Hello, everyone. Welcome to Nordea's Capital Markets Day 2022. Unfortunately, we weren't able to meet face-to-face, but great to have you here online. Today, we will dive into the details behind our 2022-2025 strategy period, updated priorities, and new financial target. Our business area heads will also go through their respective plans and priorities. The key topic for today is how we raise the bar, take the next steps, and create further value. Our head of Investor Relations, Matti Ahokas, will now guide you through today's program. Once again, warm welcome.
Thank you, Frank. My name is Matti Ahokas, Head of Investor Relations, and I will be your moderator for the day. Welcome to the Capital Markets Day on my behalf as well. Let me first go through the agenda of the day. We'll start the day with the CEO and CFO session. This consists of a presentation by our CEO, Frank Vang-Jensen, on our strategic direction, followed by our CFO, Ian Smith, who will go through the financial plans in more detail. After that, we will have our first Q&A session, which will last for approximately 30 minutes. Then we'll take a small 20-minute break. We will then move on to the second session of the day, where our business area heads will present their business plans in detail, 20 minutes each. We'll conclude the day with a 40-minute Q&A session with the full team.
I'd also like to give a couple of instructions for the Q&A session. We very much look forward to your excellent questions, and we've actually reserved quite a lot of time for this. However, please limit yourselves to two questions at a time. You're always, of course, welcome to join the queue for further questions after that. You'll be able to ask questions in three ways: video, telephone conference, and the chat on our website. Please have a look at nordea.com/cmd for further instructions. For the chat, you can also post questions in Finnish or Swedish. During the Q&A sessions, we'll first take questions from the video participants, and then we will take questions from the teleconference and chat. Please note that on your webcast control panel, you can choose whether you want to view only the presenter, only the presentation, or both, which is actually the default.
The slides will be available for download on nordea.com/cmd when each presentation starts. Now it's time to start. The first presenter is our CEO, Frank Vang-Jensen.
At our Capital Markets Day in 2019, I had a couple of key messages about what we would do to change the bank's direction, step up, and improve our performance. I said that we would retake lost ground in business and become truly competitive again. Put customers at the center of everything we do, fix the basics, have a clear plan and right priorities, and keep things simple. Have clear roles and accountability, and empower people. Have the right people in the right positions. Deliver on our plan and priorities with a relentless focus on execution and tight follow-up. Focus on things that create value for our customers and shareholders. That is exactly what we have done. Over the past couple of years, we have turned the bank around, delivered on our promises, and created value for our customers and our shareholders.
Total shareholder return has been 107%, and we are clearly outperforming our peers. This demonstrates our ability to deliver market leading returns, and this change has happened within just two years and six months. Our strong performance improvement has also led to significant payouts to our shareholders. We have paid out about EUR 6 billion in dividends over the past three years. Dividends benefit both our shareholders and broader society as they give a clear boost to the Nordic economies. Here, our footprint is quite significant. We have more than 500,000 private shareholders across the Nordic countries and many pension fund investors representing even more private individuals. The pandemic and our decision to follow the ECB's recommendation meant that we were not able to distribute excess capital. Now we are actively moving towards a more efficient capital structure.
Our intention is not to hold excess capital, but rather to deploy it efficiently. Capital excellence is an important lever for us. It is not just an aspiration. We have also taken decisive actions to make it a reality. In 2021, we started to implement share buybacks, and we have now almost completed our first share buyback program. We have also received ECB approval for our follow-up program. We were among the first movers in the market on buybacks due to our strong capital position and capital generation. Going forward, we plan to continue share buybacks as seamlessly as possible to manage our capital base efficiently. Following the turnaround, it is time to raise the bar and create further value for our customers and our shareholders.
Before going deeper into our updated business plan and financial target, I will touch on the key aspects of our turnaround and our position today. In 2019, when we launched our new targets and updated priorities for 2022, we were confident that we could change the bank's position significantly and meet our targets. We have now surpassed our 2022 financial targets one year ahead of schedule, and all of our business areas have met their respective targets. Are we pleased with the performance? Yes. We have taken decisive actions and driven strong developments in many areas. Are we finished? No. We have just started. Reaching our 2022 financial targets was an important milestone, but now we are aiming higher. I have been often asked, what was the key to making this happen? My answer has always been, and still is, there were no magic tricks or silver bullets.
It was a combination of many, many things, but it was primarily about setting a clear direction, having clear roles and responsibilities. It was about making the business areas fully accountable for the business, for the income, the costs, risks, customer experience, investment decisions, and capital management. The recipe might sound simple, but the simple things are often the hardest to achieve. At the same time, we updated our incentive system, we simplified the system, and most importantly, we significantly strengthened the link between business performance and remuneration. We also started to build a strong cost culture and to do things at, in a simpler and a smarter way. We focused on increasing cost awareness throughout the entire bank, for example, regarding the use of office space, travel guidance, and company benefits.
We have now fewer organizational layers and significantly fewer committees, and we are spending less time in internal meetings. For us, everything starts with our customers. It is everyone's responsibility to make them their priority. The change we needed was to make sure we were eager to listen to and learn from our customers. This was a cultural change we needed and made in the bank. Where are we today? We are focused on our four Nordic home markets, and we are delivering a strong performance, improved profitability, increasing business volumes, and higher market shares. This all demonstrates the strong development of our franchise. We are regulated by the ECB, which has created extra demands in the short term, but has also made us stronger and will create more predictability. We have derisked the bank over the past few years.
We have divested from Poland, Luxembourg, and the Baltics, and we are currently exiting Russia. We have a very strong credit portfolio, a low risk, and low risk levels. We have reduced capital and income volatility and focused on a few selected international units, China, the U.S., and the U.K. We have reduced exposures in the oil and offshore segments significantly. The relative share of our retail portfolio has increased. This has not only strengthened our risk position, but has also driven stronger and more stable income development. All in all, we are a substantially less risky bank with strong capital generation and, of course, shareholder returns. We have grown our profits, but we have also made them less volatile. Our quarterly operating profits volatility has decreased significantly and is much lower than the European banking sector average.
Our lending portfolio is well diversified across countries and business areas, and more than half of the portfolio is allocated to household customers with low risk mortgages. We are growing our income sustainably. Our net interest income and savings income have grown faster than our Nordic peers. We have the benefit of a strong balance sheet. For instance, our high credit rating and competitive funding cost clearly reflect our low risk portfolio. The Nordic region is a very attractive region to run a bank in and drive profitable business growth. The Nordic markets offer steady GDP growth while having probably the strongest social safety net globally. The Nordic societies are digitally mature and skilled, which provides a solid basis for increase in digital engagement and good opportunity for interacting with our customers in a modern way.
All in all, the Nordic banking market is stable, it's safe, it's profitable, and it's growing, driven by high returns compared with the rest of the European market. Probably one of the best banking markets in the world. To summarize our position today, the combination of our very strong business franchise and the characteristics of the Nordic banking market creates an attractive operating environment and growth opportunities for us. We have leading market positions in all four markets and business areas, and we are leading in the Nordics as a whole. We still have a lot of potential to grow further in all business areas and each local market. This presents a clear opportunity for the future. Now we are shifting another gear. Let me go through our plans.
Our strategy for the coming period is about delivering best in class omnichannel customer experiences, raising the bar on our financial performance, and driving further value creation for our shareholders. We will deliver all this in a sustainable way and develop the bank for the future. Our new financial target for 2025, a return on equity above 13%, and I mean better than 13%, is a firm target. It's not an aspiration or wishful thinking. It is a clear and explicit target, and we are committed to delivering. This means that we will be the best or among the best banks in the Nordic and European markets. Our focus is on growth and profitability. Our new target will be supported by a cost-to-income ratio of 45%-47%, and expected normalized low loss levels of approximately 10 basis points.
It all also assumes a CET1 requirement of 15%-16%, including our capital management buffer of 150 basis points-200 basis points. Our dividend and capital policies remain unchanged. Ian will walk you through the numbers in his session. You can expect us to adopt the same approach that we did in 2019, set the target, and relentless focus on execution. Yet again, once the target has been achieved, we will decide on the next steps and continue to improve our performance. In order to reach our target, we have reshaped our key priorities, which are to create the best omnichannel customer experience, to drive focused and profitable growth, and to increase operational and capital efficiency.
We will also activate two key levers crossing, cutting across the entire bank, being a digital leader among our peers and integrating sustainability into the core of our business. Both of these levers refer to current mega trends, shaping businesses and societies, and both are areas in which we want to excel from a position of strength. Our updated vision is to be the preferred partner for Nordic customers in need of a broad range of financial services. We are already a safe and trusted partner for all our Nordic private and corporate customers. Now we want to be one step ahead for customers who are increasingly interested in their financials, and are looking for more from their financial partner. Let me now double-click on each of the priorities. Creating the very best omnichannel customer experience is our way to modernize relationship banking.
