RESULTS DNB GROUP FOURTH QUARTER 03.02.2017
Major achievements in 2016 CET1 ratio requirement reached one year ahead of plan. CET1 ratio 16.0 per cent. Leverage ratio 7.3 per cent, well above the upcoming requirement and peer ratios Proposed dividend per share of NOK 5.70 delivering on dividend policy Double-digit ROE, 10.1 per cent, despite capital build-up, high impairment losses and branch restructuring 2016 was a year of investing to meet the new future of banking Vipps downloaded by 50 per cent of the Norwegian population. Introduction of new product areas will contribute to profitability 2
CET1 ratio requirement reached one year ahead of plan Strategic reduction in loans to large international corporates with low profitability contributed to the increase in the CET1 ratio, but had a negative effect on net interest income Strong profits despite high impairment losses in 2016, mainly in oil-related industries and shipping 2015 was positively affected by the change of pension scheme, approximately NOK 2.0 billion 12.7 CET1 capital ratio, transitional rules Per cent 14.4 16.0 32,487 Net interest income NOK million 35,358 34,110 Pre-tax operating profit before impairment NOK million 28,689 34,096 30,830 Profit for the period NOK million 24,772 20,617 19,251 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 3
Delivering on dividend policy Proposed dividend of 49.8 per cent, NOK 5.70 per share Return on equity affected by higher capital due to build-up of CET1 capital, and impairment losses above the normalised level Strict cost control reduced underlying cost base Return on equity 1) Per cent Earnings per share NOK Dividend per share NOK Cost/income ratio Per cent 13.8 14.5 10.1 12.67 14.98 11.46 41.9 36.9 2) 40.9 3.80 4.50 5.70 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 1) Return on equity is calculated on the assumption that additional Tier 1 capital is classified as a liability 2) The C/I ratio excluding non-recurring effects relating to the change of pension scheme was 40.5 per cent in 2015 4
Underlying growth in loans of 2.1 per cent in 2016, in line with ambition Reduced volumes in the large corporate segment and growth in the personal customer and SME segments Reduction in RWA due to capital efficiency measures, mainly in the large corporate segment Underlying growth in deposits of 4.9 per cent. Ratio of deposits to loans above 60 per cent NOK billion Loans 1) NOK billion Deposits 1) 1,439 1,439 1,543 1,531 1,554 1,486 1,515 1,519 914 934 938 962 914 893 925 937 1,121 1,129 1,045 1,051 31.12.14 31.03.15 30.06.15 30.09.15 31.12.15 31.03.16 30.06.16 30.09.16 31.12.16 31.12.14 31.03.15 30.06.15 30.09.15 31.12.15 31.03.16 30.06.16 30.09.16 31.12.16 Loans at end of period Loans adjusted for exchange rate movements RWA, transitional rules Adjusted for short-term money market investments Adjusted for short-term money market investments and exchange rate movements 1) Includes NOK 45 billion in loans and NOK 36 billion in deposits in the Baltics at end-december 2016, reclassified as held for sale in August 2016 5
Combined spreads slightly down Higher money market rates in 4Q16 affected both lending and deposit spreads Expecting combined spreads to increase from 1Q17 Per cent 2.17 2.13 2.11 2.07 2.08 2.03 1.96 Lending spread 1.32 1.32 1.32 1.35 1.33 1.30 1.29 Combined spread - weighted average (0.02) 0.08 0.12 0.24 0.18 0.19 0.25 Deposit spread 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 6
Positive profit trend in fourth quarter Expecting positive trend in net interest income in 2017 due to wider spreads in all segments and reduced funding costs Higher activity in investment banking, lower impairment losses on loans and reduced taxes gave a rise in return on equity compared with 3Q16 Net interest income NOK million 9,062 8,481 8,372 Pre-tax operating profit before impairment 9,262 NOK million 7,366 7,409 6,784 Profit for the period NOK million 4,080 5,380 15.0 Return on equity 1) Per cent 10.9 8.5 4Q15 3Q16 4Q16 4Q15 3Q16 4Q16 4Q15 3Q16 4Q16 4Q15 3Q16 4Q16 1) Return on equity is calculated on the assumption that additional Tier 1 capital is classified as a liability 7
