Good day. Welcome to the Q4 2015 Nordea Bank Abp 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, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Thank you all of you who have called into this international telephone conference. We will start with just a brief introduction of Group CEO and President, Casper von Koskull. After a few minutes, we will open up for Q&As. With us in the room, we also have Group COO, Torsten Hagen Jørgensen, and Group Chief Risk Officer, Ari Kaperi, who is prepared to answer all kinds of questions. Casper, please.
Good afternoon. It's Casper von Koskull. This is an exciting day for me. It's my first quarterly report and actually, at the same time, annual report as CEO for the bank. Of course, both very happy and proud to talk about 2015. I want to say that 2015 has been a very challenging year. We have operated in an environment with very low, actually, or no interest rates, low interest rates, a very low growth environment. We have had the geopolitical turmoil, and we've also had a fair degree of market turmoil. Challenging environment, but despite that, we have on a full year basis, we've increased our income by 3%. That's in local currency. We have actually did set a very tight cost target and we have achieved that cost target of EUR 4.7 billion that we set, actually a tad below that.
With credit quality stable, we have actually produced the best net result of the bank that we had ever done. For which we are, of course, very pleased given the environment that we operate in. Importantly, we have now grown our Core Tier 1 ratio to 16.5%. If you recall, 12 months earlier, we had that level at 80 basis points less. We've actually improved our Core Tier 1 ratio by almost one percentage point, and that's actually post the dividend that we now propose to pay. The board is recommending to the shareholders of the AGM a dividend increase of EUR 0.02 from EUR 0.62 to EUR 0.64. The proposal is to pay a EUR 0.64 dividend for 2015. At the same time, we have kind of readjusted the dividend policy, really to take into account the current environment.
I think we are moving away. I think we have been indicating this already along the fall that we would not have payout as our target. I think that is only in this environment. I think number one objective is to be rightly capitalized for all regulatory needs with the management buffer, which we are. Then of course look at potential customer demand, which we now see as very low. Our dividend policy is actually what we have done now, actually increase our dividend. We've increased it to EUR 0.64, and we have an ambition and also a plan to subsequently increase the absolute dividend paid also in the coming years. That is really the dividend policy change. On this, in 2015, we have actually achieved a return on equity of 12.3%.
On a substantially higher, of course, equity level, 12.3% return on equity is actually the highest return on equity we have seen since actually the financial crisis. We haven't had higher since 2008. It's in the new era of banking is the highest return on equity we have had. Return on equity, we have constantly said, and certainly going forward, it is about generating capital and return on equity is the sole measure for how we measure our success. The cost income, I said already that income growth at 3% , which we had promised, but also on the cost income at 47.1%, we are at the lowest level that we have ever been. In that sense, we're pleased. Maybe a few words on looking ahead. We have already for a while been briefing you on our simplification process.
Also underlying that, of course, is the replacement of our payment and core banking systems. That is now proceeding and we're getting into execution. What we want to do now is really accelerate the investment into really becoming truly a digital bank. We see in front of us really a three-year period of transition where we really transform the bank. Not only investing in the operational risk and compliance side, we invest in the IT, and we invest, of course, to execute on simplification and core bank replacement, really then becoming the bank I think our customers want to see, a truly digital bank, a more efficient bank.
In order to now speed up that process, we have taken a one-time charge in the fourth quarter of EUR 263 million, a restructuring charge of EUR 263 million, really to enable us to, one, make those investments and also speed up the process. This is, of course, a challenging transition, but it's also very exciting because this really takes us to a level where we can see, particularly starting in 2019, substantial improvement in who we are in terms of the digital bank, but also in terms of our efficiency. These restructuring charges that we are taking now will, of course, already show effect towards the end of 2016. When we now look at having maybe an increase in cost in 2016 of up to 3%, 2017, 2018, although the full benefit of the transformation doesn't come through, we see flat growth.
We still maintain our 1% year-on-year cost growth, but with really a front-loading in 2016. It's a big transformation. It's an exciting one, and I think we are now really truly making Nordea one bank and one truly digital bank. That's really looking a little bit ahead. I know I'm going very fast here, but this was meant to be just a highlight. I know you all have read the report in more detail. With that, I give the word to you, Rodney, if you can come back there.
