Danske Bank (OTC:DNKEY) reported second-quarter financial results on Friday. The transcript from the company's second-quarter earnings call has been provided below.
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Summary
Full Transcript
Klaus Inker Jensen, Head of Investor Relations
Good morning everyone. Welcome to the conference call for Danske Bank's financial results for the first half of 2026. My name is Klaus Inker Jensen and I'm head of Danske Bank's investor relations. With me today I have our CEO Carsten Ehries and our CFO Cecile Hillary. We aim to keep this presentation at around 25 minutes and after the presentation we will open up for a Q and A session as usual. Afterwards, feel free to contact the Investor Relations department if you have any more questions.
I will now hand over to Carsten. Slide two, please.
Carsten Ehries, CEO
Thanks, Klaus, and I would also like to welcome you to our Q2 conference call where I'm pleased to share the highlights of Danske Bank's financial results for the first six months of the year. Q2 was another strong quarter for Danske Bank. We delivered solid earnings. We continue to build commercial momentum and we executed with discipline against our strategic priorities. Commercial momentum is broad-based and encouraging. As customer activity remained healthy across the Nordic franchise, corporate lending grew 6% year on year, which is especially encouraging because it is translating into market share gains across the Nordics and that tells us that our relationship-led model and sector expertise are resonating with corporate clients. We also continue to see positive momentum in asset management with an increase of 24% since last year supported by net inflows of almost 15 billion in Q2. Our financial performance is strong and high quality with core income up 7% year on year with a Q2 net profit of $6.2 billion corresponding to a return on equity of 14.8%. This is above our 2026 target level and also consequently is the strongest quarterly result for Danske Bank in 20 years.
From an ROE perspective, our Q2 cost income ratio was 43% reflecting strong operating leverage, continued cost discipline and progress versus the 45% target for 2026 which we now expect to be below 45%. An important message today is that our growth is broad-based and high quality. Customer activity, volume growth across business units and resilient margins are all contributing while credit quality remains strong and this gives us confidence in the sustainability of earnings.
The CET1 ratio of 17% remains strong. Our capital generation remains a clear strength as we continue to generate capital while growing the balance sheet and accruing for the new dividend policy announced in Q1. Given the stronger income outlook from higher commercial activity and policy rates, we have raised our 2026 net profit outlook from 22 to 24 billion to 23 to 25 billion and we remain focused on profitable growth, disciplined cost management, strong credit quality and attractive shareholder returns.
So, in short, Q2 demonstrates a stronger franchise profitability that's ahead of target levels and a continued capital flexibility. And we're really well positioned for the remainder of the year. I'll now give a few comments on the business units performance and then I'll hand over to Cecile for the financials. Please turn to Slide 3. So, moving from the group overview to our business units, the main message is that momentum is broad-based across the three business units.
We're seeing high customer activity, we're seeing good volume development, and we're seeing resilient income generation in personal customers. The trend remains constructive. Customer activity is healthy and we continue to see growth in lending and deposits and also in retail investments. And that tells us we are maintaining relevance with households in their everyday banking needs as well as in larger financial decisions. Income has continued to move in the right direction, supported by customer engagement and a strong deposit base.
And importantly, profitability remains very robust and credit quality continues to be a clear strength. Business customers are also showing good commercial traction and strong growth. The underlying trend is one of deeper relationships, so customers are using more of our solutions, including everyday banking, cash management and broader financing products, lending and deposits both point to continued activity in the SME and corporate client base.
Fee income is also developing well, which reflects the value of our platforms and advisory capabilities. Overall, this is a business where relationship depth is increasingly translating into earnings momentum. In LCNI, activity remains solid particularly in lending and advisory related areas. We continue to support large clients across the Nordics with financing, capital markets access and strategic advice. Deposits in this segment can be more seasonal and more sensitive to client liquidity management.
So quarter to quarter movements should be interpreted in that context. Overall, client demand and activity levels remain supportive and returns are tracking well against our ambitions. So the takeaway is that the franchise is performing consistently across segments. We're seeing customers engage with us across products and channels and that is supporting volumes, income and returns. This breadth of momentum gives us confidence in the growth agenda and in our ability to continue delivering against our 2026 targets.