Strong profits before impairment losses Personal customers Small and medium-sized enterprises Large corporates and international customers NOK million Reversals on impairment losses Impairment losses 2,474 2,503 2,479 927 883 1,047 2,006 1,521 1,628 Pre-tax operating profit 4Q15 3Q16 4Q16 4Q15 3Q16 4Q16 4Q15 3Q16 4Q16 Loans 1) 696 707 718 Spreads 2) 1.34 1.22 1.19 220 227 232 1.49 1.55 1.54 579 554 531 1.24 1.29 1.29 1) Average loans to customers in NOK billion 2) Combined spread weighted average, in per cent 8
Income statement Full year Full year Amounts in NOK million 4Q16 3Q16 4Q15 2016 2015 Net interest income 8 372 8 481 9 062 34 110 35 358 Net commissions and fees 2 136 2 016 2 082 8 280 8 862 Net gains on financial instruments at fair value 1 689 1 411 2 164 6 513 8 683 Net financial and risk result, DNB Livsforsikring 232 154 (681) 664 (389) Net insurance result, DNB Forsikring 181 148 132 648 534 Other operating income (9) 200 129 1 948 959 Net other operating income, total 4 230 3 929 3 825 18 053 18 648 Total income 12 602 12 409 12 888 52 163 54 006 Operating expenses (5 213) (5 042) (5 437) (20 693) (21 068) Restructuring costs and non-recurring effects 19 (1) 1 811 (639) 1 157 Pre-tax operating profit before impairment 7 409 7 366 9 262 30 830 34 096 Net gains on fixed and intangible assets (12) 20 (9) (19) 45 Impairment of loans and guarantees (1 753) (2 176) (1 420) (7 424) (2 270) Pre-tax operating profit 5 644 5 209 7 833 23 387 31 871 Tax expense (290) (1 130) (1 077) (4 140) (7 048) Profit from operations held for sale, after taxes 26 1 28 4 (51) Profit for the period 5 380 4 080 6 784 19 251 24 772 Profit attributable to shareholders 5 143 3 952 6 658 18 656 24 398 Transfer of risk equalisation fund to policyholders premium reserve in 4Q15 One-off effect from Visa transaction in 2Q16 Cost reductions due to restructuring initiatives. Non-recurring effects stemming from change of pension scheme in 4Q15 Impairment mainly in oilrelated industries and shipping Tax rate of 18 per cent 9
Commissions and fees on the rise Investments in new products affect commissions and fees in the short term Reduction year-by-year, but positive trend in 4Q16 NOK million 2 073 1) 2 136 2 016 Real estate broking Development in line with the real estate market Investment banking services High activity in 4Q16, especially in ECM and M&A Asset management and custodial services Sound portfolio management gave high performance fees in Asset Management Money transfer and banking services Affected by digitalisation, reduced interchange fees and seasonal fluctuations 4Q15 3Q16 4Q16 Sale of insurance products Negatively affected by conversion from defined benefit to defined-contribution schemes 1) The figures for 4Q15 are adjusted for income from public sector activities within life insurance that were in the process of being wound up 10
Net gains on financial instruments Change Change 3Q16-4Q15- Full year Full year 2015- Amounts in NOK million 4Q16 3Q16 4Q15 4Q16 4Q16 2016 2015 2016 Customer revenues in DNB Markets 631 583 628 48 3 2 441 2 331 110 Trading revenues in DNB Markets (excl. CVA/DVA/FVA and credit spread effects) 790 639 782 150 8 2 563 2 207 356 Credit spread effects on bonds in DNB Markets (24) 296 (235) (320) 211 225 (809) 1 034 Financial guarantees 103 187 187 (84) (84) 595 876 (281) Basis swaps (713) (444) (4) (270) (709) (542) 2 685 (3 227) CVA/DVA/FVA 321 328 367 (6) (45) 22 181 (158) Additional Tier 1 capital 794 (282) 212 1 076 582 195 695 (500) Other mark-to-market adjustments (214) 104 227 (317) (440) 1 014 518 497 Net gains on financial instruments at fair value 1 689 1 411 2 164 277 (475) 6 513 8 682 (2 169) 11
Changes in net interest income From 3Q16 to 4Q16 NOK million 8,481 55 12 (16) (44) (116) 8,372 3Q16 Equity and non-interest bearing items Other net interest income Exchange rate effects Lending and deposit 1) volumes Lending and deposit 1) spreads 4Q16 1) Customer segments, adjusted for exchange rate effects 12
Changes in net other operating income From 3Q16 to 4Q16 NOK million 548 120 79 (46) (130) (270) 4,230 3,929 3Q16 Net gains on other financial instruments Net commissions and fees Net financial and risk result from DNB Livsforsikring Other operating income Net gains on the sale of loans Basis swaps 4Q16 13
