Good day, welcome to the fourth quarter report 2013 international telephone conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodney Alfvén, Head of IR. Please go ahead, sir.
Thank you very much. Welcome to this telephone conference. We will start with a short introduction by President and Group CEO, Christian Clausen. Then we are prepared to take questions. With me here in the room, we also have Group CFO, Torsten Hagen Jørgensen, and Chief Risk Officer, Ari Kaperi. Please, Christian.
Hello, everyone. I will not go through any slides, just give a short introductory remark. We have given out a report which shows a very stable result with a small uptick in our operating profit. We reiterate that we are following our plan, which we launched last year, to develop the future relationship bank. Let me just give a few comments on that, because in reality what we are doing, we're changing the bank in three dimensions. We're changing the balance sheet with more capital, liquidity and funding. We're changing the machine room of the bank to make it more efficient and to accommodate all the many 48 big regulations which are hitting us. We're also changing the machine room to become more efficient. We still have a big part of the bank, which is handling manual papers and transactions.
We're changing our distribution, mainly because our customers are changing behavior. They're using the bank in much more digital way than a physical way, therefore we are changing the distribution towards the digital channels and away from the manual channels. All of this is moving ahead according to plan. It's actually been going on for some years, we have specific plans to do all these things. We often discuss capital liquidity and funding, I will not say more about this now. We have developed our core capital ratio and doing well there. We also developed our machine room in very good way. In general, we have also executed very well on our cost program we launched last year, which was designed exactly to make the bank more efficient.
I now call it a cost program, but it was actually launched as an efficiency program. What we are really doing is making the bank more efficient by ensuring that we have less manual processes, we get more automated, we get more efficient, we outsource more, we do all sort of things. That journey we will continue. In this environment, we have set the target even higher because in this environment we have low loan demand and lower customer activity, and we also have low interest rates. It is actually a very good environment to take the next steps. We have less activity in the bank, so we need less manual resources. On the other hand, we need more digital resources. That's the reason for the announcement today that will increase the efficiency program, in the coming years to deliver even bigger cost savings.
In reality, it will also deliver a more efficient bank. We are still on track on developing the future relationship bank, which has a very strong balance sheet, which is more efficient in the machine room, which is more efficient in the customer interactions through the digital channels, and will rely less on manual work and paper. That's reality of the change we are doing. The announcement today is of course one where we also maybe lower the expectations a little bit on our future growth, at least for this year. It is clear that the economic growth we see in Europe and in our market area is fragile. It's not dominated by big corporate investments creating jobs, creating demand and consumption, creating more demand and more investments and more jobs.
It is another type of expansion of the economy, which is very slow, it's not very big, and it's characterized by consumers consuming a little more of funds they already have, so they don't borrow that much more. Companies holding back on investments. If they invest, they actually not typically do it not in the Nordic area, but in Asia or wherever. All in all, we have a low activity environment. Of course, the efficiency program will also help us delivering on our plan when revenues grow at a somewhat smaller pace than we have seen. The plan combined maybe even looks better than the one we launched last year because now we have a different mix. We have lower cost and a low income growth. Last year we had zero cost growth and some top-line growth.
I got the question from journalists today, what happens if you see more growth and more lending growth and more demand? I say we will all clap our hands because our machine is of course fully ready to cope with more transactions, more lending demand and high interest rates. Obviously this would be positive for us and we would be happy to see that happen. It would be good for our customers and good for us. Unfortunately, that's not our main scenario. We think the situation as it is one that unfortunately can prevail for some time, for a long period of time. We use that word, that's the word central bankers use when they don't know how long things will last. We use the same wording, but at least for this year and into next year, that's our best guess.
That was my introductory remarks.
Now we open up for questions and answers. Operator if you please could lead us through this.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will take our first question from Omar Keenan in Deutsche Bank. Please go ahead.
Good afternoon. Thanks very much for taking the questions. I've just got two questions, please. Just one on revenues, then just one ROE question. The first revenue question, it sounds like the low interest rate environment and sluggish loan volumes is making you a little bit more downbeat on where revenue progression can go from here. I was wondering if you could just give us a bit more clarity on what your assumptions are for total revenue growth. It sounds like volume growth, you're expecting just 2% year-on-year. I guess in the past, you've been more bullish on the prospect for savings-related fees, and those might show better development. Could you just give us a picture of how you see total revenues developing? Thanks. Then I just have an ROE question. Thank you.
