Danske Banks investor call for Q2 bearbejdet til dansk:
original investor call
Claus Ingar Jensen
0:00:00
Good morning, everyone. Welcome to the conference call for Danske Bank’s financial results for the first half of 2026. My name is Claus Ingar Jensen, and I’m Head of Danske Bank’s Investor Relations. With me today, I have our CEO, Carsten Egeriis, and our CFO, Cecile Hillary. We aim to keep this presentation at around 25 minutes. After the presentation, we will open up for a Q&A session as usual. Afterwards, feel free to contact the investor relations department if you have any more questions. I will now hand over to Carsten. Slide two, please.
Carsten Egeriis
0:00:36
Thanks, Claus. I would also like to welcome you to our Q2 conference call, where I’m pleased to share the highlights of Danske Bank’s financial results for the first six months of the year. Q2 was another strong quarter for Danske Bank. We delivered solid earnings. We continued to build commercial momentum, and we executed with discipline against our strategic priorities. Commercial momentum is broad-based and encouraging as customer activity remained healthy across the Nordic franchise.
Carsten Egeriis
0:01:07
Corporate lending grew 6% year-on-year, which is especially encouraging because it is translating into market share gains across the Nordics. That tells us that our relationship-led model and sector expertise are resonating with corporate clients. We also continue to see positive momentum in asset management with an increase of 24% since last year, supported by net inflows of almost DKK 15 billion in Q2.
Carsten Egeriis
0:01:38
Our financial performance is strong and high quality with core income up 7% year-on-year with a Q2 net profit of DKK 6.2 billion corresponding to a return on equity of 14.8%. This is above our 2026 target level and also consequently is the strongest quarterly result for Danske Bank in 20 years from an ROE perspective.
Carsten Egeriis
0:02:03
Our Q2 cost income ratio was 43%, reflecting strong operating leverage, continued cost discipline, and progress versus the 45% target for 2026, which we now expect to be below 45%. An important message today is that our growth is broad-based and high quality. Customer activity, volume growth across business units, and resilient margins are all contributing while credit quality remains strong. This gives us confidence in the sustainability of earnings. The CET1 ratio of 17% remains strong.
Carsten Egeriis
0:02:47
Our capital generation remains a clear strength as we continue to generate capital while growing the balance sheet and accruing for the new dividend policy announced in Q1. Given the stronger income outlook from higher commercial activity and policy rates, we have raised our 2026 net profit outlook from DKK 22 billion-DKK 24 billion to DKK 23 billion-DKK 25 billion. We remain focused on profitable growth, disciplined cost management, strong credit quality, and attractive shareholder returns.
Carsten Egeriis
0:03:22
In short, Q2 demonstrates a stronger franchise profitability that’s ahead of target levels and a continued capital flexibility. We’re really well-positioned for the remainder of the year. I’ll now give a few comments on the business units’ performance. Then I’ll hand over to Cecile for the financials. Please turn to Slide three. Moving from the group overview to our business units, the main message is that momentum is broad-based.
Carsten Egeriis
0:03:52
Across the three business units, we’re seeing high customer activity, we’re seeing good volume development, and we’re seeing resilient income generation. In personal customers, the trend remains constructive. Customer activity is healthy, and we continue to see growth in lending and deposits and also in retail investments. That tells us we’re maintaining relevance with households in their everyday banking needs, as well as in larger financial decisions.
Carsten Egeriis
0:04:21
Income has continued to move in the right direction, supported by customer engagement and a strong deposit base. Importantly, profitability remains very robust and credit quality continues to be a clear strength. Business Customers is also showing good commercial traction and strong growth. The underlying trend is one of deeper relationships, so customers are using more of our solutions, including everyday banking, cash management, and broader financing products.
Carsten Egeriis
0:04:53
Lending and deposits both point to continued activity in the SME and corporate client base. Fee income is also developing well, which reflects the value of our platforms and advisory capabilities. This is a business where relationship depth is increasingly translating into earnings momentum. In LC&I, activity remains solid, particularly in lending and advisory-related areas. We continue to support large clients across the Nordics with financing, capital markets access, and strategic advice.
Carsten Egeriis
0:05:30
Deposits in this segment can be more seasonal and more sensitive to client liquidity management, so quarter-to-quarter movements should be interpreted in that context. Client demand and activity levels remain supportive, and returns are tracking well against our ambitions. The takeaway is that the franchise is performing consistently across segments. We’re seeing customers engage with us across products and channels, and that is supporting volumes, income, and returns.
Carsten Egeriis
0:06:03
This breadth of momentum gives us confidence in the growth agenda and in our ability to continue delivering against our 2026 targets. Importantly, the execution of our Forward 2028 strategy continues to deliver strong results, and we’re able to invest in the technology and AI platform that position us well for the future, as we also detailed at our strategy update in April. In particular, AI investments and their expected outcomes are progressing as planned. Then please go to slide four, and then I’ll hand over to Cecile.
