Good day, and welcome to the Q4 2015 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 Elvin, Head of Investor Relations. Please go ahead, sir.
Thank you, operator, and thank you all of
you who has called in
to this international telephone conference. We will start with just a brief introduction of Group CEO and President, Svein von COSKAL. And then after a few minutes, we will open up for Q and As. And with us in the room, we also have Group COO, Thorsten Haggen Jorgensen and Group Chief Risk Officer, Adi Kapyr, who is prepared to answer all kinds of questions. So, Kasper, please?
Yes, good afternoon. It's Kasper von KOSCO. Of course, 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. And of course, both very happy and proud to talk about 2015.
To say that 2015 has been a very challenging year. We have operated in an environment with very low actually no interest rates, low interest rates, very low growth environment. We have had geopolitical turmoil and we've also had a fair degree of market turmoil. So challenging environment, but despite that we have on a full year basis, we've increased our income by 3%, that's in local currency. And we have actually did set a very tight cost target and we have achieved that cost target of €4,700,000,000 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 have 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. So we've actually improved our core Tier 1 ratio by almost 1% 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 €0.02 from €0.62 to €0.64 so the proposal is to pay a €0.64 dividend for 2015.
At the same time, we have kind of readjusted the dividend policy really to take into account kind of the current environment. I think we are moving away and I think we have been indicating this already along the fall that we would not have payout as our target. I think that is going in this environment. I think number one objective is to be rightly capitalized for all regulatory needs with the management buffer, which we are, and then of course look at potential customer demand, which we now see as very low. So our dividend policy is actually what we have done now, actually increased our dividend.
We've increased it to 64 and we have an ambition and also a plan to subsequently increase the absolute dividend paid also in the coming years. So that is really the dividend policy change. On this, in 2015, we have actually achieved a return on equity of 12.3%, now on a substantially higher, of course, equity level, 12.3% return on equity is actually the highest return on equity we have since actually kind of the financial crisis. We haven't had higher since 2,008. So it's in the new era of banking is the highest return on equity we have had.
And return on equity, as 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 the income level at 4.7% was in line with our target, which we had promised, but also on the cost income at SEK 47,100,000 we are at the lowest level that we have ever been. So in that sense, we can be pleased. Now maybe a few words on looking ahead. We have already for a while been briefing you on kind of a simplification process and 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. And what we want to do now is really accelerate the investments into really becoming truly a digital bank. We see in front of us really a 3 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 see, a truly digital bank, a more efficient bank. And in order to now speed up that process, we have taken a one time charge in the Q4 of EUR 263,000,000 restructuring charges of EUR 263,000,000 really to enable us to, 1, make those investments and also speed up the process. This is a, of course, a challenging transition, but it's also very exciting because this really takes us to a level where we can see the big release starting in 2019, substantial improvement in who we are in terms of the digital bank, but also in terms of our efficiency.
The restructuring charge that we are taking now will, of course, already show effect towards the end of 2016. And when we now look at having maybe an increase in cost in 20 16 of up to 3%, then 2017, 2018, although the full benefit of the transformation doesn't come through, we see flat growth. So 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. So 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. And with that, I give the word to Jurgen, if you can conduct the
Yes, please. Operator, so we are now ready to take all kinds of questions.
Yes, thank And 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, I mean, clearly, it's been a volatile start to the year. So 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? And are you seeing the same kind of stalemate that we saw in Q3 of last year?
And then secondly, on the wealth management side, any comment on what flows have looked like in the beginning of this year? And maybe some thoughts around what impact this kind of volatility will have on your gross margin there?
Yes, I mean, I maybe can
take a little bit on the market side. Clearly, if you compare it to last year, of course, January was a also started with some volatility, then 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 sort of customer flows, they've actually stayed pretty well in but clearly, kind of the trading environment is more challenging.
