Transcription

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Title: Swedbank Year-End Report 2016

Date: 02.02.2017

Speakers: Gregori Karamouzis, Birgitte Bonnesen, Anders Karlsson and Helo Meigas

Conference Ref. No: EV00050987

Duration: 50:40

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Presentation

OperatorLadies and gentlemen, welcome to the Swedbank Year-End Report 2016. Today, I am pleased to present Gregori Karamouzis, Head of Investor Relations. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Gregori, please begin.

Gregori KaramouzisThank you. And good morning, everyone, for joining our call with the Q4 results this morning. I have with me in the room Birgitte Bonnesen, our CEO; Anders Karlsson, our CFO, and Helo Meigas, our Chief Risk Officer. I’ll leave the word to Birgitte.

Birgitte BonnesenThank you, Gregori. And good morning, everyone, and thank you so much for joining us in this call. We have closed the year with a very strong set of results. All three business areas have performed well, and we were able to meet both our cost and our reach targets for the year. This gives is a very comfortable capital position, with a buffer to the minimum requirements of about 300 basis points. It also gives the board the possibility to propose that 75% of the annual profit is paid out to shareholders for the fifth year in a row. This achievement comes amidst a global economic and political environment that is still challenging, although the economic outlook is slowly improving.

In our four core markets, however, the economic activity has been solid. In Sweden, consumption is holding up, while investment and exports contribute positively. Sweden has seen a growth in population that provides us with an excellent opportunity for continued economic growth, but it also exposes the challenges that we have. Apart from the efforts to integrate immigrants, and to match competences on the job market, it also challenges an already difficult situation in the housing market. We need reforms badly in the tax system linked to housing, in construction laws and in the rental market. Having said this, all in all, we have every possibility to build a solid foundation for healthy, long-term economic growth in Sweden. In the Baltics, the outlook for 2017, all three countries look better than the actual performance in 2016. Investment, consumption and exports are expected to increase, driven by the inflow of EU structural funds. The activity in the housing and mortgage markets supported our NII in the quarter, through long volume growth and back book margin expansion. We also integrated the remaining mortgage volumes from Sparbanken Öresund acquisition in the amount of 12.7 billion in this quarter.

Corporate loan volumes were down in the quarter, as we chose not to renew or participate in deals that did not meet our return or risk hurdles. The negative interest rate environment has imposed a new type of risk within many segments that we are extra vigilant about. We are therefore continuing to advise both our private and corporate customers to build and maintain buffers in their financial plans, which we believe is prudent. This benign environment in our home market led to a robust commission income performance. Asset management contributed the most, but also DCM and brokerage were stronger. We assisted a record high number of customers to raise funds in the bond market, specially highlighting KommunInvest green bond, which was the largest ever denominated in Swedish krona.

Asset quality remains resilient across all markets. As expected, we did take some provisions, predominantly in the oil-related sectors, and we finished the year at the lower end of our guidance. Looking ahead, we expect the mortgage market to continue growing, although with a somewhat slower pace, primarily as the introduction of the amortisation requirement on the Swedish market. We will continue to stay close to our core property management customers, and support them in their activities. At the same time, we strive to grow more in other corporate sectors, such as manufacturing and professional services. We foresee the modest loan growth to continue in the Baltics. All in all, we expect loan growth to be about the same level as in 2016, excluding the extraordinary acquired volumes.

Although I am very proud of what we have achieved in 2016, we have a lot of work ahead of us to improve even more, and maintain our strong financial and market position. More regulation, tougher competition, and changed customer behaviour challenge us, but I am personally very convinced that even more new business opportunities will arise from these challenges. We have articulated the direction for Swedbank, and we’ve broken it down into easily actionable steps that help us to succeed. In 2017, our main focus in our private and SME business areas will be to further digitalise our product offering. We aim to put the necessary digital infrastructure in place, to allow for seamless customer interaction, such as signing, messaging, and on boarding.

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Further steps to fully digitalise the lending process will be taken, and first stop will be the launch of a fully digital unsecured loan product in the first quarter. Also, I have just decided to establish a new unit, customer value management. This unit will drive loyalty with proactive, relevant and personalised offers, distributed through the right channel at the right time, and this is all based on customer insights, which means data that we have.

