Good day, and welcome to the Q3 2016 Nordea Bank AB international telephone conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodney Alfvén. Please go ahead, sir.
Thank you, operator, and thank you all of you for calling in for this telephone conference. We will start with a very brief introduction of our Group COO, Torsten Hagen Jørgensen, and then that will be followed by Q&A, so you can please start to prepare for that already now. Also in the room here, we have Ari Kaperi, who is our Chief Risk Officer. Torsten, please.
Thank you. I will do it short, just a few comments to the highlights as outlined in the investor presentation. We saw pretty strong income, and as we have discussed earlier, we were looking forward to see some kind of improvement in trend on the NII, and I think we saw exactly that. So an improvement in NII from Q2, and we are looking into a continued improvement in NII. We are also happy to see that one of the fee type of incomes that we have built a lot of trust in, the corporate advisory services type of fees, are continuing to showing a very strong trend. Remembering that's an important part of our corporate strategy and our corporate selection and deselection strategy. So attribute to the capabilities we're building.
The same goes for the asset management numbers with an all-time high inflow of EUR 9.6 billion or equivalent to a 13% annualized inflow, which is, of course, is an extraordinary level. Even excluding some of the strongest performing type of funds, we are still at very strong and stable inflow levels. So I think a very solid income result, even if we look aside from the fair value, which is also actually showing good stable development. Costs are also stable or even slightly down in reported numbers. We are reiterating our guidance despite the fact that we are reporting a one-off in Q4, and the reason being that we see a chance to go directly for global standards when it comes to compliance and resilience, and that means an expansion of the original scope.
We are increasing and accelerating spend to become compliant and resilient in 2016 and into 2017. However, it is important for us to reiterate that we do continue to expect a flat cost 2018 versus 2016, i.e., we will, during 2017, build and accelerate efforts to reduce costs from 2017 to 2018. We also continue to see very strong credit quality, individual loan losses at the lowest level, I think, in five years, when we adjust for the fact that we have taken out Baltic exposures. We also see impaired loans coming down basically in most dimensions, excluding Norway. Very good underlying credit quality. Then, of course, on the back of the final SREP and the release we gave earlier on a level of 17.3% plus a minimum buffer of 50 basis points. We are very happy to report that we came in on a quarter one level of 17.9%, i.e.,
an improvement since the 17.2% pro forma of 70 basis points. Final, but not least, we are happy to see how we are progressing on our business and cultural transformational journey, very much supported by bringing in world-class expertise, helping us driving this in a good well-orchestrated and efficient way to, as I said, both global standards, but also helping us directing the many resources and efforts we put into the journey. With that, I would conclude the introduction and the floor for our Q&A.
Thank you, Torsten. Operator, if you please could open up for Q&A. We are happy to take all kinds of questions.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question, please press star one. We can now take our first question from Daniel Toy from JP Morgan. Please go ahead. Your line is open.
Hi. Good afternoon. Daniel Toy, JP Morgan. Could I just ask two questions on capital, please? The first one is just to confirm something you mentioned in the press conference. You mentioned risk-weighted assets to be flat out to 2018. Just wanted to confirm whether that's flat from current levels, so the EUR 136 billion, and also whether that includes the increase in corporate risk weights once your models are approved. Secondly, you also spoke about the closing of a capital hedge in Norway. Can you just elaborate a little bit on this in terms of how much this freed up in terms of risk-weighted assets in the quarter, and also what kind of volatility we should expect to see going forward in CET1? The sensitivity to NOK movement would be really helpful here. Thank you.
Yes. I think we said that based on current level of REA, we have a pretty flattish outlook looking ahead. This is based on, you can say before any regulatory or model changes. If we, for example, get approval of implementing the risk weight elements, then that will not be included. Of course, the pending Basel proposals, however they will be implemented. The kind of calibrations that probably will go on for the next couple of years on taking down Pillar 2 and replace it with Pillar 1 is not included in this forecast. This is a forecast that builds on our very moderate volume forecast, including the business deselection strategy we are operating with. Hopefully that clarifies the first question.
On the second one, we have historically been born with a, you can say, a unhedged NOK position that was not is our REA, you can say, on the capital side, and that we have been hedging up until recently. We have been awaiting getting the exemption that you are, or at least you can seek according to APA rules, you can seek that, and we have not been given it. As part of our capital, you can say remediation efforts, we have decided to close that hedge and find somewhat other ways of mitigating the volatility. We might see or do see currently slightly higher NOK related quarter one volatility as we only have a part hedge on our NOK position. I hope that was answered to your question.