Cecile Hillary
0:06:41
Thank you, Carsten. Let me now turn to the income statement. Q2 was a strong quarter with good momentum in our core income lines, continued cost discipline, and strong credit quality. For the first half, total income was supported by growth in net interest income and fee income, underpinned by customer activity and higher volumes. Trading income was affected by market volatility, while other income benefited from the DKK 231 million one-off in Q2.
Cecile Hillary
0:07:16
Compared with Q1, NII remained resilient as volume growth offset lower equity base income and slightly higher funding costs. Fee income improved within almost all fee categories, and both trading and insurance recovered from a volatile first quarter. Costs remain in line with our guidance and reflect disciplined execution. Credit quality continues to be strong with a well-provisioned portfolio and sustained below-cycle cost of risk. The quarter shows resilient earnings quality and good operating control.
Cecile Hillary
0:07:53
I will now go through the key lines in more detail. Slide five, please. Turning to net interest income, we delivered a solid result in the first half with NII up 3% year-over-year. The key message is that the trajectory remains resilient, supported by positive volume development, constructive margin trends, and the stabilizing contribution from our structural hedge. Looking at the year-on-year bridge, the improvement reflects solid credit demand, while the structural hedge continued to provide an important offset, keeping in mind the four rate cuts we saw in the first half of last year.
Cecile Hillary
0:08:37
This is the balance we look to achieve, benefiting from underlying franchise momentum while maintaining stability through disciplined balance sheet management. Q2, again, showed a solid NII trajectory. Volume contribution remained supportive, and the margin development was broadly consistent with our expectations.
Cecile Hillary
0:08:59
The other line includes treasury allocation effects, while we also had a non-recurring correction, so I would not read that as a change in the underlying trend. Adjusting for this correction, NII was up 1% from Q1. Our structural hedge was impacted by higher short-term rates in Q2, and we also saw lower income from the shareholder equity base following the March and May payouts.
Cecile Hillary
0:09:29
The notional of the structural hedge, including bonds and derivatives, was kept broadly stable in Q2 at around DKK 190 billion, and as such, the structural hedge remains the key feature of our NII profile. Finally, our NII sensitivity is unchanged. For a 25 basis points upward move, the year-on impact is approximately +DKK 450 million, with additional impacts in years two and three of around +DKK 300 million and +DKK 100 million respectively, all else equal.
Cecile Hillary
0:10:06
The actual effect will naturally differ depending, for example, on pricing decisions and customer behaviors. In summary, we see the NII trajectory as solid. Customer volumes are contributing positively, and with the recent rate hike in mind, this supports our raised income expectations for 2026. With a view to addressing questions about expectations for NII for the rest of the year, we now expect NII to be slightly above DKK 38 billion for full-year 2026, driven by continued volume growth and based on current market-implied rates.
Cecile Hillary
0:10:55
Slide six, please. Turning to fee income, this was a strong quarter. Net fee income was up 13% year-on-year and 4% quarter-on-quarter, driven by customer activity and continued momentum in our investment offering. In daily banking, we continue to see good demand for our One Corporate platform and cash management solutions.
Cecile Hillary
0:11:19
The continued growth in house bank mandates is an important indicator of the depth and relevance of our corporate relationships. Lending and guarantee fee income benefited year-on-year from higher customer activity and continued corporate credit demand. Quarter-on-quarter, the lower contribution was mainly linked to the timing of refinancing auctions of adjustable rate mortgages, rather than a change in the underlying customer trend.
Cecile Hillary
0:11:48
Capital markets fees also contributed positively, supported by good activity across businesses during the quarter. Investment fee income remained a strong driver, supported by growth in assets under management, positive net sales, and rising asset prices, both year-on-year and quarter-on-quarter. Overall, the fee income development demonstrates the breadth of customer activity across the franchise and the benefit of a diversified fee base. Slide seven, please.
Cecile Hillary
0:12:23
Turning to trading income, the quarter was affected by slightly lower customer activity in secondary markets and positive valuation effects in group treasury. In LC&I, the year-on-year development was primarily driven by lower customer activity in fixed income. Quarter-on-quarter, however, we saw an improvement in fixed income customer activity, but this was offset by lower activity in FX and equities.
Cecile Hillary
0:12:50
In group functions, the movements mainly reflect unrealized market value adjustments on cross-currency swaps and other balance sheet movements. These items create accounting volatility in group treasury and should be viewed separately from the underlying customer franchise. The key message is that the trading income line was impacted by market activity and valuation effects in the quarter. Our broader commercial momentum and customer activity remain visible in the core income lines. I will now move on to the expense developments. Slide eight, please.