I think it's early in the year, so I think I wouldn't draw too many conclusions yet at this point. But I think there certainly hasn't been any accidents or hiccups and in that sense not the best start but not a dramatically bad start either. And I don't know if you
post No, I don't think we
will we will stop comment on general performance at this point in time, but 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, but for 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 optimal volumes were much higher than the average volumes for 'fourteen. Now when we go into 'sixteen, we don't have the same tailwinds. So just make sure that you understand those trends correctly.
And maybe just to follow-up on, I mean, gross margin. I mean, generally speaking, when you get this kind of volatility, is it mainly on the private banking side? Do you see a big drop in activity? Or should we expect it
to be more broad based?
Well, I'm not sure I fully I mean, I don't think we see a drop as such in activity. But so if you're talking about the inflow margins or
No, just more thinking about customer activity on the private banking side, but very 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 percent common equity Tier 1 ratio estimate for 2016, does it include a potential increase in the risk weight for Finnish mortgages? And 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? And if you could point us a bit to the direction of how 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 flow 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 and in our Gethsemane of 16.5%. And on the cost guidance of 3%, around 2% of the cost growth in Switzerland relates to what we call group projects of which legal structure program is one of them. So the full implementation costs for the legal structure program for 2016 are included in the 3% guidance.
So that would be only of less than SEK 100,000,000
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. So the magnitude 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 and L in 'sixteen.
Right. Great. Thanks a lot.
And we will now take our next question from Anton Krayatyak 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, and yet you remain quite cautious on the overall NII outlook. So just a little bit more color on where you're seeing margin improvement and how that translates into overall and the outlook for 2016 would be great.
Thank you. And the second question please on the €6,300,000,000 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 NII 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.
So there might be 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 IEA. So if underlying margins are closer to stable, mix effect is largely negative and then we have moderate growth expectations mainly for mortgages in household mortgages in Sweden and partly in Norway. Putting all of this together is the reason for the guidance of at best flat total NII. The uncertainty relates of course, it relates to volume, but it also relates to the fact that we will as Otto said, we will test the repricing opportunities in different ways. We have tested it and we'll test more during 2016 and then we will have to wait and see exactly how successful we are.
But that's the reason why for the somewhat cautious plans that we don't know yet the effect of the repricing efforts.
Thank you. That's very clear.
And the next question you had on Odissar, SEK6.3 billion exposure to this oil and gas offshore oil services. Current NPL ratio is very, very minor because customers are still performing, so that it's not it's well below 100 basis points for the current NPL ratio, so that customers are not yet in any problems. And thereby, the coverage ratio, because we have a collective provision for this book, is very high. So that it's higher than the amount of that we have more provisions compared to this NPL. So, but these figures are not yet meaningful because we see that if the situation continues, then of course, we start to see more individual customers in problems.
And then we start to see some type of pickup in the NPL. But now we have covered already by collective provisions, most of that type of scenario.
Thank you. And is there a mechanical relationship, please, between the oil price assumption and 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 is no any kind of automated connection with oil price and our collective in Moron, so that it's more valid or relevant question is that how long this low oil price continues. If it's prolonged, then we start to see more problems and we will definitely then increase collective provisions also, and we start to see individual ones. But then it's if there's start to be a recovery within the next 6 months or so, then it's either way around. But there is no disconnect connection because there are also many, many other components than just direct oil price affecting the quality of this
book. Thank you.
And 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, but 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 percent 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 a lower base than envisaged? And then secondly, on the capital requirement of 16% you show in the slides, that just seems quite a bit higher than the 15.6% pro form a number from the FSA most recently. So 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.
If we start with the latest question on the capital requirement, I think the main elements in the increased guidance
on the
Core Tier 1 level relates to the pending increases. That explains a big part of the increase. Then we have discussed the we have put in an expectation on the Finnish risk weight flow on mortgages of 10 basis points. And 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. So that is included in the estimate of being it has to be around 60% core Tier 1.
Can I infer from that then if there's a 60 basis point gap from the last 15.4 percent to your 16.20 basis points of 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 EUR 15,400,000 calculated that with updated numbers and everything else equal that will be 15.5% as of today.
Okay.
