6 1) Unlike other industrial nations "Luck", but more exposed to China than others Norwegian goods exports, % Manufacturing production Pct. of total gross value added (2007) Average Oil/gas Chem. Metals Pulp/paper Food Shipping Machinery Tourism Other NOR AUS FRA USA ESP NZL POR BLG ITA IRE GER JAP SWE FIN 6

7 2) Expansionary monetary/credit policy High share of floating rate mortgages. Folio rate cut from 5¾% to 1¼%. Similar decline in lending rates => 4½% increase in disposable income Also: NOK350''' to OMF <-> t-bills, 50''' to SOF and 50''' to SFF (30/9). 7

8 3) Large and rich public sector! General gov't employment Per cent of total employment (2007) Average OECD: Net debt, %GDP 5 0 JPN NLD AUS ESP PRT USA ITA BLG UK CA FRA FIN DNK SW NOR US EZ Norw ay 8

9 Oil wealth gave room for action "Underlying" expenditure +5,6% in 2009, the highest since mid- 1970s. Budget stimulus of +2.1% of Mainland GDP in 2009, +0.8% in 2010 the largest since the late 1980s/early 1990s (despite milder downturn). 6 Underlying expenditure Pct. volum e change (RNB2010) 0 Structural budget balance Pct of trend-gdp Mainland Norway

10 10 Basel III new regulations

11 Several analysis conclude that the proposed Basel III will be too tough on traditional banking models Equity capital requirements for global banks $221bn* RoE for global banks down from 13.3% to 5.4%* Increased funding needs Reduced lending growth Increase in prices Customers and economies will be negatively affected * Source: JP Morgan analysis: Global Banks - Too big to fail? Running the numbers 11

12 DnB NOR will be among the least affected of the European banks Capital deductions - Deductions for insurance subsidiaries already accounted for - Deferred tax assets and goodwill fully deducted Capital level - Already compliant - High-quality composition Counterparty risk - Minimal exposure to derivative markets 12

13 Only proposed changes in net stable funding ratio will create a shortfall Leverage ratio - Strong capitalisation and business model Deposit guarantee scheme - Already above EUR and well funded Liquidity coverage ratio - Compliant as of today? Net stable funding ratio - Shortfall, deposit haircuts are unreasonably high 13

14 A very robust and high-quality capital structure Tier 1 capital ratio Nordic peers 1Q2010, Basel II Core Tier 1 Hybrid 11.2 % 1, % 4, % 2, % 2, % 1,2 9.4 % 0, % 1, % 1,1 10,1 9,3 12,1 11,7 12,3 8,6 11,0 12,6 Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 DnB NOR DnB NOR* DnB NOR** * Full implementation of IRB **Full IRB and Swedish model for calibrating insurance exposure 14

15 IRB risk weights are not comparable across banks DnB NOR corrected to 9,1% (8,7%) Standard & Poor s advanced standarised approach 15

16 Traditional hybrid does not share risk with common equity Tier 1 capital excluding minority interests Deductions NOK11.7 billion Loss absorbtion Other equity NOK 62.9 billion Share premium reserve NOK22.6 billion Share capital NOK16.2 billion Hybrid NOK 8.5 billion Hybrid write-down ranks pari passu with share capital 16

17 The strongest leverage ratio among Nordic peers Leverage ratio* Nordic peers 1Q2010 5,4 % 3,8 % 3,7 % 3,8 % 4,4 % 4,3 % Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 DnB NOR * Tier 1/total assets 17

18 13 per cent return on equity in 2012 (and beyond) just as ambitious as the 16 per cent target set in 2007 Simplified illustration of effects of changes on RoE targets set in 2007 and in % Interest on equity Increased capitalisation 13 % Interest on equity Contribution from leverage Lower interest rates Contribution from leverage

19 19 Actions ahead of Basel III

20 Strengthened capitalisation levels through retained earnings and NOK 14 bn share issue in ) Including 50 per cent of profit for the period 20

21 Raised level of long-term funding, tightened internal limits for short-term funding Average residual maturity, long-term senior debt and covered bonds (years) Share of stable long-term funding* Internal target** ** * Deposits from customers, subordinated debt, covered bonds and senior debt > 12 months residual maturity ** Internal target for stable long-term funding increased from 88% to 90% in

22 Stable access to long-term funding longer maturities at competitive prices 2010 NOK billion Maturity Covered bonds Senior bonds Spread (3-month Euribor) Total bp 2009 NOK billion Maturity Spread Covered bonds Covered bonds, Norges Bank (central bank) Senior bonds Total bp 2008 NOK billion Maturity Spread Covered bonds Covered bonds, Norges Bank (central bank) Senior bonds Total bp 22

23 Further issues Continued focus on long term funding - Increased emphasis on funding diversification by geography and by instruments (e.g. DnB NOR Næringskreditt) Controlled balance sheet growth Provide for more selective deposit gathering strategies High attention on Basel III signals - uncertainties on final definitions and calibrations 23

24 Financial ambitions Ambitions 2012 Long-term ambitions NOK billion in pre-tax operating profits before write-downs Return on equity above 13 per cent NOK 2 billion in cost reductions Be among the best capitalised banks in the Nordics Cost/income ratio below 46 per cent Long-term AA rating Approx 50 per cent dividend 24

25 Thank you