Yes, please. Operators, we are now ready to take all kinds of questions.
Yes, 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 phone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will now take our first question from Johan Ekblom from Bank of America. Please go ahead. Your line is open.
Thank you very much. Just maybe if we stay looking forward a bit. Clearly it's been a volatile start to the year. I guess the first question is, can you give some kind of indication of what trends you're seeing in terms of activity in your markets business? How does the pipeline look in terms of CIB? Are you seeing the same kind of stalemate that we saw in Q3 of last year? Then secondly, on the wealth management side, any comment on what flows have looked like in the beginning of this year? Maybe some thoughts around what impact this kind of volatility will have on your gross margin there.
I maybe can take a little bit on the market side. Clearly, if you compare to last year, of course, January also started with some volatility. It was the Swiss peg that kicked in. This has been a volatile start. Of course, that means that maybe people are somewhat on the sideline. When I look at customer flows, they've actually stayed pretty well. Clearly the trading environment is more challenging. I think it's early in the year, I think I wouldn't draw too many conclusions yet at this point. I think there certainly hasn't been any accidents or hiccups. In that sense, not the best start, not a dramatically bad start either. I don't know if you, Bo, want to.
I don't think we will short comment on January performance at this point in time. Now you were relating to wealth management. I think that overall, with the current rate environment and market environment, we do expect to see some of the same trends for wealth management as we saw last year. It might not be to exactly the same degree, trend-wise, I think there's reason to expect more or less the same trends as we've shown. Maybe from a technical perspective, just so you are aware of the fact that in 2015, we started with quite a good tailwind in wealth management, given that the ultimo volumes were much higher than the average volumes for 2014. Now when we go into 2016, we don't have the same tailwind. Just make sure that you understand those trends correctly.
Maybe just to follow up on gross margin. Generally speaking, when you get this kind of volatility, is it mainly on the private banking side you see a big drop in activity, or should we expect it to be more broad based?
I'm not sure. I don't think we see a drop as such in activity. If you're talking about the inflow margins or
No, I just more thinking about customer activity on the private banking side, but that is fine. Maybe we can take it offline later.
Next question, please.
Thank you. We will now take our next question from Matti Ahokas from Danske Bank. Please go ahead. Your line is open.
Yes, good afternoon. two questions from my side, please. Firstly, in your 16.5% Common Equity Tier 1 ratio estimate for 2016, does it include a potential increase in the risk weight floor for Finnish mortgages? If so, how much would potentially this impact be? The second question is regarding the cost guidance. You said 3% 2016. Does this also include the cost regarding the change in the legal structure of the group? If you could point us a bit to the direction of what the magnitude of these costs would be, that would be great. Thanks.
Yes. To the first question, the pending discussions of introducing a risk weight floor in Finland also is estimated to be in the We have a guesstimate of an impact in the magnitude of 10 basis points, and that is included.
In our guidance of 16.5%. On the cost guidance of 3%, around 2% of the cost growth in local currencies relates to what we call group projects, of which legal structure program is one of them. The full implementation cost for the legal structure program for 2016 are included in the 3% guidance.
That would be only less than EUR 100 million from the group structure simplification. Is that correct?
That is correct, because for the group simplification program specifically, there's a very high degree of capitalization. The big investments we do in 2016 in group simplification, that shows up on the balance sheet, and only a minor part shows up on the P&L in 2016.
All right, great. Thanks a lot.
We will now take our next question from Anton Kryuchkov from UBS. Please go ahead. Your line is open.
Thank you, and good afternoon. Just two questions from my side, please. Firstly, I would like to clarify some of the guidance that you gave during the press conference earlier today. I think you've commented on improving margin outlook for 2016 compared to 2015, yet you remain quite cautious on the overall NII outlook. Just a little bit more color on where you're seeing margin improvement and how that translates into overall NII outlook for 2016 would be great. Thank you. The second question, please, on the EUR 6.3 billion of oil and gas and oil services exposure that you have highlighted in the presentation. Would you be willing to share NPL and coverage ratios for that book, please? Thank you.