Yes. It's true that on the outlook, you can say we have the following view on the drivers. Formerly, we had quite a strong revenue driver related to we expected volumes were picking up somewhat, and we expected repricing to be able to continue at some speed, and we had certain assumptions around rates flattening out and potentially increasing somewhat during the period. Now you can say we have fully taken away any rate expectations. We have even lowered slightly the repricing potential. We have based it on volume of around 2%, and we have based it on ancillary incomes potentially increasing somewhat more.
The most, I think, specific guidance we can give is that total income or total revenue should be in the, we are planning with a magnitude of around 2% annually, which is somewhat down compared to the revenue guidance we gave Capital Markets last year. We also have to say that this is, of course, what we are planning for. That is part of the plan, as Christian also described, that we are now relying more on cost as a driver of the profit in the period than before. Of course, we are tailoring the efficiency program so that if growth or rates or whatever should pick up more than expected or planned for, of course, we will be able to take advantage of that also.
I see now a potentially higher level of robustness in the plan of getting to 13% ROE in 2015 than we presented last year.
Okay. Thank you. That's very clear. My second question, just on ROE. If I extrapolate the revenue growth and your message around costs, it seems to be kind of indicating a level of net profit in 2015 of around EUR 3.8 billion. In terms of the ROE target of 13%, it feels like your absolute shareholders' equity can't increase at all from here if you're going to meet the 13% ROE target. How should I square, I guess, the circle? Is 13% ROE still the 2015 target, or is medium-term further out than 2015? Thank you.
Well, I think the ROE target is still around 13% in 2015. I think the last element you are missing in the equation is, of course, the payout ratio to have this circle working. There we have only said that it is set to increase the next two years.
Okay. Thanks. That's clear. Thank you.
Thank you. We will take our next question from Matti Ahokas in Danske Bank. Please go ahead.
Yes, good afternoon. It's Matti Ahokas here from Danske Bank. Two questions, if I may. First, regarding the Norwegian business. You guys have had quite the significant volume decline, even with the adjusting for the currencies, 16% risk-weighted asset reduction year-on-year. I'd like to hear some of your thoughts about volume growth in Norway going forward. Is this more of a structural thing or a partial kind of cyclical factor and/or that you've chosen not to participate in business? This next question is on the shipping side. I see that you've released some of the provisions in Q4. Were these mainly individuals or collective provisions? If you could give me a breakdown on that. Thanks a lot.
If I should start on the Norwegian side, I think that not looking ahead to start with, but looking on the Q4 performance, I think we had a relatively good momentum in Norway. Actually, that was one of the areas where we had relatively good volume development compared to other markets. As we have said before, we are not that occupied with market shares. I still think that we have also indicated that Norway and Finland are some of the countries where we do expect to see some potential going forward.
I can take the shipping question. We didn't release any collective provisions in shipping in Q4. We discontinued to build those up, however, so that then the collective provisions in shipping were unchanged. We had some, let's say, around EUR 10 million of new individual provisions in shipping and netted off by some reversals of the earlier made provisions for individual provisions. That is now quite characteristics how we see also the shipping loss outlook for this year, so that there are still some perhaps individual needs for booking limited amount of new provisions, but they seem to be offset by recoveries, reversals from the earlier made provisions. There'll be more and more liquidity and appetite for shipping assets in the marketplace.
Our experience is that when we sell off these credits or exit them, then that will trigger some recoveries from our provisions, showing that our provisioning level has been satisfactory in the previous years.
How much of the EUR 246 million allowances is collective allowances in the shipping portfolio?
Currently we have around EUR 70 million collective provisions in shipping.
Great. Thanks a lot.
Thank you. We will take our next question from Håkan Fyr in DNB. Please go ahead.
Hi, good afternoon. Two questions from me on the cost side. Firstly, you mentioned IT restructuring costs in Q4. Could you detail how much this was? Secondly, on the cost program, I am trying to understand why the cost program is EUR 900 million and not EUR 800 million or EUR 1 billion. Is this a result of a detailed plan or is it rather a result of your new and more subdued revenue outlook? Thanks.
Yeah. That's true. We are mentioning restructuring cost in Q4, and it's in the level of EUR 30 million. With regard to the cost program, yes, of course, we could have arrived at another number, this is actually quite a bottom-up and detailed exercise, it's very much done, you can say, in extension of the program that have been running now for quite a while. We have earned a number of experiences around the program. We know what works very well and what works less. We have discussed during the last year how to improve the program, and we have seen good progress. It's based on prolonging more or less the existing initiatives, expanding some, accelerating some. Based on this exercise, we have of course evaluated then potential risk-return measures for each of the initiatives and balanced it that way around.