We have to do more in the savings area. The measures that we have taken so far have stopped the outflow in the private customer part of the business, and we have many, many initiatives, that we will roll out gradually in 2017, one of them being a full robo-advice solution. All of these initiatives and many more fit within our cost target for the full year 2017. They are made possible thanks to our priority to every year improve efficiency. Moreover, I also believe that these initiatives will mid to long term improve our customer satisfaction.

We are the largest retail bank in our four markets, and customer and employee satisfaction is important. I am therefore especially glad that our internal employees survey shows that our staffs feel greater engagement and pride to work for Swedbank than they did a year ago. This is a prerequisite to be able to reach our external goals. We have started the New Year with lots of positive energy, and we have a solid plan in place, so I am therefore extremely optimistic looking into 2017. And with this, I will hand over to Anders, to take you through the numbers.

Anders KarlssonThank you, Birgitte. I will first give you an overview of each of the three business segments, and thereafter sum it up at group level. Lastly I will say a few words about our capital position and then also 2017.

Swedish banking, end of the year with yet another strong quarter. NII strengthened by further back book mortgage margin expansion and volume growth, exclusively in private mortgages. Deposit volumes continue to grow this quarter, primarily from corporates, but also from continued household savings. Deposit margins are still under pressure, as a result of market rates continuing to fall in the quarter. A benign stock market development improved asset management income, assets under management increased in the quarter. Income from cards was in line with last quarter, excluding the run-off in Q3 relating to MasterCard fees. Expenses were stable, primarily impacted by lower staff costs, but also increased compensations to the savings banks and other seasonally high expenses, such as marketing. Asset quality continued to be resilient.

Turning to Baltic banking, yet another quarter with stable results, primarily driven by increased activity in payments and performance fees in asset management. FX effects also impacted the result positively. Lending margins were flat in the quarter, while deposit margins continued to be under pressure. Both deposit and loan volumes increased slightly in local currencies. Expenses were slightly up, mainly due to seasonalities and the FX effect, and asset quality continued to be solid.

Now over to LC&I. Large corporates and institutions showed a stable set of results. NII was supported by higher average lending volumes, slightly higher lending margins, FX effects, but also a few one-offs. Net commission income increased in the quarter as a result of higher asset management income stemming from performance fees, and the benign stock market development. Brokerage income was also higher, being supported by better DCM activity and covered bond market maker fees. NGL held up well due to good trading activity, especially within FX. We still see customers who want risk management products continuing. Expenses were seasonally higher, and also impacted by increased staff costs as a result of a restructuring charge of 75 million, taken in conjunction with an organisational change within our captive markets division. The credit impairments came primarily from provisions in the oil-related segments, and Helo will talk a bit more about the outlook in the oil and offshore portfolio in a short while.

To summarise on group level, we delivered another strong set of results. Mortgage volumes and margin expansion is supported NII and mitigated the negative pressure from the deposit margins. Higher income from asset management and brokerage lead to improved net commission income in the quarter. Net gains and losses were negatively impacted by higher covered bond buybacks, and some market volatility in the FX swap market at the end of the year, both is related to group treasury. Expenses came in at 16.4 billion.

Then turning to capital. The combination of strong income, lower risk exposure amount and positive pension effects brought our CET1 capital ratio to 25% in the quarter. Risk exposure amount decreased by roughly 10 billion, mainly due to positive rating migrations, and increased collateral values impacting the LGD. In addition, positive CBA effects and the increased market risks impacted risk exposure amount further. Increased mortgage volumes in the quarter brought our CET1 capital ratio requirements to 21.9%. In that number, we include the upcoming increase in the countercyclical buffer to 2%, and it’s based on the current REA level as a base. We feel comfortable with our buffer to the minimum requirements around 300 basis points, and have, as

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earlier communicated, no excess capital. We await clarity on primarily the expected Basel proposal and the subsequent implementation by the EU before we will set our management buffer level.

Lastly, looking ahead into 2017, we expect the back book repricing in the loan portfolio to continue, as fixed mortgages are coming up for renewal. Furthermore, our ambition is to compensate for higher regulatory costs, by repricing where applicable. In addition, as Birgitte mentioned, we expect loan volume growth in 2017 across segments and business areas to be around the same level as 2016, excluding the extraordinary loan volume stemming from the Danske Sparbanken Öresund acquisitions. The growth will primarily be driven by mortgage loans, but also we have an ambition to diversify the corporate lending. Group treasury total income, looked at by combining NII and NGL, and excluding the one-off gain of the Visa transactions, is expected to be about the same level as 2016. This assumes no change in interest rates for covered bond spreads and FX rates.