And on dividend growth, I mean, I think we have partly answered the question by at least the regulatory side of it. I mean, back in spring 2015, as we've discussed before, we were guesstimating a Cohort 1 requirement of 15.5 percent, and we were guesstimating a SREP impact of around 80 basis points. The SREP, to our surprise, turned out to be 180 basis point impact I. E. Plus 100.
And 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 have a certainty around the capital regulation for Swedish banks. But we just have to realize that now we are talking about 16%, and we are aware of regulation pending, fundamental review of the trading book, CVA review, Basel consideration on risk weights and flows, etcetera. So and then you can say on top of that, well, not the big change or not, but I mean the tough market environment with low rates, more is no growth, etcetera, is continuing. So obviously, there are impacts less on profit generation, but of course, more on the capital.
And I
think that's the main reason for 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 dividend, but I think that's the kind of the factual reason and probably also and more consider 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. And then we are taking note of the realities at this moment.
Okay. Thank you.
And 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 as 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 that's for the finished mortgage risk weight floor? I mean, and particularly what expectation of risk weight you're coming you're expecting to get through? And then secondly, the corporate risk weight floor as well.
I was just wondering, given that we've got the final text of the fundamental view of the trading book, what RWA impact would you expect that to have kind of in 2019? Thank you.
Yes. Just to repeat the staircase you can say, from 15.4 percent, that is the formal number given as of Q3. That number would today, with the update of exposures, would be 15.5 percent. So that's the first thing basis points. Then you have a 20 basis points effect coming from the communicated increases of countercyclical buffer for Sweden and Norway, which totaled 20 basis points approximately together.
And we have an estimated impact, which is a guesstimate, of course, from the Swedish corporate risk weight discussions of 20 basis points. And then we have an estimated impact from the Finnish risk weight flow of 10%. So all of this expected to be implemented for 2016 gradually. Some hits in Q2, some is expected to be to come in later. And actually, I forgot before to relate to the SREP question.
I mean, we do not in the plan have expectations of any dissolvent of this Pillar 2 add on we were given as part of the SREP. We can hope for it, but we are not expecting at earliest, we do not expect to have any of that back next before 2017. And then on the fundamental review of the trading book, yes, we have taken note of the more granular proposal now, but we still reserve the right to say that. I mean, 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 there are very little of that, that everything else equal, we will be hopefully hit less than average, you can say at least. But I think it's too early to give any specific opinion.
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? Kind of understand the kind of maturity factor point, but have you had any more discussion on kind of PDs or LGDs or anything like that?
We have taken note of the fact that we think there will be a more comprehensive assessment. Maturity factor has been mentioned specifically, but I think it will be a more comprehensive exercise. And as far as we understand, that we will know more by this figure.
Okay. It's just I guess, kind of the reason I'm asking is that 20 bps sounds fairly low, given I think kind of investors in the market was potentially worried about kind of a more meaningful increase in corporate risk weights from the Swedish regulator. Kind of 20 bps feels very manageable. Obviously, the tail risk is a capital for what's going with the Basel Committee and that's a separate discussion. But it just seems like it's a very small number compared to what people might have been worried about.
Is that your feeling?
Well, again, this is our estimate 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 weights in Sweden is a particular objective of the Swedish regulator. And do remember that we have in Sweden the situation of corporate risk weights among the 4 biggest banks between 22% 40%, Nordea being 40%. So everything else equal, we do expect that we will be impacted relatively less. But of course, we don't know and I do not make an estimate for the other banks.
But it would be wrong to say that we know anything, but we are relatively comfortable with the estimate we have done. Then of course, as we haven't seen the proposal, then we might have to review when we see it again, of course.
Okay, perfect.
And 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, but I just wanted to ask you a bit more on the cost guidance. So I understand sort of 2% of the growth seems to be sort of driven sort of by sort of digitalization and compliance on the new structure. If you look sort of and then you go for flat afterwards, like I assume you're and you already state that you believe you will have some benefits from the digitalization by the end of 20 16. So what's the underlying cost inflation you believe you would have that you're basically countering with that?