Any kind of sensitivity you could give? For example, a 10% movement in NOK?
I don't think we will give that because we are looking into ways to, even though we have taken away this hedge and that gives everything else equal a higher volatility, we are seeking other ways to reduce it somewhat. What I can say is that I think we have shown historically that our overall quarter one volatility is in the range of 20, 25 basis points, and we do expect that to increase somewhat, partly due to this, but more actually due to all the XVAs we have. I think we should expect a slightly higher quarter one volatility than the 20, 25 basis point level going forward.
Okay. Can I also just follow up, because I think you mentioned also that, or Casper mentioned there was an ambition to get the management buffer closer to the middle of the range pay to about 100 basis points. Can I just ask what kind of timeframe that you're looking at here in terms of achieving that? Thank you.
Yeah, I think he is alluding to the fact that we have basically already when we introduced the 50 to 150 basis points when we were asked, we were saying that the target shown what was in the level of 75 to 100 basis points. Then of course, based on the environment you are in, you can kind of deviate somewhat. That has been and is still the target area. Then of course, we have had a situation with, you can say somewhat a moving target on the capital requirements, and we do look into slightly higher quarter one volatility. We will seek to get into this target area. I will not give any specific timing on it, but that's a clear ambition to get into that area.
Okay. With regards to the full year dividend, it's the 50 basis points that we should be focused on.
I don't think we can comment much closer. As you know, we will now await the result of Q4, and then we will decide in January. I don't think you should expect to hear much more specific on dividend before that.
Okay. Understood. Thank you very much.
We can now take our next question from Jan Wolter from Credit Suisse. Please go ahead. Your line is open.
Hi, Jan Wolter here, Credit Suisse. Thanks for taking my question. First on the cost side there, on the cost progression, I think the company guided previously for below 1% CAGR 2016 to 2018. Do we now expect cost growth to be above 1% in 2017 and then possibly see a sharper fall 2018? Is that the way we should look at it when we try to see the cost growth year-over-year in 2017 and 2018, please?
Yeah, I think it's a pretty fair assessment. I think however, just to be clear, and this is not a change of guidance, but I think we have said a CAGR of 1%.
Okay.
You phrase it as below. I think we have never said that, but I think we have unchanged 2018 guidance. You can say, you are right in your assessment on above one maybe in 2017, and then a sharper decrease from 2017 to 2018, which I think we have guided somewhat for already last quarter. I think that has not materially changed. If anything, yes, in that direction.
Okay, thank you. On the life insurance company, Nordea upstreamed I think EUR 400 million here in the quarter. Is it fair to say that the current solvency level of the dividend 155% or so, is that what Nordea is aiming for? The excess capital then over that level would be upstreamed as dividend to Nordea AB?
Yeah. First of all, the current solvency ratio is 157%, and that's very much in the upper end of the range we have said of 140%-160%. I think two dimensions are important. First of all, I think we continue to see very strong profit growth in our life operations. Secondly, I think also we work very well with capital optimization and volatility handling and Solvency II, ratio volatility management. We are, of course, expecting to see continued good underlying growth in the solvency ratio. If anything, a reduced volatility, which should give us possibility to maneuver and be flexible within the 140%-160% range.
Thank you. Final question from my side. If we just look in principle at Nordea being domiciled in another European member state, just conceptually, would that mean the Nordic regulators have no or very little saying around the capitalization of each branch in Nordea? Or how do you see that situation in principle? How would the, in your view, Nordic regulators act if the company were to be domiciled outside Sweden? Thank you.
It's an interesting question, I will try to answer it in a slightly different way. We have a pretty well-functioning college as of today, which includes Nordic regulators and ECB. Our clear expectation is that that college will continue to work more or less the same way also after branchification. We expect to hear more about how they will make that work. You can say we already have a pretty well-established model for a supervisory college containing Nordic and European supervisors.
Okay. Many thanks. Very clear.
We can now take our next question from Anton Khrebtchouk from UBS. Please go ahead. Your line is open.
Good afternoon, thank you for taking my questions. Just two questions, please. The first one on costs. If the Swedish payroll tax comes in from 2018 in the region of, let's say, EUR 40 million-EUR 50 million, do you think you will be able to mitigate this within your existing cost guidance for 2018, which is flat versus 2016, please? The second question, more of a follow-up on the comments you've made around net interest income outlook for next year during the press conference. You sounded pretty optimistic on the margin side, but less so on volumes. I just wanted to get your thinking and probably more color around how you expect volume developments to play out in 2017 and how much volume shrinkage you expect to get from the selection of clients, et cetera.