As communicated last quarter, we expect total expenses to reach 16.7 billion for the full year of 2017, as a result of the acceleration of investments within the savings and lending areas, as well as in our customer data management capabilities, and higher compensations to the savings bank. However, efficiency continues to be the top priority and our return on equity target of 15% remains. Let me now hand over to Helo to walk you through the asset quality.

Helo MeigasThank you, Anders. I shall give now a short overview of credit quality in Q4. We continue to have a good and balanced portfolio development. Excluding FX effects and one-off transactions, the total loan portfolio has grown by 4% year-to-date. The growth has primarily come from Swedish banking and Baltic banking, where the asset quality also stays strong, with 44 million and 15 million krona of recoveries, respectively. Large corporate ended the year with a small decrease in the portfolio, mainly as a result of the drop of volumes in Q4. This is due to strong capital markets and real estate companies, and one major repayment. Total credit impairment in large corporate and institutions in Q4 were 652 million krona.

Now a few comments on the oil portfolio in Norway. The provisioning of 496 million krona on our oil and offshore portfolio is what accounts for the majority of credit impairments in Q4. As of today, we are not able to confirm if the credit impairments we made this quarter will be sufficient to cover the risks remaining in our oil portfolio after the – all the phase I restructurings have been completed. We have one client group where the terms of the restructurings is have not been finalised yet, but we remain hopeful that we will be done with the portfolio by – before summer.

If I then sum it up for the total year, we have done credit impairments in the amount of 1.37 billion krona, which equals to the provisions we have taken on our oil and offshore portfolio. Year-to-date, credit impairment ratio is 9 basis points. Referring back to the guidance we gave last quarter about credit impairment, which was 10 to 15 basis points for the total credit portfolio, we ended the year at the lower end of it. And we also remain with the same guidance currently for 2017, as conditions in the oil industry are extremely strained and we have not finalised a restructuring of the oil portfolio yet. I think I’ll stop here.

Gregori KaramouzisThank you. We are happy to take any questions now. Please register yourselves through the operator.

Q&A

OperatorThank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Please hold until we have the first question. And our first question comes from the line of Peter Wallin from Handelsbanken. Please go ahead, your line is now open.

Peter WallinThank you and good morning. I would like to start with a question on mortgage margins, where we see continued repricing of the back book, and you also expect that to continue into 2017. Could you give any kind of indication on what kind of repricing the back book, what kind of margin impact that could have? And also, not[?] talking about the front book and being flat in this quarter, did you think that the front book will stay flat throughout 2017 and it’s only back book repricing left for the mortgage margins?

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Anders KarlssonThank you for your questions. If you look at the quarter, the difference between the back book and the front book is below 10 basis points, roughly 6 to 7. And to your second question, front book margins were flat in the quarter. As you probably remember, there was a small hike in the list price from basically every player in the middle of December that you can’t really see in the numbers for Q4. That is small, but it’s obviously a positive effect going forward. Talking about the front book margin for 2017 is extremely difficult. It is very much up to competition, market conditions, and the price sensitivity of the customers. So I will refrain from doing that.

Peter WallinOkay. And then coming into corporate, you – you reduced large corporates volumes relatively much in this quarter, especially things like commercial real estate, and you talked during your presentation about maybe diversifying your loan book a bit more. Does that mean that you might continue to decrease some sectors, like from commercial real estate, and which sectors do you try to grow in?

Birgitte BonnesenThank you. No, it doesn’t mean that we will take our ambition level down, not at all. Our ambition level for 2017 is at the same level, so in fact it’s increasing because you take out what we acquired. We will also continue to work with those who are our core customers, whether that’s in the commercial space, absolutely. And in the – when I talked about manufacturing and professional services, we will lend more to SSE, SME, those who are our core customers. A lot of them out in, you know, outside the big cities in Sweden.

Peter WallinOkay, thank you. And then just the final question of mine regarding credit demand from corporates, which has been somewhat muted overall for quite some time despite the generic economy has been doing quite well. Are you seeing more of a broad-based pick up in credit demand, considering how strongly the indicators such as PMI and others here in Sweden, or do you still expect it’s mainly going to be real estate and construction driving the credit growth?

