DnB NOR has outlined ambitious new profit targets
coupled with a wide-reaching internal cost-cutting programme. It
has targeted an increase in revenue generated overseas and
announced plans to establish its own non-life insurance company,
aiming to hit a 16 percent ROE by 2010, writes Douglas
Blakey.
DnB NOR (DnB), Norway’s largest financial services group, is
aiming to grow its pre-tax profits by an average annual rate of 10
percent between 2006 and 2010 and deliver a cost-income ratio of 46
percent (its previous target was 50 percent) by 2010.
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A 10 percent annual increase in pre-tax profits would result in a
profit of NOK20 billion ($3.7 billion) in 2010, up from NOK14.1
billion in 2006. To boost profits, the group is also engaging a
robust cost-cutting programme, looking to take out NOK1 billion of
costs between 2008 and 2010.
The 2010 ROE target has been raised to 16 percent, up from 15
percent.
Two key parts of the plan involve diversifying more into insurance
and expanding outside of Norway. Many of DnB NOR’s Nordic peers,
such as Danske, Nordea, SEB, Swedbank and Handelsbanken, have
pushed into foreign markets over the past few years – now DnB NOR
is itself targeting an increase in revenue generated overseas from
15 percent to 25 percent by 2010. It will also set up a non-life
insurance company by the end of next year.
Growing in domestic market
Currently, DnB NOR has an overall share of around 30 percent or
more of the Norwegian retail banking market, in addition to a 34
percent share of deposits and 35 percent of life insurance.
Although it has achieved an increased market share of almost 30
percent of loans, up from 20 percent in 2004, and has the largest
credit card portfolio in Norway with over 1.5 million cards in
circulation, DnB NOR remains bullish about achieving further market
share growth in its domestic market.
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There are regions of Norway, particularly on the west coast, where
its retail banking market shares are below 20 percent. Over the
next three years, the bank will target these areas, with the aim of
raising its market share above 30 percent. DnB plans to strengthen
its distribution and market position by introducing 1,500 in-store
banking facilities around the country, and will also open 20 new
bank branches in the west of the country.
“Our customer base and our strong distribution network in Norway
give us a unique platform for selling an increasing number of
products per customer,” said group chief executive Rune
Bjerke.
Bjerke says his company can cut costs by NOK300 million in 2008 and
2009 and NOK400 million in 2010. Savings will come from customer
processes and distribution, IT and purchasing, and the bank’s back
office and operational operations. DnB NOR’s 203-branch network in
Norway will be reduced by 30 as part of the bank’s plans to reduce
its distribution costs by NOK250 million to NOK350 million.
Expanding into Sweden
Outside Norway, the bank is looking to expand its existing
international businesses in Sweden, Poland and the Baltics, as
illustrated by its recent acquisition of the 46-branch BISE Bank in
Poland.
While the main contributor to overseas revenue is likely to come
from corporate banking in the Nordic/Baltic region, the bank is
expanding its retail offerings this year in Sweden – such as its
mortgage products launch in September – where it aims to challenge
the established retail banks. “We will become a universal bank in
Sweden and expand our initiatives there,” added Bjerke.
Last month DnB NOR revealed plans to buy SalusAnsvar for SEK749
million ($110 million). SalusAnsvar is an independent distributor
of life and pension insurance, non-life insurance and bank products
to members of professional organisations and trade unions. Its
revenues totalled slightly more than SEK200 million in 2006 and it
recorded pre-tax profits of SEK58 million.
DnB has also announced ambitious targets for the new non-life
insurance company it is to establish, which will focus on
cross-selling into its own retail and SME customer base. It is
aiming to attract 30 percent by 2010 and 50 percent by 2012 of its
retail customers to the new business.
“We will take advantage of our extensive distribution power to gain
a considerable share of this market,” said Åsmund Skår,
vice-president, DnB NOR retail banking. “DnB NOR is at the
forefront in the electronic distribution of insurance products
through the internet. This ensures very cost-effective operations.
Today, 5.8 percent of our 800,000 internet banking customers have
bought non-life insurance policies. We aim to increase this share
to 30 percent.”
The bank will market its non-life insurance offerings via its
retail branches, its telephone bank, online and brokers.
In its appraisal of DnB NOR’s strategy, investment bank Keefe,
Bruyette & Woods said that, in its view, the Norwegian group’s
targets seem “ambitious”. “We are slightly more conservative,
particularly on the revenue side and to an extent on the cost side.
Our pre-provisional profit forecasts [are] 8 percent, 10 percent
and 8 percent between 2007 and 2009,” it said.