So if I basically would say, if you wouldn't be digitalizing and simplifying the structure, what sort of the underlying cost growth you think you would have across the markets if you don't do anything?
Yes. But I think if we break down a little the cost guidance into the different components, I mean, we have typically an underlying cost risk of around 2 percent, which I think is a relatively stable one. We have in 2016 some particularly other drivers that is quite an increase in the depreciations and we have a negative VAT effect around €25,000,000 that are adding around 1 percentage point to growth in 2016. Then we have this 2% related to the programs we are running, of which a big part of them are related to 'sixteen and will not represent until 2017. Then we have a, you can say, reinvestments of savings into certain capabilities areas, digital, advisory service corporate advisory service, savings and investments area of 1%.
And finally, we have an effect of around 1% in 'sixteen of the significant ramp up we do on op risk and clients. We hired 200 people in 2015 and we expect to hire in almost 800 in 2016. So it's a big numbers. So if you and then that adds up to something around 7%. And then 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. So we have cost efficiency of around 4% in 2016. So that's in subnet 3. So when you then try and translate this into way forward, then 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. So that will also be closer to 0. We will probably still have a full year effect of around 1% in 'seventeen, but that will go down in 'eighteen on the compliance ramp up. So you can say the 17 gross number is around plus 4.
Hey, there. That makes sense.
But then the cost efficiency Someone needs to mute because then you will have you will still have 4% of, you can say, gross cost efficiency, meaning that you will have a net around 0. So sorry for throwing around the numbers, but then of course the new cost program will start taking over from 2017. So that's kind of the components behind the cost guidance.
Sorry, if I just may, I mean, please remember that we're talking about local currency trends here.
It's all in local currency, this guidance.
So if
we just look for 16, the euro number would be somewhat less than 3%. But as you know, these things can change rapidly.
Okay. And it was very helpful. And like sort of for the background noise, you're seeing open plan. But I have one more sort of follow-up question also sort of on your exposures. If you look sort of at the Russian exposures, like are they sort of are the Russian oil exposures, would they show up within your oil exposures as well or would they be separate and unlike and if sort of the and if you could give some idea how much of your Russia exposure would be basically related to oil?
Thank you.
Yes. In figure 6.3, which we have given, that's not including Russian oil exposure, because then the Russian exposure is dealt in this presentation as a separate one, this EUR5.5 billion including then also the oil segment there. Then out of this Russian SEK5.5 million, we are roughly talking about SEK1.2 million as directly oil and then gas related exposures. Then as we have talked earlier, we can have other big Russian companies, which are more disciplined infrastructure related companies in Russia.
Okay. Thank you, Elmer. Very helpful.
And 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 and L? And secondly, on the retail bank, are you looking at improving RWA efficiency there as was done in the wholesale bank?
And 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? And then just lastly, if I could ask, do you see any changes to large corporate credit trends on the, I guess, Nordic or international side?
On the interchange fee, we do, of course, see a growth impact in the level of €30,000,000 to €40,000,000 during 20 16. However, I think also we have pretty good mitigation plans. And as there is 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 REA efficiency in Refay Banking, you are right that the success we have seen in the wholesale banking area of working very disciplined with on capital efficiency is has ramped up and it's about to be repeated, you can say, in the retail banking corporate space.
And is 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. So this is a this will be an ongoing program for quite some years. But it is a it's an important driver behind the expectation that we would actually keep total REA relatively flat over the next coming years.
And then the credit trends in large corporate customers, if you mean this type of volume trends?
No, sorry, on the asset quality side, do you see a sort of deterioration in the international space?
Yes. I think that we can expect more or less unchanged credit quality among our large corporate customers. Of course, now I exclude this kind of directly oil related companies among large corporate customers, which we have gone through already. So, of course, everybody knows that we have difficulty in market environment. But 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 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.