It is essential for securing long-term success. Today, we have more than 1 billion digital engagements per year, and approximately 800,000 advisory sessions, and we are rated as the number one mobile bank in the Nordics. This is an extremely strong foundation. We will invest even more in this area. One example is our mortgage process, where we are transitioning to a seamless omnichannel loan process, combining digital interfaces and our advisor support when needed. In Sweden, where this is already on the way, we have shortened the processing time from days to minutes. We will continue to drive further digital activity and business by continually developing our digital sales, products, and services. We will also leverage data insights and analytics to drive even more personal and relevant services for our customers.
This will ensure that we can fulfill all banking needs efficiently and smoothly, whenever and wherever our customers want. Creating the best omnichannel experience is our way to keep customers at the center of everything we do, while also maintaining an edge to our competitors, both incumbents and digital-only players. Our strategy is focused on profitable growth. We will intensify our portfolio optimization work, allocating capital and targeting profitable growth in selected areas. I will return to this topic soon. I would like to mention two strategic growth areas where we are paying extra attention and have specific plans in place. The first is accelerating savings growth. The Nordic market is structurally very attractive for savings business. We are in a very strong position, and have growth plans built on an enhanced product offering, a strong and revised digital proposition, and more efficient savings process.
The second is targeting a larger retail private wealth and SME footprint in the attractive Swedish market, where we still have plenty of room to grow. We will prioritize Sweden when it comes to sales capabilities, market activation, and digital care. We will mainly invest in organic growth and strengthen the focus areas, but we will also remain open to selected bolt-on acquisitions when the right target to support our strategy becomes available. Our third priority is about increasing operational and capital efficiency. We have made good progress in building a strong cost culture over the past two years. Our work to strengthen our cost culture even further will continue, with our focus remaining on growing revenues faster than costs. Now the time has come to also improve our capital efficiency, which will be one of the key drivers for delivering higher profitability.
We will manage our capital base efficiently, reduce capital intensity, and allocate capital for profitable growth based on thorough analysis, and we will continue to exercise discipline in customer selection and pricing. We will return excess capital to our shareholders, just as we have shown recently. The way we look at our business is a portfolio mix of four businesses and four Nordic countries, with two additional special units, private equity and international institutions, and asset management. This four times four plus two perspective is our key tool for analyzing and optimizing each part of the portfolio. Targeting profitable growth and or higher returns. We still have areas for improvements in all of these business units and have identified some key levers to drive profitability improvements. These are accelerating savings growth, driving profitable lending growth, increasing operational efficiency, and reducing low yielding assets.
These levers will be utilized depending on the current position of the unit and the opportunities we identify. Here you see the 18 different business units where they are positioned and the main focus for each. This matrix view is a valuable tool for us to determine which levers are relevant for the various parts of the portfolio. In essence, we accelerate the areas in green and lift the areas in amber. Our business area heads will soon present their priorities and outline how they will drive growth and profitability in their units. The target picture for the group in 2025 is clear. Improve profitability and even better business mix, all parts of the portfolio will be stronger and better positioned than they are today. While we are well-balanced at the group level, we still have some individual segments in which we can improve our profitability, which is key.
There's no sacred cows in our business. Our portfolio optimization is all about reflecting the bigger picture in detailed operational plans and strong execution. All units have to be profitable, and we will do what is needed to make sure this happens, while at the same time allocate more capital to the most profitable units with the largest growth potential. What I really want to emphasize is that this is not just a PowerPoint. Our approach to our portfolio optimization is thorough, disciplined, and data-driven. We work very hard to uncover and understand all details and then take the necessary actions piece by piece to deliver the desired result. The ultimate goal of this is to ensure we are able to deliver market-leading financial results and best-in-class capital returns. We have no intentions of settling for anything less.
We are one of the best-capitalized banks in Europe, and in the coming years, we will continue to grow the bank with even higher profitability. We consistently expect to generate capital and will strive to deliver very competitive returns through stable and predictable dividends, complemented with share buybacks throughout the strategy period. Moving on to the two key levers, digitalization and sustainability, supporting our strategy across all our businesses. In these areas, we aim to continue to be one step ahead of our competitors. Digital development is an area which all market players aim to address. The key question is how to build a competitive edge. We are in a strong position. Our digital customer experiences have been ranked top of the class. Customer digital engagement has increased by close to 40%, and this has already led to significant increase in digital business activity. This creates a positive cycle.
Competitive digital experiences lead to increased digital engagement, which leads to even higher business activity in digital channels. We will enhance our omnichannel offering by developing more personalized digital interactions with a human-like touch in the coming years. The omnichannel experience is all about creating a seamless flow between our digital services and our people. Our 2025 target is to have at least 25% more digital active customers. We are creating full service functionalities for all daily banking needs and plan to double the number of available digital products and services by 2025. We're also extending our digital offering for corporate customers in both the web and mobile banks. We are making digital banking easier and offering all relevant products in one shop. This will support more service and active purchasing flows for digital sales.
We will continue to be the top-rated mobile bank in the Nordics, nothing less. Sustainability is a great opportunity for us, but it's actually much, much more. Sustainability is at the core of our culture. It is an integrated part of our value proposition to customers, how we run the bank, how we organize our internal operations, and manage our risks. Over the past two years, we have accelerated our sustainability efforts throughout the organization. Our actions and new sustainability targets during the strategy period will focus on increasing positive impact while decreasing negative outcome. The operational and financial impact of this will be net positive for us. On the opportunity side, to increase positive impact, we will facilitate more than EUR 200 billion in sustainable financing and double the share of net zero committed assets under management.
At the same time, we will continue to focus on decreasing negative impact, making sure that by 2025, 90% of our exposures to large corporate customers in the most climate exposed sectors is covered by transition plans, and 80% of the top 200 emitters in our investment portfolios are either aligned with the Paris Agreement or subject to active engagement to become aligned. We are taking decisive actions and continuing our step-by-step transition approach with an increasingly green balance sheet. Over the coming years, we will capture sustainable growth opportunities while ensuring that we grow our business in a way that is consistent with our 2030 emission target. We are moving into the new strategy period from a position of strength. Our plans and priorities are worth very little without the determination to deliver.
That is why we will continue to strive for a no-nonsense, high-performance culture with clear roles and responsibilities. Accountability is key. People are incentivized based on their accountability, and that is closely tied to our financial success, as it should be, not least from a shareholder perspective. Our plans and priorities have customers at the core. We will elevate the Nordea brand and deliver on our updated brand promise in all products and services. We'll keep things simple. Our organization is flat, lean, and efficient, a culture where we do what we say. We will empower people, the right people in the right positions, leaders that are passionate and skillful in their areas. We will challenge, we'll follow up, we'll encourage, and we will support. We will deliver with a firm focus on execution. Does all this sound familiar? It actually should.
These are the things that we are known for and driving forward relentlessly. This is what we are doing. Raising the bar on our financial performance. We will drive the best-in-class omnichannel customer experiences. We will ensure that the bank is well-equipped for the long- term, including beyond 2025. Most importantly, we will create further value. We will create value for our shareholders, but consistent shareholder value cannot exist without creating value for our customers. There cannot be profitable growth without happy customers. There cannot be valuable value for customers without passionate and dedicated employees developing and offering great services and products. When we create value for our shareholders, our customers, and our employees, we create value for broader society. That is our way forward. Thank you. Now's the time to look at the numbers. Ian, the stage is yours.
Thanks, Frank. Hello everyone. I'm very happy to be here today to talk about the plan behind our 2025 financial target. Let's pause briefly to reflect on Nordea's performance over the last two years. We've delivered really strong growth in customer volumes. Sure, there's been a helpful market backdrop, especially in 2021, but we've also taken market shares in mortgages, SME lending, and asset management. Our focus on the customer has paid off. All the while, we've worked on our operational efficiency, reducing costs by 5%, delivering significant positive jaws and improving our cost to income ratio by 9 percentage points. Our strong operating performance and careful management of our REA means we've generated CET1 accretion of around 200 basis points after paying dividends in accordance with our capital policy.
We've achieved this from a rock solid financial foundation with strong capital funding and liquidity, enabling a market-leading credit rating that allows us to fund our balance sheet on many measures better than our European peers. We hit our targets one year early through relentless focus on implementing the strategy we set out at our Capital Markets Day in 2019. Focusing on the ROE improvement, it's been delivered entirely by improving our business operating performance, income growth, and operating efficiency. Capital, because of the pandemic restrictions on distributions, was actually a drag, and I guess if you had to choose, you might want it that way around. Capital management or capital excellence will play a bigger part in the next phase. We should also recognize that our performance has benefited from favorable market conditions.