Cecile Hillary
0:13:24
Turning to expenses, our cost trajectory remains in line with the full-year guidance, and the Q2 cost-to-income ratio was 43%. This reflects continued cost discipline while we keep investing in the capabilities needed for growth. Year-on-year, expenses were higher, mainly due to staff costs, including performance-based compensation. This was partly offset by lower FCRP and remediation costs, showing continued progress in reducing legacy cost items.
Cecile Hillary
0:13:56
Quarter-on-quarter, the increase was primarily driven by higher resolution fund fees, reflecting the higher deposit base. Even including that effect, the underlying cost development remains well controlled. We continue to make targeted Forward 2028 investments in our digital and technology platform. These investments support AI, future growth, and efficiency. At the same time, group FTEs were down by around 250 compared with Q1.
Cecile Hillary
0:14:27
For the first half, the cost-to-income ratio was 44.4%, and we reaffirm our full-year 2026 cost outlook of DKK 26 billion-DKK 26.5 billion. Based on the performance so far, the cost-to-income ratio is now expected to be below 45%. Overall, the message is disciplined cost execution, continued investment in strategic priorities, including tech and AI, and improving operating efficiency. I will now move on to asset quality. Slide nine, please.
Cecile Hillary
0:15:03
Turning to asset quality, the picture remains strong. Our diversified and low-risk credit portfolio continues to underpin credit performance, and we remain prudently provisioned given the macro and geopolitical backdrop. In Q2, impairment charges were below cycle at DKK 0.3 billion. We maintain our full-year impairment guidance of around DKK 1 billion, corresponding to approximately 5 basis points cost of risk. This reflects both the quality of the portfolio and our disciplined approach to risk management. Macroeconomic charges remain modest.
Cecile Hillary
0:15:39
At the same time, our scenarios continue to reflect elevated uncertainty, including geopolitical risks, tariffs, and trade tensions, so that we capture the potential impact of a more severe and prolonged adverse environment. Post-model adjustments stood at DKK 5.2 billion, including model-related releases of DKK 160 million in Q2. We continue to take a prudent approach in light of potential disruptions and uncertainty.
Cecile Hillary
0:16:07
The total overlay of around 30 basis points is equivalent to almost four years of normalized cost of risk. Overall, asset quality continues to support the earnings profile and capital generation of the bank. I will now move on to capital. Slide 10, please. Our capital generation remains very strong, underpinning the CET1 ratio of 17% at the end of Q2.
Cecile Hillary
0:16:32
That 17% level should be seen in the context of the DKK 5 billion payout at the beginning of the quarter and the additional accrual we have taken following the revised ordinary dividend policy announced in April. Risk exposure amounts increased by DKK 11 billion quarter-on-quarter to DKK 848 billion. The increase was mainly driven by higher lending-related credit risk REA, reflecting continued commercial activity and balance sheet growth.
Cecile Hillary
0:17:00
This was partly offset by lower market risk REA as the interest rate volatility we saw in Q1 moderated during the quarter. With respect to the CET1 requirements, we saw a slight reduction in Q2, primarily due to the reduction in the systemic risk buffer related to commercial real estate exposures. As a result, our CET1 headroom stands at around 240 basis points, which gives us a comfortable management buffer in excess of our target of 150 basis points-200 basis points.
Cecile Hillary
0:17:36
As a reminder, we expect DKK 3.5 billion of Pillar 2 relief, equivalent to around 40 basis points that relates to our solved legacy cases. This is expected prior to year-end 2026, subject to annual supervisory processes. Looking ahead, our trajectory remains consistent with the glide path we have communicated. We aim to be at around 17% by the end of 2026 and at our stated CET1 target of around 16% by 2028.
Cecile Hillary
0:18:06
This keeps us positioned to support growth and execute our capital distribution plan. In summary, the quarter demonstrates strong capital generation, disciplined balance sheet management, and continued ability to deliver on both growth and distribution. Slide 11, please. Finally, turning to the financial outlook for 2026, we are raising our expectations and now expect net profit in the range of DKK 23 billion-DKK 25 billion, corresponding to a return on equity of around 14%.
Cecile Hillary
0:18:40
The upgrade is solely driven by stronger income expectations. We now expect total income to be somewhat above DKK 59 billion, supported by higher core banking income from stronger customer activity, growing volumes, and the effects of recent and expected policy rate hikes. At the same time, we continue to see good commercial momentum across the franchise, and our priorities remain consistent with our financial ambitions. We continue to expect operating expenses to be in the range of DKK 26 billion-DKK 26.5 billion.
