Interview with Kjerstin Braathen, CEO, DNB Bank, NORWAY

22 Mar Interview with Kjerstin Braathen, CEO, DNB Bank, NORWAY

Business Focus (BF): How would you define DNB’s role in enabling Norway’s economic growth?

Kjerstin Braathen: We see ourselves as fuel for the economy. We are the market leader for retail customers and corporate customers. We have a large life-insurance business, and we’re the largest capital asset manager in the country. Our role is to provide capital for the economy to grow, and to support and advise our customers. We work internationally in energy, maritime, and seafood, and we see ourselves as a bridge between global capital markets and Norwegian businesses. We bring competencies from industries around the world to Norway.

BF: What is your outlook for the Norwegian banking sector in 2024 considering the challenging macroeconomic and geopolitical backdrop, and which sub-sectors show the most growth potential?

Kjerstin Braathen: Our immediate goal is to support the economy and our customers. The economy is resilient and robust, despite consumers and businesses having to adjust to higher inflation rates. We believe the most likely scenario is that our economy will have a soft landing, despite rising uncertainty. It is important to continue to support successful businesses, especially those involved in the energy transition.

Technology is a core part of our business. 1% of interactions with our customers are physical, which makes us a technology company running a bank. We are also focused on acquiring talent and competence. And as technology becomes more important, so do our people and their interactions with customers.

We have strict regulations that ensure we are among the most well-capitalized banks in the world. The Norwegian banking sector is profitable, which is important to the economy and our ability to continue to support it.

As for growth potential, we see growth in anything energy related. We need investment in fossil fuels, but even more in renewables. We anticipate growth in seafood and the maritime segment, and believe there is potential in the healthcare sector, where we do world-renowned research on clusters related to cancer, for example. Norway is also becoming more accessible, and people are traveling more, which gives the country’s tourism industry potential. Even though it can get quite cold, there is a uniqueness to the country that can be offered sustainably.

BF: What are the main challenges you are facing in 2024, and how does the current geopolitical backdrop impact the bank’s appetite for risk?

Kjerstin Braathen: The challenges are more global than local. There is higher geopolitical uncertainty in the world, political polarization, and pressure on trust levels, even though we are a society with a high level of trust between government and citizens. We need to make sure that international investors are aware of the benefits of investing in Norway. We have a very competent but small population, so we need to ensure access to talent. And because our main revenue comes from fossil fuels, we must transition the whole economy towards clean energy and sustainable practices, which is the country’s priority at the moment.

Risk management is our business. We are among the most robust and resilient markets in Europe, and we are used to working with risk in both the short term and the long term. We look at how we can integrate financing structures into the green transition, where the Nordics are leading the way in terms of providing sustainability-linked structures to the private sector.

We’re primarily exposed to the Norwegian market, but we have clients who are exposed around the world. Geopolitical uncertainty is something we discuss with clients to help them avoid overly risky investments. Cybersecurity is an area that has also received a lot of attention recently. In general, countries have benefitted from connectivity and globalization, but only now are we recognizing the resulting vulnerabilities. We shouldn’t react by turning our backs on the world; we need to manage the risks and move forward. There is risk in inaction.

BF: Europe is scrambling to develop infrastructure for the energy transition, which Norway has been doing since the 1990s. What can European countries learn from Norway’s example?

Kjerstin Braathen: We have a very good starting point and most of our energy resources are renewable. But we still need to cut emissions, increase energy production, and build more infrastructure. And we can prove that that is possible. More than 80% of car sales are electric. We have resolved issues relating to e-vehicle charging and infrastructure. The concept has been proved and now we just need to move forward. The public sector can play an important role in spearheading the transition, yet it is difficult for small companies to transition alone. But our electric or biofuel-driven ferries, for example, showcase what is possible when action is taken.

BF: What are the strengths of Norway’s economic model?

Kjerstin Braathen: We may be different from the other Nordic countries, in that we are a very natural resource-based economy. A crucial moment for us was when we discovered oil and gas reserves and were able to build a model that ensures we are one of the most equal countries in the world. We have been able to manage welfare properly and in a way that is sustainable across generations. There has been a concerted effort from all political parties to hold society together. This harmony is the basis of the strengths in the economy today. There is a very high level of trust and cooperation and there is a strong fiscal balance sheet, which helps the economy to sustain shocks. At first glance, Norway looks like a fragile, nature-based economy, but we’re actually less volatile than our Nordic neighbors and have had faster economic growth. We have very competent people and a high-value skill set. Norwegian education has an emphasis on cooperation and collective decision making, as well as the acquisition of knowledge and skills.