And importantly, the execution of our forward 28 strategy continues to deliver strong results and we're able to invest in the technology and AI platform that position us well for the future, as we also detailed at our strategy update in April. In particular, AI investments and their expected outcomes are progressing as planned. And then, please go to slide four and then I'll hand over to Cecile.
Cecile Hillary
Thank you, Kosten. Let me now turn to the income statement. Q2 was a strong quarter with good momentum in our core income lines, continued cost discipline, and strong credit quality for the first half. Total income was supported by growth in net interest income and fee income underpinned by customer activity and higher volumes. Trading income was affected by market volatility while other income benefited from the 231 million one-off in Q2 compared with Q1.
NII remained resilient as volume growth offset lower equity base income and slightly higher funding costs. Fee income improved within almost all fee categories and both trading and insurance recovered from a volatile first quarter. Costs remain in line with our guidance and reflect disciplined execution. Credit quality continues to be strong with a well-provisioned portfolio and sustained below-cycle cost of risk. Overall, the quarter shows resilient earnings quality and good operating control.
I will now go through the key lines in more detail. Slide 5, please. Turning to net interest income, we delivered a solid result in the first half with NII up 3% year over year. The key message is that the trajectory remains resilient supported by positive volume development, constructive margin trends, and the stabilizing contribution from our structural hedge. Looking at the year-on-year bridge, the improvement reflects solid credit demand while the structural hedge continued to provide an important offset.
Keeping in mind the four rate cuts we saw in the first half of last year, this is the balance we look to achieve, benefiting from underlying franchise momentum while maintaining stability through disciplined balance sheet management. Q2 again showed a solid NII trajectory. Volume contribution remained supportive and the margin development was broadly consistent with our expectations. The other line includes treasury allocation effects while we also had a non-recurring correction, so I would not read that as a change in the underlying trend.
Adjusting for this correction, NII was up 1% from Q1. Our structural hedge was impacted by higher short-term rates in Q2 and we also saw lower income from the shareholder equity base following the March and May payouts. The notional of the structural hedge including bonds and derivatives was kept broadly stable in Q2 at around 190 billion and as such the structural hedge remains a key feature of our NII profile. Finally, our NII sensitivity is unchanged for a 25 basis points upward move.
The year-on impact is approximately 450 million with additional impacts in years two and three of around 300 million and 100 million respectively. All else equal, the actual effect will naturally differ depending, for example, on price decisions and customer behaviors. So in summary, we see the NII trajectory as solid. Customer volumes are contributing positively and with the recent rate hike in mind, this supports our raised income expectations for 2026 with a view to addressing questions about expectations for NII for the rest of the year.
We now expect NII to be slightly above 38 billion for full year 2026, driven by continued volume growth and based on current market implied rates. Slide 6, please. Turning to fee income, this was a strong quarter. Net fee income was up 13% year on year and 4% quarter on quarter driven by customer activity and continued momentum in our investment offering. In daily banking, we continue to see good demand for our one corporate platform and cash management solutions.
The continued growth in house bank mandates is an important indicator of the depth and relevance of our corporate relationships. Lending and guarantee fee income benefited year on year from higher customer activity and continued corporate credit demand. Quarter on quarter, the lower contribution was mainly linked to the timing of refinancing auctions of adjustable-rate mortgages rather than a change in the underlying customer trend. Capital markets fees also contributed positively supported by good activity across businesses during the quarter.
Investment fee income remained a strong driver supported by growth in assets under management, positive net sales, and rising asset prices both year on year and quarter on quarter. Overall, the fee income development demonstrates the breadth of customer activity across the franchise and the benefit of a diversified fee base. Slide 7, please. Turning to trading income, the quarter was affected by slightly lower customer activity in secondary markets and positive valuation effects in Group Treasury.
In LCNI, the year-on-year development was primarily driven by lower customer activity in fixed income. Quarter on quarter, however, we saw an improvement in fixed income customer activity but this was offset by lower activity in FX and equities in group functions. The movements mainly reflect unrealized market value adjustments on cross-currency swaps and other balance sheet movements. These items create accounting volatility in Group Treasury and should be viewed separately from the underlying customer franchise.
The key message is that the trading income line was impacted by market activity and valuation effects in the quarter. Our broader commercial momentum and customer activity remained visible in the core income lines. I will now move on to the expense developments. Slide 8, please. Turning to expenses, our cost trajectory remains in line with the full-year guidance and the Q2 cost-to-income ratio was 43%. This reflects continued cost discipline while we keep investing in the capabilities needed for growth.