Cecile Hillary
0:19:18
This reflects our continued growth ambitions and investment spend, and the same sustained focus on cost management. Overall, we now expect the cost-to-income ratio to be below 45% for full year 2026. We also continue to expect loan impairment charges to be around DKK 1 billion. This reflects the continued strength of the credit portfolio and discipline underwriting across the bank. Slide 12, please, and back to Claus.
Claus Ingar Jensen
0:19:45
Thank you, Cecile. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by email. A transcript of this conference call will be added to our website within the next few days. Operator, we are now ready for the Q&A session.
Operator
0:20:09
Thank you. If you would like to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star one and one again. We will now go ahead with our first question. This is from Shrey Srivastava from Citi. Please go ahead. Your line is open.
Shrey Srivastava
0:20:34
Hi. Thank you very much for taking my question. I guess I’m just focused around the sustainability of some of this improved income going forward into 2027 and 2028. If I look at current consensus expectations, they’re at around DKK 59 billion in income for 2026.
Shrey Srivastava
0:20:51
If we were to assume that this reflected what you previously were thinking, it looks like consensus for net interest income is pretty much in line with what you’ve said, which leads me to believe that the upgrade is more fee driven. Just looking at the breakdown of the guidance upgrades between the various lines, is that the case? Is it mainly fee driven? If not, how come the increase in higher market rates has not translated into a greater increase in your net interest income expectations? Thank you.
Carsten Egeriis
0:21:26
Thanks a lot to-
Cecile Hillary
0:21:28
Yeah. Let me take your question. I’ll start with indeed, the total income, the revised guidance to somewhat above DKK 59 billion. I can confirm that really that revised guidance is driven by the core banking income. That’s NII, and that’s fee income. Let me take both separately. Firstly, starting from NII. You’ve seen the half year that we’ve had.
Cecile Hillary
0:22:01
Obviously, I can confirm that the correction quarter-on-quarter doesn’t affect the half year. We start, obviously, with a strong quarter, which was defined in particular by slightly higher volumes that we expect, in particular in corporate lending. That’s what we looked at for H1. Of course, we had at the end of the half year, the rate hike. Looking forward, three items specifically will impact NII in the second quarter.
Cecile Hillary
0:22:36
One is obviously the recent rate hike that we’ve had and also the September one that is embedded in market-implied rates. The second aspect is the continued volume growth. Here are our assumptions on the volume growth. We obviously start with where we are at the end of June, which clearly, as I mentioned, we saw slightly higher volume growth than our assumptions. Obviously, a good thing. All profitable growth.
Cecile Hillary
0:23:05
What we apply is our assumptions of 3%-4% lending growth and 1%-2% deposit growth going forward for the rest of the year, probably at the higher end of these ranges. That’s on growth. Thirdly, obviously, don’t forget that we’ve got three extra days in H2. Separately, there are a few other effects, but I would say they’re less material on the NII.
Cecile Hillary
0:23:34
For instance, on the deposit margin, we’ve had a slightly lower pass-through than we’re necessarily assuming at the outset, but let’s see, obviously, how this continues, particularly with competitive dynamics and the like. Obviously, that is also a slight effect. That’s effectively what drives our NII guidance to slightly above DKK 38 billion.
Cecile Hillary
0:23:56
On the fee income, we see our fee income as very resilient, driven by all three businesses. Really all categories of fee lines, if you look at it year-on-year, have actually grown. Very resilient, very solid fee income line, and obviously Carsten commented on the growth in AUM that you’ve seen that is very significant. On that, I would say, we absolutely see this as very sustainable going forward.
Cecile Hillary
0:24:25
Of course, don’t forget that we’ve got also an element of seasonality when it comes to performance fees in the fourth quarter, though, obviously, I wouldn’t use Q4 of last year as necessarily the right template. It was exceptionally strong. I think you should look at it in a normalized fashion. I think I’ve given you some of the elements on the NII and fee income. As far as the guidance for other income lines, I would say, this is not changing versus where we were when we gave the full year guidance.
Shrey Srivastava
0:25:02
Thank you. Is the right way to read that this is basically just taking into account a higher base effect from the first half, all the other assumptions are unchanged, and you’re also expecting some deposit margin compression to offset the higher rates?
Cecile Hillary
0:25:19
Obviously, clearly, we’ll have to see what volume growth does, both on the lending and deposit side. As I’ve mentioned the assumptions that I’m using right now, of course, we’ll have to see how this develops in the second half given the strength we’ve seen in the first half. Yes. Then, of course, the three extra days, and then the slightly additional effects from pass-throughs, et cetera.
Shrey Srivastava
0:25:48
Understood. Thank you.
Operator
0:25:51
Thank you. We’ll now take our next question. This is from Namita Samtani from Barclays. Please go ahead.