And 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 GLAC requirements? How are you going to meet those from 2019? As 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 as there is an intensive debate ongoing at the moment, as you might also know, involving many European banks, but also we are quite involved with the joining forces with our Swedish regulator on debating the TLAC requirements in Europe. And I think one of the key issues is not only the shortfall, you can of course, it's a shortfall issue, but I think the eligibility of liabilities is the big issue, which is still the key discussion. And I don't think it's it has found its final conclusion yet. So we still lobby intensively together with I think many other banks and our 3 regulators on this topic.
So there are also a number of scenarios where we will not have a CBLAC show. So I think it's a little premature to comment any particular show.
Okay. When do you expect clarity on this subject?
Well, it's I saw the latest update I saw was that now around summer is a new estimate where there should be logging should have been ongoing and there should be some kind of new portfolio preferred. I think it will be just after summer, so I'm just trying it now.
Okay. Thank you.
And we will now take our next question from Adrian Tighe 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? And 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, That's look like it's 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. And for example, Woodbanks, including ourselves, we are not standing still in this type of situation. We are managing actively this type of this portfolio, especially those who are workout cases we may then have in the end. So that I can't give you any kind of clear guidance. I think that, that is the fact that in the coming quarters, we don't see that when we're going through this portfolio customer by customer base that there are signals of increased level of losses.
But then, 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. But what is the magnitude, what is the depth of those problems that simply remains to be seen. But they will increase, of course, then both individual collective provisions in 2017 if this level of market prices stays. But then I just want to emphasize that nevertheless, 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.
And we will now take our next question from Pawel Wieczynski 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. And I was wondering if you could say that 3% would be using today's FX prices?
Yes. It's close to 3% in the current year based on the current FX rates.
Okay. Okay. Then I misunderstood what Rodney said earlier in the call. Those are all my questions. Thanks.
Just to clarify, I mean, then based on the current exchange rate, it is around 2.5% in euros, if that's what you're asking for?
Yes, exactly.
We will now take our next question from Ed Fard from the Macquarie Group. Please go ahead. Your line is open.
Yes, thanks very much. I just had just two quick questions. Firstly, a point of detail. If I just take your total, I guess, the €6,300,000,000 of oil exposure, or I guess with the 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?
So I guess that was my first question. And then 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
first First question, what is our provisions for this portfolio? What I can say is that for Hothi's Nordic part of the oil and offshore oil services, we have roughly between €60,000,000 €70,000,000 worth collective provisions so far or currently. Then for the Russian portfolio aside, there is a collective provision, which is around the level of SEK20 1,000,000 in this kind of rounded numbers. But also, 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, then if something happens, it will mainly come from commercial real estate portfolio in Russia, so that 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. And so that's the 60 to 70 is collective. Did you have a specific impair 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 individual provision. But as I said earlier, currently, we have not 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. So 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. So it will be a bit more than the 60 to 70 could be, I don't know, 80 to
90 or something in total? That's still about we are
talking about. Yes. No, it's fine. Great. Thank you.
Then 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 agriculture. Yes, that's right that 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 not even a farm. It's on a higher level of how this value chain in agriculture. So that's one specific reason for this increased level.
But all in all, this is relatively unchanged, meaning that we don't then again see any kind of improvement in the agriculture segment either. So that it's still a problematic segment and we are expecting that even in the coming quarters, we see some losses, individual losses coming from that segment. But 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 regarding our assessment the situation is relatively stable, it's not going worse.
Great. But also revenue in Denmark was seemed pretty poor in Q4. And I know there was sort of question marks about what you get paid with Central Bank Funds, etcetera. But is there anything else that we should be is that something we should is the trend something 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 had that you're right that on especially on CN Commission in Denmark in Q4, we had a couple of more type of different we have one was the remortgaging activity was somewhat lower, which is part of actually a successful move of customers from the very short 1 year ARM products into longer term mortgage products, which is good for many different purposes. So the conversion level and the income related to this was somewhat less. And further, we had the divestment of certain activities to nets that took place in the Q3 that are reducing income mainly in Denmark. So there is not a certain trend in this.
Great. Thanks so much.
Actually, we expect Denmark to perform somewhat better in 2016 than in 20
16. Great. Thank you.
And we will now take our next question from Daniel Doherty from JP Morgan. Please go ahead. Your line is open.