You can argue it could have been a different number, this is a number we have arrived at with a number of iterations and developing, you can say, during 2013. That's also why we, from an execution point of view, is relatively comfortable with being able to execute on this program and having a good understanding of the risk and the mitigating actions needed for certain of these initiatives.
I think it's important to note that this is not something new. We have been working on this for quite some time, specifically very structured way since one and a half year ago. We are building on clear experience, we know what works and what doesn't work, where the big levers are and how to, as I said, make the bank more efficient. I think we have pretty good grip of this. I was asked today by a competitor how we got to the 900. I said it was a business secret, don't tell anybody.
Yeah. Then just finally, you state that we'll get more details later in 2014. Any indication as to when?
I think it will be as part of our Q2 reporting.
Okay. Excellent. Thank you.
Thank you. Our next question comes from Chintan Joshi in Nomura. Please go ahead.
Hi. I've got one question on cost, one on NII, and one on revenue. On cost, this morning you said you needed time to decide on the restructuring charge you need to take for this cost program. Just now we were discussing costs. You mentioned you've already done quite a detailed exercise. Just wanted to get a sense of when will we know the restructuring charge which this additional program needs in 2014? What kind of magnitude are we talking about? Maybe you can put a cap on it if you don't want to guide us at this stage. I've got two more.
I think we will also be ready to communicate more about the restructuring charge in connection with the Q2 reporting. We are not ready to guide further on the number. As we are working heavily on a huge IT insourcing project, we are working with quite significant offshoring, which has certain transition costs related to it. We are on the physical distribution side, making quite big transformations. There will be a restructuring charge of a certain size, but we are not ready to guide further on this for the moment.
Okay. The decision to expand the cost program was taken recently or when did this happen? Just to understand the timeline.
I don't think we can say that it has happened at one particular date. It has
Evolved over time. Okay
developed over, especially the last two quarters of 2013.
Okay. Moving on to net interest income. If I look at retail banking quarter-on-quarter development, Finland seems to be the only place where you seem to have momentum. Just wanted to check how we should expect lending margins to develop. In particular, if you could touch upon Sweden there. Is it just the confirmation of the 25% mortgage risk weight that you're waiting for to expand lending margins in Sweden, or is there anything else that might decide when you choose to expand lending margins there?
In general, I think we have modest volume improvement and margin improvements, not least on the corporate side in basically both Norway, Finland, and Sweden, in that order. Denmark struggling somewhat more. I think also looking ahead, as we have indicated before, we do see Finland, partly Norway, Sweden, and Denmark still being a little the question mark on the momentum being the order also from a country dimension where we do expect some future momentum. With regard to Sweden, I think that if we will see an increase of the mortgage risk weight to 25%, I think for sure the sector will look for an opportunity to reprice one way or another. That is of course an opportunity.
Is it that you feel that the government won't do it? Is that why you're waiting? A proposal has been put forward with the intention to bring the change about. I'm just wondering why is there this uncertainty that it won't happen, which is what makes me wonder if it's something else that you're waiting for.
They have clearly stated that the mortgage risk weight increase, if it goes to 25%, should be seen in context of a macro potential move, as they were also relating this to the need then for a lower countercyclical buffer. I still think that from a regulatory viewpoint, then increased mortgage risk weight would have to be followed potentially by higher margins. However, we have also seen that the increased margin on Swedish mortgages can be done in different ways, one more explicit than others. I think we have seen that one needs to be a little careful on doing it too explicitly, but there will be opportunities to do it anyway, I believe.
Okay. That was helpful. Final quick question on revenue growth. We were discussing the 2% growth that you expect over the next couple of years. That leaves you materially lighter than where consensus is just now. Just looking at Bloomberg, feels like that'll be a EUR 450 million difference between a 2% growth rate and what consensus has. That doesn't get offset by cost. I'm just wondering how have you thought about this 2% number, and where is it that we are expecting more revenue growth, which doesn't seem to be coming?
