Rune Helland (Executives)
Good afternoon, and welcome to the Capital Markets Day. We are delighted to see you here in our offices in London 2 years after our last Capital Markets Day. A warm welcome to all of you present here and all of you looking at us on the line. I'm Rune Helland, and I'm the responsible for Investor Relations.
The common thread for today's program is DNB's financial target for the next 3-year period, how we are positioned and how we will achieve them. Our CEO, Kjerstin Braathen, will start the session by going through the updated financial targets, our solid platform for profitable growth, resilience in the Norwegian macro and the DNB business model through the cycles. CFO Ida Lerner will give more insights into how we will reach our overriding return on equity target and how we will deliver on the dividend policy.
Head of Personal Banking, Ingjerd Blekeli Spiten, will take us through how Personal Banking has strengthened their position for profitable growth, including the acquisition of Sbanken. Next, Head of Corporate Banking, Harald Serck-Hanssen, will walk us through how the Corporate Banking will further leverage on their strong market position in SME and how they will take advantage of the unique total in -- within the green transition, and the close cooperation with DNB Markets. And before we open for questions, but not the least, the Head of DNB Markets who are delivering the highest ROE, Alex Opstad, will give you some insight into DNB's market strategy, market position and growth opportunity.
So let's get to it. Please welcome our CEO, Kjerstin Braathen.
Kjerstin Braathen (Executives)
Thank you so much, Rune, and a very warm welcome to all of you and to our Capital Markets Day that, I must admit, we're quite excited to host here in our own offices in London for the very first time. And we're grateful to London also for providing us with this weather that makes us feel so at home, because this is exactly like being in Norway. .
A great many things has happened since we were gathered for our previous Capital Markets Day 3 years ago. The world has lived through a pandemic, which has put societies and economies through a high level of stress. Now with the pandemic hopefully behind us, or at least the most severe consequences of it, we move on to even greater challenges with a war in Europe, energy crisis, inflation and increasing rates. In brief, a very, very different environment with a higher level of uncertainty than we've seen in a very long time.
So where will all this take us? That is not what we're here to tell you because our job is not to predict the future, but our job is to run our business in a way that ensures safe navigation through any kind of weather.
My key messages today, or at least the messages that I hope to get across, is one of the large resilience and mobility in our earnings and delivery through cycles. We don't start preparing for troubled waters when they arrive, but we run our business every day actually preparing for it. In addition to that, I'll talk about our financial targets for the coming 3-year period. I'll talk about the Norwegian macro and touch upon some of our key strategic issues. And there, I also got you on to my first slide.
First of all, we do deliver on our financial targets. Here, you see the targets that we communicated at our Capital Markets Day 3 years ago. Then return on equity as our most important target, with the delivery towards the end of 2023. Return on equity year-to-date is 13% towards the minimum communicated of 12%, so we deliver on our most important financial target 1 year ahead of plan. Our cost base, 39.8% year-to-date, also within our target of less than 40%. We have a very robust balance sheet, and we have delivered on our dividend policy. Consistency and predictability is something we strive for and we deliver in this period, as you also can see that we have delivered in our targets communicated in other periods before this one.
So first, to resilience in earnings. If we take a look at the development in terms of earnings and profitability, you will see for the past 10 years that our capital has grown. We've close to doubled our capital base, while at the same time delivering a higher return to our shareholders. Interesting to note also that earnings are holding up both during the oil-related crisis in '14 to '16 as well as during COVID. There are many reasons for this, but 2 key reasons are our vast ability to reprice our portfolio, and also that some of our financial instruments partly work as hedges in turbulent times.
Our capital base has grown faster than our revenue in the past 10 years and yet we deliver, as I mentioned, a higher return. This speaks to a higher quality in our revenue, and this stems from strategic choices and decisions being made and our continuous investments into our customers, innovation and our people.
In the recent 3-year period, there are 3 things that I would like to highlight as very important. Firstly, our ability to deliver to customers during COVID. Again, a substantial increase in interest income due to our ability to reprice and our latest acquisition of Sbanken. Of these, the 2 latter provides us with further tailwinds for growth and profitability ahead.
Here, we show the development in our earnings per share relative to the development in the key policy rate and the GDP growth in Norway. Again, we believe this is a testimony to our ability to deliver through cycles. No doubt, the economic environment and the regulatory framework are important to us, but so are the strategic decisions we make and the performance of our team on a day-to-day basis.
So if I zoom in on a couple of periods you see on the slide here. Firstly, from 2016 to '19, you'll see that our earnings grew faster than both the GDP and the reference rate, and this was a period with benign economic growth. On the contrary, going into the pandemic, there was a dramatic shift in rates going quickly down to 0, and the economic growth went into negative territory. In such a situation, our earnings fell only by 22%, only to bounce very quickly back up and now, in the most recent period, are 20% or more than 20% higher than they were in the year prior to the pandemic. So again, a testimony to resilience.
We consistently apply a high level of discipline to how we allocate our capital. We know that you value our ability to deliver on our dividend policy through cycles, and believe this was duly tested during the years of the pandemic. And we're pleased to see that we also, in this period, managed to deliver on our dividend policy, both in 2020 and in 2021. We have a rock-solid balance sheet, and allocating capital back to our shareholders in line with our dividend policy continues to be a very high priority for us.
So with these remarks, I will end my reflections around resilience and predictability and delivery through cycles and turn my attention to the future. Doing this all while reminding you that the principles on which we run our business stays the same, and these are what has provided us the very strong platform we have today.
These are our financial targets for the coming 3-year period. Return on equity continues to be our most important financial targets, but we raised the target for our return on equity to a minimum of 13% as for 2022.
Now you've heard me just talk about the uncertainty in the world, and some may question whether this is the right time to increase our targeted return on equity. We have a tradition for setting the bar high. Is it ambitious? Yes, it is. Do we believe it's within reach? Yes, we think it is, which is why also we think it is the right time to raise the bar. And my colleagues and I, we will endeavor through our presentations today to talk you through why and how we believe so.
Our cost income target remains the same, at a cost base below 40%. There is a change to our capital target due to a change in the capital mix on the Pillar 2, which Ida also will touch more upon. And our dividend policy is consistent. We will pay out a minimum 50% cash dividend per year with an increasing cash payment per share per year, and we will continue to use share buybacks as a tool to optimize around the desired capital position, pay out excess capital.
Norway and the Norwegian economy continues to be very important for our business. The activity level in the Norwegian economy is high with very low unemployment, and inflation that is above the targeted level by the Central Bank. Now growth is expected to slow down, and the estimates by our colleagues in DNB Markets is for a growth of 0.8% next year before normalizing at 1.5%. Bear in mind, when we talk about this, we're talking about the growth in the mainland economy, and this does not capture the activities in oil and gas. With the current prices in oil and gas, I'm sure you can imagine that the revenues to Norway as a country are substantially higher than they've been for many years.
Investments into the corporate sector are expected to be a driver for activity and growth, partly offsetting the expected reduction in consumption. The energy transition focus on sustainability will be a driver for this in addition to oil and gas, where we expect demand to be high also in the short to medium term. The Norwegian Central Bank was among the very first, if not the first, to actually start hiking rates back in September 2021 due to a very rapid recovery from COVID, and they have stepped up the pace in the recent 6 months period.
Now inflation came in above expected levels also in October, but we are seeing signs that the monetary policy is starting to take effect. There is a slowdown in the housing markets. We do hear from some retailers that they are experiencing lower sales. And fewer companies and businesses are reporting of capacity constraints, indicating a lower temperature in the economy.
The Norwegian households are robust. Norway is one of the wealthiest countries in the world and are among the top 10 countries in the world where the economic differences are the smallest, if you rely on the G&A index. The average Norwegian household is in good financial health. Despite the debt level in general being higher than for many countries, the leverage towards house values is still modest. The unemployment is very low. And in total, Norwegian households have saved in excess of NOK 260 billion during the previous 3-year period.
But given the combination of increasing rates and a high ratio of floating rate mortgages, we think it's interesting to take a look at the development in the debt service burden for people. So if you look at the development, you see in the middle of the slide of interest payments only. There is a meaningful increase in the past year. If, however, you look at the payment of both interest and installment, the increase is much smaller. People today spent 14.9% of their disposable income paying installments and interest on their mortgage towards 14.4% before the pandemic.
