Nordea Bank : Presentation Third Quarter 2020

Third quarter results 2020

Frank Vang-Jensen, President, Group CEO

Disclaimer

This presentation contains forward-looking statements that reflect management's current views with respect to certain future events and potential financial performance. Although Nordea believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors.

Important factors that may cause such a difference for Nordea include, but are not limited to: (i) the macroeconomic development, (ii) change in the competitive climate, (iii) change in the regulatory environment and other government actions and (iv) change in interest rate and foreign exchange rate levels.

This presentation does not imply that Nordea has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided.

2

Executive summary

• Strong result - continued positive trends across business areas and countries
• • Total income up 4% y/y, driven by strong growth in net interest income and net fair value result
  • Growth in mortgage lending volumes and assets under management at record high of EUR 326bn
• Good progress towards 2022 financial targets
• • Costs down 6% y/y, cost-to-income ratio at 52%* and return on equity at 10.1*%
• Strong financial position to support customers and maintain dividend capacity
• • CET1 ratio at 16.4%, 6.2%-points above requirement
• Credit quality still strong - net loan loss reversals of EUR 2m
• • Management judgement buffer kept at EUR 650m, as economic uncertainty remains
  • Full-year2020 net loan losses projected to be below EUR 1bn (less than 41bp)
• Continued commitment to delivering on business plan and financial targets

* Cost-to-income (C/I) ratio and return on equity (ROE) with amortised resolution fees and excluding items affecting comparability

Group quarterly results Q3 2020

Income statement and key ratios	Q320	Q319	Q3/Q3	Q220	Q3/Q2
EURm, excluding items affecting comparability*
Net interest income	1,146	1,083	6%	1,091	5%
Net fee and commission income	729	756	-4%	673	8%
Net fair value result	274	211	30%	318	-14%
Other income	23	35	-33%	10	134%
Total operating income	2,172	2,085	4%	2,092	4%
Total operating expenses	-1,089	-1,161	-6%	-1,088	0%
Profit before loan losses	1,083	924	17%	1,004	8%
Net loan losses	2	-49		-698
Operating profit	1,085	875	24%	306	255%
Cost-to-income ratio**	52	58		52
Return on equity**	10.1	8.4		3.0

4 * Costs: Q319: staff restructuring provision EUR 204m, Luminor EUR 75m, IT impairment EUR 735m, loan loss provisions EUR 282m

• With amortised resolution fees

Net interest income - strong growth driven by higher mortgage lending volumes

Year-over-year bridge, EURm	Comments

			+6%	1,164		•
					1,146
			25		18
		24				•
1,083	32
						•
						•
Q319	Volumes	Margins	Other	Q320	FX	Q320
				adj.

Net interest income up 6%, highest growth rate since 2012

Increased mortgage market shares

Increase in both household and corporate deposits

Higher lending margins in all countries for large corporates

Quarter-over-quarter bridge, EURm

			+5%
						1,146
				1,117	29
1,091			18
8	16
Q220	Volumes	Margins	Other	Q320	FX	Q320
				adj.
5

Net fee and commission income - improved from Q2, but still below pre-COVID-19 levels

Year-over-year bridge, EURm	Comments

				-4%				•
		5						•
756	15		26
				20		734		729
					4		5
						•
Q319	Asset	Brok. &	Pay. &	Lending	Other	Q320	FX	Q320
	mgmt.	corp. fin.	cards			adj.

Net fee and commission income down 4%

Savings income up 4%, driven by strong asset management net inflows and market performance

Card and payment fee income improved from previous quarter, but still below normal levels

Quarter-over-quarter bridge, EURm

Savings and investment commission income, EURm

				+8%
								729			+4%
						721	9
					1
			4	5					513
								503
		6
											493
	31								473
673												450
Q220	Asset	Brok. &	Pay. &	Lending	Other	Q320	FX	Q320	Q319	Q419	Q120	Q220	Q320
	mgmt.	corp.fin.	cards			adj.
6