Whether you think volumes in absolute terms still go up next year. Thank you so much.
Thank you. Yeah, I think as we said on the payroll tax in Sweden the good thing is that it's now clear that is for Sweden payroll only. The uncertainty is on the level, you can say. There is a range discussed, and I think it's slightly premature to discuss whether or not that will lead to a change of guidance. I think I will refrain from speculating more on that one for now at least. We will be back, of course, when we know more. On the NII outlook, you are right. I feel relatively, maybe not optimistic, but I feel very confident that we will continue to see an improvement in 2017. You're also right in your assessment that I think if anything, we are slightly more concerned about the volume. We have been pretty concerned for a while.
I think if anything, we will see mortgage growth coming slightly down. Not materially, but slightly down compared to the growth we have seen. I think we will continue, and in certain areas you can say accelerate deselection by repricing initiatives and by this active selection of SMB customers. As there is very little market demand especially on the corporate side, that leads us to this assessment that the volume effect if 2017, if anything, might be slightly lower than we thought before. The combination would still mean that we expect NII to improve 2017 over 2016.
I'm sorry. When you say that it is slightly lower than you thought before, it's still in a positive territory, right? In absolute terms.
Yeah. I think it will be a net positive, but a low number, a very low number. Of course, as we have seen, we will continue to see, even if the mortgage growth might come slightly down, you will of course continue to have the mix effect also in 2017 is our best guess.
Thank you. That's very clear.
We can now take our next question from Omar Keenan from Deutsche Bank. Please go ahead. Your line is open.
Good afternoon. Thank you very much for taking the question. I had some revenue questions, if that's okay. Firstly, on net interest income. I was wondering if we could have an update on your lending repricing measures and how you're managing for the current interest rate environment. Understand we have Danish mortgages coming next quarter, but if you could just give us a brief update of what's happened in Finland, which seems to be better, and Denmark, I think, which was worse. Norway, I think there was some perhaps jumping of the gun with mortgage rate pricing. Could you give us some color on how that's going to be fixed? My second question was on trading. I guess it was quite a good trading quarter for Q3.
What kind of things do you want or what kind of trading backdrop do you want in Q4 to maintain that EUR 400 million a quarter level? Thank you.
You are right that we have a number of repricing measures ongoing, and I think that you were alluding to the Danish one on mortgages, I think is well known. If we just stay on the mortgage side for a moment, it's true that we, in Norway, have increased margins with around 10 basis points on mortgages. I think there is a limit to how much more can be done in Sweden and in Finland. If you stay on the household side, we have introduced, first in Finland, deposit account fees, and we will use that as a pilot to see how customers react. Potentially the financial impact can be quite substantial, but of course, it all depends on the sensitivity of this among our customers.
If that is successful, we might do more of these kinds of measures, which of course will not show up under NII, but on fees. On the corporate side, it's a more, you can say, as we have said, a more bottom-up approach. We will look for all kinds of opportunities to use repricing, whether or not it is charging negative rates or it is expanding lending margins to drive the deselection that is ongoing. I hope that gave some additional flavor for now on the NII side and on the repricing side. On trading, I don't think I have that much to add. I think we have demonstrated and have conveyed in this quarter that we feel that we have quite a stable net fair value line with a lot of stable customer business being the core.
We have had some, you can call it type of one-off positive effect pertaining to treasury on listed position type of revaluation of total of around EUR 70 million. That, of course, might not be repeated. The underlying looks stable. I think that is what we can say for that.
Okay, thanks. Could I just follow up on the NII? I guess the piece of the puzzle that has been left out is the wholesale bank, which has been a bit of meaningful NII headwind compared to the previous year and also last quarter. I understand some of that has been Russia, what can be done to improve the NII performance in wholesale banking?
I think actually in many of the core markets, we are seeing a slight improvement on margins. We have Russia, which much higher margins than in the Nordic. You have a mix effect from the development in Russia. Actually on the Nordic level, it's stable to slightly improving margins on the CIB side.
What you saw in this quarter also in wholesale banking was that the repo lending was seasonally lower. You have less activity during the summer months, so therefore it's a seasonally lower repo lending. In CIB, we reduced our exposure to Danish corporate mortgages for pricing reasons. It didn't meet our expectations there. As Torsten says, the margin is stable, and the business is stable as well, so it's not anything wrong.