Birgitte BonnesenYes, the latter. We don’t really see – we still see a very subdued credit demand in Sweden. A lot of it is driven by construction and in the commercial space. And here it’s really important for us to pick the customers and sort of stick with the customers that are our core customers, we’ve worked with them for a long time, we know them well, and this is where we will provide them with the credit facilities that they need going forward.

Peter WallinOkay. Great. Thank you very much.

OperatorThank you. Our next question comes from the line of Magnus Andersson from ABG. Please go ahead, your line is now open.

Magnus AnderssonYes, good morning. Yes, if I start with costs. You reiterated your guidance for 16.7 billion for 2017. When we discussed this after the Q3 report, you said you had also a – you indicated at least a flat cost ambition for 2018 on the 2017 level. If we would get the wage tax, the Swedish wage tax that would have an impact on you of around 650 million, would you be able to absorb that under a flat cost ambition for 2018, or should we add that in that case? That’s my first question. Hello?

Anders Karlsson Yes, Magnus, you have so good questions that we have to think about the answer before we open up.

Magnus AnderssonOkay.

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Anders Karlsson I’ll try to take your question apart. We haven’t guided on 2018, and we will not guide on 2018. What I said in Q3 was that I see no large things coming up that would change dramatically for 2018. When it comes to the tax, that was not included in that. We have said that if it comes, our ambition is to reprice or take that out on our customers, basically.

Magnus AnderssonOkay. Secondly, just on capital. You continue to say that you are not overcapitalised. At what buffer level relative to the minimum requirement from the Swedish FSA would you perceive yourselves as overcapitalised?

Anders Karlsson I would say like this, Magnus. First of all, you have seen during 2016 that we have had a fair amount of volatility in the capital situation, driven by pensions, PD migrations, FX effects, so that’s sort of one issue. The other issue is what I said, that is, we await the Basel Committee, and the Basel IV proposal and how that will be implemented in the EU. And I think that is by far the most important information that we need.

Magnus AnderssonAnd when do you think you will know anything more about that, do you have any idea?

Anders Karlsson It’s a good question. We hear different things basically every week. Everything from people being optimistic that it will come out something in a short period of time to that the discussions are, sort of, stalling a bit, pushing it further out into the future. So I – I really don’t have any insight that is different from yours on that specific question.

Magnus AnderssonOkay, just finally, then, on your asset quality guidance for 2017. You keep that 10-15 basis points you were talking about after Q4, [inaudible] the Q4 2015 report. Is it possible to say how much of that is related to the one very large exposure we all know that you have? Or is it primarily related to outcome of that, or is it more broad based?

Helo MeigasI don’t think I can comment on that question.

Magnus AnderssonOkay. Well, thank you.

OperatorThank you. Our next question comes from Willis Palermo from Goldman Sachs. Please go ahead, your line is now open.

Willis PalermoHi, good morning. I had a question on net interest income, and I was wondering if you could just elaborate a little bit on what trajectory you anticipate for this year, and what you think will come from the repricing[?] on one hand and treasury income on the other hand, which was quite strong this year. If you expect to have broadly the same levels next year and to what extent you are – from what you’re seeing in the first month of the year, you are currently passing on the additional capital requirement and resolution fee to the customer? And then the second question is, just to continue a bit on asset quality, I was just wondering if you could give me details on your current conversation with companies, and how the mood is evolving in the oil and gas and shipping sector, and what should be needed more in the macro-environment to have a better outlook on asset quality going forward. Thanks.

Anders Karlsson Thank you. You had so many questions, so if I forget some of them, please remind me then. On NII what was said was that basically what we see is that the difference between the back book and front book is around 6 to 7 basis points, and as you know, part of the back book is coming in for renewal. I’ve also said that all banks height their list priced slightly at the end of the year, and that’s also something that I expect to have a slightly positive effect from. And that’s basically – and then you have new volumes coming in that would support NII going forward, so those are the three components.

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When it comes to the treasury result – and then finally, what we have been talking about, but we haven’t see that materialising in great numbers yet is our ambition to try to reprice primarily the corporate portfolio, due to high regulatory costs coming both from increased capital requirements and increased resolution fees. But that is, as I stated, we will do it where applicable and possible. It’s more of a competition issue there.

Finally on treasury, assuming that the market environment is the same as in 2016, you will be basically the same outcome for 2017, although the traffic between NGL and NII will be smaller this year than it was last year. But the direction is the same.