What does this tell us? It tells us that Norwegians have a very strong culture and tradition for paying down their debt. Not only paying interest, but actually paying down the debt. And this should provide flexibility for many to push out installments, if this should become necessary. But beyond that, I think there's one key message to this slide, and the single most important thing for financial and social wealth is that people have employment. Unemployment is at record low levels at 1.6%. And yes, we do expect the unemployment to increase also in view of monetary policy and a lower temperature in the economy. But keep in mind that 1/3 of all Norwegians are actually employed in the public sector. And even though we're talking about unemployment level of 3%, this is still a very low level both in an absolute and relative context.
At our Capital Markets Day 3 years ago, I also talked about the fact that many seem to think that the volatility in the Norwegian economy is actually higher than it is. With the pandemic behind us, we think it's interesting to take a look if the recent 3-year period actually has altered this situation. But on the contrary, we would say that also in the pandemic, the Norwegian economy proved to be more resilient than most countries around us. Norway was actually in the early days of the pandemic forecasted to be one of the hardest economies hit, and we turned out in the end to be one of the economies with the lowest impact from the pandemic. We managed to keep our economy going, we had a limited number of diseases from the pandemic, and we had a lower fiscal stimulus also than many other countries around us.
So looking back 30 years, it is still a fact that the growth in the economy has been higher, and the volatility less than those of our peers.
One should always take caution when looking into or relying on economic models. And I think, in particular, in times like this, when uncertainty is so high because no economic model factors in very important and material elements such as culture, such as characters, such as technology and innovation. And one of the main reasons why Norway managed so well during the pandemic is the very high level of trust in the society. Trust in authorities, trust in institutions, and this is an asset that also benefits our business and our abilities to help customers and society at large.
Norway is a small and open economy, and no doubt, we will be impacted by what happens outside of Norway. Yet we've seen time and again how Norwegian authorities are not only able but also willing to use what we like to call the stabilizers in the economy as tools to smoothen out cycles. At our Capital Markets Day 3 years ago, I talked in detail about these stabilizers, and I'll touch them only briefly today. But we have, of course, our monetary policy that is particularly efficient in view of the floating rate nature of mortgages.
We have our own independent and floating currency, which has been important for safeguarding competitive wage cost in turbulent times. And last but not least, Norway is among the wealthiest countries in the world. In fact, if you look at our sovereign wealth fund per capita, it is by far the largest one in the world. So we think there are a few, if any, better positioned than Norway to tackle whatever lies ahead of us.
So with those remarks on the macro, I would like to move on more to touch upon some strategic issues that are important to us. And all of them evolve around the 3 key important topics about our customers, profitability and our people.
Customers expect and demand more of us, and we focus our efforts continuously into building added value for customers into our products and services. Banks in general were very clearly pointed to as a part of the solution during the pandemic. And DNB, we have a particular role in Norway being a supplier of critical infrastructure. And we are humbled to see that our efforts during these years has actually earned us an even higher level of trust with our customers than we had prior to the pandemic.
We spend our efforts building strategic positions across of our businesses, and 2 of these positions are focusing for years on young people and start-ups. And we are pleased to see that we have been rewarded with clear #1 positions both in the category of young and for start-ups. This builds a long-term value into our business and into the Norwegian economy, but some of our strategic positions also monetize more in the short term. One of them is savings and investments that we've talked to before, and you can see some of the results on how we monetize on this on the right-hand side on the slide. And my colleague, Ida and Ingjerd, will touch more on some of these points later on.
We like to work with our partners to expand our offerings into a larger part of our customers' value chain. And recently, we were pleased to see that the planned merger between Vipps and MobilePay was finally approved. We are excited about the opportunities of combining 2 of the strongest brands in the Nordics and the 2 largest digital wallets in the Nordics. Now scale is important for this business, and we do go from having an individual customer base of 4 million to 11 million customers. We cover today 120,000 shops, we'll be covering 400,000 shops and e-commerces, and go from operating in 1 country to 3 countries. And you can see some of the other examples on how we work with our partners, one of them being embedded finance also on the right-hand side of my slide.
Our activity across Norway and internationally forms a strong platform for growth. We are a market leader across almost all of our businesses in Norway. We have -- we bank every third business in Norway, and I would like to particularly highlight our position in the SME area, where we have taken market share in recent years. And with the acquisition of Sbanken, we further strengthened our ability to grow in the Norwegian market.
In our international activities, we will continue to be more selective. We will cover the Nordics more broadly. Beyond that, we focus on the industries where we have a value add in terms of competence. It also so happens that several of these industries are key elements into solving the energy transitions and will require substantial investments, namely Power and Renewables and Infrastructure. And this will be further developed and covered also owned by Harald and Alex later on.
The Nordic countries are leading in sustainability, and one example where you see this is in the Sustainable Development Report, where all of the Nordic countries were top rated. This trend is infiltrated into society at large, and businesses and financial institutions are driving this by further increasing the pace of the transition. Our strategy as a transition bank stands firm. We will prioritize capital to finance sustainable investments while at the same time also helping our customers who need to reduce transitions in, namely that, their phase of transitioning.
We are on track towards delivering on the NOK 1,500 billion that we have targeted to raise for sustainable investments towards 2030. We have set targets on 3 of our portfolio for emissions reductions towards 2030 by between 25% to 33%, and we expect to report or we plan to report on these in our Annual Report for 2022. And again, my colleagues will develop further on this topic later on.
Technology. Technology matters ever more to our business. And there are 3 elements that I would like to highlight today, and that is the importance of cybersecurity and fraud prevention, scalability and pace of innovation.
One proof point of the importance of digital is our mobile banking application. It's used by close to 30% of all Norwegians for their daily banking services, and we do see that an increasing number of people are actually using our app to aggregate in their accounts from other banks, and this is an important step in the direction of a platform. So the benefit of working in one of the most advanced and mature digital societies in the world.
Secondly, efficiency and scalability can be seen in the magnitude of revenue that we generate per full-time employee. And the fact that the growth in our revenue has been almost -- has grown in almost double the pace as our cost during the past 5 years.
Now, 2 of the things that we really prioritize when we look into technology is stability of operations. Our shop needs to be open for customers, and our pace of innovation. So here, we show you the development in a couple of our internal metrics. But from these, you will be able to see that we have over the past 5 to 7 years substantially improved the stability of our operations, while at the same time, more than doubling the number of changes that we managed to make in our systems every month. In the period ahead of us, we will focus on accelerating modernization to further increase efficiency and pace of innovation. And both Ingjerd and Ida will touch on this later on.
And lastly, but certainly not least, because I often talk about it and we do believe that our people are our most important, competitive advantage. We are humbled to see that yet again, we have been rated the #1 Most Attractive Employer for businesses and economists, and this goes across both professionals and students. And we have competitive positions and are attractive both for legal and technical engineers. We strongly believe in the value of a diverse and inclusive workforce, and we continue our efforts in this area. And I must admit that we were a tiny bit proud when the FT ranked us clearly the #1 leading financial institutions in this area across Europe.
I'll also share with you that I was worried that sometimes during the pandemic where everyone more or less was working from home, whether we were actually losing out a little bit on our culture, which we believe is an asset. And I'm really grateful to see now that we actually see that a larger part of our employees are proud to work with DNB today compared to prior to the pandemic, and a large part of our employees will actually recommend DNB as an employer compared to where we were prior to the pandemic.
And with these remarks, I hope that I've come across talking you through the resilience and ability of our business model to deliver through cycles, that you've heard our financial targets and understand a little bit more about our strategic priorities and where the economy is at these days. And with these remarks, I'll hand over to my very brilliant CFO, Ida Lerner.
Ida Lerner (Executives)
Thank you, Kjerstin.
I would like to move on to our financial delivery since the last Capital Markets Day as well as the main drivers for continued strong profitability, cost efficiency, capital generation, which will all support our dividend policy also in the period ahead.
Return on equity has developed positively from 2019 and is year-to-date at 13%. The increase in return on equity comes as a result of increased volumes in deposits and loans, repricing, solid contribution from commission and fees and net reversals of impairment provisions. The increase in costs you can see on this slide is due to higher activity levels and investment in strategically important areas such as technology and compliance. These have been curtailed by delivered cost initiatives that I will come back to later on in the presentation.