Okay, great. Thank you very much.
I will now take our next question from Matti Aho from Danske Bank. Please go ahead. Your line is open.
Yes, good afternoon. Matti Aho, Danske Bank here. Two questions. Firstly, together with the Q2 report, Torsten, in the conference call mentioned that there's a number of internal measures or levers that you could do to boost the CET1 ratio. Obviously, it looks now like the market risk has clearly been one and then the life dividend. Should we expect that you could use more of these in the future, or are there potentially further other things that you could use to boost up the CET1 ratio if needed? The second question is regarding the SREP requirement. I think you have the 20 basis point charge due to the branchification project. How likely, or is it possible that this charge might be reversed in 2017?
Yeah, you are right that we have pulled some of the levers I was alluding to in connection with Q2, and we are constantly looking for, you can say, more measures to enhance profitability, of which some will also mean an improvement in CET1. I think that giving us some time, we will find more measures. We constantly work on that at least. I don't think we can be much more specific. Just, yes, I think there are more to be done, more type of optimization transactions to be looked into, and we are doing that as we speak. I don't think we can come much closer on timing. On SREP, you are right. That is a 20 basis points add-on, operational risk add-on, related to the branchification project.
Yeah, I think you're also right that this is an obvious add-on for us to address, not necessarily awaiting the SREP for 2017, as we're trying to, you can say, decompose the 20 basis points add-on into the different milestones in the branchification project. You can say that we are hitting a number of milestones by end of year, and we will, of course, argue that is thereby also reducing significantly operational risk pertaining to the project. Of course, I'm very careful not guaranteeing anything, and this will, of course, have to involve the dialogue with the FSA. This is an obvious area for us to look into, yes, and potentially it could have an impact in 2017.
Great. That was very clear.
We can now take our next question from Willis Palermo from Goldman Sachs. Please go ahead. Your line is open.
Hi. Good morning. Thanks for taking my question. I have three. The first one is on fees. The net new money was very strong this quarter, and I was wondering if you could help me to understand what would be the sustainability of the level of net new money that you think would be achievable going forward. Also to what extent both the strong AUM performance and flows will translate into additional fees in the coming quarter. The second question is on asset quality. I understood the guidance for this year of 16 basis points of loan loss provision, and I was wondering if you could give me a guidance for next year in terms of where you stand in your discussion with companies and restructuring. If you think the end will come in the next quarter or if it will go through 2017 in full as well.
The last one is related to the question you just answered on the add-on in capital. I was hoping if you could remind me what are the other add-ons that you currently have in your capital, and also where you stand in term of closing the gap of compliance that you mentioned in the report, if this is coming soon, and if it's related as well to the removal of the other add-on that you carry currently. Thanks.
Yeah. If I start with the fees, I think actually that the outlook is relatively stable. If we start with maybe the most significant one, i.e., the savings and investment related or asset management related fees, then of course, the very significant increase we have had in inflow and AUM over the last couple of quarters will translate into higher income in the next couple of quarters. I think even if we assume that the very strong performing funds that we have done a soft closure on, even if they will mean a reduction of inflow, I still think that we are seeing a underlying inflow in the level of six, seven percent. I think also we have good performance. That all looks pretty stable and we should expect more.
I think also we do see continued evidence of our strength within the corporate advisory business. We are winning many mandates. We are doing a lot of good business. Of course, I think we have seen some of the negative effects from the merchant acquiring deal we did last year and the subdued card and lending fee type of growth, and whether or not that will translate into 2017, but at least it's from a lower level. I would say in general, I think the fee outlook is pretty solid from where we are now. If I then just take the capital one and leaving this quality to Ari. Yeah, we have quite a number of add-ons. One of the more significant ones, or we have two that actually pertain to the decision last year on governance.
One is a specific governance add-on of more than 80 basis points. You are right that many of the efforts we're doing currently in stepping up to actually not only meeting local but also global standards, hopefully will translate into that we eventually can take away this governance add-on. However, I don't think we should expect that to happen in 2017. I think that the regulators or the supervisors will want to see implementation, and they want to have a good due time to follow up, inspect, and make new conclusions before we can see any relief there. We have one other add-on that relates to the fact that we, as part of this governance add-on, we were also asked to reverse a provision effect we had. We have been allowed to do originally a provisioning initiative with an effect of, I think, around 30, 35 basis points.