Delivering on cost ambitions Full year Full year Amounts in NOK million 2016 Change 2015 Total adjusted operating expenses (20 693) 374 (21 068) Expenses directly related to operations Pension expenses (65) Salaries and other personnel expenses (excl. pension and restructuring costs) 196 Financial activities tax (142) IT expenses 117 Other costs 268 Non-recurring effects (639) (1 797) 1 157 Restructuring costs (857) (377) (480) Other non-recurring effects 218 (1 654) 1 871 IT restructuring 0 234 (234) Operating expenses (21 333) (1 423) (19 910) Of which : Exchange rate effects for units outside Norway (104) Currency-adjusted operating expenses (20 590) 478 (21 068) 14
Impairment losses are estimated to be up to NOK 18 billion over the period 2016-2018 Full year Full year Amounts in NOK million 4Q16 3Q16 4Q15 2016 2015 Personal customers 77 (75) 24 329 942 - Mortgage loans (4) (8) 116 490 223 - Other exposure 81 (67) (92) (161) 719 Small and medium-sized enterprises (307) (320) (341) (1 040) (1 062) Large corporates and international customers (1 350) (1 186) (686) (4 569) (1 895) - Shipping, Offshore and Logistics Division (844) (710) (382) (2 988) (1 305) - Energy Division (238) (348) (173) (1 126) (317) - Other units (268) (127) (130) (456) (273) Total individual impairment (1 580) (1 580) (1 002) (5 280) (2 015) Total collective impairment of loans (172) (596) (418) (2 144) (255) Impairment of loans and guarantees (1 753) (2 176) (1 420) (7 424) (2 270) Affected by negative migration and low oil prices Total impairment in relation to average volumes, annualised 1) (0.45) (0.56) (0.37) (0.48) (0.15) 1) Excluding the sale of non-performing loan portfolios, the ratio was (0.52) for 2016 and (0.22) for 2015. 15
The increase of non-performing and doubtful loans mainly relates to the offshore portfolio Per cent 1.38 NOK billion 20.7 0.96 0.83 0.77 0.78 0.76 0.88 1.19 20.7 1.32 22.6 1.49 25.7 There are no signs of spillover effects from oil-related industries 17.3 13.9 13.1 13.6 14.0 14.9 31 Dec. 31 Dec. 31 March 30 June 30 Sept. 31 Dec. 31 March 30 June 30 Sept. 31 Dec. 2013 2014 2015 2016 Includes non-performing commitments and commitments subject to individual impairment. Accumulated individual impairment is deducted. Includes NOK 2.3 billion in the Baltics at end-december 2016, reclassified as assets held for sale in August 2016. Net non-performing and doubtful loans As a percentage of net loans 16
The negative migration in the offshore portfolio continued Offshore portfolio EAD NOK 53 billion 2.8 per cent of DNB s total EAD 45% 30 25% Offshore portfolio = NOK 53 billion 30% 8 12 3 Offshore supply vessels Offshore rig Other offshore PD 0.01% - PD 0.75% - PD 3.00% - Net non-performing and net doubtful commitments 31 Dec. 2015 31 March 2016 30 June 2016 30 Sept. 2016 31 Dec. 2016 EAD = Exposure at default PD = Probability of default 17
Balance sheets 31 Dec. 31 Dec. Amounts in NOK billion 2016 2015 Deposits with central banks 208 19 Due from credit institutions 176 301 Loans to customers 1 509 1 543 Other assets 759 735 Total assets 2 653 2 599 Due to credit institutions 213 162 Deposits from customers 935 944 Short-term debt securities issued 153 160 Long-term debt securities issued 612 645 Other liabilities and provisions 533 497 Additional Tier 1 capital 16 8 Other equity 190 182 Total liabilities and equity 2 653 2 599 Ratio of deposits to net loans (%) 62.0 61.2 Adjusted ratio of deposits to net loans (%) 1) 61.3 60.5 Total combined assets 2 931 2 901 Currency-adjusted loans to customers 1 531 Currency-adjusted deposits from customers 951 Liquidity coverage ratio 138 DNB Group Net loans to customers decreased by NOK 34 billion. The Baltic loan portfolio, totalling NOK 45 billion as at Dec. 16, was reclassified to assets held for sale. Reclassification of the Baltic portfolio of NOK 36 billion to liabilities held for sale Stable high ratio of deposits to loans Liquidity Coverage Ratio remained stable at above 100 per cent throughout the fourth quarter 1) Excluding short-term money market deposits 18
