Nordea Bank : Video debt investor presentation for Q3 2020

Video debt investor presentation Q3 2020

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.

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Table of contents

1.	Nordea Q3 results	4
2.	Credit quality and loan loss provisions	7
3.	Capital position	10
4.	Funding, liquidity and issuance plans	12

3

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

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

Revenues - strong growth in net interest income and net fair value result

Net interest income, EURm	Comments year over year

6%

1,083

1,108

1,109

1,091

1,146

Q319	Q419	Q120	Q220	Q320
Net fee and commission income, EURm
		775	-4%
		765
756	673	729

• 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
• 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

Q319

Q419

Q120

Q220

Q320

Net fair value result, EURm

	30%
	318
266	274

211

109

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

Q319

Q419

Q120

Q220

Q320

5

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.
6

Net loan losses - credit quality still strong

Drivers of net loan losses Q320, EURm	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

59-61

• Credit outlook unchanged: full-year 2020 net loan losses expected to be below EUR 1bn

						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					850
	-2		0

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

7

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

Customers granted instalment-free periods, 1000s

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

8

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
30											3.0
										2.5
			Q319	Q419	Q120	Q220	Q320
			Stage 3		Stage 2
9

Capital - significant buffer to capital requirements

Capital position and requirements
				+5.4%
+6.2%
					14.5%
					0.4%
					2.0%
	10.2%			0.3%
	MDA		1.5%
		0.2%	19.9%
		level
16.4%		2.0%
		2.5%
		1.0%			10.2%
		4.5%
CET1 ratio		CET1		Total	Own funds
Q3 2020	requirement		capital ratio	requirement
				Q3 2020
Actual	O-SII	Pillar 2 Requirement*
CCyB	CCoB	Minimum requirement

Comments

• CET1 ratio at 16.4% compared to the current CET1 requirement of 10.2%
• • Capital policy of 150-200bps above regulatory requirement (MDA level)
• CET1 requirement lowered by ~2.9 %-points since

1 January 2020

• CET1 buffer above requirement of ~6.2 %-points** corresponding to ~EUR 9.4bn
• Nordea has postponed the 2019 dividend decision
• • Authorisation for the Board of Directors to decide on 2019 dividend. The amount is still deducted from the CET1 capital ratio (~1 %-point)
  • Dividend accrual for 2020 based on dividend policy of 60-70%pay-out ratio

10 * Total Pillar 2 Requirement of 1.75% of which 0.98% in CET1, 0.33% in AT1 and 0.44% in Tier 2 capital

• As of Q3 2020, 0.8%-points of the CET1 buffer is used to fulfil the AT1/Tier 2 capital requirement

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 have been used to fulfil the AT1/Tier 2 capital requirement

Liquidity - solid position and well-functioning funding markets

Liquidity buffer development, EURbn

107			105	106
104		104
103

100	102	101
95

Q218	Q318	Q418	Q119	Q219	Q319	Q419	Q120	Q220	Q320
Deposits*, EURbn
172					174		188		190
	165		169
83		79		77	88		97		99

89	87	91	86	91	91
2017	2018	2019	Q120	Q220	Q320
		Corporates		Households

Comments

• Robust liquidity position
• • Liquidity buffer over EUR 100bn
  • Liquidity coverage ratio (LCR) of 172%
  • EU net stable funding ratio (NSFR) of 114.9%
• Deposits increased 1% in the quarter in local currencies
• EUR 4.4bn long-term debt issued during Q3 2020
• • All key funding markets are functioning well at tighter spread levels
• During 2020, Nordea has participated in selected central bank liquidity facilities including ECB's TLTRO facility

12 * Including repos

Solid funding operations

Long-term issuance volumes YTD Q3 2020*, EUR 18.9bn

EURm

AT1

T2

Senior non-preferred

Senior preferred***

Covered

5 000

4 500

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

0

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Strong funding position further improved

• EUR 18.9bn long term debt issued during 2020 whereof EUR 4.4bn during Q3
• NSFR 114.9% end Q3 2020 (113.3% Q2)
• 78% of total funding is long-term end Q3
• Selective participation in central bank facilities in home countries incl. TLTRO as a supplement to ordinary funding

Long-term and short-term funding outstanding, EUR 188bn

CDs & CPs** 17%

Subordinated debt

4%

Senior non-preferred

bonds

1%

International senior		Domestic covered
	bonds
unsecured bonds ***		51%
15%
Green senior
unsecured bonds	Domestic senior	International covered
1%
unsecured bonds
	bonds

3%	8%

High-level issuance plan for 2020

• Full year 2020 issuance estimated to land in the lower part of EUR 20-25bn
• To be issued via covered bonds and senior unsecured debt of which approximately 50% expected to be issued in the domestic markets
• Total estimated need of senior non-preferred debt for forthcoming MREL requirements approximately EUR 10bn until 2023
• • EUR 2.7bn has already been issued

13 * Excluding Nordea Kredit covered bonds, including CDs with original maturity over 1 year

• Excluding CDs with original maturity over 1 year
• Including CDs with original maturity over 1 year

Senior non-preferred issuance plan

Own funds and bail-in-able debt, EURbn	Comments

Point of Non Viability

Resolution

					~10
						4
			2		2
	3	3	3	3

• Total SNP issuance need remains unchanged at approximately EUR 10bn* by end of 2023
• EUR 2.7bn has been issued
• SNP issuance plan to be reviewed during H1 2021 in connection with the SRB decision on Nordea MREL subordination requirement
• Nordea's own funds of ~EUR 30bn** will rank junior to
  SNP investors

Senior unsecured available for potential refinancing into SNP, EURbn

25

25

25

25

24

CET1	AT1	T2	SNP issuance	Remaining
			need	senior unsecured
				debt

35
9
	Final maturity
26	before end of
2023
	10

Outstanding senior	SNP issuance need
unsecured debt (excl.
SNP)

14 * EUR 10bn does not include potential refinancing amount

• Excluding amortised Tier 2

Contacts

Investor Relations

Matti Ahokas	Andreas Larsson	Randie Atto	Maria Caneman (maternity leave)
Head of Investor Relations	Head of Debt Investor Relations	Debt IR Officer	Senior Debt IR Officer
Mobile: [phone]	Mobile: [phone]	Mobile: [phone]	Mobile: [phone]
	Tel: [phone]	Tel: [phone]	Tel: [phone]
[e-mail]	[e-mail]	[e-mail]	[e-mail]

Group Treasury & ALM

Mark Kandborg	Ola Littorin	Petra Mellor	Jaana Sulin
Group Treasurer and	Head of Long Term Funding	Head of Bank Debt	Head of Short Term Funding
Head of Group Treasury & ALM	Tel: [phone]	Tel: [phone]	Tel: [phone]
Tel: [phone]	Mobile: [phone]	Mobile: [phone]	Mobile: [phone]
Mobile: [phone]	[e-mail]	[e-mail]	[e-mail]
[e-mail]

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