I'll start with the discussions we had on NII and NIM for 2016. First of all, I think that if we look on the margin picture, I think the current situation is that it's relatively stable on the lending side, i.e., the actual lending margins are relatively stable. What we will see during 2016 will be a negative mix effect as we are primarily growing in low-rated and low-margin products. Even though the front-end margin, you can say, is relatively stable, there might be a mix effect that are negative on margins, but of course positive on RWA. If underlying margins are close to stable, mix effect slightly negative, and then we have moderate growth expectations mainly for household mortgages in Sweden and probably in Norway. Putting all of this together is the reason for the guidance of at best flat total NII.
The uncertainty, of course it relates to volume, but it also relates to the fact that we will, as also said, we will test the repricing opportunities in different ways. We have tested it and will test more during 2016, then we will have to wait and see exactly how successful we are. That's the reason why for the somewhat cautious stance that we don't know yet the effect of the repricing efforts.
Thank you. That's very clear.
The next question you had on this, our EUR 6.3 billion exposure to this oil and gas or oil services. Current NPL ratio is very minor because customers are still performing so that it's well below 100 basis points for the current NPL ratio, so the customers are not yet in problems. Thereby the coverage ratio, because we have a collective provision for this book, is very high. That it's higher than the amount of We have more provisions compared to this NPL. These figures are not yet meaningful because we see that if the situation continues, of course we start to see more individual customers in problems, then we start to see some type of pickup in the NPL. Now we have covered already by collective provisions most of that type of scenario.
Thank you. Is there a mechanical relationship, please, between the oil price assumption and the collective provisions that you currently have on this oil book, i.e., if oil prices stay where they are, can you give us a guidance by how much collective provisions will have to go up?
There's no any kind of automated connection with oil price and our collective provisioning model. A more valid or relevant question is that how long this low oil price continues. If it's prolonged, we start to see more problems, and we will definitely then increase collective provisions also, and then we start to see individual ones. If there start to be recovery within the next six months or so, then it's other way around. There's no direct connection because there are also many other components than just the direct oil price affecting the quality of this book.
Thank you.
We will now take our next question from Matthew Clark from Nomura. Please go ahead, your line is open.
Good afternoon. Two questions. First one is on the dividend growth. I get that you dropped the payout objective, I'm curious why you've dropped the 10% dividend growth objective, having rebased the dividend for 2015. What is it about the earnings growth outlook that's changed since you presented the 10% former dividend per share growth objective back in May, that means you no longer think you can grow the dividend at the same pace, even from a lower base than envisaged? Secondly, on the capital requirement of 16% you show on the slides, that just seems quite a bit higher than the 15.6 pro forma number from the Finansinspektionen most recently. I'm just curious what's driving that 40 basis points higher level, and have you given up all hope of a reversal of the Pillar 2 add-ons that came in the second half last year?
Your latest thoughts there would be helpful. Thank you.
We start with the latest question on the capital requirement. I think the main elements in the increased guidance on the quarter one level relates to the pending countercyclical buffer increases. That explains a big part of the increase. We have put in an expectation on the Finnish risk weight floor on mortgages of 10 basis points. We have also included a guesstimate on the potential impact of the pending Swedish. We will have a proposal hopefully mid-February from Sweden on the corporate risk weight issue in Sweden. That is included in the estimate of it having to be around 16% quarter one.
Can I infer from that then, if there's a 60 basis point gap from the last 15.4 to your 16 and 20 basis points for that comes from countercyclical and 10 basis points comes from the Finnish risk floor. Should we take 30 basis points as being the Swedish corporate risk weight impact you're guesstimating? Or is that a net number and you're netting that against Pillar 2 reversals?
To be very specific, the 15.4 calculated, with the updated numbers and everything else equal, that will be 15.5 as of today.
Okay.
On dividend growth, I think we have partly answered the question by at least the regulatory side of it. Back in spring 2015, as we had discussed before, we were guesstimating a quarter one requirement of 15.5, we were guesstimating a SREP impact of around 80 basis points. The SREP, to our surprise, turned out to be 180 basis point impact, plus 100. Regulation, in all fairness, yes, I'm the first one to take the blame for having, probably together with a few others, have seen this. We had a certainty around the capital regulation for Swedish banks. We just have to realize that now we're talking about 16%, we are aware of the regulation pending, Fundamental Review of the Trading Book, CVA review, Basel consideration on risk weights and Capital Floor, et cetera.