Firstly, we have a strong foundation for continued income growth across segments and product areas. Secondly, additional areas have been identified when it comes to cost efficiency also in the times ahead. And thirdly, we have a solid and well-diversified portfolio across segments, industries and geographies. And finally, we will continue to focus on optimal use of capital. With all this in mind, we are committed to deliver on an ambitious new target of return on equity above 13% towards 2025.
We've had a strong development in NII, driven by profitable growth in loans and deposits as well as customer repricing in a very competitive market. During this period, as Kjerstin pointed to, the key policy rate has gone from 150 basis points to 0, and it's now up at 250 basis points. The NII and net interest margins have improved. But please bear in mind that the 3 latest repricings that have been announced but are not yet represented in these numbers are yet to come. We, therefore, have a tailwind ahead. The latest announced repricing is expected to have an annual effect of roughly NOK 1.2 billion on an annual basis and effects from end of December.
Looking ahead, we maintain our long-term ambition of an annual loan growth of between 3% to 4%. The combined DNB and Sbanken makes us well positioned to capture growth within personal customers, as Ingjerd will come back to later on. Within corporate banking, we are seeing further potential within -- through our strong market position within SMEs, the small to medium-sized enterprises, where we enjoy a market share of approximately 35%. In addition to that, we have global competence within industries with high growth potential also in the years ahead such as seafood, infrastructure, energy and renewables.
Our operating income from customers has increased, and we are seeing positive effects from our diversified product offerings. These results are generated through a well diversified product mix, strengthened positions within areas of strategic importance, which provides a strong foundation for future income potential. We are seeing increased revenues coming from FICC driven by higher volumes and increased competitiveness on our behalf. We have a broad-based product offerings within commission and fees, ensuring recurring and solid income from real estate broking, money transfer and banking services, guarantee commissions as well as sale of insurance products.
In addition, we've made successful investments into our investment banking platform across product, industries and geographies, which is expected to provide additional income and revenue in the coming years. Alex will come back to this later on. We are also well positioned for further growth within savings and pensions through our strong position in the Norwegian market across defined contribution, personal customers and corporate banking. This is particularly important in light of the structural changes we've seen in Norway within pensions as well as long-term savings overall where mutual funds and stocks have gaining increased interest among the Norwegian population.
I would like to expand on the value chain and our position within pension and asset management overall, as this is one of the areas we see interesting opportunities ahead. The pension reform implanted in 2021 meant, among other things, that all Norwegian employees have a much higher level of responsibility for investment choices connected to their pension savings. We've seen a solid growth in net inflows due to our strong position in Corporate Banking aided by the requirement for the employers to make pension contributions from the first Corona.
The increased visibility of pension savings has also led to an overall increased interest among Norwegians when it comes to long-term savings in mutual funds. DNB has an exceptionally strong position through DNB Asset Management with a market share of 34.5% as well as our savings app, Spare, which is the #1 savings platform in Norway. We note positive inflows in these broader turbulent times as well as we continue to grow markets within defined contribution pensions, and it appears as if our customers stick to their long-term savings goals and their long-term savings schemes.
Now moving on to an update on our cost plans or plans for cost management. We are diligently focusing on cost efficiencies across the group, and we've seen the cost income ratio decrease from 42.2% in 2019 to 39.8% year-to-date. This comes as a result of increased income, but also strong cost focus across the group. At the Capital Markets Day in 2019, we announced the plan for cost initiatives of between NOK 1.5 billion and NOK 2 billion. We have delivered. As of today, these initiatives have reduced our cost base by NOK 1.7 billion. The main contributors to this is the discontinuation of the distribution agreement with the Norwegian Postal Service, further efficiency connected to our credit process, overall operational efficiency and the new IT operating model, which has been implemented and reduces complexity, enables the commissioning of products, services and licenses.
Looking ahead, we reiterate our ambition of a cost income ratio below 40%. We expect a positive contribution from additional income but also increased inflationary pressure, with wage inflation affecting us the most. Operating in such a digital society as Norway's is requires us continue to offer high-quality tools to our customers. It is, therefore, important for us to ensure room for investment both in our digital solutions to our customers but also in the continuous modernization of our core systems. This is something we must do on an ongoing basis, and we'll continue to do also in the times ahead.
In addition to this, we will continue to invest in in-house competence within strategically important areas. In order to partly curtail inflationary pressure and give room for strategic investments while delivering on our ambition to -- for a cost income ratio below 40%, we've identified further cost initiatives towards 2025 of approximately between NOK 1.5 billion and NOK 2 billion.
The first initiative relates to further automation and operational efficiency, where the integration of Sbanken accounts for approximately NOK 300 million. The second includes reduced supplier costs with particular focus on limited use of external consultants. We remain committed to our ambition of a cost income ratio below 40%.
Now moving on to asset quality. The focus on rebalancing the credit portfolio from cyclical industries to more diversification across industries and the larger proportion of the personal customers have reduced cost of risk through cycles. We are naturally well aware of the uncertainty we see around us. But as you can see from the chart on the left-hand side, consistent work over time to rebalance our portfolio has been showing results.
Our personal customer portfolio is solid, with approximately 90% of it being towards mortgage lending and only a very limited exposure towards unsecured credit. The Norwegian lending regulation requires all customers applying for or refinancing mortgage to handle an immediate 5 percentage point increase in interest rates, minimum 15% of equity and maximum 5x debt to income ratio. In addition to this, we take comfort in our loan-to-value ratios in the mortgage loan book of 54%, which has been reducing over time. When categorizing our mortgages by marginal loan-to-value distribution, 94% of our exposure in the loan book -- in the loan-to-value category ends up below 60%.
When looking at the behavior of our customer, which is extremely important these days, it is noting that we are not seeing any particular changes. The number of application for interest-only periods are not increasing, and neither is forbearance. When looking at deposits, we see that, on average, mortgage customers have saved more during these past few years than the non-mortgage customers. And while the reference rate now is higher than what has been the case the last few years, it is worth noting that our Norwegian mortgage customers, they're used to paying an interest underlying and they're used to amortize underlying, as Kjerstin pointed to. The portfolio is robust and shows no signs of deteriorated quality at this point.
Now moving on to the corporate loan book. We have a robust and well-diversified corporate customer portfolio, with more than 93% of it being classified as low and medium risk. And there are no single industry accounting for more than 10% of total exposure at default. 26% of the corporate credit portfolio is towards small to medium-sized enterprises, where the vast majority is exposures in Norway. In our large corporate area, we continue to work along our industry strategies with a focus on originate and distribute. In addition to having a solid footprint among Norwegian customers, we follow select industries internationally where we have a strong industry competence, which Harald will come back to later on in his presentation.
Given the particular focus we're noting on commercial real estate, I would now like to move over to that part of the portfolio. The commercial real estate exposure is robust and well diversified across subsegments. Our credit strategy has, over time, been strictly focusing on cash flow, industrial ownership and residual value, with very limited exposure towards special purpose vehicles with financial owners. 94% of the exposure in this portfolio is towards Norway, and 75% of it is in low risk.
The largest part of the portfolio, as you can see in the light green segment at the bottom of the wheel, is towards office premises, predominantly in larger cities. We are noting in Norway increased rental prices and decreasing vacancy levels overall. And the recent market survey shows that 88% of the respondents express a need for the same amount of space in the coming years. The commercial real estate companies in Norway are also to a lesser extent dependent on the bond market, as approximately 80% of the finance is towards bank financing. This reduces the refinancing risk.
Now moving on to capital. We have a strong capital position and a resilient core Tier 1 capital ratio, also in a potential downturn. Our first line of defense, as Kjerstin pointed to, is proven ability to generate consistent high earnings while building capital over time. As you can see from the middle of the slide, our leverage ratio is high compared to Nordic pace. This provides significant resilience which is also supported the EBA stress test from 2021, which shows a lower drop in core Tier 1 capital ratio relative to our peers. Given the solid capital position, we maintain our dividend policy with a payout ratio above 50%.
We received our final SREP yesterday, which confirms that the Pillar 2 requirement can be fulfilled by a combination of core Tier 1 capital, AT1s and Tier 2 capitals. Our Pillar 2 requirement is up by 20 basis points, but due to what I just mentioned, the core Tier 1 capital requirement is down 70 basis points.