Namita Samtani
0:26:01
Morning, thank you for taking my questions. The first question I have is, it doesn’t look like you’re experiencing a lot of lending margin pressure just based on the NII bridge that you present, and it looks like some of your peers really are. I just wondered what you’re seeing in the market, and why is it that it seems that you’re all experiencing a lot less lending margin pressure than your peers.
Namita Samtani
0:26:29
My second question is, the hedge was negative this quarter, but do you expect that for the rest of the year, the hedge income will offset this negative headwind? I just noticed you didn’t call out the hedge as being one of the growth drivers of NII this year, but mainly volumes and rate hikes. Thank you.
Carsten Egeriis
0:26:50
Thanks a lot, Namita. I’ll take the first one, and then I’ll hand over the hedge question to Cecile. I think just on the competitive situation more generally, we continue to see a competitive environment in the Nordics across all markets. That’s the first thing I would say. I would not say that there is anything in particular in this quarter and not in the last quarters that is markedly different in terms of the competitive environment.
Carsten Egeriis
0:27:21
Therefore, as you can also see on our NII bridge and page margins, frankly, are relatively stable, and there’s, of course, a little bit of moving parts between deposit and lending margins. Obviously, we also look at the overall NIM. Yeah, we see margins as pretty stable, reflecting what is a competitive environment, and frankly, has been for a longer period of time. That’s how I would characterize what we see.
Cecile Hillary
0:27:55
Let me take your hedge income question, Namita, things haven’t changed. As I mentioned, when we gave the full year guidance, and again at the end of Q1, the hedge income is a significant and important contribution to our NII, and it is a lift compared to last year. 2026 structural hedge income provides a lift versus 2025. Of course, as rates and market-implied rates increase, that lift is a little bit reduced, all things being equal.
Cecile Hillary
0:28:29
However, it still provides a lift. Let me comment now on the development that we’re seeing quarter on quarter. I wouldn’t read too much into the development in quarter on quarter. One of the reasons is that clearly you’ve got rollovers and maturities, structural hedge income is not necessarily linear from one quarter to another.
Cecile Hillary
0:28:52
Also, in this instance, you had the effect of obviously a slightly lower equity base from the distribution of the dividends. You had, as well, slightly higher funding costs coming from the short-term rates. Overall, Namita, definitely a strong contribution from the structural hedge income again in 2026 versus 2025.
Namita Samtani
0:29:19
That’s helpful. Thanks very much.
Operator
0:29:23
Thank you. We’ll now take our next question. This is from Sofie Peterzéns from Goldman Sachs. Please go ahead.
Sofie Peterzéns
0:29:34
Thanks a lot. Here is Sofie from Goldman Sachs. Just going back to net interest income, it’s very helpful that you have given the guidance that it’s going to be slightly above DKK 38 billion in 2026. Could you maybe just discuss how we should think about the quarter-on-quarter tailwinds and of the net interest income that we saw in Q2, any of the items that will reverse next quarter that we should just be mindful of, and also your rate sensitivity guidance?
Sofie Peterzéns
0:30:12
I know you give very detailed guidance. Should we expect that tailwind to fully materialize in the second half of the year and then continue to materialize next year? If you could maybe just discuss a little bit the quarter-on-quarter net interest income evolution and what we should be mindful of kind of items outside of volumes.
Sofie Peterzéns
0:30:37
The second question, there were some headlines a month ago or so about Danske wanting to make some acquisitions in Sweden. Maybe if you could just update us on your thinking around M&A and the capital priorities. Do you prioritize bolt-ons over share buybacks and special dividends? Thank you.
Carsten Egeriis
0:31:04
Sure. Thanks, Sofie. Look, on the NII piece, I think we’ve given some pretty detailed guidance on expectations for the year, I think quarter-on-quarter in the second half you should just expect sort of a gradual growth towards that NII. Clearly Q4 being slightly higher than Q3. No, you shouldn’t think that there is any specific moving parts that you should be cognizant of. The rate sensitivities we’ve given, no changes to those given in the presentation.
Carsten Egeriis
0:31:44
On M&A, look, I think it’s a consistent message from my side, that is that we’re fully focused on our inorganic strategy, we prioritize growth and continue to see good growth momentum. We’re also looking to see if there are inorganic opportunities. Particularly Sweden is an interesting market from our side. However, there is nothing concrete, it’s obviously subject to the right targets and strategic fit. I hope that sort of answers the questions.
Cecile Hillary
0:32:23
Maybe just if I can touch on one aspect that you mentioned. Again, there is nothing in the NII for the first half that we would call out as non-recurring. The non-recurring item is purely from Q1 to Q2, it doesn’t shift into the second half of the year.
Sofie Peterzéns
0:32:42
Okay. That’s very clear. Just maybe on M&A, would you consider any M&A outside of the Nordics?