That will also be, as we are allowed to now do all kind of applications. We will, of course, also seek to argue that this add-on could be discussed. Whether or not that is realistic in 2017 or 2018, I don't dare judging, but at least we will try. You can say the operational risk add-on on LSP of 20 and the provision add-on of around 35 is absolutely something we have in scope for you can say, shorter term discussions with our FSAs.
If I then continue on this asset quality or credit loss outlook for Q4 2017. First of all, I think that you're right while saying that it looks like that within 2016 we will end up within these 16 basis points, which is the guidance we have given, so that now it looks quite likely that will be the outcome. We will be within. When it comes to 2017, one-year guidance, it's something I can't give you because one year is such a long period of time, and as we all know, these type of issues are so dependent also what is happening in external marketplace, and I don't think that it's meaningful to start to give very specific guidance.
What I can say that the way we have guided also previously is that the outlook for the coming quarters when we are talking about visibility we have for one to two coming quarters looks that we will also be within the 16 basis points, meaning in the beginning of next year. That would be as far as I can go right now, because then it's too uncertain to see what could happen in the second half or perhaps even in the second quarter of next year. Of course, now as you have seen that we have started to increase collective provisions to provide for this kind of uncertainty and higher risk in our offshore and oil-related portfolios. That is, of course, one issue which we will continue to do if this difficult situation continues in those segments.
Before we are able to start to release something if these individual provisions are not materializing, then we have to take time and be also cautious in that way so that because these impacts are quite long-term for this oil and offshore type of businesses.
Yeah, thanks. That's helpful. If I can just continue on that point, could you maybe give me a sense of the number of client that you think about could still see difficulties coming on? Are we talking about less than half a quarter? Also the magnitude, do you think about some large ticket to be in trouble or some multiple small ticket coming in the next year?
Yeah, we are talking about this oil and offshore segment. What we expected to happen this year was that I think that we discussed in the beginning of the year that towards the end of the year, during the second half, we may start to see this kind of individual defaults in these portfolios if the market is not improving. Actually, that has not happened so far. Currently, for example, in Q3, we had only one this kind of individual loss case in offshore portfolio. Earlier we have had two individual cases in this oil and gas and oil services portfolio, so that we are not yet seeing any kind of individual provisions. That is exactly also the reason that because we still feel that the risk is there, it's just about the timing when they start to materialize.
That is the background for these collective provisions we now added because situation has not improved. Especially if we start to see difficulties in these drilling companies, they are quite large individual clients. We don't have so many of those. We are dealing with best ones, and that means that they are relatively big individual exposures. That is, of course, the risk we are now providing for, so that if there would be in the coming quarters one or two of these kind of bigger defaults in that portfolio, then it is prudent to start to prepare for that. I don't know whether they will come and what would be the magnitude, but of course, these are the levels we think that we could see on a quarterly level individual losses if they start to hit. There are not so many companies what we are talking about.
Of course, every single one of those companies are now going through some kind of restructuring process and these are quite these type of sensitive issues, so that either we have a successful restructuring or then we don't have a successful restructuring. In the latter case, there is individual impairment there and a loss. So far, all of those restructuring cases we have had in our portfolio, they have been successful. There are still a few cases which are pending where we don't have this kind of completion yet, and then you never know how they end up. We are not talking about many customers in terms of numbers. With these collective provisions we are now building up, and it's very likely that we will continue to do that in Q4 unless there start to be these kind of individual losses.
I think that.
We don't see any kind of pick-ups in the quarter losses in the coming quarters.
Thank you very much for the explanation.
We can now take our next question from Yafei Tian from Citi. Please go ahead. Your line is open.
Thank you. It's Yafei from Citi. I have a few questions. The first is on net interest income. I'd like to understand what is the potential impact from the higher resolution fee for 2017 on net interest income, and to what extent are you able to offset this impact with repricing? Secondly, along that line is when I look at the net interest income for this quarter, mainly it's because of a lower volume in wholesale banking, and I know there are a lot of efficiencies in the wholesale banking sector. I was thinking, going forward, how should we think about volume progression in wholesale banking in light of the Russia situation, and also when you try to be selective in the client. Lastly, a specific question on the Denmark net interest income.
How much additional net interest income do you expect to come from mortgage repricing in Denmark? Thank you.