In particular, in 2021, we enjoyed exceptionally strong income growth, especially net fair value income in the first half. Adjusting for that, our underlying cost-to-income ratio in 2021 was probably more like 49%. What about the road ahead? It's important to share with you the most important economic assumptions that underpin our plans for the next three to four years. I won't dwell on them, and I'll only note two things. First, as Frank highlighted, we're operating in the strongest economies in Europe. Secondly, the speculation surrounding potential interest rate hikes continues. We're not sure rates will move as quickly as the market suggests, but let's see. Rate rises have a modest positive impact on our revenue projections in the back end of our plan, and so if they come sooner, then that's upside potential for us.
The most important rates for us, the ones that will move the needle, are in Sweden and the Eurozone, and so we will watch those very closely. You're now familiar with our financial target for 2025 and the different components that will help us deliver it. Over the next few slides, I'll spend some time looking at the key levers to increase our return on equity, and later, the business area heads will deep dive into their plans. I want to underline two key points that are non-negotiable in our team. A return on equity above 13% in 2025 is a hard target underpinned by careful planning, a solid commitment with a clear timetable rather than an aspiration. This will put us among the best banks in the Nordics and Europe. Secondly, our philosophy is to plan prudently and then focus on strong execution and performance.
Our plan focuses on the three key levers that will deliver the step up in return on equity, operating performance, cost of risk, and capital excellence. In contrast to the last two years, when Nordea's ROE improvement has been dominated by operating performance, all three will have a meaningful impact in the next few years. We will continue to improve our operating performance, profit before loan losses. I'll cover that later, and my business area colleagues will unpack it further. The cost of risk in 2021 was extraordinarily low. That will normalize, but the new normal will be lower than what we have seen in the last 10 years. Finally, capital excellence. We're off to a good start with the work we've done in improving the capital efficiency in LC&I, and we're leading the way in Europe on buybacks. That work will continue.
In addition to talking about that, I'll say more about our REA development and our estimated impact of Basel IV. After factoring in the impact of higher loan losses, all of the business areas will contribute to the improvement in returns, just as they have done over the last two years. In 2025, we expect our cost-to-income ratio to track down to somewhere between 45%-47%. This improvement will be driven by revenue growth, especially in lending and savings, which the BAs will talk about in detail, and good cost management. We're investing in our businesses to deliver that growth and in our infrastructure to build a better bank.
I'll say more about costs and investment in a minute. Setting aside regulatory levies, such as fees for deposit guarantee schemes and resolution funds and the new Swedish bank tax, we plan to improve our core operating efficiency, and therefore our underlying cost-to-income ratio every year between now and 2025. Now, we're not fans of reporting underlying measures here at Nordea, and that won't change. I hope you'll indulge me on this occasion, as it's the Capital Markets Day. There are a couple of factors that will mask the real improvement in the cost-to-income ratio in the near term. As I mentioned earlier, the income performance in 2021 means that was really a 49% year if you strip out the impact of exceptional net fair value income. We have the introduction of the Swedish bank tax in 2022.
We'll work to offset that, but it'll take some time. The new tax means we have a bulge in the reported cost-to-income ratio in 2022 and 2023 before the trend lines of underlying and reported converge in 2024. Bottom line, the key focus for us is to drive income growth above cost growth, positive jaws. Between now and 2025, we expect income to grow at around 2 percentage points faster than costs on average. Moving on to costs. We've reduced our absolute costs by EUR 230 million or 5% in two years. We've reduced FTEs and overheads, lowered our unit costs through nearshoring and increased productivity through automation and process improvement. At the same time, we've invested in our platforms, particularly digital development.
Looking ahead, in addition to general cost inflation, we expect to incur costs to support growth. Higher operating expenditure is planned to support our growth initiatives in PeB and AWM, in sales and sales support, and product development, and in ESG capability in all of our business areas. We're supporting higher volumes. In 2021, we handled 9% more new mortgages than in 2019. Our productivity improvement will continue, helping to offset the cost pressure. We expect to deliver gross productivity improvements every year. We also plan to spend around EUR 500 million on infrastructure investment each year. Technology and regulatory demands will continue to absorb the bulk of that spend. We think that's the right level to balance the ever-increasing demands, especially from regulators, with our ambition, particularly in digital, and our change capacity.
The bar is set higher every year, particularly in the areas of digitalization, data, financial crime prevention, information security, and sustainability. Indeed, sustainability brings a whole new requirement to our customer relationships, capturing data we don't have today and using it to manage down and report on financed emissions. Importantly, we have the financial strength to invest where we need to. Our Temenos project, also known as Core Banking, continues. It's taking longer than originally planned. We've had a number of competing priorities that emerged after we started in 2015, such as the move to the SSM and the regulatory developments that came with that. In recent years, we have focused substantial resources on digital development, the customer-facing end of our technology platforms. Temenos is an important part of our technology stack, but it's only one of several projects in our development portfolio.
When Temenos is done, for the customer segments and products it serves, we will have a platform where making changes should be easier and a little cheaper. That's the real value of the project. It won't deliver lower running costs, but it will help us build a stronger bank. Taken together, we expect to see modest cost increases over the plan period, a CAGR of around 1%-2%, which will be more than offset by income growth as we deliver positive jaws. Over the last couple of years, because of the pandemic, it's been difficult for stakeholders to estimate, and to some extent for the banks to guide on expectations for loan losses. Today, we'll share with you how we think about the new normal and rebase expectations for run rate credit losses at Nordea.
Our customer lending portfolio is quite different from ten years ago, with much lower average credit risk. There's been a significant change in the mix of our lending. Almost 60% of our portfolio is now lower risk household lending, most of it secured on property with a low average LTV. We've cut our exposure to more risky lending. We've exited foreign operations and reduced our presence in industry sectors that have experienced more volatile economic conditions, such as shipping, oil and offshore. We're much less exposed to the higher credit losses associated with that lending. Nordea is now a Nordic-focused lender with a lower credit risk portfolio. Accordingly, we now expect our cost of risk to be lower going forward than the historical average. Over the last 10 years, we saw average annual credit losses of around 15 basis points.
We now expect the new normal average annual cost of risk to be around 10 basis points. Of course, we're still not in normal credit conditions. After taking substantial precautionary provisions in 2020, we saw extremely low levels of credit losses in 2021, only 1 basis point. Credit losses at such low levels are unprecedented, and a clear indication that we're still not back to normal conditions. As we said on the Q4 earnings call two weeks ago, we expect that it will take a couple of years to work fully through the impact of COVID-19. In 2022 and 2023, we should see the COVID-19 impact on our loan book unwind. Our stress testing of the portfolio indicates that our customers are in good shape.
However, some may not emerge intact from the pandemic, and we may need to draw on our buffer to cover the credit losses that result. Our base case is that we won't need the full amount of provisions we have on the balance sheet, and so reversals are also likely. What's hard to predict is the short-term shape and pace of the development of the provision requirements. Over the next two years, we'll again see a cost of risk that is a little bit lumpy and on average, lower than historical experience. In 2025, we expect that the annual cost of risk will settle at around 10 basis points, and this will be the new normal for Nordea. Moving on to capital excellence, which over the next four years is an important lever for driving our profitability.
First, I'll cover the key REA drivers and then move on to capital requirements and capital generation. First, REA, where the growth over the next four years will be modest. We expect to grow lending strongly between now and 2025, led as you'll hear later by our businesses in Sweden and Norway. We expect the mix between household and business lending growth to be similar to what we've seen over the last two years. Now, there are three main areas where careful management of REA will offset part of the increase from lending growth. We'll continue to reduce the capital intensity of our corporate lending, especially by redeploying capital away from low return business, and we've already shown a strong track record in this space. We will actively manage trading book REA growth through FRTB compliant hedging.
Finally, we expect to go live with our new capital models later this year, and we have further model development planned. Our retail and non-retail model suite is currently proceeding through the ECB approval process. While we don't expect to see major changes in the REA outcome for retail lending, we believe that the implementation of the new non-retail models will allow us to set aside the temporary floors that were imposed on transition to the SSM. We will work with lower model-driven risk weights going forward. Now, before you get your rulers out to measure the boxes, we estimate that we can offset around two-thirds of the REA increase with capital initiatives over the period. Then there's Basel IV. Clearly, anything we say about Basel IV must be tempered by the recognition that the legislative process has some way to go.
While we have a good handle on how things will look based on the EU Commission's October 2021 proposals, they may change. In 2025, we expect the inflation in REA from phase 1 of Basel IV to be relatively modest, less than 5%, mainly driven by the fundamental review of the trading book and some minor adjustments to operational risk capital measurement. Looking even further ahead to the fully loaded impact of the proposals in 2030, we would expect the REA increase, principally driven by the introduction of risk weight floors, to be around 10%. This estimate assumes the use of transitional arrangements proposed by the commission. Given the extensive debate in the EU around the finalization of the output floor, we should probably stop here.