You may have seen that the Norwegian FSA has sent a proposal to the Ministry of Finance suggesting increases in risk weights on mortgages and commercial real estate. The Norwegian Central Bank, on the other hand, argues for maintaining the current risk weights. The Ministry of Finance is the decision-making body, will decision on this in December.
The Sbanken portfolio is expected to be included in our IRB models in 2024, and will have a positive effect on our core Tier 1 capital ratio of approximately 25 basis points at that time.
In light of the outcome from the SREP process, our long-term capital expectation is reduced from above 17.7% to now above 17% as from the first quarter 2023. We remain committed to our dividend policy, supported by our strong capital position today but further strengthened by our revenue-generating capabilities ahead.
So summing up. Our overriding target for the period ahead a return on equity above 13%. This is supported by a cost-income ratio below 40%, a core Tier 1 capital ratio a margin above 17% and a payout ratio above 50%.
And with that, I thank you for your attention, and leave the floor to our Head of Personal Banking, our wonderful Ingjerd.
Ingjerd Cecilie Hafsteen Spiten (Executives)
Thank you, Ida.
I'm proud to stand here to report on strong progress and a positive outlook for the Personal Customer segment. We are a market leader, with even greater competitive power and a strong position for continued growth. Our digital leadership and ability to adapt to changing customer preferences is a key to our market-leading position. My focus here today will be to talk you through how we will continue to drive profitable growth recently strengthened through the Sbanken acquisition.
I will start by underlining our strong market position in Norway as a major player in both lending and deposits. I'm proud to say that we have managed to widen the gap between ourselves and our closest peer by growing organically. And with Sbanken, our mortgage portfolio is now more than 2.5x the size of our nearest competitor.
Our portfolio of deposits is now more than 5x of the nearest competitor and has grown 19% so far in 2022. We see proof of our competitive power in the increased numbers of new customers now considering a move to DNB and Sbanken. We reiterate our ambition to continue to deliver profitable growth moving forward for both mortgages and deposits.
This slide shows the stickiness of the savings schemes since 2019. The last 3 years, we have worked hard to increase the number of savings schemes, and the result is clearly illustrated on the chart on the left. This success is a result of our focused sales and marketing activities, combined with broad product offering and an easy-to-use solutions.
What's interesting to note is that customers stay in their savings schemes through different market conditions. It's also really positive to see that we continue to sell new savings schemes almost in the same pace as we did 1 year ago. This underlines our competitive power in savings.
Diversity has been and continues to be an important part of our strategy, and it's inspiring to see the positive trend in female investors since we launched the campaign #girlsinvest at the end of 2019. Potential for female savings is still high, but there is also a very high potential for Norwegians in general to start buying more advanced saving products.
The chart on the far right shows Norwegian's average saving amounts in mutual funds compared to Swedish and Danish inhabitants. As you can see, Norwegians save less than half the amount of mutual funds compared to our neighbors. So there is still lots of untapped potential to grow the savings portfolio, and we are well set to continue our success in this area.
We hold a market-leading position in mobile banking. And as Kjerstin pointed out, 30% of all Norwegians about 16 years use DNB mobile banking platform. An impressive 65% of all daily banking transactions are made via mobile, and during 2021, we saw that mobile surpassed desktop as our customers' preferred banking platform.
A high level of engagement is strategically important for building stronger relationships. Efficient digital tools as our Personal Finance Manager gives customers instant access to deeper insight into their individual spending patterns. And we see a steep increase from May this year for the Personal Finance Manager service, where the number of unique users is up 28% just in the last 5 months. Supplemented by an easy-to-use budget funciton, we help customers to make important adjustments in their personal economy.
Current economic uncertainty among the population of Norway makes our role as economic adviser even more important than it has been before. We are convinced that providing, engaging relevant tools directly from the mobile bank will give high customer value going forward.
Our investment in the cloud-based mobile banking solution has really paid off. We now have the flexibility and speed we need to maintain our digital leadership position. As we are becoming increasingly digital, we have kept a clear focus on providing relevant products and services to ensure customer loyalty. The chart on the far left here underlines our progress in this area. And we see that our mortgage customers, on average, are using an increasing number of DNB products.
The chart in the middle exemplifies how the digital share of sales is increasing for non-life insurance products. We see the same development for other product categories, and the key to success is to ensure upselling of the broader portfolio. And to do this, we need to combine the efficient digital sales engine with proactively offer our complementary products and services. We are happy about the progress shown in this area during the last couple of years, and we'll continue to invest in people and tools as we believe deep insight in customer behavior and customer journeys will be of high strategic importance going forward.
I also like to mention the results from our most recent survey, which shows that Norwegians have high trust in traditional banks. In a more uncertain market environment, we believe this test is an important strength for DNB.
We continuously transform our business to become more efficient, and I would like to show you a couple of examples. Automated replies through chat and call center was more than 4x higher in 2021 than it was in 2018. By doing this, we have reduced the number of FTEs in our call center by 9% while maintaining the same level of customer satisfaction. We believe that we still have substantial potential in developing and use robot technology in customer dialogues with the chatbots and our speech bot, but also for product and service processing. By working closely with our internal robotic scheme, we currently explore new area of interest to great pleasure for customers, but also for DNB.
The second example is how we have transformed our cash handling. We have removed the need to use physical office locations to withdraw and deposit cash. The customers can now get these services at the point of sales at a local grocery store. This transformation has delivered a net yearly savings of around NOK 180 million. An additional benefit of the service is that it is provided exclusively by BankAxept, a company which DNB own 45% of.
Going forward, we will continue to transform, digitize and streamline our business and way of work to be even more efficient.
Now to the most exciting happening for us in Personal Banking in 2022, the acquisition of Sbanken. Since our acquisition, growth in mortgage volumes has accelerated. It's impressive to see how Sbanken organization has maintained a clear business focus and delivered such good results. In June, Sbanken was awarded the decade's Best Customer Service for Banks. Sbanken shows remarkable stable and high levels of customer satisfaction, outperforming all other Norwegian banks.
We like to further develop and integrate this very strong brand and customer-centric culture for the best of the DNB group, and it's really exciting to have Sbanken as part of our group from a culture, business development and profitability perspective.
Sbanken gives us a stronger footprint in the mass affluent segment. The banking customers are affluent, preferred digital self-service, have fixed prices and don't want personalized services. DNB's SAGA concept is addressing the same segment. We provide strong position with premium and are strong positioned with premium personal services, individual pricing, and wide range of products and services. DNB and Sbanken are, as you understand, a complementary match addressing customer needs in the mass affluent segment.
The young segment is also a strategic importance for us going forward, and the perception of DNB among this customer group is very positive, and we are perceived as #1 bank in the segment. For young people, we have favorable products and tailor-made services. We have developed tools and digital advisory services to help young people to a deeper understanding of their own personal economy. We believe competence is the key to make good economic choices, and we aim to be young Norwegian's partner of choice for economic advisory.
So the strategy going forward is to prioritize efforts to succeed even better in these 2 important segments.
To sum up, we are committed to provide relevant products and services to attract and retain both existing and new customers. We are a market leader with even greater competitive power in a strong position for continued profitable growth. Our digital leadership and ability to adapt to changing customer preferences is a key to ongoing success.
And with that, I leave the floor to you, Harald.
Harald Serck-Hanssen (Executives)
Thank you, Ingjerd.
Good afternoon, everyone. I'm so glad to see the big turnout because I think we have a good story to tell. And now I'm going to -- it seems like I've been downgraded to the microphone here. Anyways, it sounds much better.
Today, I will tell you a few things about what we've achieved since our last Capital Markets Day in 2019, and I hope this will show you that we've built some very strong positions that will also enable us to be very profitable in the years to come. And we have 3 main strategic focus areas. Number one is the strong focus that we will maintain on the Norwegian SMEs. Secondly, we're going to leverage on both our industry competence and our broadening product offering to grow income, and we will benefit from what I would call our existing and new profitable positions within the green transition.
But let us start with a snapshot of Corporate Banking. With about 250,000 clients, we serve more than 1/3 of Norwegian companies from the smallest startups to the large conglomerates. We have about 2,600 employees located around 44 offices in Norway and 16 abroad. And through our close alignment with the [ MB ] markets, advanced digital solutions as well as a well-functioning originate and distribute model, you will see our key to success.