Year on year, expenses were higher mainly due to staff costs including performance-based compensation. This was partly offset by lower FCRP and remediation costs, showing continued progress in reducing legacy cost items. Quarter on quarter, the increase was primarily driven by higher resolution fund fees reflecting the higher deposit base. Even including that effect, the underlying cost development remains well controlled. We continue to make targeted forward 2018 investments in our digital and technology platform.
These investments support AI, future growth, and efficiency. At the same time, Group FTEs were down by around 250 compared with Q1. For the first half, the cost-to-income ratio was 44.4% and we reaffirm our full-year 2026 cost outlook of 26 to 26.5 billion. Based on the performance so far, the cost-to-income ratio is now expected to be below 45%. Overall, the message is disciplined cost execution, continued investment in strategic priorities including tech and AI, and improving operating efficiency.
I will now move on to asset quality. Slide 9, please. Turning to asset quality, the picture remains strong. Our diversified and low-risk credit portfolio continues to underpin credit performance and we remain prudently provisioned given the macro and geopolitical backdrop. In Q2, impairment charges were below cycle at 0.3 billion. We maintain our full-year impairment guidance of around 1 billion corresponding to approximately 5 basis points cost of risk.
This reflects both the quality of the portfolio and our disciplined approach to risk management. Macroeconomic charges remain modest. At the same time, our scenarios continue to reflect elevated uncertainty including geopolitical risks, tariffs, and trade tensions, so that we capture the potential impact of a more severe and prolonged adverse environment. Post-model adjustments stood at 5.2 billion, including model-related releases of 160 million.
In Q2, we continue to take a prudent approach in light of potential disruptions and uncertainty. The total overlay of around 30 basis points is equivalent to almost four years of normalized cost of risk. Overall, asset quality continues to support the earnings profile and capital generation of the bank. I will now move on to capital. Slide 10, please. Our capital generation remains very strong, underpinning the CET1 ratio of 17% at the end of Q2.
That 17% level should be seen in the context of the 5 billion payout at the beginning of the quarter and the additional accrual we have taken following the revised Ordinary Dividend Policy announced in April. Risk exposure amounts increased by 11 billion quarter on quarter to 848 billion. The increase was mainly driven by higher lending-related credit risk reflecting continued commercial activity and balance sheet growth. This was partly offset by lower market risk REA as the interest rate volatility we saw in Q1 moderated during the quarter.
With respect to the CET1 requirements, we saw a slight reduction in Q2 primarily due to the reduction in the systemic risk buffer related to commercial real estate exposures. As a result, our CET1 headroom stands at around 240 basis points, which gives us a comfortable management buffer in excess of our target of 150 to 200 basis points. As a reminder, we expect $3.5 billion of Pillar 2 relief equivalent to around 40 basis points that relates to our solved legacy cases.
This is expected prior to year-end 2026, subject to annual supervisory processes. Looking ahead, our trajectory remains consistent with the glide path we have communicated. We aim to be at around 17% by the end of 2026 and at our stated CET1 target of around 16% by 2028. This keeps us positioned to support growth and execute our capital distribution plan. So, in summary, the quarter demonstrates strong capital generation, disciplined balance sheet management, and continued ability to deliver on both growth and distribution.
Slide 11, please. Finally, turning to the financial outlook for 2026, we are raising our expectations and now expect net profit in the range of 23 to 25 billion, corresponding to a return on equity of around 14%. The upgrade is solely driven by stronger income expectations. We now expect total income to be somewhat above 59 billion, supported by higher core banking income from stronger customer activity, growing volumes, and the effects of recent and expected policy rate hikes.
At the same time, we continue to see good commercial momentum across the franchise and our priorities remain consistent with our financial ambitions. We continue to expect operating expenses to be in the range of 26 to 26.5 billion. This reflects our continued growth ambitions and investment spend and the same sustained focus on cost management. Overall, we now expect the cost-to-income ratio to be below 45% for full year 2026. We also continue to expect loan impairment charges to be around 1 billion.
This reflects the continued strength of the credit portfolio and disciplined underwriting across the bank. Slide 12, please. And back to Claus.