Net fair value result - improved result in Markets

Net fair value result, EURm

Comments

211

44

8

165

		+30%
			318
	266			21		274
						12
	24	109	92		35
	33
9	47				71
	201	182	209
	156

• Net fair value result up 30%
• Customer areas broadly in line with previous year
• Markets result improved due to high level of market activity

-6		-29	-3
		-90
Q319	Q419	Q120	Q220	Q320

Customer areas		Treasury
Market-making operations		Other

7

Costs - continued development of strong cost culture and progress on cost plan

Year-over-year bridge, EURm	Comments

2,175								•
	1,014				-6%			•
		1,161	36	1,125	26	9	1,089	•
								•
Q319	Items	Q319	Cost	Q320	VAT	FX	Q320
	affecting	adj.	development	adj.
	comparability

Costs down 6%, delivering on cost plan

Staff costs down 5%

Increase in IT costs and restructuring-related premises costs in quarter

VAT refund of EUR 26m

Quarter-over-quarter bridge, EURm	Outlook

					+5%			• Costs for 2020 expected to be below EUR 4.7bn,
1,088				1,102			1,089
				26		including SG Finans
			63		13
	49
	1,039
Q220	Resolution	Q220	Cost	Q320	VAT	FX	Q320
	fee	adj.	development	adj.
8

Net loan losses - credit quality still strong

Drivers of net loan losses Q320, EURm

59-61

						0
							-2
Individual provisions	Modelled collective	Change in management Total net loan losses
and write-offs		provisions		judgement

Net loan losses, quarters and projection, EURm

						<1,000
		698	-2	0	850
		388		-2
				508
154	310
			342
	120
34
Q120	Q220	Q320	2020 YTD	Projected
					cumulative	FY2020
Management judgement buffer	Underlying net loan losses	net loan losses

Comments

• Net reversal of EUR 2m in Q3 - net loan losses close to zero for all business areas
• Total management buffer of EUR 650m maintained
• Credit outlook unchanged: full-year 2020 net loan losses expected to be below EUR 1bn

9

First instalment-free periods expiring - almost all customers resuming normal servicing

Customers granted instalment-free periods, '000s

43

29

14

Comments

• Approximately 95,000 customers, including 9,000 corporates, granted COVID-19instalment-free period
• • Corresponds to loan amount of around EUR 19bn
• Interest payments by customers maintained during instalment-free periods
• Around 50% of COVID-19-relatedinstalment-free periods will have expired by end of October
• So far, less than 5% of customers classified as

4

2

0

forborne (or in default) following expiry of their instalment-free period

4

March

April

May

June

July

August

September

10

Capital - strong capital position to support customers while maintaining dividend capacity

CET1 capital ratio development, %	Comments

0.2	0.2	0.1	0.1	•
				6.2*
15.8			16.4
			10.2	•
				•

CET1 capital ratio at 16.4%

• Risk exposure amount (REA) down EUR 4bn to EUR 151bn - limited credit REA migration during Q3

Capital buffer of 6.2%-points*

Dividends accrued for 2019 and 2020

Q220	CET1 capital	Market	FX effect	Other	Q320	Requirement
	incl. net profit	risk & CVA

Capital policy CET1 requirement

CET1 capital buffer, %

6.2*

+3.0

3.2

2.72.6

CET1 buffer	CET1 buffer	2018	Nordea´s
(above MDA)	(above MDA)	EBA stress	COVID-19
pre-COVID-19	Q320	test result	stress test
1 Jan 2020			result

• Capacity to both support customers and distribute capital

11 * As of Q320, 0.8%-points of the CET1 buffer has been used to fulfil the AT1/Tier 2 capital requirement

Personal Banking - strong mortgage lending volume growth

Total income, EURm

											-8%
902			858	824							834
									814
539			523	517			501	540
	314			313		292			266		278
			49																47
							22				15									16
		Q319	Q419		Q120		Q220		Q320
		Net interest income			Net fee and commission income			Net fair value result and other