I think first of all, we are guiding on round numbers, of course. As I said, where we do see some potential on the revenue side is that we have had very strong growth on commission income now for quite a long period, we see no reason for why that should not continue. The composition might change somewhat. We do also regard the current levels of the last quarters of levels of trading-related income to be somewhat below normal. Exactly when it normalizes, of course, an uncertainty factor. As I said, we do have acceptable levels of lending growth already now in the household business, we do expect on the corporate side that there will be a pickup at some point in time.
I think there are different levers in place, they are more or less the same as we have described before, we are reducing them somewhat compared to the level of these drivers compared to earlier.
Okay. Still seems a bit inconsistent with 2% if there are these many levers, I guess we'll see how things turn out.
Come on, we are not guiding you for 2%. You have to calculate what you think the revenue will be. Torsten said we are planning internally for sort of 2%. We think it will be lower than we said one year ago, it's up to you to make your own judgment here. What we are guiding for is 5% lower cost. We are giving a guide on capital. We are not precise on dividend. We are saying it's going to increase. It's up to you to make the income. We think volumes will grow lower, like 2%. What margins will do, we all have the same problem. Will interest rate go lower, margin will go lower. Interest stay, margin might go up somewhat as we reprice, we have all the ancillary income. To make these judgments right now is super difficult.
There are so many dynamics going on. The only precise guidance we give is on cost, which is in rising, that we guide you 5% down on cost.
That's clear. Thank you.
Thank you. Our next question comes from Alvaro Serrano in Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. You've touched on it already, but I just wanted clarification. When you said earlier that one of my colleagues didn't take into account the dividend payout to get to that 13% ROE target, it seems like the payouts, this morning you mentioned that it would steadily go up. It seems if you're going to get to 13% with the figures we've discussed on revenues and costs, and if you get to that 16 basis points, it could be a mid-cycle or at least a level to achieve. It seems like payout should get materially increased, maybe north of 75% or even closer to 100%. It doesn't seem like the regulator is something they would feel comfortable with.
Are you assuming at some point, maybe after the elections or in 2015, that you're able to be more aggressive in managing your capital to stay around that 14%-14.5%?
I think in continuation of what Christian said before, I think we should be careful not becoming too speculative. The reason why we are guiding the way we are on capital is that there are still, on the regulatory side, we do still see some uncertainty, and we don't want to be too specific before we can close that uncertainty, before we can guide even more specifically. On the outlook, as we have discussed, we are planning for somewhat lower, but we don't know. That, of course, also means that the level of capital needed going forward in the next two years will, of course, be very dependent on our volume expectations and our volume assumptions. We might be positively surprised in the way that volume increases more. The equation would look slightly different.
We would have higher income growth than we are talking about now, most likely. We will have somewhat higher need for capital than we're talking about now. This is, of course, we are in a situation where when we are getting down to this low single-digit number, of course it's quite sensitive for a higher number. As we opened the meeting with, we think we have created now a plan that are having higher upside potential or higher robustness than the former plan.
If I just may add also a technical detail. As you know, we report a total equity around EUR 29 billion end of 2013.
You are sort of saying client, that we would end up with EUR 29 billion also in end of 2015. Please remember that the EUR 29, you need to deduct the EUR 1.5 billion of proposed dividend. The starting point is not EUR 29, it's EUR 27 and a half, just to make it clear.
Just a general question, not related to the results, more to the concern from the FSA on household debts and the increase in risk weights. Have you heard or do you think the FSA is contemplating or the government is contemplating other measures to sort of cool down the housing market and reduce household leverage, i.e., trying to implement some sort of forced amortization? It doesn't seem like it's the route they're going, but it could explain why you're more conservative on repricing. Could that be it, or you haven't heard anything?
I think there is a wide debate in Sweden now about the household indebtedness and so forth. What I think what the discussion now is getting more and more biased towards is that the problem in Sweden is the shortage of houses. I think more and more regulators realize that you will not sort that problem regardless of the level of the risk-weighted assets or anything like that. The discussion now is much more how to solve the actual, the fundamental problem, which is not the risk-weighted assets or risk weights or anything like that. It's actually that there is a huge shortage of houses, especially in the larger cities in Sweden, and that's what they need to sort out. I think that more and more realize that it's not the banks that really can help them in this problem.
They need to change the regulations about the construction and property development in Sweden. That's where the discussion is more and more directed towards.
Thank you.
Thank you. Our next question comes from Nick Davey in UBS. Please go ahead.