Carsten Egeriis
0:32:50
No. We have a Nordic focus and a Nordic strategy. I see that highly unlikely.
Sofie Peterzéns
0:32:58
Okay. Very clear. Thank you.
Operator
0:33:01
Thank you. We’ll now take our next question. This is from Mathias Nielsen from Nordea. Please go ahead.
Mathias Nielsen
0:33:11
Thank you very much. Most of my questions has been asked already, but I still have one on trading income. I know it’s a bit detailed question maybe. I was just a bit puzzled about the normalized trading income you have talked about being around DKK 3 billion, and then when you look over the past year, for the last four quarters it’s been around DKK 2 billion.
Mathias Nielsen
0:33:30
This quarter we also see it being basically in line with expectations, consensus expectations, while all your peers has basically been beating expectations. What is going on on this trading income? What are we missing on the other side, or what are you missing internally? Is there anything that has changed from the DKK 3 billion to a lower run rate, or how should we think about that?
Carsten Egeriis
0:33:53
No, I think. Thanks. No, not particular. Obviously, as we’ve said before, Q1 was a soft quarter and clearly if you sort of annualize Q2, you are closer towards the DKK 3 billion, but still below the DKK 3 billion. I think right now, and probably also since we did the strategy update, we have taken a little bit of risk off the table.
Carsten Egeriis
0:34:23
With better returns and clearly our sort of trading franchise very much focused on supporting client activity. I wouldn’t say that we’re changing sort of the view that an annualized level of DKK 3 billion is directionally right, but it’s probably slightly below that given what we’ve seen in the last couple of years since we did the strategy update.
Mathias Nielsen
0:34:51
Okay. On the trading income, maybe if you could say something. Back in history, it used to be quite sensitive to the mortgage spreads in Denmark. That seems like you have eliminated that. What is actually driving the trading income? If you can give a bit of a split of customer activities versus the market making and what you have on the books and how that plays out.
Carsten Egeriis
0:35:14
That’s exactly right. That’s exactly what we have been doing is optimizing our trading inventory to support customer activity, not least also after the quite significant interest rate moves we saw back in the summer of 2022 and the subsequent risk reward on the mortgage side of things. The business model is focused on supporting customer activity, customer flows, with a predominant income drivers being the fixed income and the FX side of the business.
Mathias Nielsen
0:36:02
Okay. Thanks a lot.
Carsten Egeriis
0:36:04
Thank you.
Operator
0:36:07
Thank you. We will now take our next question. This is from Riccardo Rovere from Mediobanca. Please go ahead.
Riccardo Rovere
0:36:18
Thanks. Good morning, everybody, and thanks for taking my question. One, if I may. Cecile, when you mention that post-model adjustments account for 30 basis points of the book, you are taking into account the whole DKK 5.2 billion that you show in your slide.
Riccardo Rovere
0:36:39
In 2019, before COVID and before overlays and post-model adjustment started to exist, statistical provisions were already at DKK 4 billion. Wouldn’t it be more prudent to say that the overlays that you are actually using amount to DKK 1.2 billion, the difference between the DKK 5.2 and the DKK 4 billion that existed already in 2019? It would be covering, I don’t know, one year, one year and a half of your normalized credit risk.
Cecile Hillary
0:37:21
Well, thank you, Riccardo. Just I would make two comments on that. The first one is that our credit risk obviously remains extremely strong, and obviously, our business now is different from what it was 5-10 years ago. That’s the first point. Really, when I say four years, it’s purely because we guide to eight basis points cost of risk, and we’ve got this effectively 30 basis points stock of PMAs.
Cecile Hillary
0:37:53
The second, more substantial comment is that through our models, and that is something that is obviously aligned with all the development around model that banks, and not just us, have been doing across Europe, including with our regulators. We aim to embed more of the sensitivities and the actual coverage in the model itself. The PMAs in themselves are indeed an overlay. Now, I don’t want to go too much into semantics, and again, I wouldn’t read too much into the 30 basis points and the four-year, but it was just to give you a sense of what we feel is the prudency of our approach.
Riccardo Rovere
0:38:32
Thanks. Thanks for that. Thanks. Maybe a quick follow-up, if I may. On risk-weighted assets go up, credit risk, if I understand, go up by DKK 16 billion, which more or less matches the increase in the book. I’m looking at the overall book in the balance sheet on a consolidated basis, which is up a little bit more than that. It looks fairly large, the increase in credit risk RWA. Was wondering what’s behind that, if you could shed a little bit of light. Thanks.
Cecile Hillary
0:39:09
Yeah, absolutely. That’s very straightforward. Actually, on RWA, it’s really driven in a large majority by the growth in our lending. That’s really what increases RWA. As a matter of fact, market risk has slightly decreased quarter-on-quarter. We’ve seen, as I mentioned, lending growth.