Helo MeigasAnd then on the oil portfolio, the discussions of the plans [inaudible], as we have been telling earlier, our clients are primarily large companies, and in these situations you have multiple stakeholders, so it is difficult to reach conclusions on the terms of the restructuring in certain cases, even if they, kind of the discussions actually have been constructive. So it just takes time, and that’s why we are not done yet. But there’s not too many left anymore in the portfolio that needs to be finalised. And so our outlook to the industry in general, we still are very cautious about it and this is primarily because of the investments that have been coming down for the last two years, about 25% on an annual basis. And in 2017, although you’ll see some positive signals because of the more stable oil price, we don’t see that it will have a major positive impact to our clients in the North Sea region in 2017. The downstream offshore companies still continue to suffer by the low demand for their investments and equipment, and the low contract rate, so we believe there is still need for some further consolidation. So we are cautious about that.

Willis PalermoThanks, that’s all very clear. Can I just speak up and on my first question, and continue a little bit on the corporate repricing you were referring to? When do you think you’ll be able to start discussing with corporate, or have you already started some of the conversation with maybe the smaller corporate? And if yes, which sectors are concerned?

Anders Karlsson Okay. Yeah, I mean, to be a bit more optimistic, we have seen in certain sectors some repricing actually coming in. But again, as I said, with the subdued loan demand and the competition, it’s very difficult for me to give you any guidance. We have the ambition and now internal steering is pushing toward it, but we need to wait. And then you have the underlying structure of the corporate portfolio, which is different from the mortgage portfolio in the sense that it’s a longer duration, so it takes a longer time for the repricing to come in, only due to that fact. But to be on the optimistic side, we have seen pockets of it coming in and happening, actually.

Willis PalermoThank you very much.

OperatorThank you. Our next question comes from the line of Omar Keenan from Deutsche Bank. Please go ahead, your line is now open.

Omar KeenanGood morning. Thank you very much for taking the question. Can I please ask about interest rate sensitivity? In the fact book there’s four billion to 100 basis points. If rates move up by 50bps from here, should we just add two billion to our net interest income, or are there other things we should be factoring in like treasury NI or flaws in the lending book? And my other question is on capital. Your message continues to be that you have excess capital – that you have no excess capital, excuse me, but, I mean, the Basel process looks to be stalling, the Swedish regulator doesn’t want to do any more, so what else do you need to start buying back stock? Thanks.

Anders Karlsson Okay. Thank you for asking the question. I was expecting the NII sensitivity to be coming, so thank you very much. I think you could say that the fact book figures, first of all they are static, and there are a number of assumptions in them, but they give you a fair view of what will typically happen. What it does not capture, though, is the fact that it is a 100 basis point increase and you asked about 50 basis points. And there is a non-linear relationship. But just to try[?] to make it simple, if you take out the mortgage portfolio, which is administered – administered in a set rate, and you take out the deposits – they are equal in size – the remaining part of the balance sheet will give an approximate P&L effect of around zero at the 50 basis points hike of rates.

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This is partly due to the fact that we have floored corporate loans that will not start yielding until you go above zero. So it gives you a fair picture, but I would again remind you of the non-linearity in that.

Omar KeenanCan I just double check that point? So for the group, if we go from minus 50bps to zero, then there’s no sensitivity to that?

Anders Karlsson What I said is that if you take out the administratively set rates, which is the mortgage portfolio and the deposits, that’s correct under the current situation in the balance sheet. But as you are aware of, it’s in the part that I just took away that the repricing has been going on, so the question, then, is coming back to competition and the price sensitivity or elasticity of the customers in the mortgage market and in the savings markets, respectively.

Omar KeenanOkay. And in the mortgage and deposit book, if all else equal, if minus 50 goes to zero – if LIBOR goes from minus 50 to zero, how do you think that will behave?

Gregori KaramouzisIt’s Gregori here, Omar. That is really up to you to do different scenarios on, but if you use the table and the sensitivity analysis that we have in the fact book, that makes some assumptions about elasticity on deposits, on savings accounts and transactions accounts. It also assumes that the mortgage rates will have an equivalent increase of the 50 basis points that you take as an example. So that gives you a sensitivity already there, but it’s really your assumptions to make as to what actually the behaviour will be in the market towards customers. To Anders’ point, since the relationship is not linear for the first 50 basis points up to the zero percentage of market rates, the sensitivity of 100 basis points overestimates the first move upwards in the interest rates. Then – but then it becomes relevant again if rates were to move higher than 50 basis points.