Solid and well-positioned to meet future capital requirements The CET1 ratio met the capital requirement at year-end 2017, including increased Norwegian counter-cyclical buffers, one year ahead of plan Leverage ratio of 7.3 per cent well above the upcoming requirement and peer ratios CET1 capital ratio DNB Group Transitional rules Per cent CET1 capital ratio DNB Bank Group Transitional rules Per cent CET1 capital ratio DNB Group Basel III without transitional rules Per cent Leverage ratio DNB Group Per cent 14.4 15.2 15.2 15.7 16.0 14.3 14.7 14.5 15.0 15.7 16.0 17.0 16.5 17.2 17.6 6.7 6.7 6.8 6.9 7.3 31.12. 2015 31.03. 2016 30.06. 2016 30.09. 2016 31.12. 2016 31.12. 2015 31.03. 2016 30.06. 2016 30.09. 2016 31.12. 2016 31.12. 2015 31.03. 2016 30.06. 2016 30.09. 2016 31.12. 2016 31.12. 2015 31.03. 2016 30.06. 2016 30.09. 2016 31.12. 2016 All figures include 50 per cent of interim profits, apart from the figures as at 31 December, which are exclusive of dividend payments 19
CET1 ratio requirement reached one year ahead of plan 0.3 (0.2) 0.3 0.4 0.8 16.0 14.4 12.7 CET1 31.12.2014 CET1 31.12.2015 Earnings for the period adjusted for dividends New regulatory consolidation Capital efficiency initiatives Exchange rate effect on existing portfolio Currency-adjusted growth in loan portfolio CET1 31.12.2016 20
Financial ambitions 2017-2019 ROE > 12 per cent Overriding target towards 2019 C/I ratio< 40 per cent Key performance indicator Nominal volume growth in loans to personal customers and SMEs, but only a minor increase in total loans 2) Expecting combined spreads to increase from 1Q17 About 3 per cent annual growth in commissions and fees CET1 ratio ~ 16.0 per cent 1) Requirement including management buffer Dividend > 50 per cent Cash dividend combined with share buy-back programme Impairment losses are estimated to be up to NOK 18 billion over the period 2016-2018, with the highest impairment losses during the first part of the period Stable risk-weighted assets 2) Tax rate: 23 per cent 1) Towards 2018 1) Based on transitional rules including increased counter-cyclical buffer requirements in Singapore, Sweden and Norway 2) Based on transitional rules 2) Adjusted for exchange rate movements 21
APPENDIX 22
DNB s loan book is robust negative migration in the oil-related portfolio Personal customers EAD in NOK billion Corporate customers excl. oil-related portfolio EAD in NOK billion Oil-related portfolio EAD in NOK billion 716 567 163 247 18 3 59 12 56 22 44 16 PD 0.01% - PD 0.75% - PD 3.00% - Net nonperforming and net doubtful commitments PD 0.01% - PD 0.75% - PD 3.00% - Net nonperforming and net doubtful commitments PD 0.01% - PD 0.75% - PD 3.00% - Net nonperforming and net doubtful commitments EAD = Exposure at default PD = Probability of default 23
The negative migration in the oil-related portfolio continued Accumulated collective and individual impairment losses for the oil-related portfolio total approximately NOK 5 billion or 6.7 per cent of the total drawn amount Oil-related portfolio EAD NOK 138 billion 7 per cent of DNB s total EAD E&P excl. RBL 18% Offshore Oil and gas Oilfield services Downstream & petchem 3% Offshore supply vessels 17% Midstream incl. LNG 14% Reserved based lending 10% Offshore rig 12% EAD = Exposure at default PD = Probability of default Oilfield services 18% Other offshore 10% 24
Development in loan to value, residential mortgages 35% 30% Per cent 31% 34% 31 March 2016 30 June 2016 30 Sept. 2016 31 Dec. 2016 25% 20% 17% 15% 13% 10% 5% 6% 0% 0-40 40-60 60-75 75-85 >85 Collateral categories, loan-to-value ratios 25
Changes in the common equity Tier 1 capital ratio 15.7 0.3 0.2 (0.1) (0.2) 16.0 CET1 30.09.2016 Capital efficiency initiatives Earnings for the period adjusted for dividends Other effects Net exchange rate effect CET1 31.12.2016 26
Digitalisation in DNB Vipps from P2P to 360 degree payments Digitalising credit processes across DNB Eliminating manual processes 27
Cost efficiency Cost/income ratio for DNB Yearly average, per cent 54 Number of DNB branches in Norway Number at end of period 185 47 49 46 46 2) 148 137 114 42 41 37 1) 57 2011 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 C/I DNB Average C/I Nordic banks 1) Affected by positive one-off related to the transition from a defined-benefit to a defined-contribution pension scheme 2) YTD Q3 for banks that have not reported Q4 2016 as at 02.02.17 Source: European Banking Federation 28
29 The Norwegian economy Seven stabilising forces for DNB