Lending*, EURbn

Comments

• Strong mortgage lending volume growth of 6%*, and high levels of customer activity
• • Higher market shares and improving customer satisfaction
• Total income down 8% due to extraordinary income in 2019 and COVID-19 impact on payments and cards income
• Improved cost efficiency: cost-to-income down to 54%

Cost-to-income ratio**, %

		+4%		156			-3pp
		154			58
				57
		152
	151					55
						54	54
149
Q319	Q419	Q120	Q220	Q320	Q319	Q419	Q120	Q220	Q320

12 * Excluding FX effects (adjusted to current exchange rate)

• With amortised resolution fees

Business Banking - strong lending volume growth in Sweden and Norway

Total income, EURm	Comments

							+5%
					591	575	546	557
531
					346	346	339	352
338
151	161	154	129	140
				84	75	78	65
			42
		Q319	Q419	Q120		Q220	Q320
		Net interest income		Net fee and commission income		Net fair value result and other

• Total income up 5%, increased business activity and increasing number of bond issues in quarter
• • Total lending volumes up 4%*, with strongest growth in Sweden and Norway
  • Deposit volumes up 20%*, with growth in all countries
• Savings and payment fee income recovering
• Improved cost efficiency: cost-to-income down to 47%

Lending*, EURbn	Cost-to-income ratio**, %

		+4%
		85	85	85			-5pp
			52
	83					48
82						47	48	47
Q319	Q419	Q120	Q220	Q320	Q319	Q419	Q120	Q220	Q320

13 * Excluding FX effects (adjusted to current exchange rate)

• With amortised resolution fees

Large Corporates & Institutions - tangible progress with repositioning plan

Total income, EURm

					+21%	465	482
397	414	405
						211	224
212	218	217
						98	114
104	100	121
81	96	67	156	144
		Q319	Q419	Q120		Q220	Q320
		Net interest income		Net fee and commission income		Net fair value result and other

Comments

• Strong capital markets and continued volatility
• • Several major corporate transactions but lower credit demand
  • Strong results in all product segments in Markets
• Costs down 11%, mainly driven by lower staff costs and reduced travel
• Return on capital at risk higher at 12% - economic capital reduced by EUR 1.0bn
• Improved cost efficiency: cost-to-income down to 42%

Lending*, EURbn	Return on capital at risk**, %

		-6%
49	49	49	48						12
			46
						6	6
					5
								1
Q319	Q419	Q120	Q220	Q320	Q319***	Q419	Q120	Q220	Q320

14 * Excluding repos

• With amortised resolution fees
• Excluding additional provisions in Q319

Asset & Wealth Management - very strong net inflow

Total income, EURm

								+4%
					268	258					246
236		13
			18		226
					16
			13
				216	201			17
							204
190
			186
33		39		39		23		26
		Q319	Q419	Q120		Q220	Q320
		Net interest income		Net fee and commission income		Net fair value result and other

Assets under management, EURbn, and net flows, %

314	324	311	326
		280

						326
5%				5%	6%
			1%	-4%
	Q319	Q419	Q120	Q220	Q320
	AuM		Annualised net flow as % of AuM

Comments

• Total income up 4% due to strong net inflows in all segments
• • Assets under management (AuM) up 4% to EUR 326bn
    - highest quarterly net inflow (EUR 4.6bn) since Q316
• Increased ESG product net flow, amounting to 12% of ESG AuM
• Improved cost efficiency: cost-to-income down to 50%

Cost-to-income ratio*, %

		-12pp
62
			56
48	48	50

Q319

Q419

Q120

Q220

Q320

15 * With amortised resolution fees

Progress on 2022 business plan - one year after Capital Markets Day 2019

On track towards 2022 financial targets

Group

C/I* 50%, ROE* >10%

Personal Banking

C/I* ~50%

Business Banking

C/I* ~45%

Large Corporates & Institutions

ROCAR* ~10%

Asset & Wealth Management

C/I* <50%

Selected key performance indicators

Create great customer experiences

Customer satisfaction, household	+3% points since Q319
Customer satisfaction, corporate	+6% points since Q319
Enhanced corporate Netbank	+240,000 customers