Cecile Hillary
0:39:32
Lending growth probably a little bit above what we even expected at the beginning of the year, but that’s profitable growth and high-quality growth. As I mentioned, quarter-on-quarter, we’ve seen growth in our corporate segments, in particular of 1.5% just for that quarter, and just short of 1% in Personal Customers. Obviously, that was reflected in RWA. I would say it’s completely aligned with what our growth strategy is in the context of Forward 2028.
Riccardo Rovere
0:40:09
The new production doesn’t have higher risk weight than the back book?
Cecile Hillary
0:40:13
No, the risk of the new production and the characteristics of the production is completely aligned with the rest of our book, and our underwriting criteria, et cetera, have not changed.
Riccardo Rovere
0:40:25
Okay. Thank you very much.
Operator
0:40:29
Thank you. We’ll now take our next question. This is from Max Jacob Kruse from Bernstein Autonomous. Please go ahead.
Max Jacob Kruse
0:40:40
Hi. Thank you. It’s Jacob from Autonomous. I guess, just a bit of a left field question, but can I ask the Finnish business, it seems to be very much out of focus. It’s relatively large. Could you just talk a little bit about what your strategy is there? You have a clear strategy for Sweden, Denmark. I’m a little bit unclear on what the plan is for the Finnish business. Is that core, or is it something you might consider disposing of, or are there initiatives you’re doing at the moment? Thank you.
Carsten Egeriis
0:41:19
Hey, Jacob. Thanks a lot. Finland is very much part of our core strategy. We also clearly said when we did our Forward 2028 strategy that we’re focused on building a leading wholesale bank and corporate bank across the Nordics, and then a leading personal and private bank in Denmark and in Finland. We are very clear that Finland is incorporated in all sort of our strategic ambitions, if you will. Finland is very much at the core of our strategy. We have a full-service retail, commercial, and investment bank in Finland. Clearly, the Finnish market is a little bit more sluggish.
Carsten Egeriis
0:42:03
From a market positioning perspective, we’ve been performing pretty well and taking market shares, both in fact on the personal side and seen good market share gains on the mortgage side, but also on the corporate side in BC and LC&I, and we’re clearly also one of the top wholesale banks in Finland and have also been involved in a lot of the relevant transactions that have gone on in Finland. We continue to focus on Finland and invest in Finland.
Max Jacob Kruse
0:42:39
Okay. Thank you very much.
Operator
0:42:43
Thank you. We will now take the next question. This is from Martin Gregers Birk from SEB. Please go ahead.
Martin Gregers Birk
0:42:53
Thank you so much. Just following up on the questions on NII. I appreciate that you have your DKK 450 million sensitivity out there. As far as I understand it, that’s a parallel shift in all markets that you are exposed to.
Martin Gregers Birk
0:43:11
Currently, we see a steepening in the short end of the curve. I would assume that the deposit beta for the first 25 basis points, 50 basis points, maybe even 75 basis points is going to be very low, leading you to a material overshoot on your current NII sensitivity. Given that current market is pricing in another two hikes by now, how would you see your NII moving on these first two, three hikes? Thanks.
Cecile Hillary
0:43:48
Yeah, absolutely. Martin, thank you for your questions. I will limit my comments on 2026, because obviously we don’t provide any guidance beyond 2026. You should see our sensitivity table as correct and as appropriate. It’s not just a theoretical table, it is definitely validated by the businesses. The +DKK 450 million for one rate hike of 25 basis points in year one, and obviously, it’s linear.
Cecile Hillary
0:44:21
If you add all the rates, the one that we’re looking at, obviously, is one in September, right? We’re not looking at further hikes in future years at this stage. You’re right to point out that it is for a parallel shift. We’ve seen a slightly steepened short end of the curve. That also obviously increases some of the funding costs on the structural hedge.
Cecile Hillary
0:44:45
There’s the elements, obviously, of the equity base that’s slightly lower, which you have to take into account. Deposit beta has been indeed a bit lower than necessarily our pass-through assumptions. I think if you take the short end of the curve, the deposit beta, you compound all these effects, this is not a material impact on the NII. Really, you should rely on the sensitivity table, which we feel is a very good guide to what you should expect.
Martin Gregers Birk
0:45:20
Okay. Could you please elaborate on what kind of deposit beta do you assume in those sensitivities, especially for the first couple of hikes?
Cecile Hillary
0:45:32
I’m sorry, Martin, but we don’t disclose this.