Another distinguishing factor, as I've already mentioned, is our strong industry focus. At the time of our corporate banking -- not corporate banking -- capital Markets Day in 2019, it was a very exciting time for me because at that time, we were just in the process integrating SMEs and large corporates into one corporate banking. And today, I'm pleased to say that this merger has led to better risk pricing, stronger cross-selling, and we've achieved that through, what I would say, transfer of industry competence and transfer of best practice. And we've also achieved cost synergies by combining IT, digitalization, KYC, financial reporting, administrative functions, et cetera.
So as I'm sure you're interested in, let's turn to the proof of our achievements because despite the pandemic, Corporate Banking has increased profits by an average of 6% per year since 2019. And through capital optimization and growth in non-lending income, we've achieved.
return in the last 12 months.
As you can see, we have increased deposits by a phenomenal NOK 250 billion over the last 3 years. And our record high deposit to loan ratio does not only contribute to profitability, it also shows that our clients in Norway and abroad view DNB as a safe haven in times of uncertainty.
Another reason for our strong increase in return on allocated capital is that we've been able to grow product income 3x as fast as the loan book. And this is, of course, largely thanks to our seamless cooperation with DNB Markets, and Alex will elaborate on that later. But, and this is important, income from other products, such as pensions, asset management and non-life insurance has also increased steadily and is expected to continue to grow in the years to come.
And now to SMEs, because SMEs represent almost 40% of the net income in Corporate Banking. And as I mentioned in the introduction, combining SMEs and large corporates has led to strong results. With an increased growth rate during the pandemic and with an annual growth of between 6% and 7% over the last 3 years -- per year over the last 3 years, exactly, we have increased our market share to above 35%. And return on allocated capital year-to-date is approaching 20%.
Following the merger with large corporates, we are also better positioned to serve the SME clients with a broader product range such as investment banking services, FICC products and trade finance solution. In addition, we have an international network that the local saving banks in Norway cannot offer.
We've also had a strong increase in the number of users on our corporate mobile bank since it was launched in 2019, and it is already used by about 10% of companies in Norway. But it is growing faster, Ingjerd, and maybe next time, we can compete with your 30%. And this is important because the increased traffic we see on this and other digital platforms, that is driving customer loyalty and it drives cross-selling.
And we will continue to develop new, exciting digital solutions that will help us to serve the smaller clients and drive down costs. We will also continue to leverage on our physical presence around Norway, and we will further strengthen our position as Norway's preferred startup bank.
Then to large corporates in Norway. As the by far largest financial institution in Norway, we obviously enjoy a very close relationship with the Norwegian large corporates, which represents about 35% of our income. We provide a full range of banking services and even related products such as non-life insurance and private banking. The broad product range and our industry competence gives us a unique level of interaction with our core clients, and it means that we can act as strategic advisers or trusted advisers to owners and top management.
We're also the day-to-day bank for most of our key clients, with treasury management and other transaction banking services creating what I would call a stickiness in the client relationship. This year, we've improved our trade finance solutions and our cross-border payment platform. And then, as both a strategic discussion partner and a daily adviser on the operational side, we are often given a first shot on transactions and we're able to sell a full range of products and services. This has enabled us over the years to gradually increase the share of non-lending income, now reaching above 45% in the last 12 months. And then by combining this strong cross-selling capability with an originate and distribute model, we managed to yield a high return on allocated capital also on the large corporate side.
Our international presence allows us to diversify the risk in our portfolio. It provides us with flexibility in our growth strategy as well as contributing to world-class industry competence. Through our international offices, we also give our customers access to the world's capital markets, and it gives us in DNB access to talent pool internationally. And then as a niche bank internationally, we can select our markets carefully to minimize ESG risk and to minimize political risk.
As you can see, our growth internationally has been very profitable and it's also been very selective. All international offices today show a return on capital above the required 12%, and the average return on our international business so far this year is above 15%. Since we met here in 2019, we adjusted our international presence to align it with our industry strategies and to improve efficiency. We have, for instance, closed down our offices in Aberdeen, sorry to our Scottish friends. We have closed down our operations in Houston, and we've converted our branch in Shanghai from -- into a rep office. And we're now in the process of phasing out our activities Poland.
We have, at the same time, grown in other international markets such as Sweden, which now makes up around 1/3 of total lending outside Norway. So let's look at Sweden in some more detail. Because as you can see, we've grown very profitably in Sweden, with non-lending income growing 5x faster than the loan book. And year-to-date, we have a return on allocated capital in Sweden, which is so high we were embarrassed to put it on the slide, of 20%.
With our 7% to 8% market share in Sweden on the large corporate side, there is ample opportunities for us to grow further, and this will be done in close cooperation with our good colleagues in DNB Markets. We also see an opportunity to grow in Denmark, Finland. There, we will concentrate on industries where DNB has a long track record and strong competence. One such area is renewable energy, where Denmark has a particularly strong position, and that brings me to my next slide.
Because over the last few years, we have delivered on our ambition to build on our long track record in traditional industries, such as shipping and energy, to develop positions that are key to the green transition. And I think best proof of that, you will actually find in these numbers. We have built a solid renewable portfolio, both on land and sea, for which the income has increased by 70% over the last 3 years with a return of more than 15%. Since 2014, you will see that we have rebalanced our energy portfolio, resulting in a much more diversified energy mix, and with renewable energy increasing its share from 25% to 50%.
A good example of how we've built on what I would call long-standing customer relationships and industry competence is a new market for offshore wind vessels. In this very small niche market, DNB has raised [ $1.6 billion ] of debt and equity since 2020. And at the same time, we have built solid positions in the financing of offshore wind farms, and this portfolio is expected to grow substantially in the years to come. Furthermore, we have played a key role in the securing financing for the electrification of the Norwegian ferry sector.
We expect strong activity across the entire value chain in both solar power and offshore wind. And DNB will play a key role for emerging green industries such as hydrogen, carbon capture and battery storage and production.
So ladies and gentlemen, to conclude. Corporate Banking in DNB is highly profitable with a robust portfolio quality. Our international activities represent important potential growth platforms, and we will have particular emphasis on the Nordics. We will continue to shy away from political risk, and we will remain fiercely loyal to our strategy of strong industry focus. On the energy side, we will continue the pivot towards renewable energy, and we are well positioned to take advantage of the business opportunities arising from the green shift. And finally, the SME market in Norway will continue to be very, very attractive on the back of a strong Norwegian economy. And we will make sure to maintain the unique position that we have in this market.
And on that note, I thank you for the attention, and I introduce you to the one and only Alf Otterstad.
Alf Otterstad (Executives)
Thank you for that magnificent introduction, Harald.
In this section, I will have the pleasure of taking you through recent developments and the strategic and competitive positioning of DNB markets.
The dynamic in European investment banking ever since the financial crisis has been one where U.S. investment banks have gobbled up market share from European rivals. However, regional specialists like ourselves have also been thriving in this environment. Typically, we compete for a different subset of clients below the Tier 1 corporate and financial institutions where pricing is the most competitive.
For DNB Markets, the last couple of years have demonstrated the robustness of our business, exemplified by the fact that we're seeing double-digit revenue growth also this year, even with the challenging market backdrop of 2022. We owe that to a well-diversified business across products, geographies and industry positions. DNB Markets has been growing what we refer to as customer income at a yearly average of nearly 8% since 2010, and we believe we're well positioned to continue that growth, among other things, expanding our footprint in the Nordic region.
But first, given that we usually confined to Page 67 in the fact book, and this is the first time that we spend time on DNB Markets in a Capital Markets Day context, I'd like to take you through some background on our business.
DNB Markets is organized as a separate business area within DNB unlike, for instance, our Nordic peers where the corporate and investment bank is organized as one. Culturally, I would describe us as something of a hybrid between a full-service investment bank and an advisory boutique. We enjoy regional scale, being one of the largest capital markets and investment banking operations in the Nordic region, and we have a robust balance in our business from our broad product portfolio.
About half of our revenues are derived from our FICC area, which typically thrive in somewhat more volatile market conditions, while the other half is derived from investment banking, equities and security services, where the product mix include more pro-cyclical products of M&A advisory, debt and equity capital markets and equities trading.