Klaus Inker Jensen, Head of Investor Relations
Thank you, Cecile. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by email. A transcript of this conference call will be added to our website within the next few days. Operator, we are now ready for the Q and A session.
OPERATOR
Thank you. If you would like to ask a question, you will need to press Star one and one on your telephone and wait for your name to be announced. And to withdraw your question, you can press Star one and one again. We will now go ahead with our first question. This is from Shreya Srivastava from Citi. Please go ahead. Your line is open.
Shreya Srivastava
Hi and thank you very much for taking my question. I guess I'm just focused around the sustainability of some of this improved income going forward into 27 and 28. If I look at current consensus expectations, they're at around 59 billion in income for 26. And if we were to assume that this reflected what you previously were thinking, it looks like consensus for net interest income is pretty much in line with what you've said, which leads me to believe that the upgrade is more fee driven. So just looking at the breakdown of the guidance upgrades between the various lines. Is that the case? Is it mainly fee driven?
And if not, how come the increase in higher market rates has not translated into a greater increase in your net interest income expectations? Thank you.
Carsten Ehries, CEO
Yeah, so let me take your questions. So I'll start with indeed the total income, right, the revised guidance to somewhat above 59 billion. And I can confirm that really that revised guidance is driven by the core banking income, right? So that's NII and that's fee income. So where, let me take both separately firstly starting from NII, so you've seen the half year that we've had and obviously, you know, I can confirm that the correction, quarter on quarter doesn't affect the half year, right?
So we start obviously with a strong quarter which was defined in particular by slightly higher volumes that we expect in particular in, in corporate, in corporate lending. So that's what we looked at for H1 and of course we had at the end of the half year the rate hike. Then looking forward, three items specifically will impact NII in the second quarter. One is obviously the recent rate hike that we've had and also the September one that is embedded in market implied rates.
The second aspect is the continued volume growth. So here are our assumptions on the volume growth. We obviously start with where we are at the end of June, which clearly were clearly, as I mentioned, we saw slightly higher volume growth than our assumptions. Obviously a good thing, all profitable, profitable growth. And what we apply is our assumptions of 3 to 4% lending growth and 1 to 2% deposit growth going forward for the rest of the year, probably at the higher end of these, of these ranges.
So that's on growth then thirdly, obviously, don't forget that we've got three extra days in H2. Separately there are a few other effects, but I would say they're less material. On the NII, for instance, on the deposit margin we've had a slightly lower pass through than we're necessarily assuming at the, at the outset. But let's see obviously how this continues particularly with, you know, competitive dynamics and the like. But obviously that, that is also a slight effect.
So that's effectively what drives RNI guidance to slightly above 38 billion. Then on the fee income we see our fee income as a very, very resilience driven by all three businesses and really all categories of fee lines, if you look at it year on year have actually grown so very resilient, very solid fee income line. And obviously Carson commented on the growth in AUM that you've seen that that is very, very significant. And on that, you know, I would say, you know, we absolutely see this as very sustainable going forward and of course don't forget that we've got also an element of seasonality when it comes to performance fees in the, in the fourth quarter though, obviously I wouldn't, I wouldn't use Q4 of last year as necessarily the right template. It was exceptionally strong. So you know, I think you should look at it in a normalized fashion. So I think I've given you some of the elements on the, and fee income. As far as the guidance for other income lines, I would say, you know, this, this is not changing versus what we were when we gave the full year guidance.
Shreya Srivastava
Thank you. So can I just. Is the right way to read that? This is basically just taking into account a higher base effect from the first half. All the other assumptions are unchanged. And you're also expecting some deposit margin compression to offset the high rates.
Carsten Ehries, CEO
Obviously. Clearly we'll have to see what volume growth does right, both on the lending and deposit side. You know, as I've mentioned, you know, I mentioned the assumptions that I'm, that I'm using right now. Of course we'll have to see how this develops in the second half given the strength we've seen in the, in the first half. But, but yes. And then of course the three extra days and then the slightly additional effects from, you know, pass throughs, etc.
Shreya Srivastava
Understood. Thank you.
OPERATOR
Thank you. We'll now take our next question. This is from Namita Samtani from Barclays. Please go ahead.