We also have our own currency, and the strongest fiscal position of almost any country. This provides a cushion for government expenditure, which never exceeds a limited portion of the sovereign wealth fund, which is the largest in the world.

BF: What is your role in enabling the green transition and digitization of industry? What strategies are you implementing to finance it?

Kjerstin Braathen: We play an important role as an economic tool. Having a strong financial sector is central to a strong economy. Norway is a bank-dominated market with dynamic capital markets for key industries. But 80-90% of capital invested in business comes from the banking sector. We pride ourselves in being a reliable partner for our customers thanks to our large market share. When troubles arise, we don’t shy away, we work it out with our customers within the sector. A few decades ago there was a huge crisis in the fishing industry. Most of the assets and stock were owned by banks. The sector then sold these assets back to the market, providing an opportunity to entrepreneurs and companies, many of whom are still active today. We work across the whole value chain to address problems as they arise.

We also have a clear ambition to be an accelerator of the energy transition and digital transformation. We put capital into solutions that reduce emissions and have set targets for indirect financed emissions on behalf of our customers. To achieve that, we work with them and build competencies throughout industry, incentivizing them with financing structures. We believe helping companies reduce their emissions while remaining economically resilient is as important as the transition itself. In addition to setting emissions targets, we also set targets for how much capital we are going to facilitate and finance for investments in renewable energy development: Currently our target is 1,500 billion kroner (USD 143.55 billion) across equity debt capital markets from 2021 to 2030. And investors have taken notice. 20% of the capital we raised last year was by way of sustainability-linked structures.

There are challenges that we need to keep in mind. Fossil fuel production will continue, especially given the state of European energy security at the moment. So we need to ensure access to sufficient and affordable energy, while managing what we already have in a sustainable manner.

BF: What efforts is DNB taking to support Norwegian enterprises to excel in the green transition and weather political and economic instability?

Kjerstin Braathen: Norwegian enterprises are relatively well prepared, given that Norway has gone from being a resource-poor country to a wealthy, resource-rich one in a relatively short time. We should never underestimate resistance to change, which is entirely human. We are dependent on cooperation between the public and private sectors, and on people’s capacity to work together. Historically we’ve been good at that, but now we need to mobilize these assets with a sense of urgency. This is a country where most are reasonably comfortable, but we need to make sure that this does not come at the cost of action.

There are challenges with the current macroeconomic cycle, which are slowing the pace of progress. Norway is not immune to the same issues that are ravaging other Western societies, from political polarization to local resistance to wind farms, for example. But we should take advantage of our small population and high level of trust to navigate around these problems and move forward, as we have always done in the past.

BF: What is DNB’s role in supporting Norway’s ambitions to lead in artificial intelligence (AI), and how are you integrating AI in your own operations?

Kjerstin Braathen: AI presents huge opportunities for the banking sector, and we have merely scratched the surface of what is possible. Even the first generation of generative AI has been a game changer and has demonstrated that we don’t fully understand its potential or the pace of change. We are a digitally advanced company, and a large part of our business is integrating the latest technology in everything we do.

We have identified three areas that are going to experience tremendous change. The first is anything related to customer experience and service, such as using intelligent chatbots to provide tailored advice to customers. Second, we are investing in fraud prevention and cyber defense, where AI’s ability to spot irregularities in large volumes of data can make a huge difference. And third is identifying and developing new digital opportunities. We think the AI revolution is a positive development that will complement existing jobs, rather than make people redundant.

BF: Which opportunities in the Norwegian market to you consider to be the best fit for US investors and potential partners?

Kjerstin Braathen: The most interesting investment areas in Norway are those where we haven’t fully reached our potential, including technology and robotics. We believe there is a lot of potential in minerals and deep-sea mining, but we need more knowledge of the potential risks before we are talking about any production. Much of the response to climate change should focus on the oceans, where Norway’s seafaring heritage – including its offshore oil and gas capabilities – will be of great value going forward.