Describing our competitive positioning, I would like to start by saying we have an unrivaled position in DNB's home markets of Norway. According to Norwegian FSA [ CL ] statistics for investment firms, we see that we have 36% market share across products as measured by revenues. Client feedback is similarly strong. We've held the #1 ranking in the Norwegian market across most important product categories for several years running. On the left of this slide, we highlight the latest #1 positions from Prospera in Domestic M&A, ECM, DCM, Equity Sales and Research and all classes of fixed income securities. Importantly, we are the leading bank trading in Norwegian kroner and associated products. It's worth noting that our #1 position globally in NOK FX trading is very difficult to emulate because it builds on the captive trading flow of local corporates.
While strong in Norway, we are also increasingly diversified in a geographical context. About 1/3 of revenues the last 12 months originates from offices outside Norway. Over the past 10 years or so, we've successfully grown our market position in Sweden. In addition, we have decades of experience operating in the global financial hubs of London, New York and Singapore, where our business is either centered around bringing Nordic investment opportunities to international investors or based on our leading sector expertise within the industries where our corporate bank has a global footprint. In example, no other Nordic Bank does nearly as much capital markets business in the U.S. markets as DNB.
If we look at our historical financials, this slide at first might not seem particularly impressive as revenues on the left of the slide appears flat for the last 10 years. But that headline masks a dramatic shift in business mix. Since the financial crisis, DNB Markets has transformed from an FICC-focused operation with the associated capital consumption to a leaner and more advisory-focused business. We reduced our reliance on trading income in the graph here, represented in light green bars, as risk management income, and we've simultaneously grown our fee and advisory businesses. Across products, our customer income, represented by the dark green bars, has grown almost 8% per year on average for the past 10 years.
Through the resizing of our FICC operations, adapting to the post financial prices regulatory environment, we reduced our risk exposure amount on the right by more than 50% in the same period. This reduction, combined with our growth in customer income, has seen return on allocated capital increased to a healthy level above 30% in the past 2 years.
Zooming in on the past 5 years, we illustrate that the growth in customer income has been broad-based across product areas. And as highlighted in the middle of this slide, the growth in commission and fees have even stronger than the overall growth in revenues, in line with our strategic pivot to a more advisory-centric business. It's difficult to state exactly what are cyclical drivers of growth and what are structural drivers of growth. In 2021, as you know, all sell-side businesses rose with the tide. However, we are very happy to see that our performance is well ahead of peers also in 2022, a testament to the continuous investments we've been making into our business over the past few years.
While cyclical conditions will ebb and flow with capital markets, we are well positioned to continue our structural growth, and we identified plenty of growth opportunities. Firstly, we see the opportunity to further strengthen our business across products, industries and geographies, among other things by improving our alignment with DNB's other business areas. Secondly, we see room to expand our position in the Nordics with a particular focus on Sweden. And thirdly, we see great growth potential from being a driving force in the sustainable transition.
Let me elaborate on these 3 points individually. Firstly, together, our business areas bring a holistic set of solutions to our clients. Our most satisfied and profitable clients will typically be clients that buy a wide range of products across our Wealth Management, Corporate Banking and Markets businesses. Across these 3 business areas, we've greatly improved the alignment the last few years, exemplified by more than doubling revenues across the Corporate and Private Banking customer segments in the past 10 years. One example of where alignment yield competitive advantage is the industry strategies across Corporate Banking and Markets, where we systematically invest in people and competence across the industry verticals that Harald elaborated on earlier.
While we've come a long way aligning our business areas around the priorities, we do identify further potential in increasing our share of wallet from existing clients. I know it sounds very basic, but I believe every bank will tell you that this is actually quite hard to do. Incentives and governance structures are in place and aligned through our customer segment reporting, and it's down to our shared execution to continue realizing this potential.
As one example in the coming period, one common strategic initiative across Wealth Management, Corporate Banking and Markets is to improve our offering towards family offices. These clients have a limited number of decision-makers while consuming a large number of our products. Typically, the operating companies will have their cash management and financing needs met by Corporate Banking while covering their investments and transactional needs through wealth management and markets.
In summary, growing our share of wallet with existing clients remain a low-risk, low-cost and high-impact opportunity. Secondly, as also Harald highlighted, we identify growth opportunities in the geographical axis, specifically in the Nordics with a focus on Sweden. Sweden is the largest capital market in the Nordic region, and we've grown our footprint in the Swedish markets since opening a greenfield business in Stockholm in 2007. Our belief was that we effectively could export our scale in Norway as the marginal cost largely is front office staff. And since 2014, we've been scaling the business in earnest across all product areas, with 20% annual average growth rate in revenues to show for it.
Today, about 1/5 of front office staff in the markets are based in Stockholm, we identify plenty of room for our competitive positioning to improve, and we are directing our investment in people to achieve just that. Alignment with Corporate Banking remains key for our success and building on what you mentioned, Harald, regarding our market shares on lending in Sweden, it all suggests to us that growth potential is conceivable.
Lastly, our growth in Sweden should not be seen as a stand-alone effort in any way. We are conscious that the Nordic financial markets are ever more integrated and seen as one market by financial investors. As such, the growth in Sweden is critical to underpin our entire Nordic competitive positioning, including that of Norway.
And then lastly, while we see our growth ambitions well underpinned by our individual industry positions, similarly to Harald, I'd like to highlight what we're doing within the green and energy transitions in particular.
Financing the transition is not only the right thing to do, but it is also our most significant business opportunity. Banks will not have sufficient capacity to finance the transition on balance sheet and capital market solutions are required. The energy transition, in itself a multi-decade process, is not likely to be smooth and without challenges, as we've witnessed this year. The demand for advisory services from our clients is significant and the growth in investment banking advisory income across energy, as we highlight on the left of this slide, a testament to both our strong industry position as well as the pool of market demand.
Interestingly, you will see from the graph that we're experiencing strong growth in revenues across renewables and infrastructure, while at the same time, revenues within ocean energy is seeing upswing as energy security is higher up on the agenda.
Strategically, we've been positioning for the green transition for years. Our very first green bond was executed in 2014 for Arise, a Swedish wind power pioneer. And today, sustainable levels constitute about 1/5 of total issued value in the Nordic region and for DNB. This is compared to 5% only for bonds globally. I highlight this because Nordic Bank really possess an early mover advantage in the sustainable transition. While competition certainly will intensify given the growth prospects, we believe that the advantage largely is sustainable, and we continue to export our knowledge and competence to clients outside our region.
Finally, to illustrate some of the.
Our activity across geographies, as exemplified by being sole bookrunner and Green Bond Adviser to Boliden in their first ever green bond in the third quarter, and also on advising Singaporean client, Keppel, as they made their first ever investment in renewables and in Europe also in the same quarter. The $185 million we raised for Cadeler, the leading installer of offshore wind, are a part of the [ $1.6 billion ] that Harald mentioned earlier that we've raised for that industry. And the refinancing of district heating companies, Solor Bioenergi, demonstrates our capabilities on green debt advisory.
These are only a few examples of the renewables and sustainable financing transactions that we participated on this year. Coupled with our strong legacy position advising oil and gas and oilfield services, we believe we are well positioned to grow our revenues through being a driving force in the ever-important multi-decade transition the world has embarked on.
In summary, I hope I'll leave you with a better understanding of our competitive positioning, both as a regional champion and through our industry positions. Furthermore, we believe strongly in our diversified product portfolio, the value it creates for our clients and the robustness it creates for our revenues. And we remain very, very optimistic on organic structural growth opportunities also going forward.
Thank you very much for your attention.
Thomas Midteide (Executives)
Thank you so much, Alf, for ending on an optimistic note.
We are moving on to the interactive session, and we are happy to take your questions. We're welcome them back on stage Kjerstin and Ida. [Operator Instructions].
We'll open up for any questions you might have, and we'll start with Sofie on the third row from...
Sofie Peterzens (Analysts)
Thomas Midteide (Executives)
JPMorgan, sorry. And -- Finland and JPMorgan.
Sofie Peterzens (Analysts)
Yes. Thank you very much for hosting the Capital Markets Day.
So my first question would be around capital. As far as I can see, there is nothing on IFRS 17 or the potentially higher mortgage and commercial risk rates in Norway. How should we think about these headwinds on capital going forward? And also in terms of the potential share buyback that you mentioned kind of magnitude -- potential size of the share buyback that you expect, do you think percent is expectations on the share buyback in '24 and -- well, '23 and '24 look reasonable? And then just finally, in terms of growth opportunities, would you also consider non-organic growth opportunities given that you're looking to kind of also grow outside Norway?