Omar KeenanGot it. And then if we go from, say – we’re jumping three, five steps ahead, maybe, here. If we go from zero to 50, then that would be two billion by pro rata with the four billion, is that fair?

Gregori KaramouzisIt wouldn’t, because the – then what you’re doing then is you’re using 100 basis points which is around four billion, and then you’re using a linear assumption. It would be less than 2 billion for the first 50 basis points under the scenarios that we have.

Omar KeenanAh, yeah, for the first 50 basis points, and then the second 50 basis points, it’s two billion.

Gregori KaramouzisYeah, or more, even.

Omar KeenanOr more. Okay, got it. Great, that’s clear. And then the buybacks?

Anders Karlsson Yeah, yeah. I would gladly come back on that one, maybe, but if that possibility occurs. To remind you, first of all, the volatility has been quite high in 2016. That, we need the management buffer for. Secondly, again, if you convert the 300 basis points to absolute amounts, it’s not a huge amount of money we’re talking about. And thirdly, I would like to remind you that this is a year-end situation, and I would like to see what happens going into the year before, to see if 25 stays at 25.

Omar KeenanI mean maybe it’s not excess capital, but I mean, what’s stopping from distributing 100% of earnings, for example? Not talking about re-levering the bank, we’re talking about distributing 100% of earnings going forward.

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Anders Karlsson I’m coming back to what I’ve said. We have a certain – we have a management buffer. The reason for having that management buffer is to protect the dividends at the current level. With the dividend at the current level and the underlying volatility that we have seen over the quarters in our capital position, we are saving that money to be able to grow our loan portfolio going forward, being relevant for our customers. So I don’t think that I will use the management buffer for your – as your proposal. I think the way we do it and manage it today is prudent at this point.

Omar KeenanYeah, great. I mean, ROE is very good, so certainly growth is better. Thanks.

Anders KarlssonYou’re welcome. Thank you.

OperatorThank you. Our next question comes from the line of Peter Kessiakoff from SEB. Please go ahead, your line is now open.

Peter KessiakoffYes, hi. Peter Kessiakoff here from SEB. First off, a question on cost. Your cost guidance for 2017 was raised partly due to the increase in mortgage expansion, which means that your compensation to the savings bank increased. With increase in front book margins that we’ve seen recently and that I’m taking them – increased in list price recently made into account, does that mean that there is any risk of your cost guidance, and what margin expansion do you have in your cost guidance when taking the compensation to savings banks into account? I think that’s my first question.

Anders KarlssonThank you, Peter. You know, first of all, I will not go digging through the commercial agreement we have with the savings banks. And if we reprice our mortgage book, it’s very positive for NII, in that case. So I don’t think it is an issue that should trouble either you or me that much, actually.

Peter KessiakoffOkay. Then my second question is relating to the asset management side where looking at inflows and removing the inflows from PPM and you continue to see outflows, and I think that you’ve addressed before that this is an area that you want to improve. Are there any initiatives that you would be launching during, say, first half of 2017 where you aim to improve your inflows trend? Is there anything that we should be expecting on that area?

Birgitte BonnesenWhen you look at the rate and what you see is institutional outflow that we’ve seen this quarter, and it’s primarily from everything that is linked to fixed income funds. But we have many initiatives on-going and we’re building a – or are starting up a transfer factory pensions and we initiated that last year and now we’re rolling it out. We’ve also recruited almost 20 advisors that will be covering Sweden as a whole and supporting our client executives out there with competence as they approach both corporate, but also institutions on the asset management side.

We – and then we are rolling out a number of new enablers in the digital space, and one of them will be robo-advice. We think that that is a good complement to the rest of the setup. We also know that we have recruited a new CEO of Robur, and she will start in a month. So there are lots of different initiatives. Just the fact that we’ve consolidated everything around savings and Swedbank into one area, that, I think, has helped hugely. So I’m very optimistic about savings.

Peter KessiakoffOkay. Then just one last question, and that relates to credit risk or asset quality. And that, you know, Sweden has seen reversals – and Swedish banking has seen reversals in Q4 and Q2 and loan losses have been zero for 2016, do you have any comments on what the underlying kind of loan loss ratio is, then what you expect for 2017?