You can say on top of that, whether or not it's the big change or not, but the tough market environment with low rates, more or less no growth, et cetera, is continuing. Obviously there are impacts, less on profit generation, but of course more on the capital, the regulation side. I think that's the main reason for, or at least the factual background for reconsidering the way to guide around the dividend. I don't think it takes away the plan to, as we say, to increase dividends. I think that's the kind of the factual reason then. Probably also more consistently that having so high aspirations in the current environment is, you can discuss what is setting the dividends, whether or not it's the policy or it's the realities. We are taking note of the realities as of now.
Okay, thank you.
We will now take our next question from Omar Keenan from Deutsche Bank. Please go ahead. Your line is open.
Good afternoon. Thanks very much for taking the question. Just on a follow-up to the previous question. Could you just summarize that breakdown again between the different bits of regulation that you're expecting to come through for the Finnish mortgage risk weight floor? In particular, what expectation of risk weight you're expecting to get through? Secondly, the corporate risk weight floor as well. I was just wondering, given that we've got a final text of the Fundamental Review of the Trading Book, what RWA impact would you expect that to have in 2019? Thank you.
Just to repeat the staircase, you can say from 15.4, that is the formal number given as of Q3. That number with today, with the update of exposures, would be 15.5, so that's the first 10 basis points. You have a 20 basis points effect coming from the communicated increases of countercyclical buffer for Sweden and Norway, which total 20 basis points approximately together. We have an estimated impact, which is a guesstimate of course, from the Swedish corporate risk weight discussions of 20 basis points. We have an estimated impact from the Finnish risk weight floor of 10. All of this expected to be implemented for 2016 gradually. Some hits in Q2, some is expected to come in later. I forgot before to relate to the SREP question.
We do not, in the plan, have expectations of any disarmament of this Pillar 2 add-on we were given as part of the SREP. We can hope for it, we are not expecting, at earliest, we do not expect to have any of that back mixed before 2017. On the Fundamental Review of the Trading Book, yes, we have taken note of the more granular proposal now. We still reserve the right to say that, this is still so many uncertainties attached to it. There are elements in it that mainly punish, you can say, the exotic side of positions, and as we have very little of that, everything else equal, we will be hopefully hit less than average, you can say, at least. I think it's too early to give any specific estimate.
Okay, that's clear. Just a quick follow-up question on the Swedish corporate risk weight. Do you have any additional color on which way the regulator is going to go in terms of parameter constraints? We understand the kind of maturity factor point, have you had any more discussion on PDs or LGDs or anything like that?
We have taken note of the fact that we think it's a more comprehensive assessment. Maturity factor has been mentioned specifically, but I think it will be a more comprehensive exercise. As far as we understand, we will know more by mid-February.
Okay. I guess the reason I'm asking is that 20 basis points sounds fairly low, given I think investors in the market were potentially worried about a more meaningful increase in corporate risk weights from the Swedish regulator. 20 basis points feels very manageable. Obviously, the tail risk is a Capital Floor and what's going on with the Basel Committee, and that's a separate discussion. It just seems like a very small number compared to what people might have been worried about. Is that your feeling?
Well, again, this is our guesstimate based on our understanding of what the Swedish regulator is trying to achieve. We have taken also note of the fact that we think harmonization of the corporate risk weight in Sweden is a particular objective of the Swedish regulator. Do remember that we have, in Sweden, the situation of corporate risk weight among the four biggest banks between 22% and 40%, Nordea being 40%. Everything else equal, we do expect that we will be impacted relatively less. Of course, we don't know, and we're not making estimates for the other banks. It would be wrong to say that we know anything, but we are relatively comfortable with the estimate we have done. Of course, as we haven't seen the proposal, then we might have to review when we see it again, of course.
Okay, perfect. Thank you.
If anyone wants to ask a question, please press star one on your telephone keypad. We will now take our next question from Heiner Lutz from Goldman Sachs. Please go ahead. Your line is open.