Kjerstin Braathen (Executives)
I'll start, and I'll leave it to you to comment on the IFRS 17. I think, firstly, in relation to growth, we reiterate our messaging on organic growth being our main plan where we aim to grow 3% to 5% per year longer term, and we believe more importantly than ever is combining the platform we have in Norway and internationally, but we will continue to prioritize growth with retail customers in Norway as well as the SME platform.
We might consider structural initiatives. Nothing much has changed there. I would still say that we're opportunistically exploring more bolt-on type opportunities. This could be either to build scale in something that we have from before, or if this could add structural positions, like you can argue that Vipps and MobilePay is doing, like what we did with Uni Micro to add digital accounting opportunities to our customers. And as I said, we like to explore our offering to broaden our activities towards our customers' value chain.
Now we don't target a specific number of share buybacks. I think that is important. Our -- we're very clear that our priority is cash dividend, more than 50% growing our cash dividend per share per year, and then share buyback is a tool to optimize around the desired capital position. Now this has changed to what Ida mentioned, the required level and -- required and expected level by the end of the first quarter of 17%. So we do need a buffer above that, but we're not specifying the amount of the buffer. But I think the important message from us is that over time, we will allocate excess capital back to shareholders.
Ida Lerner (Executives)
In terms of IFRS 9 -- IFRS 17, sorry.
Kjerstin Braathen (Executives)
Should you turn off the...
Ida Lerner (Executives)
No. So I'm going to use that one, so sorry. Okay. So sorry.
IFRS 17 mainly affects our DNB Life Insurance company as in the sense of how we report it. But -- or the exposure we have towards the DNB Life Insurance Company. What we've said before and reiterate is that, that will not have an effect in terms of our dividend policy or our ability to deliver on our dividend policy as that does not affect our core Tier 1 capital ratio. But we haven't specified the amount or the effects.
You mean the -- the proposal from the NFSA? The NFSA has proposed increased floors. But as I commented upon, that will have to be decided by the Ministry of Finance, and it has also been advised against increasing the floors from the Norwegian Central Bank. It would have an effect on us the floors today or risk weights today is 21.5% for personal cost or mortgages, and 40% for commercial real estate. So that would mean an increase in the CET1.
Thomas Midteide (Executives)
Thank you. And we have a question on the second row. Gentlemen, apologies for the sound. We have some interference in the building on a few of our radio frequencies, so sorry about that. Yes exactly.
Nick Davey (Analysts)
It's Nick Davey from BNP Paribas Exane. Two questions, please.
The first one, on your 3% to 4% loan growth target. Do you think it's achievable in the near term? Is there enough demand on the corporate investment side to soak up slower mortgage activity?
And the second question, please, on the cost outlook. You've given us the gross cost takeout. Any comments, please, on the net trend? Or should we just think that the gross cost takeout is similar to the last 3 years? Now we have some more inflation so it's something higher, but could you get us closer than that?
Kjerstin Braathen (Executives)
I'll comment on the first one, where the very short answer is yes. We believe it is possible to grow 3% to 4%, given what we see now. And if we should have, which is not unlikely a slower push for growth in certain areas in Norway, we still think that the growth opportunities in the SME sector would be attractive. They are well positioned in relation to the energy transition, and Norway produces goods and merchandisers that the world needs even in a more turbulent world. And our position then in large corporates both across, I'd say, Norway and internationally, we believe there should be sufficient opportunities for growth to reach more or less the area of 3% to 4%.
But let me sort of underline that we prioritize profitability overgrowth. We would not grow 3% to 4% at any cost. We would like to see that growth to be meaningful and accretive for shareholders. But from what we see now, yes, we think even in the near term, that it's possible.
Ida Lerner (Executives)
When it comes to costs, we are very clear on the fact that we aren't guiding on nominal costs, but really reiterate our ambition to have a cost income ratio below 40%. What we're seeing in addition to that is that we're seeing inflationary pressure and wage inflation being the ones that affect us the most. In addition to that, we also want to ensure that we invest in strategically important areas such as technology, our digital platforms towards our customers, in addition to continue working on modernizing our core systems, which we have been doing over time and we'll continue to do so.
So there is no big bang in terms of change or guidance on that part, but more to ensure that we continuously invest also in this time where we see that we have a tailwind in terms of income. But, we also want to ensure that the cost income target of below 40% remains sustainable also over time if we would see a different environment.
Thomas Midteide (Executives)
Yes. We have Jan Gjerland, ABG.
Jan Gjerland (Analysts)
One question here on the ROE. We have heard about the fantastic ROE in Corporate Banking, and in the Markets, as well as.
how would you address those going forward? If you could shed some light to those because now, we're getting the sort of a very good story from all the business areas who is delivering well. So what can you do more on those who are not delivering above the 13%?
Kjerstin Braathen (Executives)
I think I'll reiterate saying that we will continue to apply a high level of discipline into our allocation of capital. Which also touches upon I think what you're alluding to, Jan Erik, that we really carefully look across our business where do we meet the return hurdles and where do we not meet the return hurdles. And we've done over the years quite a few changes structurally to our business to meet that.
Now we have positions that you know about, such as the guaranteed portfolio in life insurance where it's tough to model of 13%. And beyond that, we've also increased our positions in ancillary businesses. It's substantially smaller today than it was several years ago, but there is still some businesses in addition to the key business areas that you've heard about here today.
I think there's nothing new from us on this beyond the fact that we will continue to look at all parts of our businesses. If we see opportunities to divest, so to speak, of areas that we do not meet the hurdles, this is certainly something that we will consider. But the main part is really to grow organically and build systematically on the resilience and long-term track record of building and growing the business we do organically, roughly.
Thomas Midteide (Executives)
Next question, Johan Strom from Carnegie.
Johan Ström (Analysts)
Two questions on commercial real estate. If you look at Slide number 32 and the NOK 231 billion of exposure at default in this sector. First of all, in what subsegment do you see the biggest risk at the moment? And then what kind of factors, like vacancies, will be kind of the key drivers or risks that could increase provisioning in this sector? And then turn this around, there's some NOK 300 billion or so of refinancing in Sweden, in commercial real estate. Is this something that you could see as a growth opportunity?
Kjerstin Braathen (Executives)
I'll answer the second one where the answer is no. And I'll leave it the first one to Ida.
Ida Lerner (Executives)
When it comes to the subsequents, first of all, we are very comfortable with the kind of disposition of our exposure towards the commercial real estate industry overall in -- and as I pointed to, predominantly 94% in Norway.
If I were to point out one subsegment that might be, where we have a significant spotlight or focusing on is towards shopping, or the more -- the areas that are more reliant on retail industries. That is a small part of our portfolio, and it's also in low risk. And we've been very clear in terms of our strategy of what type of shopping malls or what type of commercial real estate areas that are reliant on the retail industries that we want to finance. So that's -- if I were to -- that's if I were to point to some area that could be a concern.
Having said that, what I think is important when you talk also about what will be the main drivers, and that's also the reason why we point to both vacancy rates but also rental prices. What we -- what will be a driver is we finance corporate lending, we finance cash flow, we finance stability in terms of those elements. Of course, the stability in terms of cash flows is an important element there. So it's definitely rental prices as well as the vacancy rates, and therefore, we indicate and we show that here more explicitly.
Thomas Midteide (Executives)
Next question, Jacob Kruse, Autonomous. Second row, please.
Jacob Kruse (Analysts)
So 2 questions just on the ROE target and cost. So on the ROE target, how do you think about capital there? If I'm looking at consensus, we're about -- just above 18% in 2024, 12% ROE, so I could just get this 13% by adjusting down the capital. But how have you done your kind of planning in that trajectory?
And then on the cost side, the gross cost reductions, does that imply staff reductions? Or put, I guess, a slightly different way, if I think about an underlying cost inflation and then -- is this a net cost, is this a gross takeout after inflation? Or do new investment spending basically offset the gross savings? It's just a reallocation of where you need to spend your money?
Kjerstin Braathen (Executives)
Let me make some comments on the return on equity. I think you all recognize our statement when we say that we do need to deliver in all components of our business to deliver on the 13%, and we acknowledge that we are in a world where the level of uncertainty is higher than it's been in a long time. But still, I think we outlined the macro scenario that I talked about, this is the basis that we do our views and guiding on. But in order then to deliver on the 13%, we would need to deliver profitable growth across our business. We do need to deliver on the cost income target to run an efficient business. I think having net reversals over time in the world is not something we see as likely without being specifically guiding you on the losses. And I think on capital, of course, we rely on being able to reallocate excess capital back to shareholders.