Wherever the rules end up, given Nordea's strong organic capital generation, we're confident that we'll handle the implementation of the fully loaded capital requirements without it affecting our 2025 plans. Between now and 2025, we plan to manage a convergence between normalized capital requirements and the reduction in excess capital. Before going into detail, I'll summarize the key takeaway. Over the next four years through a combination of dividends and buybacks, we could distribute between EUR 15 billion and EUR 17 billion to our shareholders, an important lever in delivering on our financial target. Let me give you some more detail on how this comes about, and I'll cover it from two angles. First, let me talk you through the capital demand side and how we see the regulatory requirements evolving over the next few years.
I'll summarize our thinking just now, and we provide an appendix to the slides that shows the detailed buildup. Then I'll cover the supply side, net capital generation, and how we plan to tackle excess supply. We expect regulatory requirements, including our 150-200 basis point management buffer, to settle at around 15%. For the formulation of our ROE target, we've assumed a conservative outcome at 15%-16%. Now, to be clear, this is not a new target. It's a prudent planning assumption. Currently, the minimum regulatory requirement stands at 10.2%. Together with our management buffer, that means a CET1 operating level of around 12%. Broadly speaking, we expect the CET requirements to increase by around 3 percentage points, essentially going back to where we were pre-COVID.
We expect the reactivation of countercyclical buffers to contribute around half of that increase. The balance of the increase comes from higher systemic requirements. The O-SII requirements set by FIN-FSA in Finland and some impact from the Norwegian systemic risk buffer that was announced last year. Our base case is that systemic requirements will increase by 150 basis points combined. Those outcomes would see us get to around 15%, including our management buffer. That feels reasonable. However, macroprudential requirements could be pushed higher. For example, if Finland decided to introduce a countercyclical requirement, which of course would depart from precedent. We don't today think that's necessary. For prudence, we set our return target based on a range of eventual capital requirements that runs up to 100 basis points higher than where we think we should be.
We can work to deliver the best outcome. That's the full picture on the demand side. What about supply? Our excess capital today is equivalent to around 500 basis points of CET1. The normalization of capital requirements will absorb around 300 basis points of that excess. Rate of growth from lending, net of capital initiatives, and phase one of Basel IV, together with the second buyback that we announced last week, depletes the excess by a further 200 basis points. Strong net capital generation post-dividends over the next four years should add back around 300 basis points. That indicates we'll have 200-300 basis points of excess capital to deploy over the next three to four years. Our capital policy is unchanged.
A 60%-70% payout ratio on dividends and the deployment of excess capital for profitable growth, including bolt-on M&A, or we'll return it to shareholders via buybacks. We have good engagement with ECB on our buyback plans, with EUR 3 billion approved to date, and discussions are underway regarding a further application for at least EUR 1 billion later this year. We're establishing a solid track record with the ECB and other stakeholders on the use of buybacks as a tool to address our excess capital. Now, of course, our plans are subject to economic developments, regulatory decisions on capital requirements, and ECB approval on buybacks. However, circling back to where I started, you can do the arithmetic based on what we've outlined today. Remember, we paid out EUR 4.4 billion in 2021.
If we were to estimate a euro number, then from 2022-2025, the combination of dividends, buybacks already announced, and the reduction in excess capital could amount to EUR 15 billion-EUR 17 billion. In other words, over the period 2022-2025, Nordea could return to shareholders as much as 40% of today's market capitalization. Frank has spoken about Nordea's commitment to sustainable banking and our strategic approach to helping customers manage the transition to green. I now want to spend a moment talking about how it impacts our financial plan and target. The scale of the task in Europe is becoming clearer. The European Commission has presented a plan to mobilize EUR 1 trillion of investment between now and 2030 to enable the transition.
What's also becoming clearer is the role that leading banks, like Nordea, will be expected to play in supporting the transition. The medium-term demand for credit to finance the transition will be substantial, and the estimates of the scale of the opportunity continue to grow. Now, there'll be fierce competition for these lending opportunities, but we're confident that our commitment, our capability, our balance sheet capacity, and most importantly, the depth and breadth of our customer relationships with a unique footprint across the Nordics will make Nordea one of the winners in sustainable financing. As Sarah will explain, customer appetite for ESG savings and investment products is huge.
It's been a major feature of our savings inflow in the last two years and will continue to grow, supporting our capital-light commission revenues. We're extremely well positioned to capitalize on this demand because of the focus and expertise in our asset management business. Nordea is now the second largest ESG provider of Article 8 and 9 funds in Europe. As Snorre will discuss later, we continue to invest in this market-leading capability. As well as capturing the growth opportunities, we're carefully managing the risks that come with the reshaping of the lending portfolio. We've made important commitments to reduce greenhouse gas emissions in our portfolio by 2030, and we're working hard to deliver on those. Now around a quarter of our loan book is to customers in industry sectors that are classified as climate vulnerable.
Around half of this is real estate lending, with the more brown sectors such as oil, gas, and offshore, shipping and mining, representing only a small portion of our total exposure. A key pillar of our sustainable banking strategy is to work with those customers to assess their emissions footprint and to understand and support their plans to reduce those emissions. This is a process that will take time and require expert judgment, and we're investing in that by training our people and developing our processes, and we're having many, many customer conversations. This work is underway, and we've either completed or started the assessment phase for around 70% of our exposures in climate vulnerable sectors. What we're learning is that understanding our customers' emissions is crucial. Without this granular knowledge, we won't be able to ensure we take the right actions to drive emission reductions.
Hence, we're investing heavily in developing sustainability lens on our customer base. In some cases, we may conclude that a customer doesn't share our commitment to improving sustainability. In those cases, we'll part ways, but we don't expect those instances to be widespread. For example, we've developed deep insights in relation to our exposures in the oil, gas and offshore sector, replacing proxy data with specific granular measures and drawing on work on transition plans and customer selection. This has shown that the financed emissions in this sector of the Nordea portfolio are much lower than suggested by the proxy data, and demonstrates the importance of the assessment process we're undertaking. We are well positioned to support our customers in sustainable lending and savings. Sustainable banking volume growth is an important part of our plans to 2025.
We're developing good insight into the sustainability risks in our loan book, and we're confident we will manage them. Nordea will be a winner in sustainable banking. To sum up, in 2025, we expect our ROE to exceed 13%, supported by revenue growth, a cost-to-income ratio of 45%-47%, and improved capital efficiency. The new normal for cost of risk is expected to be around 10 basis points. Our planning assumption for a CET1 ratio of 15%-16% is driven by normalization of capital requirements and active capital management. The capital and dividend policies are unchanged, and over the period to 2025, our planned total shareholder distributions are around EUR 15 billion-EUR 17 billion. Thank you for joining us today, and Frank and I look forward to answering your questions.
Now it's time for the first Q&A session of the day. As mentioned previously, you have three ways to ask questions, and we will first take questions from the video and then the teleconference. Just a reminder, keep your camera on, keep your microphone on, and please raise your hand in Teams when you want to ask a question. In the teleconference, please press zero one to ask a question. We will start from the video, and the first question comes from Anders Håkansson, Danske Bank. Please go ahead.
Yeah, good afternoon, everyone, and thanks for that. Two questions. First one on capital. You have a new buyback mandate of EUR 1 billion. But if we look at the pace of how you're doing your buybacks, it seems like that EUR 1 billion is gonna end towards the summer. Since, Frank, you said that you want to do it very seamlessly, that means that you should ask for new application to this by this summer. Is this how we should look at how the capital plan is gonna happen, that you do a couple of applications every year? The EUR 1 billion that you ask for now doesn't mean that that's the full number for 2022. That's the first question.
Hi, Andreas. That's spot on. Certainly for this year, and as I said in my presentation, we're already in discussions for a follow-on application of at least EUR 1 billion for the second half of this year. That's exactly how you should think about it. Going beyond 2022, we have a good pace developed with ECB. I think our discussions work well, and we can update later this year. Certainly a seamless process through this year.
Perfect. I didn't quite understand your thinking around your cost growth and your revenue growth. You look at cost inflation of 1%-2%, and then you say that revenue's gonna grow by 2% faster than that. You then look at loan growth of 4% and growth in savings capital 4%-6%. Unless you have a margin pressure, that means that those two components should be growing the revenues at around, let's say, 5%. What is it that you see that's gonna be shrinking on the revenue side?