Martin Gregers Birk
0:45:35
Okay. All right. That’s fair enough. Second question goes on loan growth. If you perhaps could elaborate a little bit more on loan growth. On divisional basis, you see anything from 1%-10% loan growth. It seems to be a bit all over the place. If you go into just focusing in on the 1% in the Danish retail bank, it seems to deliver quite a pickup in the quarter, both Q-on-Q and year-over-year lending, while you have sort of a flattish development in all the other divisions. Could you please help me to unpack what’s up and down on this?
Carsten Egeriis
0:46:17
Thanks, Martin. I think the loan growth is actually very much as we expected. We gave an overall loan growth 3%-4%, and we said we’d see most of the loan growth coming from the corporate area and more muted growth in the retail banking area, and that’s exactly what we’re seeing.
Carsten Egeriis
0:46:40
As we look to the rest of the year, we actually continue to feel that that is probably the right assumption and guidance to have. That we continue to see a pretty strong pipeline and fairly robust demand on the corporate side, with the housing market having picked up a little bit in Q2 and therefore also supporting growth. I think you should still see as slightly higher growth on the corporate side and slightly lower growth on the retail side.
Martin Gregers Birk
0:47:16
Okay. On the retail bank, what’s the dynamics here? All of a sudden, in the Danish retail bank, you see a pretty nice jump Q-on-Q. You see a global private banking that is not really delivering anything. You don’t really see anything out of Finland. You don’t really see anything out of Sweden. Should we read anything into this, or is this just quarterly bumps?
Carsten Egeriis
0:47:40
No. The dynamic is, well, first of all, on the private banking, we see actually a very good dynamic more generally with investments and AUM up quite significantly and with strong customer flow. There, I don’t think you should put too much into quarter-on-quarter lending.
Carsten Egeriis
0:47:56
It’s a bit more volatile, but the underlying private banking franchise and performance is looking good again, as also seen by the investment flows and customer flows. On the lending quarter-on-quarter, it is right, as I mentioned that mortgage demand has picked up in Q2, so that’s why you’re seeing sort of a pretty healthy movement between Q2 versus Q1, but still at relatively low growth levels.
Martin Gregers Birk
0:48:29
All right. Thanks.
Claus Ingar Jensen
0:48:32
Operator, I think we are ready for the last question.
Operator
0:48:37
Thank you. Question comes from Alexander Vilstrup-Jørgensen from DNB Carnegie. Please go ahead.
Alexander Vilstrup-Jørgensen
0:48:47
Yes. Good morning, and thank you for taking my questions. First, could you comment on your current hedge composition? How big is your loan hedge, for instance? Do you expect your hedge to have a positive impact next year? Second, do you still maintain your soft guidance for net income from insurance business of around DKK 1.4 billion-DKK 1.6 billion a year?
Carsten Egeriis
0:49:11
Yep. Thank you. Just on Danica, we still maintain that guidance, but currently we’re looking at the higher end of that guidance.
Cecile Hillary
0:49:21
Yep. I’ll take the hedge composition. The hedge continues to be comprised from two parts, right? One is what we typically call the bond, and now derivative hedge, which is DKK 190 billion. As you know, we started in January, given the improvement of an establishment of hedge accounting capabilities in that respect. We started to use derivatives in our structural hedge.
Cecile Hillary
0:49:50
Out of this DKK 190 billion, around 10% is now comprised of derivatives, and effectively, as bonds roll out, we replace them partly with derivative, and we think that the portfolio will continue to be comprised of both. We’ve kept the notion of the structural hedge stable, as I had guided, and we see ourselves as well hedged. The second part of the structural hedge is indeed the loan hedge. That loan hedge is a bit above DKK 200 billion.
Cecile Hillary
0:50:24
It’s a shorter average life, whereas the bond and derivative hedge is, call it, three average life, a bit above three year. The loan hedge is more around the two-year average life. That loan hedge is not a perfect hedge. There is some optionality given some of the products involved there. Obviously, it’s an integral part of the structural hedge.
Cecile Hillary
0:50:45
I wouldn’t call out major changes either in the size or the composition of the hedge apart again from this rollout of the derivatives, which is obviously a positive thing when it comes to the execution. You asked me about the profile of the hedge, and again, the profile of the hedge is no different from what I had mentioned at the full year, and again reiterated in Q1, which is that the structural hedge income will be a lift in 2026 versus 2025.
Cecile Hillary
0:51:21
Especially given markets’ implied rates and where rates are, it will tail off in which it will come down somewhat. Will continue to provide benefits, but will come down somewhat in 2027 and beyond. Of course, we have to see what happens with rates going forward.
Alexander Vilstrup-Jørgensen
0:51:39
Okay. Thank you.
Carsten Egeriis
0:51:41
Thank you very much, everyone, for your interest in Danske Bank and for your questions this morning. As always, please do reach out to our investor relations department if any other questions. Thanks a lot and have a great summer.
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