Drive income growth

Mortgage lending growth***	+6% since Q319
SME lending growth***	+4% since Q319
Assets under management net flows	+2.2% annualised flow Jan-Sep 20
Asset Management internal distribution	-0.2% annualised flow Jan-Sep 20

Optimise operational efficiency

Employees	≈ -1,600 FTEs since Q319
Consultants	≈ -500 FTEs since Q319
Cost level 2020	<4.7bn
Streamlining of processes	Slightly behind plan
Economic capital reduction in LC&I**	1.3bn economic capital since Q219

16 * Cost-to-income ratio (C/I) ,Return on equity (ROE), Return on capital at risk (ROCAR)

• Large Corporates and Institutions (LC&I)
• Excluding FX effects (adjusted to current exchange rate)

Nordea is committed to delivering on financial targets

Cost-to-income ratio in FY22

Return on equity in FY22

50%

Capital policy

150-200 bp

management buffer

above the regulatory CET1 requirement

>10%

Dividend policy

60-70% payout of distributable

profits to shareholders

Excess capital intended to be distributed

to shareholders through buy-backs

17

Q&A

Appendix

Loan book - still well-diversified with strong underlying credit quality in Q320

Well-diversified portfolio

across countries and

segments

48%	Total portfolio 44%
EUR 302bn*

8%

Corporates Consumer Mortgages

Updated analysis of COVID-19

impact by segment

EUR 13bn, 4%		Significantly affected
EUR 64bn		Partially affected
21%

EUR 225bn		Not significantly
	affected
75%

		Five segments with 4% of
		total exposures significantly
			affected
0.1%			Mining & supporting activities
0.1%			Air transportation
0.1%			Household & personal products
0.4%				Accomodation & leisure
0.4%				Consumer durables
0.4%				Oil, gas & offshore
0.5%				Media & entertainment
0.6%				Materials
0.7%					Land transportation
1.0%					Retail trade
1.1%					Capital goods
1.7%					Wholesale trade
2.2%							Unsecured consumer lending
2.3%							Maritime
2.4%							Agriculture
5.9%								Secured consumer lending
6.0%								Residential real estate
8.7%								Commercial real estate
17.5%									Other corporates
47.8%										Mortgages

Nordic societies have well-structured social safety nets, strong fiscal positions and effective legal systems

		21%	26%	21%	30%		2%

20 * Excluding repos

Credit quality - impaired loans further reduced

Stage 2 and 3 loans at amortised cost, EURm

10,989	10,748	11,181	12,512	13,576

4,678	4,610	4,516	4,421	4,219
	Q319		Q419	Q120	Q220	Q320
	Stage 2		Stage 3

Comments

• Provision coverage for potential losses in stage 3 unchanged from high level of Q2 at 43%
• Slight deterioration in credit quality observed for significantly affected sectors, as expected
• Stage 3 impaired loans down 5% in quarter
• Increase in Stage 2 lending related to model adjustment; level unchanged from Q2 when excluding this

Coverage ratio, %

Stage 3							Stage 2
45							43	43			5,0
40						39					4,5
				37	3,7				4,0
						36	3,6
									3,4			3,5
35			3,0	3,2
														3,0
30											2,5
			Q319	Q419	Q120	Q220	Q320
			Stage 3		Stage 2
21

Nordic economic development - resilient economies rebounding

GDP development

Comments

• Danish GDP down 6.8% in Q2, reflecting exports and

domestic demand; house prices at all-time high in Q3

• Finnish GDP down 4.5% in Q2; house prices unchanged

compared with last year

• Norwegian mainland GDP down 6.3% in Q2; house prices

notably increased during summer

• Swedish GDP down 8.3% in Q2; house prices 8.9% higher

in September 2020 compared with last year

House prices

GDP, %, baseline scenarios (Nordea Markets)

Country

2020E

2021E

2022E

Denmark

-4.5

3.0

2.5

Finland

-5.0

3.0

2.0

Norway

-3.5

4.0

2.5

Sweden

-3.5

4.0

2.0

22