Hello. Most questions have been asked, I just wanted to ask you a bit more on the cost guidance. I understand 2% of the growth seems to be driven by digitalization and the compliance on the new structure. If you look and then you go for flat afterwards, I assume you, and you already state that you believe you will have some benefits from the digitalization by the end of 2016. What's the underlying cost inflation you believe you would have that you're basically countering with that? If I basically would say if you wouldn't be digitalizing and simplifying the structure, what's sort of the underlying cost growth you think you would have across the markets if you don't do anything?
I think if we break down a little the cost guidance into the different components, we have typically an underlying cost growth of around 2%, which I think is a relatively stable one. We have in 2016, some particularly other drivers, that is, we have quite an increase in depreciations, and we have a negative VAT effect around EUR 25 million that are adding around one percentage point to growth in 2016. We have this 2% related to the programs we are running, of which a big part of them are related to 2016 and will not repeat themselves in 2017. We have a, you can say, a reinvestment of savings into certain capabilities areas, digital, corporate advisory service, savings and investments area of around 1%.
Finally, we have an effect of around 1% in 2016 of the significant ramp up we do on operational risk and compliance. We hired 200 people in 2015, we expect to hire almost 800 in 2016. It's big numbers. That adds up to something around 7%. We have cost programs running. Some of this is, of course, the result of what we have done some years back. Some is the start of the new programs. We hope to have cost efficiency of around 4%. In 2016, that ends up net 3. When you then try to translate this into way forward, of course, you will still have the underlying of 2. The projects will have come much closer to 0. The relocation will still happen, but not growing so much, that will also be closer to 0.
We will probably still have a full year effect of around 1% in 2017, that will go down in 2018 on the compliance ramp up. You can say the 2017 growth number is around +4.
Hey there. Let me have that.
The cost efficiency-
Hey, now it's mute.
Someone needs to mute because I can hear a lot of talk. You will still have 4% of, you can say, gross cost efficiency, meaning that you will have a net around zero. Sorry for throwing around the numbers, of course the new cost program will start taking over from 2017. That's kind of the components behind the cost guidance.
Sorry if I just may, please remember that we're talking about local currency trends here.
It's all in local currencies guidance.
Yes. If we just look for 2016, the EUR number would be somewhat less than 3%. As you know, these things can change rapidly.
It is very helpful. Sorry for the background noise, we are sitting open plan, but I have one more sort of follow-up question also on your exposures. If you look sort of at the Russian exposures, are the Russian oil exposures, would they show up within your oil exposures as well? Or would they be separate? If you could give some idea how much of your Russia exposure would be basically related to oil. Thank you.
Yeah. In this figure 6.3, which we have given, that is not including Russian oil exposure, because the Russian exposure is dealt in this presentation as a separate one, is EUR 5.5, including also the oil segment there. Out of this Russian EUR 5.5, we are roughly talking about EUR 1.2 billion as directly oil and gas related exposures. Rest is as we have talked earlier, is other big Russian companies which are more this type of infrastructure related companies in Russia.
Okay, thank you. That was very helpful. Thank you.
We will now take our next question from Jacob Kruse from Autonomous. Please go ahead. Your line is open.
Thank you. Just a couple of small questions. Firstly, on interchange fees, do you expect any impact of the changes to regulation there on your P&L? Secondly, on the retail bank, are you looking at improving RWA efficiency there as was done in the wholesale bank? If so, would that be a sort of structured program, or would that be something more that gradually comes through in the numbers as you do that, if you do that? Just lastly, if I could ask, do you see any changes to large corporate credit trends on the, I guess, Nordic or international side? Thank you.
On the interchange fee, we do of course see a growth impact in the level of EUR 30 million-EUR 40 million during 2016. However, I think also we have pretty good mitigation plans. As a relatively high concentration for many of the customers that will be impacted by this, we also believe that we will be able to mitigate a big part of this effect. It's of course difficult right now to know, but we are relatively confident that we can mitigate a big part of this effect. On the RWA efficiency in retail banking, you are right that the success we have seen in the wholesale banking area of working very disciplined on capital efficiency has been ramped up and is about to be repeated, you can say, in the retail banking corporate space. It's also true that there is a very good setup now.
