DnB NOR 2008-2010 Norway and beyond Presentation by Rune Bjerke, group chief executive Capital Markets Day, 9 October 2007
DnB NOR has a strong track record Development in pre-tax operating profit before write-downs (NOK billion) How will DnB NOR deliver? 25 20 15 10 9.4 12.5 14.1 10% annual average growth rate 20 billion Utilise Norwegian growth potential Cost improvement in Norwegian operations Accelerate international growth opportunities 5 0 2004 2005 2006 2010 2
NOK 20 billion in 2010 Pre-tax operating profit before write-downs 3
Two new financial targets RoE above 16 per cent 10 per cent average annual growth in pre-tax operating profit before write-downs 4
Other ambitions Cost/income ratio below 46 per cent by 2010 Dividend policy and capital management Core capital ratio approximately 6.5 per cent Approximately 50 per cent of annual profits distributed as dividends DnB NOR Bank ASA's ratings for long-term debt: AA level 5
Norwegian economy 6
Strong Norwegian GDP growth Real GDP per capita (USD 2006) 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 1970 1976 1982 1988 1994 2000 2006 Norway Sweden Finland Denmark Source: ERS International Macroeconomic Data Set 7
Commodity-based economy still substantial potential in the oil and gas industry Norwegian GDP per sector 2006 Norwegian oil and gas resources Other 67 % Fishing 1 % Oil and gas 26 % Produced resources 35 % Energy (ex. oil and gas) 2 % Remaining resources 65 % Shipping and transportation 4 % Sources: Statistics Norway, revised national budget 2007 8
Strong Norwegian fundamentals -Government Market value of Government Pension Fund Global compared to Norwegian GDP (NOK billion) 2 500 2 000 1 500 1 000 500 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Market value GDP Source: Statistics Norway and Norges Bank 9
Strong Norwegian fundamentals -Households Household debt and wealth (NOK billion 2006) 6 000 5 000 4 000 3 000 Other assets Bonds and shares Pension reserves Deposits and cash Housing wealth 1) 2 000 1 000 0 Debt Other loans Mortgage loans Wealth 1) Estimates Sources: Norwegian Association of Real Estate Agents, ECON, Finn.no, Association of Real Estate Agency Firms, Statistics Norway and Norges Bank 10
Strong Norwegian fundamentals - Corporates Equity ratio for companies (limited and public limited) in Norway % 50 40 30 20 10 0 1994 1996 1998 2000 2002 2004 2006 2Q/2007 Source: Statistics Norway 11
Are we too optimistic? 12
DnB NOR has limited exposure to financial turmoil 90 per cent long-term funding 60 per cent deposit ratio No subprime or US mortgage exposure No investments in or guarantees given to conduits Untapped potential in covered bond markets 13
Sound future prospects for DnB NOR Strong outlook for Norwegian economy Positive outlook for "Norwegian" business sectors and consumers No material impact from financial turmoil 14
Development in lending volumes Average lending volumes (NOK billion) 571 607 643 680 725 771 817 853 890 1) Total lending 2) 318 252 333 269 349 287 365 304 379 327 393 351 406 375 417 393 428 411 Retail Banking Corporate Banking Dec. 2004 Dec. 2005 Dec. 2006 Aug. 2007 1) Of which DnB NORD: NOK 51 billion Total lending excluding DnB NORD: NOK 839 billion 2) Excluding lending to and deposits with credit institutions and impaired loans 15
Development in deposit volumes Average deposit volumes (NOK billion) 448 466 429 410 392 374 357 502 537 1) Total deposits 2) 222 208 194 167 180 191 194 197 202 188 236 206 250 211 268 218 286 225 Corporate Banking Retail Banking Dec. 2004 Dec. 2005 Dec. 2006 Aug. 2007 1) Of which DnB NORD: NOK 19 billion 2) Excluding deposits from credit institutions 16
Development in average interest rate spread 1) Per cent 2.43 2.36 2.39 2.39 2.29 2.23 2.19 2.12 2.15 2.14 2.08 2.04 2.04 2.09 Combined spread 1.73 1.70 1.67 1.66 1.61 1.54 1.47 1.40 1.40 1.35 1.25 Lending spread 1.15 1.09 1.08 0.70 0.66 0.72 0.73 0.68 0.69 0.72 0.72 0.75 0.79 0.83 0.89 0.95 1.01 Deposit spread 1Q 04 2Q 04 3Q 04 4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 1) DnB NOR Group, excluding lending to and deposits from credit institutions and impaired loans 17
New strategic direction Norway and beyond Norway and beyond Diversified and international Merger and integration Growth in Norway Increased efficency International opportunities 2004 2007 2008 2010 2011 20xx 18
DnB NOR has a unique platform in the Norwegian market More than 30 per cent market share in all segments The largest customer base The most extensive distribution network Retail 34% of deposits 29% of lending Corporates 37% of deposits 34% of lending 1) 35% of life insurance 38% of mutual funds No 1 investment bank 2 200 000 retail customers 200 000 corporate customers 1 000 000 individuals insured in Norway 650 000 retail mutual fund customers 203 DnB NOR branches 12 regional trading desks 14 Postbanken sales outlets 300 post office counters 1 160 in-store postal outlets 18 Vital sales offices 53 Vital agent companies Internet banking Mobile banking 1) Including loans from commercial and savings banks. Sources: Norges Bank and DnB NOR 19
1 30-40 per cent market share in Norway Still potential for growth in home market? 2 Cost/income ratio below 50 per cent - Possible to further reduce costs? 3 Limited international presence - Opportunities ahead? 20