Yes. Good afternoon, everyone. 3 questions, please, from my side. First one, please, on capital and discussions with the Swedish regulator. It seems now you're talking about, at least in the near term, running with a sort of 14%-14.5% Core Tier 1 range. I just wanted to pick your brains or hear your thoughts, please, on the latest color from the regulator. Not necessarily on risk weights, but on other potential capital buffers, if there's been discussion of Pillar 2A, Pillar 2B-style buffers coming into force in Sweden. How that played into your thinking as far as where you set capital in the near term.
Also thinking 2 years forward as you talk about progressive dividend payout, I guess any color you can give us or any comfort you can give us on how much visibility you have on this target capital level and the intentions of the Swedish regulator, that would be great. Second one, please. When we talk now on marginal capital that you think you can generate from risk-weighted asset efficiencies, please just to check. Am I right if I've seen that all of that is now in your control following the advanced IRB approval? Is there anything there which is reliant on external forces? Also any more flavor you can give us on the timing of this capital efficiency measures, that would be great.
Thirdly and finally, please, corporate center Net Interest Income, which is nicely up on this quarter, and you talk a little bit about why in the release. Just please a check on how you would expect that corporate center NII to trend all else equals if we just keep short rates where they are on a 3-year view. If you could just help us think about if that is, let's say, an interest rate hedge or liquidity carry, where you think a normal quarter in corporate center on NII, what that would look like. Thank you.
Yeah. If we start with the discussion on the capital requirement level, then I think that you are right that the Pillar 2 requirement is the outstanding issue. What we have included when we guide towards 14%-14.5% is the current level of Pillar 2 requirements plus Swedish mortgage risk weight of 25% are within around the 14%. Then we are including a buffer, as you are right, that I think Swedish regulators has been inspired by the discussion also in the U.K. on how to think about Pillar 2 hard and soft requirements related to stress buffer, potentially meeting it by Tier 1 capital, et cetera. We have had first round of discussions with the regulator, but this is still not fully set. I think the main uncertainty is around this, but it can go different ways.
They might increase requirements, accepting meeting some of the requirements Tier 1. I think it's too early to conclude on this, but we don't see a wish to significantly increase the hard Pillar 2 requirements. We are, at this point in time, confident with the interval of 14%-14.5%. On the RWA efficiency program, we still have a long list of initiatives left. You are right that on rollouts, we have now done the major one. We still have a number of smaller rollouts, of course, as they are pending by approval. But of course, much less complicated. The process for our approval of our Russian application was, for example, far quicker than the Advanced. We also have a number of model changes that requires approval. We are applying an uncertainty related to approvals.
That has been built in, and we have, of course, adjusted the program. We have built in some contingency with the experience we now have on regulatory approvals and the issues around that. I think on timing that it's more or less evenly spread over the period. Finally, I think that on the Q4 performance of corporate center, I think you have to look both on Q3 and Q4. There have been a number of transactions impacting both Q3 and Q4 and had some spill-over between the quarters. I think that giving much more specific guidance NII for treasury or for corporate center is not really meaningful. We don't have any specific guidance on that.
Okay. Thank you. If I could just follow up briefly just to clarify, really make sure I understood all the points correctly. The 14%-14.5%, that I guess assumes that a management buffer, a sort of safety buffer above 12% minimum plus the implications of 25% Swedish risk weight. And at one point, countercyclical buffer, something along those lines. If there was a material shift in Pillar 2 requirements in Sweden, that would alter things. For the time being, you're confident that's not the case. Is that right?
Yes.
Okay. Thank you. Thanks very much then.
Thank you. Our next question comes from Sophie Peterson in J.P. Morgan. Please go ahead.
Hi, here is Sophie from J.P. Morgan. A couple of quick questions. My first question is around your additional Tier 1 and Tier 2 issuances. In your presentation, you are saying that longer term you target that around 4%, that you have a 4% sub-debt minimum requirement. If I look what you have today is around 2%. I was wondering when should we expect that you're going to go to the market and issue additional Tier 1 and Tier 2, and will it be more towards Tier 2 issuances than Tier 1 issuances? My second question is around your funding. If I look at Bloomberg, it looks like you have around EUR 22 billion of long-term funding maturing in 2014, which was primarily raised in 2009 and 2011 when your CDS was north of 100, and today it's around 50 basis points.
I was just wondering if you could maybe talk about the funding benefit that we should expect for Nordea in the first half of 2014. Thank you.