I think it is prudent to you know build in an assumption of a little bit of margin pressure. It's a fairly competitive world out there. But I think you know our growth in volumes we expect to be strong and therefore will push the income line along. Yes, some margin pressure, but the volumes are key.
If we get rates going up at the same time, as most people now expect ECB to hike potentially even late this year but definitely before the end of 2025, that would then have quite a positive kicker. Have you factored that in some way?
We haven't factored that into the base plan. Of course, if we see things move a little bit quicker than our expectations, that should certainly provide some upside. We think, you know, better to focus on the controllables.
Yeah. Thanks. That's it from here.
Thanks. The next question is from Riccardo Rovere, Mediobanca. Please go ahead.
Thanks. Thanks, Martin. Thanks for taking my question. A couple, only a couple, if I may. The first one is on the 4% lending volume growth, which honestly does not differ too much from what we're seeing today in the area. Maybe it's a bit higher in mortgages, a bit lower in the corporate side, but it's not different. I was wondering how can you gain market share when you are technically growing more or less in line with the industry, unless you believe that the industry is gonna decelerate maybe at some point. Also you mention you wanna focus on profitable growth. How can you square the profitable growth with the market share gains? At the end of the day, it's like saying which one of the two is more relevant here?
The other question I have, to get back one second to the previous one, you clearly stated that higher rate is not baked into your assumptions, into your targets. Would you be able to give us a rough idea of what would be the impact if rates had to go up earlier than expected by, well, you can do it at 25 or 50 basis points? If you can share some color on that, if you want. Thanks.
Good. Should I take the first one here, and then I could take?
Sure.
The second one. When it comes to the lending growth and the volume growth, as of now, looking at the 2021 Q4 figures, we are growing roughly 6% year-on-year on the mortgage side, and gaining market shares in most markets. In three out of four markets, we are gaining market share, and in Norway, we are somewhat around our back book market share. We expect that to continue. We cannot see anything that, at least as of now, should change that picture. It is about making sure that we keep, like, the focus and also ensure that we are ahead of the market growth. Similar situation you see on the Business Banking side.
Strong growth way above market growth in Sweden and Norway, growing in line with market in Finland and somewhat in line, probably a little bit less in Denmark due to the repositioning of the business we have done. That is like finalized now. We expect to continue this growth. Then, of course, our assessment, as you point to, is how does it look in the future? We could, you know, forecast 6% growth rate as we are doing as of today, but I mean, we had just thought it would be prudent and a little bit conservative to take down the market growth a bit. If it will, you know, continue with a very high growth rate, then the numbers probably will look better.
Let's see.
Hi, Riccardo. Regarding rates, we do assume rate rises in our plan, but they are back ended, you know, out towards sort of late 2023 into 2024 and 2025. There is some rate increases assumed there.
If that were to come forward, then, as I said, you know, that's a helpful upside. You know, we're generally positioned well for interest rate increases. You know, at the moment, I think there's so much speculation and so much uncertainty, you know, we prefer to leave things as they are in terms of planning. Impact-wise, we've talked before about a 50 basis point parallel shift delivering around EUR 250 million-EUR 300 million in NII improvement. Of course, that all depends on which rates move, when they move, and how much is passed through to customers. Somewhat theoretical. The most important rates for us are in Sweden and the Eurozone. That's because essentially in Denmark, we're already compensating for negative rates in our deposit pricing.
In Norway, we're more wholesale funded and therefore less sensitive to immediate rate hikes, although over the medium term, higher rates will improve our NII. I think I've seen analyses that suggest we're kind of middle in the pack for European banks. Probably feels about right.
Very clear. Thanks. Thanks a lot.
Next question is from Maths Liljedahl, SEB, please go ahead.
Yes, good afternoon. Thank you. Yeah, a lot of things to ask about here. If we start with, you said that you want to be the preferred partner for a broad range of financial services, but that you also will reduce low-yielding economic capital sectors. Could you elaborate a little bit on where you see that you would be scaling back in terms of keeping risk at a lower level? That's the first question. Second, on the savings market, it seems like everyone is focusing on growing private banking assets and the savings market, and we do see a lot of challengers in this segment as well. What will be your strategy here? Why should Nordea be the preferred sort of savings platform? Thanks.
Thank you for the question. If we start with the first one, I think we should look back where we come from, right? Because what we have done the last 2.5 years is to create a pricing discipline and also a profitability focus instead of having a volume focus. When you get that implemented in the organization, it becomes culture, it becomes even stronger culture over the years to come or expected to be even stronger. You get your customer experience to work efficient, we're available, we're proactive. You are gaining market share, and that is what is happening now in retail, and in SME, and in private wealth.
What we have done the last 2.5 years is that within LC&I, we have reduced the number of low-yielding assets quite significantly. Are we finished? No. We can still have some work to do, and that goes for, I should say, also business banking, of course. It, you know, not in the same magnitude, but still there are some work to be done. It is about now continuing to do what we are doing, ensuring that we keep speed, productivity, availability, and then strengthen the discipline and the pricing culture even further. If we do so, it will be a significant growth going forward as well.
As we discussed in the previous question, we have not used the same market growth in our forecast as we have seen the last couple of years, but we have included or we have used our market position, similar to where we are positioned today, and that is a great spot. That actually connects to your second question, and I fully agree with you. Why would you grow where, like, everybody is talking about private wealth and so. Some key levers. Looking back to where we came from, we were perhaps a little bit too focused on our institutional and third-party sales and asset management. We still like that business. We still think that brings great scale benefits, that support the rest of the business areas.
Mostly what has happened is that the connectivity between our distribution or internal channels and our product unit, as asset management and life and pension, has strengthened significantly the last couple of years. Our position now in Sweden and Norway is actually that we are gaining market share, and we can do much more. That is what we want to do, and that is what we will deliver. In Finland, we are the biggest one, so that is about, you know, continuously strengthening, continuously fine-tuning, and get the growth in the market. Denmark has been a little bit muted, and that is because we have changed the operating model and how we go to market. We have a high market share. I can't remember exact figure, but perhaps around 30% in Denmark, I should say.
Something like that. There we now start to see continued growth again. All in all, I believe that we have what we need within private wealth to continue the journey, right? The question we haven't talked about, and I should not bring it up here perhaps, potentially, that is on the retail side, the savings side, like, their digital is super important. There, of course, we have challenger banks that are doing a great job. We cannot see any reasons for why we, in this strategy period, cannot catch up with these guys. We have what we need. We have the customers, we have the digital setup, we have the products, we have the people, and we will fight back now. Let's see how that will go.
Don't you think, pardon my French here, but that cross-selling is more or less over and it's more important to be very, very specialized and win, I mean, each small segment than sort of being with the broad offering? Or am I wrong?
It's about believing. We have a different belief. We believe we have the right model, and that's why we are winning, and have done that 2.5 last year, and we will continue to win. We believe in a relationship model that is built on an omnichannel customer experience way, combining the best digital solutions with the best advisors in the Nordics.
Okay. Thank you.
Next question is from Sofie Peterzens, J.P. Morgan. Please go ahead.
Hi. Here is Sophie from J.P. Morgan. My first question would be on the bolt-on acquisitions. How do you define a bolt-on acquisition in terms of kind of core equity Tier 1 impact? Should we assume that it's less than 100 basis points or less than 50 basis points? How should we think or what is really a bolt-on acquisition? That would be my first question. My second question would be on cost growth. You're going for 1%-2% cost growth, but could you just talk a little bit about how you see underlying wage inflation? Should we expect any cost savings from the Temenos kind of for decommissioning the old legacy IT system?
If you could just give a little bit more details around kind of underlying cost inflation and kind of the investment plans. Thank you.
Thank you. Should I start the first one, and then you can jump in with capital and take the last one, Ian? On bolt-ons, Sofie, the same procedure as you have seen the last couple of years. Our main focus, or our focus in, is on organic growth. All hands on deck, full focus, grow in the core of our business, and that is what we are doing and will continue to do. If we are finding a target that is in the core of our strategy, meaning in the Nordics, one of our four business areas, and strengthen our strategic offering, then we would be very interested.
Of course it has to be the right price, it has to be available, and it has to bring profitability. An example of such one was SG Finans, now renamed to Nordea Finance Equipment. That has been a very fine piece to our Nordea Finance Equipment business and had actually strengthened us significantly into within that business. We are now the Nordic leader by far within that business. It is a, you will say, a small one. We are clearly not looking for any transformational acquisitions. It's a small one, a little bit less than 400 people, having the right, like, customers, having the right offering, and is quite easy to integrate. This could be an example. Ian?