I think that we expect to see the increase in the resolution and deposit guarantee fees. The increase will be in the magnitude of EUR 90 million, 2017 over 2016, and that will hit NII, of course. Of course, you can say that the mitigation efforts have started and have been accelerated far before this is hitting us. Of course, we have known for a while that this would happen, so you can say it's already embedded in all the repricing efforts we are doing. As we are also saying, of course, we are starting to charge now type of customers, whether or not it's charging deposits or it's charging household customers deposit account fees and so on. We need to move with some kind of piloting and testing on customer behavior. Of course, there's a limit to high degree of sensitivity.
Of course, the good thing about resolution fees is that it hits everyone. Of course, we can expect that ultimately this kind of a business model will have to be transferred to customers one way or another. That is, of course, a material effect that has been known and been planned for, you can say. In our Q3, the volume effects in the underlying, if you exclude repos and derivative movements, which is hard to have any view on, then you can say the underlying development in wholesale banking is that we want to see a controlled reduction of volume in Russia. Now, in Q3, we did see a somewhat faster reduction in volumes in Russia than we had expected. We are welcoming it from a risk perspective, but of course, NII wise, it is costly as margins are pretty high in Russia.
We will continue to reduce volumes in Russia. I think that in many ways in CIB and in shipping, we more or less have the portfolio we want. These customers that we now have that we like to have, if they have a need for more credit, then we will grant them that. We don't see a material need for now. The expectations there are also moderate. Of course, I think my point is much of the deselection has been done in wholesale banking. If there is an increased demand, then we will meet it.
Finally, I think we have said that the effect of the market repricing in Denmark would have an annualized effect of EUR 25 million. I think that number probably is coming somewhat down due to the fact that customers are moving into longer maturities, which was also how the repricing was designed. You can say that it was incentivizing customers to seek longer maturities.
Thank you for that. Can I just ask another question on the cost side? Norway has implemented a payroll tax, I think starting from 2017. Do you mind also giving us guidance what is the impact from the Norway payroll tax?
Yeah. I think our initial estimation is in the level of EUR 10 million-EUR 15 million in additional cost pertaining to the Norwegian payroll tax.
If I may, when it comes to taxes, given that we will have then also a higher tax in Sweden, our guidance for the tax for 2017 is slightly lower than 24%, including all the known changes that we know.
Okay. Thank you.
We can now take our next question from Jeff Dawes from SG. Please go ahead. Your line is open.
Yeah. Hi. Good afternoon. Jeff Dawes here from Soc Gen. I've got two questions. First question is, the largest part of your corporate portfolio is the real estate segment. You saw quite a material drop in non-performing loans quarter-on-quarter in that segment. Can you give us a bit of color on what is driving that, whether it's any specific countries or anything to watch out for there and if that should continue? Second question. Obviously, we're all aware of the ABN situation and the approach that was made. Can you just talk to us generally about how you feel about your footprint in Northern Europe, whether you think Nordea is lacking something, or whether you think there's anything to be done there? Those are the two questions. Thank you.
Yes. The commercial real estate portfolio and the quality of that. It's a big portfolio. We are of course, thereby also following very closely on what is happening there in terms of quality and also volumes and risk levels. We have set clear this type of risk appetite limits for that portfolio. We are well within that risk appetite. I don't foresee any kind of deterioration of the quality as such. There are always, in this type of portfolio, there may be one or two individual cases which are impacting on the numbers because it is such a big portfolio. This quarter, I think that it was coming from Baltics, the impact which will be then, of course, as you know, that not anymore included the Baltic portfolio in our loans and the risks going forward.
That the big core commercial real estate portfolios in Nordic countries, they are very healthy. I don't believe that that will change in the close future.
On the geographical footprint, I think that we have had a strategy of, you can say, we have reduced our presence in Poland. We are looking to reduce or contract our foothold in Russia to be primarily a CIB business. We have done a structural solution in the Baltics. We are keen on cementing and developing our position in the Nordic as the main strategy. As I said, we should look kind of sub-segment by sub-segment. We have areas where we want to further improve our position. It can be related both to private banking, it can be related to certain type of sub-segments where we want to improve our position in the different Nordic markets. That is the current key focus.
Okay. You're open to completely new markets if the opportunity presents itself, new geographies?
I don't know how to phrase it. I will not comment further on the situation. I don't think we can comment much closer. We are always, of course, following what is happening. Our core focus is cementing our position in the Nordic markets.
Clear. Thank you very much.
We can now take our next question from Ed Firth from Macquarie. Please go ahead. Your line is open.