Namita Samtani
Morning and thank you for taking my questions. The first question I have is it doesn't look like you're experiencing a lot of lending margin pressure just based on the MI bridge that you present and it looks like some of your peers really are. So I just wondered what you're seeing in the market and what, why is it that it seems that you're experiencing a lot less lending margin pressure than your peers. And my second question is the hedge was negative this quarter, but do you expect that for the rest of the year the hedge income will offset this negative headwind. I just noticed you didn't call out the hedge as being one of the growth drivers of NII this year, but mainly volumes and rate hikes.
Carsten Ehries, CEO
Thanks a lot, Namita. I'll take the first one and then I'll hand over the hedge question to Cecile. I think just on the competitive situation more generally. I mean we continue to see a competitive environment in the Nordics across all markets. So that's the first thing I would say. But I would not say that there is anything in particular in this quarter and not in the last quarters that is sort of markedly different in terms of the competitive environment.
And therefore as you can also see on our NII bridge and page, margins frankly are relatively stable. And there's of course a little bit of moving parts between deposit and lending margins. And obviously we also look at the overall NIM, but. But yeah, we see, we see margins as pretty stable reflecting what is a competitive environment and frankly has been for a longer period of time. That's how I would characterize what we see.
Cecile Hillary
And let me take your hedging question, Namita. And things haven't changed. So as I mentioned when we gave the full year guidance and again at the end of Q1, the hedge income is, is a significant and important contribution to RNI and it is a lift compared to last year. Right. So 2026 structural hedging come provides a lift versus 2025. Now of course as rates and market implied rates increase, that lift is a little bit reduced. All things being equal, however, it still provides a lift.
So let me comment now on the development that's we're seeing quarter on quarter. I wouldn't read too much into the development in quarter on quarter. One of the reasons is that clearly you've got rollovers and maturities. So it's not. The structured income is not necessarily linear from one quarter to two to another. Also in this instance. Right. You had the effect of obviously a slightly lower equity base, you know, from the distribution of the, of the dividends.
You had as well slightly higher funding costs, you know, coming from the short term rates. But overall Namita definitely a strong contribution from the structural hedge income again in 26 versus 25.
Namita Samtani
That's helpful. Thanks very much.
OPERATOR
Thank you. We'll now take our next question. This is from Sophie Pettersens from Goldman Sachs. Please go ahead.
Sophie Pettersens
Yes, thanks a lot. Here is Sophie from Goldman Sachs. So just going back to net interest income. It's very helpful that you have given the guidance that it's going to be slightly above 38 billion in 2026. But could you maybe just discuss how we should think about like the quarter on quarter tailwinds and of the net interest income that we saw in Q2? Any of the items that will reverse next quarter that we should just be mindful of. And also your rate sensitivity guidance, I know you give very detailed guidance.
Should we expect that tailwind to kind of fully materialize in the second half of the year and then continue to materialize next year? So if you could maybe just discuss a little bit the quarter on quarter net interest income evolution and what we should be mindful of items outside of volumes. And then the second question. There were some headlines a month ago or so about Danske wanting to make some acquisitions in Sweden. So maybe if you could just update us on your thinking around M and A and the capital priorities.
Do you prioritize bolt ons over share buybacks and special dividends? Thank you.
Carsten Ehries, CEO
Sure. Thanks, Sophie. Look, on the NII piece I think we've given some pretty detailed guidance on expectations for the year. And I think quarter on quarter in the second half you should just expect sort of a gradual, a gradual growth towards that NII. Clearly Q4 being slightly higher than Q3. And no, you shouldn't think that there is any specific moving parts that you should be cognizant of. And the rate sensitivities we've given no changes to those given in the presentation on M&A. Look, I think it's a consistent message from, from, from my side and that is that we're fully focused on our inorganic strategy and we prioritize growth and continue to see good growth momentum. But we're also looking to see if there are inorganic opportunities. And in particular Sweden is an interesting market from our side. However, there is nothing concrete and it's obviously subject to the right targets and strategic fit. So I hope that sort of answers the questions.
And maybe just if I can touch on one aspect that you mentioned. Again, there is nothing in the NII for the first half that we would call out as non-recurring. The non-recurring item is purely from Q1 to Q2, so it doesn't shift into the second half of the year.
Sophie Pettersens
Okay, that's very clear. And just maybe on M&A, would you consider any M&A outside of the Nordics?