Hi, Sophie. Yes, included in our assumptions around all the moving parts in costs is some inflation. Our published inflation assumptions are for around 2% across the Nordics. We've got a little bit more than that in our plans, and we obviously work hard to offset that. A bunch of different levers and moving parts, including efficiency and productivity improvements that look to offset both cost inflation, but also the things we're choosing to do. You know, where we're choosing to hire, where we're choosing to add to our product portfolio, those kinds of things. Important to offset that. As far as benefits from decommissioning systems are concerned, and you mentioned Temenos, not surprisingly.
We need to tackle this once and for all. When we bring in new infrastructure, that adds to the cost base. We will, every time we get the opportunity, decommission systems. That doesn't necessarily take out a lot of cost because those old legacy platforms are pretty cheap to run. We should really abandon this notion that there are massive savings to come from decommissioning. We will invest to build better infrastructure and build a stronger bank, and we don't include any cost savings from decommissioning or anything of that nature in our financial target.
Thank you. That's very clear.
The next question is from Magnus Andersson, ABG. Please go ahead, Magnus.
Yes. Hi. Just two questions then. First of all, on your financial drivers, I missed the first part of Antonia's question there, so perhaps you were into this. If you could break down the 4% lending growth and your 10 basis point loan loss assumptions, per business area, and geographically. Secondly, just on costs, following up a bit there. If we assume that your 4%-6% savings assets growth, if it would instead deteriorate here in the beginning, what kind of flexibility do you have on the cost side, if that would happen?
Ian, you wanna take it?
Yeah, sure. Unless you wanna do the growth on it afterwards.
Yes, yes.
Magnus, hi. Sorry, actually, your question just popped out of my head. Can you just remind me?
Just on your cost assumption, you assume 1%-2% in CAGR cost growth, 2021-2025. You also assume 4%-6% savings asset growth. 2021, we are at a pretty high level. If, for example, savings asset growth would deteriorate.
Yeah.
Grow much slower in the beginning here, do you have any flexibility in your cost side to offset that? Or are your cost plans kind of fixed so that would result in another curve over the period?
That's clear, Magnus. We do have some flexibility. Clearly, we set out our stall. We plan for what we expect to achieve in driving growth. As Frank explained earlier, you know, our track record in that space has shown us to be a winner. We expect to deliver growth. If the world changes, we do have a degree of flexibility. You know, we're choosing to incur certain expenditure in order to support that growth. We will, you know, mix and match to the extent that we feel appropriate. We will respond to changing conditions. Yes, no question.
Okay. Good. Thanks.
Good. When it comes to the growth you asked about, I heard it as a lending growth, right?
Yes. Lending growth and loan loss assumptions per business area.
Yes. Let me take the lending growth, Ian, and then over to you on the loan loss levels or forecast assumptions, you can say. If you try to divide it in the drivers, right? Mortgages, SME, clearly the biggest drivers, and then we have our fine LC&I business, but that will not move a needle. I should say there, we expect some growth but, you know, don't necessarily see it as a high growth rate. There will be a sufficient need for, and we see it already within sustainable lending financing. It will not move the needle. The needle is moved by mortgages and SME.
There we expect a quite continued quite strong growth, but lower than currently, in Sweden in both areas. We expect a strong growth and within Norway in both segments. We expect a bit smaller growth, or a smaller growth in Finland, but still, you know, steady in defending our position. We expect a quite good growth on mortgages in Denmark, and then a better growth than today in Business Banking, but probably smaller than you'll see in Norway and in Sweden.
Okay. Thank you.
Magnus, in terms of our guidance on new normal loan losses, clearly a blended average. You know, the bulk of our lending now is in household, and therefore it's at a low rate. We're not giving the splits, but I wouldn't expect them to be out of line with Nordic experience. We've got a very well-diversified, very well-selected portfolio. So, you know, that's what gives us confidence that 10 basis points is about the right level for the shape of our book.
Yeah. Okay. Thank you.
The next question is from Robin Rane at Kepler Cheuvreux. Please go ahead.
Yes, morning, and thank you for taking the questions. Starting with savings, on the savings growth assumption there, 4%-6%, how much of that should come from net inflows, you think? And how much from value gains? Then second question on costs. The development of AML costs were a driver for the cost a couple of years ago. Have things normalized on this in this area relative to the peak or can we expect this to continue to contribute to fighting underlying cost inflation? Thank you.
Sure. Robin, in terms of the cost piece first. The costs we've incurred in prior years were about, you know, I guess, bringing our systems and processes up to standard. I think what we see now is the bar keeps moving. Regulatory expectations on what banks are expected to do to help fight financial crime continue to increase, and it means that we will be investing in that for some time to come. It makes us a safer bank, a stronger bank, but we see no particular letup in the cost pressure there. Of course, that's you know, one of the key things I mentioned in my presentation that we build into our cost forecast. We continue to invest and incur costs in that important space.
Not to forget digital. Digital is also a part of the IT investments, and we are spending a significant amount there. We have now a fantastic Nordic platform covering all four countries. More than 1 billion logins now. Adding data analytics, digital sales, that is just bringing a lot of income and business, and we will continue to invest and stay ahead within this area.
Sure. In terms of savings development, Snorre will really make this come alive for you later on today. Broadly speaking, we expect to see, you know, equity market development around 6% per annum, flattish on the fixed income side, we're 50/50. The important thing is that we've done really well in driving our flows, both from the sort of core Nordic customer base, but also institutionally. Flows are really important. We've really ignited that engine there, and we would expect that to continue. Flow is an important part of saving development.
All right. Thank you very much.
The next question comes from Maria Semikhatova from Citi. Please go ahead.
Yes. Hello. Thank you for the opportunity to ask the question. Somewhat related, first of all, given digital is so important in your strategy, can you talk specifically about mortgage journey across the countries where we are currently in the digital process, and do you expect this to be fully digitized by end of the plan? Somewhat related on the structural cost takeout, what do you think would be the key drivers in the plan? Maybe specifically how we're thinking about the branch network with the digital first strategy by end of 2025. Also, if you see more opportunities in nearshoring in Poland or other offshoring of IT resources, et cetera. Thank you.
Let me start with the digital and then Sara will come back to the question in the last round of Q&As when she has done her presentation on retail. The short answer is yes, I believe that the mortgage journey will be fully digital. I believe that the combination of having it fully digital and then in a very seamless, smooth way connecting it to our advisors. When the customers have fallen in love with an apartment someday, they can basically get it all digitally. They want to speak to a person in the same journey, they do that in a seamless way, and then they finalize it. For the ones that wanted digital only, it takes like five minutes max. That is where we're heading.
There will be them that wants a face-to-face meeting or a video meeting, and that is, you know, exactly what we are doing. We are moving ahead. In Sweden, we have shortened down the mortgage process time from days to minutes now, and we are continually continuing to implement this in the different countries. At least they give a little bit flavor of where we're heading.
Maria, to your question on the levers that we're pulling on cost. It's really more of the same. You know, what you've seen us do over the last couple of years is process improvement, nearshoring. I mean, we've moved an awful lot of some of our operational stuff to Poland. Poland is quite competitive right now in terms of you know, access to resources, cost of resources and others. We have options elsewhere, whether it be some of our technology capability in India or indeed a sort of hub of capability we have in Estonia. A bunch of options available for us, and we'll continue to look at that where it makes sense.
That'll help with these productivity and cost improvements that we have to deliver each year. We also need to take a clear-eyed look at what we do and work out whether we should do it or we're the right party to do it. We've got a couple of ideas that we're actively exploring there. A good example of what we have done is, in 2021, we exited the sub-custody business. It didn't make sense for us to do it. There are people that are better at it. It's that sort of clear-eyed look that we'll apply going forward. It's really all of the above, more of the same.
What we're trying to convey here is a constant culture of cost consciousness and productivity improvement.
We have the next question from Jens Hallén, Carnegie. Please go ahead.
Perfect. Thank you. The first question is, I guess, as a follow-up on revenue growth and trying to solve for your ROE target. Like listening to most of your answers and comments on the different growth drivers, you believe that the assumptions that you put into the plan are quite conservative. Lending margins should be helped by rising rates. Fee generation should be stronger than, you know, getting to a 3% or 3%-4% revenue growth. My question is, how have you come up with the 13% then? Have you solved backwards using your cost plan, and effectively seeing whether this is a conservative estimate, but if things materialize as you actually expect, you should be able to be, well, I guess, well past the 13%.
Thank you for the question. Our financial target 2025, for 2025 is a Return on Equity above 13%, and by that I mean better than 13%. We have the track record of delivering, and we will push hard here. Let's see how high we can get it. I believe, or at least I'm confident that in 2025 we will deliver best in class Return on Equity in Nordic and European banking industry.