1. Operating in a robust Norwegian economy Positive GDP growth and oil-related downturn concentrated in a few regions 2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e Norwegian GDP growth 7% Unemployment rate by county December 2015 vs December 2016 6% 5% 4% 3% 2% 1% 0% -1% 2009 Lower unemployment Slight increase in unemployment Significant increase in unemployment -2% Source: Statistics Norway Source: Norwegian Labour and Welfare Administration (NAV) 30
2. Low unemployment rate compared to Europe A highly efficient labour market Unemployment rate Total per cent of labour force*, Nov. 2016 Long-term unemployment rate** Per cent of total unemployed, 2015 4.1 4.7 4.8 6.3 6.9 8.5 8.8 11.7 17.6 25.1 26.9 30.7 44.0 48.5 Germany Norway UK Denmark Sweden EU-28 Finland Norway Sweden Finland Denmark UK Germany EU-28 *Including those in paid work or self-employment Source: OECD Labour Market Statistics ** Long-term refers to people who have been unemployed for 12 months or more. 31
3. Modest development in wages ensures competitiveness Mainland industries grow when oil price drops Development in GDP and real wages USD, per cent 80 000 75 000 70 000 65 000 60 000 55 000 50 000 45 000 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 2007 Source: Central Bank of Norway, Statistics Norway 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 Development in real wages, industry (rhs) GDP per capita, USD* (lhs) *Adjusted with average 2015 exchange rate (NOK/USD) 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 Growth in production by region Per cent, last 3 months. Index -5/5 Jan-09 Jan-10 Jan-11 Jan-12 Middle region Northern region Northwestern region Jan-13 Jan-14 Jan-15 Southwestern region Eastern region Jan-16 32
4. A floating currency provides a natural hedge Eases the transition of the Norwegian economy Norway Italy Belgium Luxembourg Sweden Spain Netherlands France Finland Portugal EU-28 Germany Austria Poland Slovakia Lithuania Bulgaria Latvia Romania UK Development in NOK and Brent Oil Per cent 130 120 110 100 90 80 70 60 50 40 30 20 10 0 01.01.2012 01.01.2013 01.01.2014 01.01.2015 Brent Oil, ppb $ (lhs) NOK/USD, (rhs) 01.01.2016 Source: Central Bank of Norway, Euroinvestor, Eurostat 0.19 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.09 01.01.2017 Exchange rate effect on labour prices* Relative change** in hourly labour costs, 2015 year-on-year, per cent 20 15 10 5 0-5 -10 In national currency Exchange rate effect * Excluding agriculture and public administration ** Relative to EU member states 33
5. Oil investments are stabilising at a high level Lower break-even price ensures a competitive continental shelf 250 200 150 100 50 0 Petroleum investments in Norway NOK billion, share of GDP in per cent 10 9 8 7 6 5 4 3 2 1 0 Price break-even: Sanctioned vs September 2016 USD per barrel, Brent Blend 38 35 Johan Sverdrup 30 80 52 Johan Castberg 45 Constant 2014 prices (lha) Share of GDP (rha) Sanctioned March 2016 September 2016 Source: Thomson Datastream, DNB Markets, Rystad Energy, Statoil, Wall Street Journal 34
6. Major part of portfolio exposed to a resilient retail market Sound loan-to-value structure, and Norwegians pay their debt Historical loan losses Aggregated number of Norwegian banks, per cent of total lending 5 Average LTV, mortgages Per cent, 2016 75 4 60 65 3 50 2 1 0-1 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Retail lending Corporate lending Norway Sweden Denmark Finland Source: The Norwegian FSA 35
7. Norway in a strong financial position Use of fiscal and monetary policy measures to smooth cycles The sovereign wealth fund Beginning of the year, NOK billion Key central bank interest rates Per cent 9 000 8 000 7 000 0.75 0.5 0.5 6 000 0.25 0.25 5 000 4 000 0 0.00 3 000-0.25 2 000-0.5 1 000 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019-0.75-0.5-0.65 Norway Sweden Denmark UK ECB Source: Ministry of Finance 36
Norwegian economy low volatility Slower speed, but still growth Average real GDP growth Historical and estimated, year-on-year, per cent Average real GDP standard deviation Historical, year-on-year, per cent 2.7 2.4 1.9 1.6 1.5 1.8 2.0 1.6 1.7 Mainland Norway Eurozone The Nordics* Mainland Norway Eurozone The Nordics* 1990-2015 2016-2019 1990-2015 Source: Historical: Thomson Datastream, Estimates: Statistics Norway, IMF * The Nordics = excluding Norway 37
HERE FOR YOU. EVERY DAY. WHEN IT MATTERS THE MOST.