Carsten Ehries, CEO
No. I mean we have a Nordic focus and a Nordic strategy. I see that highly unlikely.
Sophie Pettersens
Okay, very clear. Thank you.
OPERATOR
Thank you. We'll now take our next question. This is from Matthias Nielsen from Nordea please go ahead.
Matthias Nielsen
So, thank you very much. Most of my questions have been asked already, but I still have one on trading income. And I know it's a bit detailed question maybe, but it's just a bit puzzled about the normalized trading income. You've talked about being around 3 billion and then when you look over the past year, it's been so for the last four quarters been around 2 billion. And this quarter we also see being like basically in line with expectations, consensus while all your peers have basically been beating expectations.
So what is going on on this trading income? Like what are we missing on the other side or what are you missing internally? Is there anything that has changed from the 3 billion to a lower run rate or how should we think about that?
Carsten Ehries, CEO
No, I think. Thanks. No, not particularly. Obviously, as we've said before, Q1 was a softer quarter and, and clearly if you sort of annualize Q2, you are, you're closer towards the 3, but still below the 3. I think right now and probably also since we did the strategy update, we have taken a little bit of risk off the table, but with better returns and clearly our sort of trading franchise very much focused on, on, on supporting client activity. So I wouldn't say that we're changing sort of the view that an annualized level of 3 billion is, is directionally right, but it's probably slightly below that given what we've seen in the last couple of years since we did the strategy update.
Cecile Hillary
But I mean, that's exactly right. I mean that's exactly what we have been doing is optimizing our, our trading inventory to support customer activity. Not least also after the quite significant interest rate moves we saw back in the summer of 22 and the subsequent risk reward on the, on the mortgage side of things, I mean the business model is focused on supporting customer activity, customer flows with a, you know, predominant income drivers being the fixed income and the, and the FX side of the, of the business.
Ricardo Rovere
Okay, thanks a lot.
Cecile Hillary
Thank you.
OPERATOR
Thank you. We will now take our next question. This is from Ricardo Rovere from Mediobanca. Please go ahead.
Ricardo Rovere
Thanks. Good morning everybody. Thanks for taking my question. If I may, Cecile, when you mention that postmodern adjustments account for 30 basis points of the book. You are taking into account the whole 5.2 billion that you show in your slide. But in 2019, so before COVID and before overlays and post model adjustment started to exist, you know, statistical provisions were already at 4 billions. Isn't it more. Wouldn't it be more prudent to say that the overlays that you are actually using amount to 1.2 billion.
So the difference between the 5.2 and the 4 billions that existed already in 2019. So it would be covering, I don't know, one year, one year and a half of your. Of your credit unnormalized credit risk.
Cecile Hillary
Let me thank you, Ricardo. Just I would make two comments on, on that. The first one is that our credit risk obviously remains extremely, extremely strong and obviously our business now is different from what it was, you know, five to 10 years ago. So that's, that's the first point. And really the when, when I say you know, four years, I mean it's purely because we guide to you know, eight basis points cost of risk and we've got this effectively 30 basis points.
Right. Stock of, of PMs. But then the second most substantial comment is that through our models. Right. And that is something that is obviously aligned with all the development around model that banks and not just us. Right. Have been doing across, across, across Europe, including with our regulators. Right. We aim to embed more of the sensitivities and the actual coverage. In the model itself. Right. So the PM is in themselves are indeed an overlay.
I don't want to go too much into, into semantic and again I wouldn't read too much into the 30 basis points and the four year. But it was just to give you a sense of what we feel is the prudency of our, of our approach.
Ricardo Rovere
Thanks. Thanks to that. Thanks. Maybe a quick follow up if I may on risk. Weighted assets go up. Credit risk if I understand go up by 15 billion, which more or less matches the increase in the book. I mean I'm talking looking at the overall book in the balance sheet. Okay. On a consolidated basis, which is up a little bit more than that. So it looks fairly large, the increase in credit risk. RWA was wondering what's behind that if you could shed a little bit of light. Thanks.
Cecile Hillary
Yeah, absolutely. No, that's, that's very straightforward. I mean actually on the rea it's really driven in a large majority by the growth in our lending. That's really what increases rea. As matter of fact, you know, market risk has slightly decreased quarter on, on quarter. So we've seen as I mentioned, you know, lending growth, lending growth probably a little bit above what we even expected at the beginning of the year. But that's you know, profitable growth and high quality growth.