I think that on AT1 and Tier 2, we will issue, no doubt about that. We have not been clear on exactly when. I think that from a Nordic perspective, we don't see a huge need to rush to the market. We have seen a number of transactions now, and we have deliberately waited for one, the [full go paving] of the Swedish regulators, and two, the acceptance among investors maturing further as we see other issuing this instrument. Now we have a number of transactions. You can say we are moving closer to the time where at least it will be more of a market timing issue.
We should expect to do some additional Tier 1 issuance this year, Tier 2 is of course type of issuance you do when there are good opportunities. We are, of course, missing some clarification on regulation also with regards to this one. We talked about Pillar 2 before. We have other type of regulation coming in relating to bail-in, et cetera. There are no reason to rush, we think, as of now. On the funding, you should be careful using Bloomberg on this one. I know that numbers often are coming out. The redemption level is not of this size for 2014, is somewhat lower. We do actually expect to have a slightly lower need for long-term issuance in 2014 compared to 2013.
As we applied earlier, we still expect our total funding cost to peak here during first half 2014, and then start decreasing.
Thank you.
Thank you. Our next question comes from Per Grønborg in Danske Markets. Please go ahead.
Yes, good afternoon. Per Grønborg from Danske Markets. A couple of questions from me as well. The first one, an update on the promise you gave at the Capital Markets Day last year on risk weights. Now you have delivered on the approval of the IRB models. How much is still to be delivered of the EUR 35 billion that you promised at that stage? Second question is a little bit nitty-gritty. Last year, the refinance fees on the Danish mortgage book, you did not book that before the first quarter. Looks like you have pretty nice pick-up in your Danish segment on financial items. Have you booked some of it already in the fourth quarter of this year, or should we still expect everything to come in the first quarter of next year? That was my two questions.
I could try to answer on the risk-weighted asset efficiency program. You are right, at our Capital Markets Day, we talked about EUR 35 billion, and we have delivered around close to EUR 14 billion-EUR 15 billion of this. As I said before, we saw the advance coming in a little lower than we had hoped for, and we have applied a type of regulatory haircut in our program. We, of course, we are working on a contingency plan on this, but I think a fair range is in the level of EUR 15 billion-EUR 20 billion of additional RWA efficiency over the next couple of years.
Okay.
Sorry?
By the way, any updates on the dispute with the Danish FSA on your risk weight from last year?
No, it's still pending.
Pending. Okay.
If I may, on the refinancing fees, as you know, they are booked under fair value in our retail bank in Denmark. You're absolutely right that they were up in the fourth quarter versus the third quarter. The way it works is that there are four auctions in Denmark every year. The smallest one is in June, and the fees from that auction is then booked in the third quarter. The biggest one is in December, and that we book then in the first quarter. I can already now say that it was a quite big auction, so there would be, as you saw also the first quarter of last year, it was a big jump in the fees. First quarter would be the peak in that revenue base. The second biggest auction is in September, and that we book in the fourth quarter.
The increase between the third and the fourth quarter is that the September auction was bigger than the June auction. In the first quarter, you will see even higher fees.
Yeah. Okay. Thank you.
Thank you. Our next question comes from Jason Kepaptsoglou in HSBC. Please go ahead.
Hi, this is Jason from HSBC. Just a very quick question from my side. If you can give us a bit of color on where you now expect to see volume growth being weaker than what you did previously, both on a regional basis and on a product basis. Thank you.
You can say that household growth and in general been relatively stable in most of the countries. On the household side, the only country you can say which still has a little of a question mark is Denmark, where basically most indicators are positive, but it seems to be the case that it has yet to fully materialize in real growth. On the corporate side, it's a bit more mixed picture, but we still see quite good growth opportunities in, as we said before, in Norway and Finland. Sweden, it's somewhat more challenged, and Denmark is a little like the same story as we just discussed on the household side. On the product I mentioned, mortgages should expect to grow somewhat, we have yet to see the full pick-up on the corporate lending side. It's expected to happen during the next couple of years.
Thank you.
Thank you. Our next question comes from Riccardo Rovere in Mediobanca. Please go ahead.
Good afternoon to everybody. I have just one quick question. How should I read your ambition to increase the payout ratio over the next few years with the fact that Swedish regulators are basically aiming at kind of capping, as far as I understand, the bank's return in the 10%-12% region. This is a statement from Mr. Borg in Davos over the past few days. Is it possible to get to a point where they will also cap the dividend distribution?