Yes, hi there. I guess it's a similar question to Jeff's. I don't know if you can help me or not, but clearly your chairman was reported reasonably extensively at the weekend saying that the ABN transaction was simply delayed until after the Dutch election, or the discussions were delayed until after the Dutch election, and that we should be thinking about that coming back in in March next year once the election's been clarified, et cetera. I know you don't want to comment, but it seems quite difficult to look at Nordea without looking at what is a pretty monumental transaction, and was certainly a huge surprise to me.
I guess you must surely be able to give us some thinking about what the logic was, what other things you might be looking at, how the transaction might work, all the sort of multiple questions that surely anybody interested in buying Nordea stock would want to have an answer to.
First of all, I think that one of the issues you are referring to is actually, I think he is somewhat misquoted. Now, I'm not Finnish people.
Okay
As far as I have been told by our Chairman, he has been misquoted. He got a question of what would happen after the Dutch election, and he said everything can happen, and he was not trying to say that he would revert to anything. I think that quote has been put in a way that he more or less has said that we will revert to discussions after March, and I think that's something we need to ensure is corrected. I think it's a misunderstanding. I think that has been said. Our CEO have made a statement, and the Chairman have made a statement, and that, I think, is what we will say for now as there is no discussions.
Okay. Sort of conceptually, when you're looking at transactions, which I guess every bank in the world is always looking at transactions, and I guess you must have a team of people who look at them same as everybody else. What is it that you're looking for at the moment that you feel you don't have?
I would answer you in a very different way, but hopefully with some meaning to it.
Yeah.
I think that we have demonstrated the strength of the Nordea idea in especially two business areas. We have shown that in wholesale banking and in wealth, I think we have demonstrated that our size and scale in the Nordic means that we have very strong platforms. From a product and capability perspective, we have built very strong and competitive capabilities and platforms. Actually, we have also been pretty clear that when we talk about that type of corporate advisory business, asset management business, private banking, life et cetera, we do actually have a wish to expand and grow. In that perspective, you can say all kind of good distribution. However you get it could be interesting.
I think also we have been pretty honest and said that when we talk about our retail banking or formerly referred to as our retail banking franchise. We have still more to do to create this strong Nordic platform that would, you can say, allow us to scale up. That is, of course, the ambition we have with the simplification project we are running, and the Core Banking Replacement Program is that it's a four to one transformation, we will operate the four Nordic countries on one Nordic platform that will be far more resilient and far more efficient. That's our strategy.
Okay. That's very helpful. Thanks so much.
We can now take our next question from Christina Keinenberg from Baader Bank. Please go ahead. Your line is open.
Good afternoon. Hi there. My question is when will you publish financial figures for the newly founded Nordea Mortgage Bank Plc and the remaining entity, Nordea Bank Finland Plc? Thank you.
That will be answered by our Head of Debt IR, Mr. Andreas Larsson.
Yes, the new mortgage company in Finland, Nordea Mortgage Bank, that was now registered on the 1st of October. Financial information will be published in the beginning of November. It is expected within some weeks' time. We will publish that on the nordea.com.
Okay, the remaining entity, will there also be figures to be published? Because there was a feature of this bank, Nordea Bank Finland and
Yeah, that is correct. The only new entity that has been created is the Nordea Mortgage Bank, and there we will present new numbers. The other entities, they will keep the same reporting and reporting procedures as before, meaning that Nordea Bank Finland, they reported the half-year report, and they will report the next time in the full-year report for 2016.
Okay.
There will not be any change procedure for instance, Nordea Bank Finland or for any other entities.
Okay, thank you.
We can now take our next question from Riccardo Rovere from Mediobanca. Please go ahead. Your line is open.
Good afternoon to everybody. Couple of questions from my side. You have been talking quite frequently to your regulator over the past few quarters. I am interested in trying to understand what is the reaction of the Swedish FSA when they see that capital ratios actually go up because of a lower denominator and not because of a higher denominator. Numerator, sorry. The other question I have is, let's say, when you look at statistics feed and the amount of mortgages in Sweden keeps going up, real estate prices kind of keep going up. Have the Swedish FSA given up on trying to fight to cool down the real estate prices in Sweden or not? Or is it something that they want still to try to keep under control?