As I mentioned, right quarter on quarter we've seen growth in our corporate segments in particular of one and a half percent just for that quarter. Right. And just short of one percent sense in personal customers. Obviously that, that, you know, that was reflected in, in rea. And I would say it's completely aligned with what our growth strategy is in the context of Forward 28. The new production doesn't have higher risk weight than the back book.
The risk of the new production and the characteristics of the production is completely aligned with with the rest of our book and underwriting criteria as etc have not changed.
Ricardo Rovere
Okay, thank you very much.
OPERATOR
Thank you. We'll now take our next question. This is from Max. Jacob Cruiser from Bernstein Autonomous. Please go ahead.
Jacob Cruiser
Hi, thank you. Jacob from Autonomous. I guess just a bit of a left field question, but could I ask a Finnish business, it seems to be very much out of focus. It's relatively large. Could you just talk a little bit about what your strategy is there? You have a clear strategy for Sweden, Denmark? I'm a little bit unclear on what the plan is for the Finnish business. Is that core or is it something you might consider disposing of or other initiatives you're doing at the moment?
Cecile Hillary
Thank you, Jacob. Thanks a lot. Finland is very much part of our core strategy. We also clearly said when we did our 428 strategy that we were focused on building a leading wholesale bank and corporate bank across the Nordics and then a leading personal and private bank in Denmark and in Finland. So we are very clear that Finland is incorporated in all sectors, sort of our strategic ambitions, if you will. So Finland is very much at the, at the core of our strategy. We have a full service retail, commercial and investment bank in Finland and clearly the Finnish market is a little bit more sluggish.
But, but from a market positioning perspective we've been, we've been performing pretty well and taking market shares both in fact on the, on the personal side and seen good market share gains on the, on the mortgage side, but also on the corporate side in BC and lcni. And we're clearly also one of the top wholesale banks in Finland and have also been involved in a lot of the relevant transactions that have gone on in Finland. So we continue to focus on Finland and invest in Finland.
Jacob Cruiser
Okay, thank you very much.
OPERATOR
Thank you. We will now take the next question. This is from Martin Gregers Burke from scd. Please go ahead.
Martin Gregers Burke
Thank you so much. Just following up on the questions on NII. I appreciate that you have your 450 million sensitivity out there, but as far as I understand it, that's a sort of a parallel shift in all markets that you are exposed to. But, but currently we see a steepening in the short end of the, of the curve. I would assume that the deposit beta for the first 2550, maybe even 75 bips is going to be very low, leading you to material undershoot overshoot on your current deny sensitivity. And given that current market is pricing in another two hikes by now, how would you see your NIA moving on these different, these first two, three hikes? Thanks.
Cecile Hillary
Yeah, absolutely. Martin, thank you for your questions. And I will limit my comments on 2026 because obviously we don't provide any guidance beyond 26. You should see our sensitivity table as correct. Right. And as appropriate. I mean not just, it's not just a theoretical table. It's definitely validated by the businesses. Right. So the plus 450 million for rate one rate hike of 25 basis points in year one. And obviously, you know, it's linear, you know, if you add all the rates.
So the one that we're looking at obviously is one in September. September. So we're not looking at further hikes in future years at this stage. You're right to point out that it is for a parallel shift. We've seen, we've seen slightly steepened short end of the curve that also obviously increases, you know, some of the funding costs. You know, on the, on the, on the structural hedge. There's the elements obviously of the equity base that's slightly lower, which you have to take into account the deposits.
EBITDA has been indeed a bit lower than necessarily our past assumptions. But I think if you take, you know, the short end of the curve, the deposit beta, you compound all these effects. This is not a material impact on the nii. So really you should rely on the sensitivity table which we feel is, is a very good guide to what you should expect.
Martin Gregers Burke
Okay, and could you please elaborate on what kind of deposit beta do you assume in those sensitivities, especially for the first couple of hikes?
Cecile Hillary
I'm sorry, Martin, but we don't disclose this.