Here we are talking about far more customers with lower volumes per customers, of course. This will be an ongoing program for quite some years. It's an important driver behind the expectation that we will actually keep total RWA relatively flat over the next coming years.
With the credit trends in large corporate customers, if you mean the type of volume trends-
No, sorry, on the asset quality side. Do you see a sort of deterioration in the international space?
Yeah. I think that we can expect more or less unchanged credit quality among our large corporate customers. Now I exclude this kind of directly oil related companies among large corporate customers, which we have gone through already. Of course everybody knows that there we have a difficult market environment. In other areas, at least so far we have not seen any kind of signs of weakened quality, more or less on the contrary, so that the Nordic large corporate customers, they are strong
They are international. They have adopted their cost base to the market environment very well so that in that way, we don't see any kind of bigger issues in those portfolios.
Okay. Thank you very much.
We will now take our next question from Lars Holm from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. Could I please ask you to comment a bit on the upcoming TLAC requirements, how you're going to meet those from 2019? According to my calculation, you have quite a bit of capital shortfall, at least if I measure against the 6% of assets.
It's true that TLAC clarification is pending. I still think it's too early to make the shortfall calculations. There is an intensive debate ongoing at the moment, as you might also know, involving many European banks. Also we are quite involved with the joining forces with our Swedish regulator on debating the TLAC requirements in Europe. I think one of the key issues here is not only the shortfall. Of course, it's a shortfall issue, but I think the eligibility of liabilities is the big issue, which is still the key discussion. I don't think it has found its final conclusion yet. We still lobby intensively together with, I think, many other banks and our Swedish regulator on this topic. There are also a number of scenarios where we will not have a TLAC shortfall.
I think it's a little premature to comment any particular shortfall.
Okay. When do you expect clarity on this subject?
The latest update I saw was that now around summer is the new guesstimate where there should be lobbying, should have been ongoing, there should be some kind of new proposal. I think it will be just after summer, as I understand it now.
Okay. Thank you.
We will now take our next question from Adrian Teedee from RBC. Please go ahead. Your line is open.
Hi there. Good afternoon. Thank you for taking my questions. Two follow-up questions, please. On asset quality, on the earlier press conference, you mentioned that loan losses could rise in 2017 if oil remains at current levels. Is there any way to try to quantify this a bit more? Current consensus expects a small single-digit deterioration in 2017 versus 2016. Does this appear to be a sensible expectation based on your information? The second one is just a quick follow-up on the SREP add-on. You obviously mentioned that you're planning to implement a number of remedial actions sometime this year. What is the status of those remedial actions? Are they fully implemented by now, or will they be by the end of, say, Q1? Thank you.
If I start from this 2017 credit quality, especially on oil and offshore, it does look like it's just simply impossible to give any kind of clear guidance because first of all, even if the oil price would be static, the situation is not static. For example, banks, including ourselves, we are not standing still in this type of situation. We are managing actively this portfolio, especially those workout cases we may then have in the end. That I can't give you any kind of clear guidance. I think that is the fact that in the coming quarters, we don't see that when we're going through this portfolio customer by customer basis, that there are signals of increased level of losses.
Of course, if this market environment continues, then it's clear to see that when the contracts are expiring and then the new ones will be done with the new prices, we start to see more customers with problems. What is the magnitude? What is the depth of those problems? That simply remains to be seen. They will increase, of course then, both individual collective provisions in 2017 if this level of market price is the base. I just want to emphasize that nevertheless, that the size of these portfolios is relatively limited in our scale and scope, so that then it's not any kind of big issue in terms of our profit generation.
Thank you.
We will now take our next question from Pawel Wielgosz from Danske Bank. Please go ahead. Your line is open.
Yes. Hello. Two follow-up questions. The first one, Rodney, you just mentioned that the 3% growth in costs would actually be lower if we look on today's FX. I was wondering if you could say that 3% would be using today's FX prices.
Yes. It's close to 3% in local currency based on the current FX rates.
Okay. I misunderstood what Rodney said earlier in the conf call. That was all my question. Thanks.
We will now.
Just to clarify, then based on the current exchange rate, it is around 2.5% in EUR. Is that what you were asking for?