Avoid any equity depletion in the banks. This is the first question. The second question, just a follow-up on shipping losses. The release you got in this quarter is something that is going to continue in 2014 too.
If I start with the first question, Mr. Borg was actually not capping the ROE. He was just doing an analytical exercise where he said that in Europe, he has talked to many banks who were satisfied with an ROE of 10%-12%. That was not any kind of directive or regulation. It was just an analytical point of view. As long as we are compliant with the regulations, we are, of course, free to distribute capital.
Okay.
The shipping loss outlook for this year, it's a more normalized situation right now so that we will see limited amount of new losses, some amount of releases from earlier made losses. I think that the level of collective provision we have built up, we will still keep. At least for the time being, so that we won't really make any kind of bigger release, at least now in the coming quarters. We have to see that the market is really stabilizing and that's sustainable before we start to touch on this bigger collective provision.
Very clear. Thank you.
Thank you. Our next question comes from Jan Wolter in Credit Suisse. Please go ahead.
Yes, good afternoon. Jan Wolter, Credit Suisse. Two questions from my side. First one is, has management penciled in any volume contraction and/or falling lending margins in your own internal revenue growth targets? I understand that you're guiding or indicating 2% per year volume growth, but the revenue growth naturally is a combination of several products. 2% top line, does that include any contraction falling lending margins that you see? Second question is, if the board asked for a buyback mandate, if I missed that, you have one outstanding today. If not, will you do that closer to the AGM? Thank you.
I don't think we can guide much more specifically on the income side. As I said before, we have went through these drivers of income looking ahead. As we have also stated, we do see in certain segments an increased competition, not least on the biggest and largest and most attractive corporate customers and so on. We do not expect in the plan, again, in our planning assumptions, we do not expect that much from margin going forward, but we can be positive with supply. We are reinstating the buyback mandate that we have already announced.
You can see that in page 10 in the report.
Okay, thanks. I just missed that.
Mandate to repurchase and convey own shares and mandate to issue a convertible instrument.
Perfect. Many thanks.
As a reminder to ask a question, please press star one. Our next question comes from Jacob Kruse in Autonomous Research. Please go ahead.
Hi. Thank you. Just two quick ones. Firstly, on the conference call with Swedbank yesterday, they floated the idea or worry that regulators may look at capping also corporate risk weights. I just wanted to know if you had any comments or hear anything on that topic. Secondly, when it comes to your cost reductions, could you talk at all about the level of staff cuts or any impact on staff levels that you see from achieving that reduction? Thank you.
On your first question, no, we have not heard anything. We have heard the rumor now, who have been raised by you, but we have not heard anything like that. On the question of reductions, the plan is consisting of a number of elements. When we talk about IT and certain type of processes, we are talking about quite significant amount of insourcing we will do. We are also talking about quite a lot of offshoring we will do to our capture center in Poland. Therefore the issue of staff reductions is somewhat of a mixed picture, and we are not at this point in time ready to guide any more specifically on any net staff reduction numbers.
Okay. Thank you.
Thank you. Our next question comes from Christopher Roskis in Barclays. Please go ahead.
Hello. Good afternoon. It's Chris from Barclays. There is one question regarding potentially higher Swedish mortgage risk weight floor and one question regarding the advanced IRB implementation. In Sweden, we heard from your competitor yesterday and at your call earlier today that the response to a 25% floor in Sweden very much depends on what the competition does. Could you please perhaps at least roughly outline which possible courses of action you would consider? Would it just be a matter of increasing prices, or would you see a combination of that you can actually maintain ROE on these parts of the business through non-NII revenue from these customers, even if the required capital for that business would increase.
Secondly, on the advanced IRB implementation, would it be possible for you to just let us know what is the volume of corporate assets that it applies to, and how much of that volume is in Norway? Finally, what is the current risk weight and what does it go to after the implementation? Thank you.
On the first question, I think that there are basically three levers on adjusting this. It's the list price, it's the negotiated price, and it's the funding cost, of course, or the spread funding cost. I think that we saw an example of being very explicit on the list price, and that is, of course, a very visible way of doing it. I think there's other measures that can be taken to adjust the margin on a Swedish mortgage product. On the advanced, it is basically the total Nordic corporate exposure, which is around EUR 90 billion as of now, as of Q4. It will, of course, have it fully implemented. You can say it will have an effect on the risk weights, the corporate risk weights, including some of the elements we have in the RWA efficiency program also.
We will have corporate risk weights in the Nordic approaching the level of slightly less than 45%.