Martin Gregers Burke
Okay, all right, that's fair enough. Second question goes on loan growth. If you perhaps could elaborate a little bit more on loan growth, you see, on divisional basis you see anything from 1% to 10% loan growth. It seems to be a bit all over the place. And if you go into just focusing in on the 1% in the Danish retail bank, it seems to deliver quite a pickup in the quarter, both Q and Q and year on year lending, while you have sort of a flattish development in all the other divisions.
Could you please help me to unpack what's up and down in this?
Cecile Hillary
Thanks, Faz. No, I think the loan growth is actually very much as we expected. I mean, we gave an overall sort of loan growth 3 to 4% and we said, you know, we'd see most of the loan growth coming from the corporate area and more muted growth in the retail banking area. And that's exactly what we're seeing. And you know, we continue, as we look to the rest of the year, we actually continue to feel that that is, that is probably the right assumption and guidance to abg that we continue to see a pretty strong pipeline and fairly robust demand on the, on the corporate side with the housing market having picked up a little bit in Q2 and therefore also supporting growth.
So I think you should still see sort of as slightly higher growth on the corporate side and slightly lower growth on the retail side.
Martin Gregers Burke
But on the retail bank, what's the dynamics here? I mean, out of a sudden in the Danish retail bank you see a pretty nice jump, Q and Q. You see a global private banking that is not really delivering anything. You don't really see anything out of Finland, you don't really see anything out of Sweden. Should we read anything into this or is this just quarterly bumps?
Cecile Hillary
No, I mean, so the dynamic is. Well, first of all in the private banking we see actually a very good dynamic more generally with investments and AUM up quite significantly and with strong customer flow. And there I don't think you should put too much into quarter on quarter lending, it's a bit more volatile. But I mean the underlying private banking franchise and performance is looking good again as also seen by the investment flows and customer flows.
And then on the lending quarter on quarter, it is right, as I mentioned, that mortgage demand has picked up in Q2. So that's why you're seeing sort of a pretty healthy movement between Q2 versus Q1, but still at relatively low growth levels.
Martin Gregers Burke
All right, thanks
OPERATOR
and operator, I think we are ready for the last question. Thank you. Question comes from Alexander Vilstrup Jorgensen from DNB Carnegie. Please go ahead.
Alexander Vilstrup Jorgensen
Yes, good morning and thank you for taking my questions. So first could you comment on your current hedge composition? How big is your loan hedge? For instance, do you expect your hedge to have a positive impact next year? Second, do you still maintain your soft guidance for net income from insurance business of around 1.4 to 1.6 billion a year?
Cecile Hillary
Yep. Thank you. Just on Danica. We still maintain that guidance but currently we're looking at the higher end of that guidance.
Alexander Vilstrup Jorgensen
Yeah, I'll take the hedge composition. So the hedge continues to be comprised from two parts, right? One is what we typically call the bond and now derivative hedge, which is 190 billion. As you know, we started in January, given the improvement of an establishment of hedge accounting capabilities in that respect, we started to use derivatives in our structural hedge. Out of this 190 billion, around 10% is now comprised of derivatives. And effectively, as bonds roll out, we replace them partly with derivatives, and we think that the portfolio will continue to be comprised of both.
We've kept the notion of the structural hedge stable as I had guided, and we see ourselves as well hedged. Then the second part of the structural hedge is indeed the loan hedge, and that loan hedge is a bit above 200 billion. It's a shorter average life. Whereas the bond and derivative hedge is, call it, a three-year average life, a bit above three years. The loan hedge is more around a two-year average life. That loan hedge is not a perfect hedge.
There is some optionality given some of the products involved there. But obviously, you know, it's an integral part of the structural hedge. So I wouldn't call out major changes either in the size or the composition of the hedge, apart again from this rollout of the derivatives, which is obviously a positive thing when it comes to the execution. Then you asked me about, you know, the profile of the hedge, and again, the profile of the hedge is not different from what I had mentioned at the full year and then again reiterated in Q1, which is that the structural hedge income will be a lift in 2026 versus 2025.
But then especially given markets implied rates and where rates are, you know, it will tail off and it will come down somewhat, will continue to provide benefits, but will come down somewhat in 27 and beyond. And then of course, we have to see what happens with rates going forward.
Klaus Inker Jensen, Head of Investor Relations
Okay, thank you, thank you very much everyone for your interest in Danske Bank A/S, for your questions this morning. And as always, please do reach out to our investor relations department if any other questions. Thanks a lot and have a great summer.
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