Hi, good afternoon. Just three very quick questions. The first one was on your just to confirm on your NII guidance, where you said flat at best in 2016 year on year. What's your assumption there on loan growth and also on risk weighted asset growth? And secondly, on the finished risk weighted 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 flows in Norway and Sweden. Is this just because the FSA is calibrating the floors at a much lower level? And then 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, so some growth. But then actually, we expect the corporate growth to be slightly negative on total Back to the point that 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 our RVA. So back to the point that RVA is expected it to be flat in 2016. And then, Charles, on the finished risk weights, I don't think we want to quantify further.
It's still a pending proposal and a number of clarifications we need. So this is in all sense a guesstimate we will have to come back and review.
And then lastly, your question about the shipping book. You are pointing out 30 relevant issues so that the segment which is in the weak situation is tribalco and trigarkor. And then we have an exposure in that segment. The amount of size of exposure is roughly SEK2.4 billion. And then there are some weak customers in that segment, but those all are included in our outlook guidance in terms of coming quarters, create losses, so that is naturally covered in that
way.
And we will now take our next question from Alice Temperley from Morgan Stanley. Please go ahead. Your line is open.
Hi, there. Just one quick question for me and just coming back to the capital stack that we talked about earlier. Could you just 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 16 numbers are the 1.5% in Sweden and Norway. And then of course, we are aware of the fact that and it's in the plan for something. But that kind of had already been implemented Q1-seventeen, the fact that we're now considering to increase further account receivables of 2% to 2% and that will be another 10, 15, 20 basis points. Let's see exactly where we're in. But we don't know if it will be 2% or 2.5 percent.
I think that different kind of speculations how far they
how high they will go. But that will can at earliest be 5.5 by Q1 'seventeen.
Okay. Thanks very much.
Operator, we have room for one more question.
Okay. So we will now take our last question from Andreas Hakansson from Exane. Please go ahead. Your line is open.
Yes. Hi. It's Andreas from Exane. Yes, I'm following up from earlier. Just on your you said that you saw that successful move from floaters to fixed in Denmark.
Could you tell me what's the margin on those 2 different products? And do you expect to see negative mix
effects from it? No, there's not a big margin. In general, you say that the shorter and more floating, the more we incentivize to move away by having a more surprise structure. So everything else equal, we have slightly higher.
But are we talking 30 bps difference roughly or?
Yes. But that is probably within the range, I think. It's not a it's not, of course, significant differences. But you should also be aware that what I was alluding to was mainly that, of course, the conversion activity goes down and there are fees related to the conversion activity.
Sure, sure. Those fees were massive in Q1 and Q2, right, last year?
Sorry, please.
Those activities were very, very high in Q1 and Q2 last year, right? So the comps in Q1 this year is going to look a bit difficult.
Yes. Rodney is nodding.
Yes. I think please be aware of some technicalities here that we have the auctions. I think that's what you're referring to. And the auctions, they are reported on the net fair value. Then when it comes to refinance activities between the auctions, they are reported as commission income.
And what we expect going forward is a bit less activity in both these because we have simply just less I mean, if you look at the floating part or RM12, they are now down to around 10%, 11%. So there will be a lower activity level in those segments, yes.
Yes. And then just last question, on the Finnish RWA side we talked about on mortgages, in order to get to that 10 bps, could you tell us what assumptions you do that the flow will be at if you compare that to Sweden at 25,000,000 for example?
Now Rodney is shaking his head. Lower. Okay.
That's fine. It must be quite much lower than the 25,000,000 you're assuming, I guess.
Well, we will come back when we know a bit more.
Okay. Excellent. Thanks very much guys.
Okay. Thank you. So this concludes this conference call. If you have any further questions, our flight leaves at 6. So please feel free to call me, Emma or Andreas before that or after 9 when we arrive London.
Otherwise, I hope to see some of you in London tomorrow morning. And then also we will send out the invite for the webcasted presentation with the core banking replacement on 2nd 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.