Well, I guess we will have to over the next few years, we'll try to see what you think the 13% or above means, whether that's a 14% or aspirational 15%. Second question is on LC&I and capital optimization. I mean, you say that you want to optimize the capital consumption in this area, and you've successfully done it over the last two years. When I look at the slide, the optimization slide that you showed, I mean, you pencil in low profitability and low income growth. Did you consider whether this is an area you should even be in? Whether you can utilize that capital somewhere else?
We of course did that in 2019 and then we made a thorough assessment of whether we believe that we can increase the return within this business to the average of the group and not be a drag. What we have seen and learned the last 2.5 years make us believe that we can take the next step as well from like 12%, 13%, 14% to 16% and then be on the same level as our SME business.
By that, we have a profitable business that are having the right size, that are very focused and are delivering value to the group, being both the product provider to rest of the bank, but also helping us basically to, you know, when you have an LC&I business that is to raise the bar to deliver the right products and so, and then we can scale it for rest of the group. I believe that we have a plan in place that will make it, and they will be a good contributor of value, also for the next period, also in the next period.
Okay. Fair enough. Thank you very much.
That concludes the first Q&A session. Do not worry, we have also kind of checked who's in line. You will be the first ones to ask in the next Q&A. We also have questions from the chat. We have a long Q&A session after the business area presentation. See you in 20 minutes. Thank you.
Thank you.
Welcome back. Now it's time for the second session of the day, and we will kick off with Personal Banking and Sara Mella.
Good afternoon. My name is Sara Mella, and I'm the head of Personal Banking. Now I am excited to kick off the business area presentations and to share Personal Banking's situation today and our plan for the coming years to reach our financial targets. Nordea is the leading retail bank in the Nordics. Two and a half years ago, in our previous Capital Markets Day, I said, "We will win the mortgage market," and that we have done. The proof is seen in the mortgage growth numbers and our increased front book market share. Two and a half years ago, I also said, we have the digital platform in place, and we would start creating scale benefits and efficiencies, as well as improve customer experiences with our digital services. All that we have also done.
The proof is seen in our improved cost efficiency, where Personal Banking's cost-to-income ratio has improved with 6 percentage points. We also get great feedback on our digital services, both from our customers and external parties assessing the market. For example, the latest survey by D-Rating highlighted our progress and ranked us as the best digital performer in Sweden. One of our strengths is a well-diversified and balanced business portfolio. All four countries are contributing to our success, and all countries have improved their profitability. We are growing in all markets, and we have achieved above-market growth in mortgages. Comparing the countries on profitability, the picture looks a bit different from when you compare them on cost-to-income ratio. There are three main elements creating differences on profitability. Firstly, the mortgage risk floors differ between Nordic countries. For example, Denmark has significantly lower risk floor compared to Sweden and Norway.
Second, the business and product mix can differ, for example, in regards to what is the share of higher margin consumer lending or share of capital-light savings business. For example, here Norway is more mortgage-heavy with less capital-light savings business than other countries. Thirdly, and lastly, there are also differences in mortgage margin levels between countries, where Sweden is the country in the Nordics with the highest mortgage margins. We have delivered on our 2022 targets one year ahead of schedule. The 2022 target for cost-to-income ratio was approximately 50%, and in 2021 we delivered that, 50.8% to be exact. Let me now focus on the coming years ahead. I will go through our plan, what we will do to take us further, and how we will win. We will build on top of our success and strengths.
The momentum is strong, and our retail machinery works well. Income growth plays a bigger role than cost reductions in the cost-to-income ratio improvement in the coming years. It means that we continue to drive our strong mortgage business and also invest in few focus areas such as savings business and growing in Sweden. We have had higher than normal ROCAR in 2021 of 17%, but we will improve that to 18% during the next three-year strategy period despite of returning back to normalized loan loss levels and capital requirements. Let me now highlight few fundamental elements of our core strategy in Personal Banking. We are a modern relationship bank, and we build on long-term relationships with our customers. The first driver for the future growth is to accelerate cross-selling and drive increased business volumes. That is especially to be seen with mortgage customers.
For example, in Sweden, now more than 60% of our mortgage customers have monthly savings with us. The other countries are not on that level yet, and our target is to increase this across the board. Also, Sweden can further improve in this. The second driver is that we further develop the seamless omnichannel experience, combining digital with human service and advice. Our competent advisory with 3,000 advisors is an advantage compared to pure digital players and in markets with more and more commoditized products. A concrete example of great omnichannel experience is in savings advisory, where Nora, our digital savings advisor, can quickly switch to a human advisor if a customer so wishes. This happens as fast as snapping your fingers. It's a very easy and seamless experience for the customer.
Last year, we had more than 200,000 Nora advisory sessions where customers had this opportunity. We saw an increase of almost 10% with these Nora sessions. I will now move on to our focus areas, generating growth and higher customer engagement. First of all, we will focus more on savings business. I believe we in Personal Banking can benefit more of our excellent fund offering and performance, and the strength of the asset management competence in this group, which provides high-performing retail savings products for our customers. We will expand our savings product offering in the rising interest rate environment in the coming years. There is a huge potential to activate new savings customers, as we still have millions of customers not saving yet. We will especially leverage our mortgage relationships to get new savings customers.
In Sweden, we have already today half of the total savings inflow to funds coming from our mortgage customers' monthly savings. We will also increase the share of wallet with our existing savings customers by increasing digital productivity to prompt customers to invest further. How will we do that? We're investing in customer data and analytics, and we will be much sharper on targeting the right customers with relevancy. Relevancy improves the hit ratio in sales. We will utilize our digital capabilities to get even more value out of the biggest customer base in the Nordics. The second focus area is to grow in Sweden, where we will invest in advisor capacity in selected growth areas. This is simply adding more advisors to meet more customers, as we expect our digital proactiveness to drive more demand and needs.
Well-functioning and efficient digital sales is a prerequisite to grow sales and business in the future. We will prioritize Swedish market and bring new digital services to our customers continuously. We will have full digital offering during this strategy period, meaning that all customers will be able to do full self-service of daily banking tasks and perform purchases of all product lines. The third area of growth is within the opportunities sustainability offers. We have seen an amazing growth of customers' interest to take sustainability into account when making investment decisions. We have already for two years asked systematically how customers value sustainability in their decision-making. We're reaching levels where soon half of our savings customers say sustainability is important and impacts their decision-making. This means there has been a growth of almost 100% in their preference in sustainable choices. We have a strong ESG savings offering today.
We see growing inflows in sustainable funds and see those investments being stickier in the times of market turbulence versus other investments. By December 2021, more than 25% of fund cross-sales in Personal Banking went to sustainable choice funds. We have the solutions and advice capabilities to really capitalize this trend. If we see a similar phenomenon happening in the lending side of customers' interest to make sustainable choices, as we've seen in savings side, it will offer a fantastic opportunity in lending and mortgages for the ones who have the best products and advice in the market. No doubt, we will be ready and there, as we have the resources and capabilities to invest in this. The trend in recent years show acceleration in digital customer behavior.
The shift to digital will be even more pronounced in the coming years, and that is a great opportunity to grow our business because we are the one of the strongest in digital, and we have a customer base of millions of customers with different needs across the four countries. We can grow faster and more efficiently than many other. We will provide further improved customer experience with personalization and new insights, making it easier and actually more inspiring for customers to plan their finances and buy our products and services digitally. Already today, our digital reach in personalized one-to-one messages to our customers goes up to 80%. Adding more easy click-to-buy services in the coming years will enable growth. We will grow the number of digitally active customers by 20%.
More than double the personalized one-to-one messages and engagements in digital channel from 4 million to close to 9 million. The scale benefits of our digital platform will be seen in income growth more than we've seen in the previous years. The reached digital maturity in customer behavior and our capabilities support that. I have highlighted in this presentation the importance of the seamless omnichannel experience in our business model. Now, why is that in the core of our relationship business, making us outperform in the market as we have done and will do? Imagine yourself buying your first house, taking your first mortgage. Big commitment. Probably the biggest economic decision you do in your life as a private person. Or imagine yourself being worried about your lifelong savings in times of market turbulence.
You want to talk to somebody human, who is competent and trustworthy and has those topics as her expertise. Someone who is there for you in those moments with advice. You also want smooth, easy and fast process when dealing with your mortgage process and transaction or buying more funds. You want to do and choose yourself when do you do your stuff and be independent of anyone. Digital is key, but in some life events and situations, digital is just not enough. We add the extra, the human advice on top of the great digital services we have. Seamless omnichannel, combining the best of digital and human. That's us. The competitive edge is that we are more than pure digital players, and we are stronger in digital than incumbents. Sweet spot, where you get the customers and grow with their needs.
We have an exciting journey and great business opportunities ahead. We have ambitious, yet realistic plan to reach our targets: ROCAR of approximately 18%, and cost income ratio of approximately 45% in 2021. Thank you. I will now invite Nina to come and share the Business Banking plan.