Yeah, exactly.
We will now take our next question from Ed Firth from the Macquarie Group. Please go ahead. Your line is open.
Thanks very much. I just have two quick questions. Firstly, a point of detail. If I just take your total EUR 6.3 billion of oil exposure, or with Russia included as well, if you prefer. Could you just tell us precisely what is your total collective and specific impairment against that loan portfolio as of the year-end? That was my first question. My next question was just about some of the operating trends, and in particular Denmark. Could you tell us a little bit more about what's going on in Denmark? Are you expecting this weakness to continue into next year? Is there something funny about Q4, which is why it was so poor?
First question, what are our provisions for this portfolio? What I can say is that for this Nordic part of the oil and offshore oil services, we have roughly between EUR 60 million and EUR 70 million worth collective provisions so far, or currently. For the Russian portfolio as such, there is a collective provision which is around the level of EUR 20 million in this kind of rounded numbers.
For example, that collective provision is not allocated to any variant or individual segment as such. That is in our analysis mostly now, of course. If something happens, it will mainly come from commercial real estate portfolio in Russia, we don't see any kind of bigger problems in those companies we have in our Russian portfolio. Those are companies we have there.
Okay, great. Sorry, the EUR 60 million to EUR 70 million is collective. Did you have some specific impairments in there as well, or is that pretty much the total?
We have currently only one case in this portfolio, which is in the oil services segment, where we have a few tens of millions of EUR individual provision. As I said earlier, currently we don't have those type of customers in the portfolios which would be now defaulted or impaired in large extent. It's only this one specific customer where we have booked individual provisions so that currently we are covering this increased risk by collective provisions, which is very natural in this type of cycle.
Sure. Sorry, just to be clear, this one customer, you have raised a provision against them or you haven't?
Yes, we have.
You have. Okay. It'll be a bit more than, say, the EUR 60 million-EUR 70 million could be, I don't know, EUR 80 million-EUR 90 million or something in total.
That's the level we are talking about.
Yeah. No, that's fine. Great. Thank you.
In Denmark, we don't see any kind of change in the environment or in the quality of our portfolio in Denmark. Of course, the problematic segment is the agriculture. Yes, that's right. Q4, the level of provisions were a bit higher, and that is coming mainly from agriculture, but that was related mostly to one specific client, which is not even a farm. It's on a higher level of this value chain in agriculture. That's one specific reason for this increased level. All in all, the situation is relatively unchanged, meaning that we don't, then again, see any kind of improvement in the agriculture segment either. That it's still a problematic segment, and we are expecting that even in the coming quarters, we see some individual losses coming from that segment.
For example, when it comes to our collective provision towards that segment in Denmark, we have not seen any kind of need for increasing that further because I said, according to our assessment, the situation is relatively stable. It's not gone worse.
Great. Also revenue in Denmark seemed pretty poor in Q4. I know there were sort of question marks about what you get paid with central bank funds, et cetera. Is there anything else that we should expect to continue, or are we at some sort of bottom now?
No, I don't think you should put any trend into it. You're right that, especially on fee and commission in Denmark in Q4, One was the remortgaging activity was somewhat lower, which is part of actually a successful move of customers from the very short one-year ARM products into longer term mortgage products, which is good for many different purposes. The conversion level and the income related to this was somewhat less. Further, we had the divestment of certain activities to Nets that took place in end of Q3 that are reducing income mainly in Denmark. There's not a certain trend in this.
Great. Thanks so much.
Actually, we expect Denmark to perform somewhat better in 2016 than in 2015.
Great. Thank you.
We will now take our next question from Daniel Do-Toya from JPMorgan. Please go ahead. Your line is open.
Hi, good afternoon. Just three very quick questions. The first one was just to confirm on your NII guidance, where you sat flat at best in 2016 year-on-year. What's your assumption there on loan growth and also on risk-weighted asset growth? Secondly, on the Finnish risk-weight floor, how final is the 10 basis point impact that you're estimating? Just seems a little low compared to the 30 and 80 basis points that you get from mortgage floors in Norway and Sweden. Is this just because the Finansinspektionen is calibrating the floors at a much lower level? Lastly, in terms of the credit quality, you've singled out oil and gas as well as Russia. But just wondering if there are certain parts of the shipping book perhaps, and specifically I'm thinking dry bulk and cargo that could show signs of deterioration going forward. Thank you.