30-40 per cent market share Still potential for growth in home market? Introduction of new products and services Establish non-life insurance company (retail) Increase share of flexible mortgage loans 1 Strengthen distribution and market position Introduce 1 500 in-store banking outlets Intensify sales force in regions with potential for increased market share 2 Utilise cross-sale potential Establish incentive structures that encourage cross-unit sales and cooperation 3 21
Well positioned for further growth in SME and large corporates Increase market share in coastal regions Increase market shares in areas surrounding large cities (Trondheim, Stavanger and Bergen) Obtain no. 1 or 2 position in largest cities Trondheim Maintain market position in eastern Norway Build on existing customer relationships Increase sales to existing customer base Obtain no. 1 or 2 position in largest cities Strengthen regional industry focus Focus on energy, oil service and technology Bergen Stavanger Oslo Market shares (deposits and loans) >40% 30-40% 20-30% 10-20% <10% 22
Establish incentive structures that encourage cross-unit sales and cooperation Large corporates SMEs Private banking Retail customers Risk management and capital market products Asset management and savings products Pension and life products Leasing and factoring Non-life insurance 23
Example: Leverage largest Nordic real estate broker Mortgage referrals from DnB NOR real estate brokers (Jan Aug 2007) 3 000 Oslo-North 2 500 Western Norway Best practice region performed significantly better than the other regions 2 000 1 500 1 000 500 0 Inland (Hedmark/Oppland /Buskerud) Northern Norway East coast 1 (Vestfold/Telemark /Sørlandet) East coast 2 (Østfold/Follo) Oslo-West 80-100 000 potential customers at DnB NOR's property viewings each year indicate potential Recent campaign resulted in 6 000 referrals in four weeks 24
1 30-40 per cent market share in Norway Still potential for growth in home market? 2 Cost/income ratio below 50 per cent - Possible to further reduce costs? 3 Limited international presence - Opportunities ahead? 25
Cost/income ratio below 50 per cent - Are improvements still possible? We have commenced a cost programme to reduce costs by NOK 1 billion annually by 2010 1 Potential Optimise customer processes and distribution NOK 250 350 million 2 Streamline IT and procurement NOK 150 250 million 3 Reorganise operational processes NOK 400 500 million 26
Optimise customer processes and distribution 1 NOK 250 350 million Optimise customer processes and distribution Optimise branch structure net reduction of 30 branches 2 NOK 150 250 million Streamline IT and procurement Reduce number of manual transactions related to cash services by 75 per cent by opening in-store banking outlets 3 NOK 400 500 million Reorganise operational processes Reduce postage costs by NOK 40-60 million through more online customer services 27
Streamline IT and procurement 1 NOK 250 350 million Optimise customer processes and distribution Stable IT costs 2 3 NOK 150 250 million Streamline IT and procurement NOK 400 500 million Reorganise operational processes Reduce IT operations and maintenance costs by 10 per cent Optimise purchase processes within the Group (ambition NOK 80-100 million) 28
Reduce costs within back office and operational processes 1 2 3 NOK 250 350 million Optimise customer processes and distribution NOK 150 250 million Streamline IT and procurement NOK 400 500 million Reorganise operational processes Realise synergies from reorganising operational processes within the Group (ambition NOK 200-250 million) Realise economies of scale across operations (NOK 60-70 million) Optimise and automate work processes (NOK 40-50 million) Improve facility services within the Group (NOK 100-130 million) Realise cost reduction potential within Life and Asset Management (ambition NOK 100-150 million) 29
1 30-40 per cent market share in Norway Still potential for growth in home market? 2 Cost/income ratio below 50 per cent - Possible to further reduce costs? 3 Limited international presence - Opportunities ahead? 30
Why international growth is important 1 Profitable growth opportunities 2 Stronger customer relationships when following customers abroad 3 Unique Norwegian industry competence 4 Advanced products and concepts that can easily be exported 31
International growth, but where? Corporate bank, industry dimension Universal bank, geographical dimension Build on core competence industries: shipping, energy and seafood Establish Sweden as part of our core market Further develop DnB NORD 32
International growth, but how? 1 Organic growth Branch network expansion based on core competence 2 Bolt-on acquisitions Investment criteria Strategic fit based on our competitive edges Focus on markets we know Accretive within maximum three years ROI exceeding cost of equity 33
Examples of bolt-on acquisitions in 2007 No 1 real estate broker in Sweden Strong brand and one of Sweden's most visited web sites Attractive distribution channel for mortgage loans in Sweden (200 offices) Access to a large and attractive customer base (540 000) Well-established market position and profitable business model Substantial potential for increased cross-selling BISE Bank 46 branches throughout Poland Strong foothold in the retail market, the public sector and the SME 34
Conclusion Utilise Norwegian growth potential Cost improvement in Norwegian operations Accelerate international growth opportunities NOK 20 billion in 2010 1) RoE above 16 per cent 10 per cent average annual growth 1) Highly dynamic and motivated organisation 1) Pre-tax operating profit before write-downs 35
Questions?