Industry perspectives Finance Norway’s Capital Markets Day 10 th of March, 2016 Rune Bjerke, CEO DNB
Norwegian banking in a nutshell The financial sector has • NOK 5 300 billion in AuM • 3% of the work force • 7% of GDP • 105 savings banks • 21 commercial banks • 1 Source: The Norwegian Savings Banks Association, Finance Norway
Five key features of the Norwegian banking market 2
1. Norwegian banks stands out in terms of capital – in absolute numbers and compared to peers CET1 Leverage ratio Transitional rules, per cent Per cent, per Q4 2015 15 10 10 8.2 8.2 6.7 6.1 4.7 4.0 5 Q109 Q111 Q113 Q115 MING SRBANK MORG DNB NONG Nordic Large peers European Banks 3 Source: DNB Markets
2. Norwegian banking: more than oil and gas – Manageable overall lending exposure Non oil-related lending exposure (in % of EaD) at year-end 2015 Per cent 91.3 95.2 95.8 100 91.2 97.5 100 DNB SRBANK MING MORG NONG HELG SPOG Non oil-related lending exposure 4 Source: DNB Markets Direct oil-related exposure
A more efficient oil industry can withstand a lower oil price – Project break-even levels are significantly down Price break-even when sanctioned vs March 2016 USD per barrel, Brent blend 80 77 66 59 57 52 50 50 40 38 35 33 Johan Castberg Gina Krog Johan Sverdrup Ivar Aasen Gudrun Oseberg Future 5 Source: Rystad Energy, E24, Wall Street Journal, Statoil
3. Main exposure to a resilient retail market – Sound loan-to-value structure and Norwegians pay their debt Average LTV Repayment period of mortgage contracts Per cent Number of years on average 143 75 63 60 50 30 22 18 Norway Sweden Denmark Finland Norway Sweden Denmark Finland 6 Source: Oliver Wyman Source: Oliver Wyman
Weaker NOK fuels mainland economy – other industries ready to step out of oil’s shadow Other industries with strong growth Relative manufacturing wage costs 2014 versus 2015 Measured in same currency, index 2003 = 100 130 8.4 % growth in seafood exports 110 11.7 % increase in foreign overnight stays 90 2003 2007 2011 2015 7 Source: DNB Markets Source: Statistics Norway, Norwegian Seafood Export Council
Behind the headlines: continued economic growth – Regional differences and wriggle room to smooth business cycle Unemployment rate by county The wriggle room ranking 2015 February 2015 vs. February 2016. NAV 1 numbers 0 50 100 150 200 Total unemployment: Norway EU: 10.3 % Norway: 4.4 % South Korea Australia Germany Sweden Denmark Lower unemployment < 0 % Finland Slight increase in unemployment 0 – 5 % United States Fiscal space Significant increase in unemployment >5 % Britain Government budget deficit Main interest rate 8 1: Norwegian Labour and Welfare Administration. Source: Statistics Norway Source: The Economist
4. Norwegian customers are digital front-runners – A competitive advantage in modern banking Online banking users Sale of long-term savings schemes, DNB # of agreements sold across channels Per cent, 2014 91 89 86 83 82 53% 47% 2013 58 57 49 76% 44 24% 2014 87% 13% 2015 ISL NOR FIN DEN SWE FRA UK GER EU-28 Digital Branch 9 Source: European Banking Federation
Norwegian banks among most cost-efficient in Europe Number of branches Cost/Income ratio Nordic countries Yearly moving average Norwegian banks, per cent 60 1900 50 1400 48.0 43.3 40 900 2008 2009 2010 2011 2012 2013 2014 2005 2007 2009 2011 2013 2015 Norwegian banks Nordic peers Norway* Sweden Denmark Finland *Including 59 branches Source: National banking associations 10 Source: DNB Markets closing H1’16
5. Norwegian banks are – and have been – profitable – Higher, more stable ROE and lower loan losses than European peers Return on equity, Norwegian banks Return on equity, EU 28 banks Annual average in per cent (illustration) Annual average in per cent (illustration) 20 20 15 15 10 10 5 5 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 10-year government bonds 10-year Government bond Germany ROE Norwegian banks ROE EU-28 banks 11 Source: Norwegian FSA, Norges Bank, European Banking Federation
Norwegian banks well prepared for slower economic growth – a robust and profitable industry is fairly optimistic going forward Expected ROE for 2016 Expected loan loss provisions Per cent Number of respondents 34 51 24 29 20 4 Large Moderate Stable Moderate Large Increase Stable Decrease increase increase decrease decrease 12 Source: Survey Finance Norway, March 2016. Respondents: 62 banks (66 % saving banks, 21 % regional banks, 13 % domestic banks)
The Norwegian Banking sector • Stands out in terms of capital • Cost efficient • Digital • Profitable
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