On the NII guidance and on volumes, we are expecting slightly lower growth on household mortgages in Sweden and Norway than you saw last year, but some growth. Actually we expect corporate growth to be slightly negative on total. Back to the point that while there might be an overall small positive volume impact, that is due to the composition. There is a pressure on margin, but a benefit on RWA. Back to the point that the RWA is expected to be flat in 2016.
Thank you.
Sorry, on the Finnish risk weights, I don't think we want to quantify it further. It's still a pending proposal and there are a number of clarifications we need. This is in all fairness, a guesstimate. We will have to come back and review.
Lastly, your question about the shipping book. You are pointing out a very relevant issue, so that the segment which is in the weakest situation is dry bulk or dry cargo, and then we have an exposure in that segment. The size of exposure is roughly EUR 2.4 billion. There are some weak customers in that segment, but those all are included in our outlook guidance in terms of our coming quarters, credit losses, so that is naturally covered in that way.
We will now take our next question from Alice Timperley from Morgan Stanley. Please go ahead. Your line is open.
Hi there. Just one quick question from me, coming back to the capital stat that we talked about earlier. Could you just clarify what level of countercyclical buffers you are using? Are you using the 1.5% that's been outlined to be implemented in Sweden and Norway in June this year, or are you also including potential 2% in Sweden as well? Thank you.
Yes, it's correct that the 2016 numbers are the 1.5 in Sweden and Norway. Of course, we are aware of the fact that, it's in the plan, that can at earliest been implemented Q1 2017, the fact that Sweden are considering to increase further countercyclical buffer to potentially 2%. That will be another 10, 15, 20 basis points. Let's see exactly where we end. We don't know if it will be 2 or 2.5%. I think there are different kind of speculations how high they will go. That can at earliest be by Q1 2017.
Okay, thanks so much.
Operator, we have room for one more question.
Okay, we will now take our last question from Andreas Håkansson from Exane. Please go ahead. Your line is open.
Yeah. Hi, it's Andreas from Exane. Just some follow-up from earlier. You said that you saw that successful move from floaters to fixed in Denmark. Could you tell me what's the margin on those two different products, and do you expect to see negative mix effect from it?
No, there's not a big margin. In general, you can say that the shorter and more floating, the more we incentivize to move away by having a more aggressive price structure. Everything else equal, we have slightly higher-
Are we talking 30 basis points difference roughly on?
Yeah, that is probably within the range, I think.
Yeah.
It's not of course a significant differences. You should also be aware that what I was alluding to was mainly that, of course, the conversion activities goes down, and there are fees related to the conversion activities.
Sure. Those fees were massive in Q1 and Q2, right? Last year.
Sorry, the?
Those activities were very, very high in Q1 and Q2 last year, right? The comps in Q1 this year is going to look a bit difficult.
Yeah. Rodney is nodding yes.
Yeah. I think please be aware of some technicalities here, that we have the auctions, I think that's what you're referring to. The auctions, they are reported under net fair value. When it comes to refinance activities between the auctions, they are reported as commission income. What we expect going forward is a bit less activity in both these, because we have simply just less, if you look at the floating part or one and two, they are now down to around 10%, 11%. There will be a lower activity level in those segments, yes.
Yeah. Just last question. On the Finnish RWAs that we talked about on mortgages, in order to get to that 10 basis points, could you tell us what assumptions you do that the flow will be at if you compare that to Sweden at 25, for example?
Rodney is shaking his head. Lower.
That's fine. It must be quite much lower than the 25 you're assuming, I guess.
We will come back when we know a bit more.
Excellent. Thanks very much, guys.
Thank you. Okay, thank you. This concludes this conference call. If you have any further questions, our flight leaves at 6:00 P.M., please feel free to call me, Emma, or Andreas before that, or after 9:00 A.M. when we arrive London. Otherwise, I hope to see some of you in London tomorrow morning. Also, we will send out the invites for the webcast presentation with the core banking replacement on 2nd of March in London. Thank you and goodbye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.