So what is excess capital? We aren't being specific as to what kind of cushion we're looking for over and beyond the 17%. This is in part also related to the fact that the 17% is only the actual amount required and expected by the first quarter 2023. So again, we need to deliver on all the ingredients, to put it that way. But certainly then, allocating excess capital back to shareholders is one of the very important equations.
Ida Lerner (Executives)
And on costs, it's a gross reduction in the sense that it's kind of reducing the cost base overall. Of course, as we are also talking about automation and further efficiencies, that's related to a number of FTEs. We are not seeing that there is a kind of a radical change in terms of how we work with that, but this is part of a natural attrition that we will have a turnover -- a natural turnover in the bank, where we'll also see where we will replace staff and where we will not. So this is definitely a larger part of that automation and efficiency and increased operational efficiency going forward. But no kind of big bang or change in that sense, but more naturally over time.
So I don't think I can give you any more in terms of what kind of basis have we done in terms of inflationary pressure. The most important part of inflation that affects us is wage inflation, and therefore, that is an important parameter for us to work with and continue to invest in areas that support decrease costs long term also, based on digitalization and automation, which I believe that we've also proven referring. And referring back to Ingjerd's comment that what we've seen in personal customers, where we've seen an increased focus on in terms of our customers digitally having meeting points with the bank.
Kjerstin Braathen (Executives)
And just to add to what Ida is saying very, very clearly is that, yes, one of the highest component is de-cost. People are involved in a gross cost plan of such a magnitude. And if you look at our business and our people mix over the past 10 years, I mean, there's been a tremendous shift in people. We have been taking out or increasing efficiency in certain areas. Ingjerd talked about the call centers, 9% reduction. We believe there's more potential in the call centers as we move ahead, as we scale digital.
We have talked about scaling -- I mean, we've scaled our tech people substantially. We will continue to scale tech people, and I think we're quite happy that we're able to scale our tech people in such an environment to increase our in-house competency. So we've been building up our people in the compliance KYC area. Over time, we believe there is substantial room there to improve customer experience while also increasing efficiency by going digital.
So I think our key message is that it's hard to guide you specifically on the pieces, but we will never run out of opportunities to increase efficiency. And our efforts, it's important for us to have high ambitions and a strong push on us as an organization to achieve those initiatives to offset partly inflation, to offset scaling investments into technology. Which is not so much about cost, but actually the value we extract, and this is what we're trying to really chase and pursue. Are we actually getting more value out of it? And we do think we are referring to some of the measures we showed you earlier today.
Thomas Midteide (Executives)
Okay. Next question, Jan Erik Gjerland, ABG.
Jan Gjerland (Analysts)
Just to continue on the cost side, just -- the NOK 300 million you mentioned on Sbanken, which is roughly half of their cost base, is sort of impressive to take out. So could you just shed some light into what kind of synergies that is? And secondly, on 10,241 people you were on the third quarter, do you think you will be less people in 3 years' time? Or is it still the same kind of number, but different kind of competence?
Kjerstin Braathen (Executives)
I don't think we will give you a specific number on FTE. It's again -- there are, we think, very good reasons why we are targeting cost on a relative basis, and that is to have the flexibility to make sensible decisions along the way.
Now Sbanken, were specific on the magnitude, and it's important for us to say that these are not Sbanken employees that we will take out. Sbanken will be integrated into our business. They're performing tremendously well, as you've seen Ingjerd has shown you. And the potential lies in integrating the operations and then taking out efficiency measures over time, whether it's through natural attrition or through other initiatives that we do combined across the totality of Ingjerd's business and also Maria's business more on the operational side.
So I think the NOK 300 million is our estimate and what we believe we can do. And in part, a large part of what they are working on is their world-class customer service, and we will continue to have world-class customer service. But broadly across the business, we can improve the efficiency.
Thomas Midteide (Executives)
Okay. Next question, Johan Ekblom, UBS. Seat 4C.
Johan Ekblom (Analysts)
When you think about the revenues kind of medium-term, are we now at what's broadly a neutral or long-term policy rate level? Like should we think something, I guess, close to 3% as this is the through-cycle average for Norway? Just to get a sense for what the headwinds or tailwinds could be when we think about longer-term profitability.
And then, I guess, sticking on the revenues. You showed some impressive market share numbers or growth numbers for mortgage lending from Sbanken. And if I look at your market shares over the last decade, they've been trending down more than a decade, little year by year. Is there anything in the DNA of Sbanken that makes you think that you can change the trajectory for the group? Or have we just rebased to a higher level and we'll see kind of gradual attrition over the medium term again?
Kjerstin Braathen (Executives)
Very good questions, and the first one is a difficult one. And again, I'd like to reiterate that it's not our job to predict the future. So where will the key policy rate go, I think we can talk to what the sentiment looks like in Norway, and the rate trajectory tops out in the area of between 3% and 3.25%, depending on who you look at. And the estimate of our economists is that it will adjust somewhat downwards, but towards the area of 2.75%, 3% within a year from now. I think that is a benign environment, and they're more going to run it by inflation than anything else.
Could that be at the level in the area of between 2.75% and 3%? Yes, I think it could. But I think we are in a world where it's hard to see and it's hard to be certain at least, that we can use the past as a mirror for what the future looks like in view of potential regionalization, in view of energy trends and what are going to be the new balancing point with interest rates and inflation levels. But we do not at least see scenarios, and we have seen from the Central Bank that they are very mindful of not staying at 0 or not going into negative rates. I mean, we were at 0 rates for a very, very short period of time. Once there was sufficient comfort that COVID was over, they started again increasing rates. So I think that's a behavior to note.
Your second question on mortgage growth. We believe that we have a more attractive position now than we've had for years. As Ingjerd talked you through, there is complementary characteristics on Sbanken and us so we serve the market better. Yes, if you look over time, we have lost some market share. But in periods that are calmer and more benign, we're actually performing better. So that varies. It depends a little bit also on the market.
But our view is that we have a better position and should be able to get more out of the market that lies ahead of us, given the 2 concepts or brands that we now have in-house. But it's also clear and important for us to say that we will continue to prioritize profitability overgrowth, but certainly to grow as close to the market growth as we can.
Thomas Midteide (Executives)
Then we have Sofie Peterzens, definitely from JPMorgan.
Sofie Peterzens (Analysts)
Yes. Just going back to the 13% ROE target, on what cost of risk assumptions have you assumed? Because we can see that cost of risk has just been trending down, do you expect that trend to continue? Or do you expect the cost of risk to start to increase?
And then just a very short follow-up question. In the presentation, you mentioned that you didn't have any -- or you have limited exposure to commercial real estate SPVs. Could you maybe just elaborate like who has exposure to commercial real estate SPVs? Is it other banks or private equity, or -- and how does those structures work?
Kjerstin Braathen (Executives)
I fully understand why you would like us to give you a specific indication on cost of risk, but I must disappoint you and say that we are not giving specific indications. I think looking at how we have worked with the portfolio over time, taking into consideration the robustness and the diversification of our portfolio, we would have to leave it up to your assessment. And again, to reiterate, we see no systematic movements in the portfolio that are of a concern. But certainly, I mean, in a world with the uncertainty level there is today, the risk for more company-specific situation is expected to increase over time. I think that's fair to say.
Your second question was SPVs. Who -- where is the risk? I don't think we should be extremely specific, but there's been an increasing number of transactions in the [ bond ] markets, and I think different banks have slightly different strategies in this market. But certainly, you've typically seen the SPV structures in -- more in the capital markets.
Thomas Midteide (Executives)
Finally, Rune Helland, you have been following with your eagle eye the worldwide web. Do you have any questions from Twitter, Instagram, TikTok, and so forth?
Rune Helland (Executives)
Thank you, Thomas. I believe that -- most of the questions are answered. So I believe that the questions we have heard here today, that represent the questions also asked on the net.
Thomas Midteide (Executives)
So that concludes the Q&A session and from the DNB team, thank you so much for coming. The whole general management is present. You are more than welcome to keep the discussions and ask any questions you might have still. Thank you for coming.