Helo MeigasThat of course is when you – kind of when you end up at zero, there is multiple movements behind that. There are some credit impairments and then there are recoveries. And we expect the same dynamics also for next year. We have a very good

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underlying credit quality. But of course, if we don’t have any credit impairments, then that means we are not taking any risk at all, and that’s not the business that we are in. We are about lending money to our customers. But if the credit quality in Sweden stays strong.

Peter KessiakoffBut on that – you say that you expect the same trend in 2017. Does that mean that you expect largely zero loan losses, so some reversals?

Birgitte BonnesenNo. I mean, it’s – it really depends on how individual cases evolve. So no, it’s not – zero is definitely a very good result, so there always should be some credit losses also at low levels.

Peter KessiakoffOkay. Thank you very much.

OperatorThank you. Our next question comes from the line of Andreas Håkansson from Exane. Please go ahead. Your line is now open.

Andreas HåkanssonYes, hi, it’s Andreas here. We’ve gone through most of the NII, but let me just ask – we saw STIBOR fall quite significantly during 2016. Could you tell us, how big was the negative impact from that move?

Andreas KarlssonNo, I can’t really.

Andreas HåkanssonNot ballpark, even? I mean, we’re talking about more than 1 billion, I will assume, or...?

Gregori KaramouzisYou mean specifically on deposits, Andreas?

Andreas HåkanssonI mean, yeah, deposits and equity, where you take the hit when rates have been falling.

Gregori KaramouzisYeah. I mean, we’ve talked previously about the move from the point where you actually saw STIBOR falling. That has meant around, you know, a little bit more than 3 billion of LC&I loss, you could say, on the deposit side. So that’s what we have communicated. So you can look at how STIBOR has moved during the respective last two years and then you can use that as an approximation.

Andreas HåkanssonOkay, that’s fine. Then, Andreas, we have been talking about NSFR for a couple of quarters and it went down. And now, it’s up to 108 again, and you said quite many times that you’re actually quite comfortable running down to 103, 104 maybe. And that’s quite a meaningful impact. What was the driver? Was it 81 in the quarter? What happened? Why would – did we move up again?

Andreas KarlssonYeah, it’s a good question, Andreas. Last quarter, you know, it was technical with a cliff effect coming in. In this quarter, we prefunded ourselves a bit for the real large maturities in this year coming in. So we still have the ambition to be lower than that. But you will probably see a fairly high NSFR. And then we had loan volumes going down a bit in the quarter as well, on the corporate side. So you might see higher NSFR for the first half of the year, but the ambition is not to run at 108.

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Andreas HåkanssonExcellent. And then a final question. On capital, I understand that there’s uncertainty on Basel IV and I appreciate that you take that into account, but – and we also hear all kinds of news. But let’s say that if it comes out that Basel IV will not be implemented – just as one scenario – would you then directly be able to say that, okay, now, we consider ourselves to be over-capitalised?

Andreas KarlssonI think it is a wonderful question, Andreas. I’m really looking forward to the news when that – and then I will refer to you immediately.

Andreas HåkanssonOkay. Sounds like we can talk about that over lunch as well, then.

Andreas KarlssonAbsolutely.

Andreas HåkanssonThanks. That’s it.

OperatorThank you. Our next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead. Your line is now open.

Riccardo RovereYes, good morning to everybody and thanks for taking the questions. Three questions from my side, if I may. The first one is again on the, say, inverted commons buyback. My interpretation of what you say is that you will continue to say you have no excess capital and you will continue to act accordingly as long as you don’t have clarity on Basel IV regardless the CET1 getting to 26, 27, 28, or whatever the number. Is this is a fair interpretation of what do you have stated so far? This is my first question.

The second question I have is, I understand the sensitivity to the – that you provide on the fact book on the movement on STIBOR and so on. But STIBOR – let’s assume STIBOR does not move. Let’s assume the yield curve moves only in the longer part. Is there any sensitivity on your assets and liability to a movement only in the long part of the yield curve?

And the third question I have is, with regard to the repricing of the corporate book, is it fair to say that the repricing you experienced on the mortgage book cannot be replicated on the corporate book in an equal way? Thanks.

Anders KarlssonThank you, Ricardo. I would try to answer those. On your first question, it can be answered yes. On the second question, not significant. And on the third question, there is a difference in – there are two differences, you could say, of major importance when it comes to comparing the mortgage lending with the corporate lending. The first one is that the mortgage book is not relating to any reference rate like STIBOR or EURIBOR or anything. In Sweden, it is an administratively set rate, which is not the case in the corporate book. That’s more IBOR-related.