Okay, thank you. Just to follow up on the first area regarding a response to higher risk weights in Sweden. We saw earlier in this year in Sweden that you reduced your list prices, and my understanding of that was to facilitate increasing the number of relationships with Swedish mortgage customers and gaining volume. I was just wondering if you would consider a scenario where you would be reluctant or take advantage of increasing prices amongst competitors to reinforce that strategy and then compensate them, as you mentioned, with funding costs or other levers.
If we just go back to May last year, what we did was that we lowered the list price by approximately 20 basis points. You can say the purpose of that was to improve a rather slow momentum that we had in the Swedish retail banking. What we're very pleased to see now is that we have actually a much better momentum. We see now that we actually can defend and somewhat increase the market share on mortgages. That's not the purpose. The purpose is to gain on new relationship customers. Also there we have seen a quite dramatic increase in the number of gold customers primarily. We also see that we are gaining a lot of market shares in the savings area in Sweden. The momentum is much better.
As you know, the list price is one thing, and just to mention that actually yesterday I realized that Handelsbanken has lower list price than us now in the public list price. That doesn't really tell you the whole picture because it's more of a national sport in Sweden to negotiate the mortgage. What we did was that we narrowed the spread between the list price and the final negotiated price. The impact on our margin was much less than 20. It was approximately half. Now we have done all the repricing. In the fourth quarter now we have seen a stabilizing margin, and at the end of the quarter, we actually saw an improving margin. As I said, the most important thing is that the momentum now in the Swedish retail banking business is actually better than it's been in many years.
You don't look at potentially higher risk weights as an opportunity to reinforce that?
As I said, we actually managed to raise the margin somewhat at the end of last quarter, fourth quarter, when we saw the Riksbank's rate cut in December. How much we will be able to raise that as, of course, also a competitive situation. As you know, we had perhaps one competitor who was a little bit too trigger happy. Now we are in a phase where I think we are looking at the situation, and how this will proceed is too early to say, but the ambition is clearly to raise the margin.
Understand. Thank you very much, Rodney Alfvén.
Thank you. Our next question comes from Magnus Andersson in ABG. Please go ahead.
Yes, good afternoon. Just a short follow-up on the RWA efficiency enhancing measures. Considering your pro forma guidance of 15.5%-16%, including the mitigating actions in 2014 and 2015, you said you have another EUR 15 billion-EUR 20 billion to deliver, which would take you to EUR 30 billion or EUR 35 billion. If I start with your EUR 33 billion in Core Tier 1 capital and the 14.6% you gave us as of Q4, another EUR 14 billion would take you to 16%, the upper range. If I include the full EUR 20 billion, it would take you to 16.7%. Shouldn't your 15.5%-16% guidance rather be 16%-16.5% or am I missing something?
No, I don't know if you're missing something. When we are saying EUR 15 billion-EUR 20 billion, we don't necessarily bear using EUR 20 billion in the way we guide. As I said, we have seen that getting regulatory approval can be a cumbersome and difficult process. That's why the original EUR 20 billion is now EUR 15 billion-EUR 20 billion. We will see, of course, how well it goes. As I said, we have applied a haircut for an increased uncertainty on the part of the program that is still. It is still a big part of the program that is one way or another reliant on getting approvals.
Okay, but the 15.5 to 16, then it's rather you being cautious in your guidance than anything else.
That, time will show.
Okay. Thank you.
Sorry, we have room for one more question.
Okay, one last question from Britz Berns in Arctic Securities. Please go ahead.
Yes, thank you. Is it possible to get a little more precise on how you see the effect of AIRB when it comes to corporate risk weights in Norway, Denmark, Sweden and Finland? If you look at specifically Norway, where we reported around 57% in 2012 and 47% respectively in Denmark. How much do you see this decline?
I don't think we comment on that level. The only thing we can say is that the effect of the advanced IRB approval is not impacting the different countries equally. There will be differences, but I don't think we communicated on this detailed level.
Do we have to then wait for the Pillar 3 report in 2013, or will you comment more after Q1 2014?
You will see it in the Pillar 3 report in the 2014.
Okay. We wait one year then. Thank you.
Okay, many thanks for you participating in the telephone conference. We're happy to see some of you in London tomorrow at the lunch presentation. Next Friday, we will have the shipping presentation also in London, which will be webcasted. You're most welcome to attend it. Thank you very much.
Thank you.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.