Yeah, if I try to take the first one, we do have a very good and frequent dialogue with the Swedish FSA on everything. We also typically discuss our Q reporting in advance, including our messages, our measures, and so on. There has absolutely been no reaction from Swedish FSA on our capital numbers. I think that it's pretty straightforward what have happened in Q3 on the capital side, including on the REA side. Remembering that the securitization transaction we did earlier was heavily discussed, and we had a very good process with Swedish FSA on that transaction. I think there's no particular discussion with the Swedish FSA on the capital ratio improvements.
If I read you correctly, you were referring to that the capital requirement in terms of ratios going up because of the lower denominator. That's simply the fact that the Swedish regulator has a basis for Pillar 2 requirements. That is, of course, a capital add-on. When the denominator falls, obviously the ratio goes up, but we also see an increased requirement in terms of capital.
This is exactly the point. During the press conference this morning, you stated that you expect your risk-weighted assets to remain kind of flat from here to 2018. I would suppose that somehow volumes will go up, okay? The loan growth is not zero. You are not growing much, but it is not zero. Theoretically, risk-weighted assets should go up.
Please understand what we have been saying on volume expectations. First of all, the majority of growth are coming from mortgages that in Sweden, yes, have a risk weight of 25%, i.e., lower than average, you can say, risk weight. For the other countries, the majority of growth come from mortgages with pretty low risk weight. There is a mix effect bringing down that are not requiring a lot of REA. The deselection strategy very often attacks the lowest-rated corporate customers. The typical flow of corporate customers is high rated in and lower rated out. There is also a mixed effect there. Then there is very limited underlying volume demand in the Nordic, and we for sure are not seeking volume growth. When we say flat, we mean flat, and there is no mystery in the flattest expectation. It is a direct result of our strategy.
I do not think it is a question anymore. We have had very good discussions with Swedish FSA on the REA initiatives we have formerly been running, and now we have made certain measures. What we are doing now is not raising any questions from the Swedish FSA.
I understand this. Sorry, I will stop, I promise. If at system level, we see all Swedish banks reducing risk-weighted assets with growing volumes. From the words you have just stated before, what I understand, you think that the capital requirement is going to go up. Just to understand whether I got it right or not. This is what has been happening over the past three years.
I think that to Rodney's point before, as we have discussed in earlier calls, I think that Sweden and Europe are going to get closer to each other. There is a process leading up to the Basel proposals of increasing the risk weights in Sweden to come closer to the European average. At the same time, of course, paving the way for potentially reducing some of the quite many Pillar 2 add-ons that Nordea and other Swedish banks have compared to European banks. This kind of harmonization exercise is, of course, running in the background. We have also, of course, as a result of the last SREP, of course, we are seeing our corporate risk weight coming up due to the SREP. Now to a level of around 46%, I think, for our corporate risk weights.
It is not so the corporate risk weights are now coming up due to the regulatory measures, I think it's part of this, as I said, the harmonization process.
All right. With regard to the real estate prices, what are your thoughts here?
I can take this one. First of all, of course, we realize that the house prices, they have gone up in Sweden big time, and they are at a very high level. In fact, that increases this type of risk we have in the housing market in terms of price development. It doesn't mean that we feel that we have created more risks in our credit portfolio because we have not been aggressive in this market environment. You can see our market share development, it has been on par or perhaps even lower than some of our peers, and we have a very prudent underwriting standards in this type of market environment. Our average LTV in Swedish mortgage book is 55% or something like that. It's a very healthy portfolio as such. We are not so worried about a direct credit risk in that portfolio.
The regulator, you also asked that are regulators or authorities worried, and have they taken any actions? There has been a lot of this type of macroprudential actions because of this, so that we have LTV caps, we have risk weight floors, we have mandatory amortization schedules introduced in Sweden. Of course, all those are implemented to, of course, dampen the house price development. There is a very loose monetary policy with low interest rates, and there is a very high disconnectual demand for houses which are working the other way around, so that there are these different type of forces. There is a high focus in Sweden by authorities on this development, and that's also shared by the bank, so that it would be good that the house price development would stabilize.
There has been, from time to time, good signals that has started to happen. Of course, it's very difficult to forecast how this will continue.
In the conscious of time, we need to end here. Thanks, everyone, for calling in, showing interest, and having these discussions. We will enter a flight now in 45 minutes, and then we will arrive at 7:00 P.M. Please feel free to call before 4:15 or after 7:00 P.M. CET. Of course, those of you who are based in London, you're most welcome to join our breakfast at the Langham Hotel at 8:00 A.M. U.K. time. Thanks, everyone, and keep in touch. Thank you.
Thank you. That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.