And secondly, the corporate book has a slightly different duration than the mortgage portfolio. So it takes longer time to reprice because you have a duration around, I would say, two-and-a-half to three years on that. So that is the answer to your third question.

Ricardo RoverePerfect. Very, very, very clear. Thank you very much.

OperatorThank you. Our next question comes from the line of Jens Hallén from Carnegie. Please go ahead. Your line is now open.

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Jens HallénOh, thank you very much, and good morning. I have three questions. You, of course, talked a lot about the regulatory uncertainty. And what is it about your thinking and assumptions behind some of the new initiatives? For example, MREL – have you made any calculations and assumptions for, you know, having to issue [inaudible] a new class of debt and what kind of cost implications that would have for you?

Secondly, a little bit on capital. We’ve been over this a few times, I think, but what kind of assumptions are you building in to saying you have no excess capital in terms of new output floors, etc.? I have yet to get your feeling on that.

And then finally on volume, so you say you want to grow as – in line with 2016 and also that you’re having to step away from some transactions because your risk return metrics are not met. I think we have heard from one of your competitors that they want to continue to grow quite rapidly in 2017. Do you see that will – that you’ll have to change your hurdle rates or that you will have to accept lower margins in 2017? Those are my three questions. Thank you.

Gregori KaramouzisThank you. So it’s Gregori here. I’ll take the first one about MREL. As you know, we’re still waiting a clarification from the Swedish National Debt Office as to how they intend to implement the directive in Sweden. And as you also know, there are discussions still going on at the EU level trying to harmonise the classification of these different instruments. So that is the first step.

If we then assume at some point during this year that we will have the clarity, then for us looking at our balance sheet and the funding structure that we have, we’re not – relatively not a significant senior funding need in terms of cost or once we start issuing these new types of instruments. You wouldn’t expect a huge a difference between the preferred and the non-preferred senior instruments, especially down the line the price should be – the price difference should be smaller as we are probably going to be issuing a much more of the non-preferred senior instruments and making up the requirements – or meeting the requirements that we will be having imposed on us from the regulator.

So I think it could – you know, probably, we’re not going to issue something 2017, but it would probably, you know, depend on where we get the final clarification from the regulator.

Jens HallénOkay. Makes sense. Thank you.

Anders KarlssonAnd on the Basel IV and the output floors, I think that there are a couple of outstanding issues. You could say that as a general remark, the Nordic banks will be mostly affected by this to a different extent. In our case, depending on the level of the output floors. I think it is really difficult to say. The one unknown other than exactly what the Basel committee will propose and how EU will act is what the FSA will do on the other side of the equation, which is the minimum requirements where they have a number of buffers in today that we do not know exactly how they will handle under a possible new regime. So it’s a bit of too much uncertainty out there still to give any guidance on it.

Jens HallénOkay. Thank you. It was a worth a shot. Thanks.

Birgitte BonnesenAnd, of course, you had the last question, which was on growth. We’ll stick to the around 5% growth that we had this year. That will – or 2016, that we’ll continue in 2017.

Jens HallénOkay. Right. Thank you.

OperatorThank you. Our next question comes from the line of Jacob Kruse from Autonomous. Please go ahead, your line is now open.

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Jacob KruseHi. Thank you. Jacob from Autonomous. Just two quick questions. Firstly, IFRS 9, do you have any indication of roughly what that might do to your provisioning needs when implemented? And secondly, just to see if you had any comments on the articles yesterday discussing the risk of an FSA fine related to previous property deals. Yes, those will be my two questions. Thank you.

Anders KarlssonOkay. On the IFRS 9, we have indicated to you around 42 basis points. And that’s the best estimate we have as we speak. We will definitely come back as soon as we have more sort of precision in that calculation.

Birgitte BonnesenGo on. On the FSA investigation, we got sort of an inquiry from them, we sent back out a comment. I think that the fine that you mentioned in the Swedish media is far from what we think is – think it’s completely unrealistic. But we’re waiting for the FSA to come to us and we don’t know when that will be.

Jacob KruseOkay. Thank you very much.

OperatorThank you. And as there appear to be no further questions, I return the conference to you.

Gregori KaramouzisThank you, and everyone, for participating and asking questions. So we’ll see some of you later at the lunch today or tomorrow in London. Thank you.

OperatorThank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.

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