Thank you, Sara. Now let's turn to the interesting world of the SME business. My name is Nina Arkilahti. I'm the head of Business Banking. I'm here today to present to you our progress since the last Capital Markets Day in 2019, as well as, and more importantly, to give you explanations and presentation on our targets in the new strategy period. Looking at the progress since the Capital Markets Day in 2019, I think the words to describe that is that we have had a very strong financial performance. To me, this is due to three factors. We have contacts with almost 60% of the mid-sized companies in the Nordics. With this local expertise, we truly understand the needs of our customers.
This local expertise, combined with our Nordic scale and size, which is the second factor, we are able to have the high-quality products with up-to-date features that are interesting to our customers. Thirdly, on top of that, we have the specialist advisory skills, and our advisors with their big deal flows are the top class advisors for the customers' more complex needs. In fact, very recently, we came up as number one trade finance bank in the Nordics, in a Prospera survey. It is not about the short-term targets only. At the same time, we have been building for our future. We believe that a big part of our continued success is in the so-called double transition. I will get back to that, but in details later.
It is about the digital transition continuing, and it is about the ESG transition. We have a good market position on all of the four major Nordic markets. We have a diverse business that is evenly allocated between the four countries. We are growing our income in all four markets, and the income growth comes evenly from net interest income and fee-based income sources. To me, that is a sign of strong and wide customer relationships, high-quality products, and skilled advisors. It has not been growth for its own sake, but at the same time, we have been able to improve our profitability. Besides the top line growth, this is thanks to strict capital discipline, good and improving credit quality, as well as focus on costs and efficiencies.
When we look at the country-specific profitabilities, we see that in Denmark, we have had a profitability-led approach in the past couple of years. Meaning capital measures, meaning customer selection, customer right pricing, and focus on costs. Now we see the good signs of improving profitability in Denmark. In Finland, we have a good market position with high profitability. In Norway and Sweden, we have been able to grow fast in the past couple of years. We have been proactively attracting new customers and done more deals with the existing customers. In fact, last year, we came up as number two SME bank in the Swedish markets in a Prospera survey.
Lastly, I would like to mention to you that our decision to acquire the then SG Finans a couple of years back, and which is now successfully integrated into our Nordea Finance company, has, of course, also created further boost to our income. It has also created the leading equipment financing company in the Nordics. It has enhanced our offering towards the SME customers, creating cross-sales opportunities across the customer bases, and it has improved our competitive position. As Frank said earlier today, we have reached our target of 45% cost-to-income ratio that we committed ourselves to in the Capital Markets Day of 2019. It is because of income growth, especially so in Norway and in Sweden, and it's about having kept the costs under control. This is because of further digitalization, improving capabilities, increasing self-service features.
It's about simplifying processes, consolidating not customer-facing tasks into central units to create efficiencies. Our Danish colleagues have been very successfully cutting costs to create space for growth in Norway and in Sweden. Now let's move to the next new strategy period. We want to become the preferred bank for SME companies in the Nordics. Our operating model works very well. We will continue growing in Sweden and in Norway, and we will build further on our strengths, the high-quality products and the skilled advisory services. We will accelerate the digital. On the cost side, we will continue simplifying processes, seeking efficiencies to free up time for our advisors to talk to customers, which will also eliminate costs. Our financial targets for the new strategy period are cost-to-income ratio around 40% and a ROCAR of 16%.
This, we think, are very ambitious targets, also considering that the loan losses will be normalizing in this period, and the regulatory capital buffers will be reinstated. We believe that we benefit from market trends, and therefore we are well-positioned for growth. I mentioned the double transition in the beginning of my presentation. Now let's have a look first at the digitalization. We know for a fact that small enterprises and small businesses prefer taking care of their daily banking needs over digital channels. We also know that the mid-sized companies value personal advice for their more complex needs. We will continue developing our services to meet the expectations of both categories. Then the ESG transition. Our customers want to transition their operations into a sustainable business model. That is because they see growth opportunities in sustainability.
We also know that the SMEs sometimes do not have in-house experts in making this transition happen, and therefore, for us, it is a great business opportunity both to offer our advice and to finance the investments needed for the transition. That is why we have trained two-thirds of our advisors to engage our customers into the dialogue to create the credible plans with ambitious timetables for the transition to happen. We have a scalable business model that works very well. With our remote meeting capacities, we can scale our advisors and meet more customers than ever. By increasing self-service features for the daily banking needs, we free up time for our advisors for the more complex needs. We will continue increasing the digital sales functionalities in the digital channels.
We believe that by combining local and Nordic will make us very attractive to the SME customers in the Nordic countries. When we look at the country-specific plans, let's start with Sweden. This is the biggest market in the Nordics, and in this country, we have a, relatively speaking, lower market share than, for example, in Finland. As a fact, I can mention to you that last year our market share of the equity capital markets and debt capital markets transactions in Sweden was over 20%, which is far more than our lending market share on that market. If you are chosen as the advisor for your customer in these critically important big transactions, that brings you very close to your customers.
It also is proof of your high-quality products and skilled advisory, creating an order backlog for the future. By continuing in Sweden to be proactive towards customer, focusing resources into growth segments and regions, we will continue outpacing the market growth in Sweden. Norway is a very similar story. Also, in Norway, our relative market share is lower than, for example, in Finland, and by focusing our resources to proactivity and advisory, we will continue growing faster than the market in Norway. We will also diversify our business even more to the ancillary, which will support our profitability. In Denmark, as I said, we see clear signs of improving profitability, and now it's time to turn for growth.
It is about finding the right customers, and I believe that the right customers are the mid-size companies that benefit from our local expertise combined with the Nordic scale and size. It's about widening the customer relationships to ancillary, which also supports profitability, and it's about continuing with the capital discipline and with the customer selection and right pricing. In Finland, we have a high and stable market position and good profitability. I think we all can agree that the COVID-19 has accelerated the digitalization in our society. From not being almost able to have any meetings early 2020, we are now having more meetings than ever. This is thanks to our abilities in the remote meetings and increased features around digital, like the digital signing. During the pandemic, we have also launched our new joint platform across the Nordic countries called Nordea Business.
This is a scalable modern technology platform which is multichannel. With Nordea Business, we have been able to decommission some legacy old systems, creating efficiencies. That is not the main driver of Nordea Business. The main driver is that our customers wanted that. Now we have the leading mobile app in the Nordics. Our customers like that. They give us high ratings in App Store. We will be able to add new features to the service as we go. That means accelerating the digital's journey. We currently cover some 40% of the daily banking's needs in the digital channel, and it is our target to reach 80% by 2025. We have also launched the digital store with sales functionalities, and by 2025, we will have 20 digital purchasing journeys in the service.
This will enable us even better to engage with our customers also digitally. It is not only about the digital channels. By 2025, we will be able to offer our SME customers fast and easy lending digitally. We will build the bank inside the company's internal systems to make it even more effortless for them to take care of their banking. Assisted by data, we will make sure our relationship managers have the relevant dialogues with our customers about relevant topics. Let me summarize. We will be the preferred bank for SME customers by 2025. We will have a ROCAR of 16% and a cost income ratio around 40%. We have the size and the capacity to support our customers in whatever they want to do, and this is unique in the Nordics.
Our targets are ambitious, and we are very committed to delivering on those. We have a clear plan, which we follow up closely, and very importantly, we have a very good team. On top of this, there is the double transition which will create us good opportunities for continued growth. SME companies are a key driver for prosperity in the Nordics. We, as their business partner, are the green fuel for their growth. Thank you very much. Now I invite my colleague, Martin.
Thank you, Nina, for that strong Business Banking plan. It feels very good to stand here today, and I'm proud to present the strongest Large Corporates and Institutions business around. Since our Capital Markets Day in 2019, we have been through a significant repositioning of this business, and we exceeded our 2022 financial target one year early in 2021. It's simply a very different business today. We are now lifting our ambitions further with a firm target of reaching an industry-leading return of 16%. Let me now walk us through how we will win and how we will deliver on our new targets. As a starting point, we have a well-diversified business model across income, capital, and geographies. We have refocused and reduced our exposure to markets outside the Nordics, exited volatile and complex products, and instead focused on serving our clearly defined core corporate and institutional clients.
We have the best personal relationships across all our four key markets in the Nordics, and we have the leading competencies to support our core client needs. We also have the financial strength and capacity combined with the needed fast decision-making capabilities that make us the strongest partner in the Nordics when it comes to large strategic transactions. Lastly, I would like to stress our strong focus and ambitions within the field of sustainability and ESG, where we have taken a clear Nordic lead. Back in 2019, we set out to increase our return to above 10% by 2022, something we have now exceeded one year ahead of plan. As you can see, the turnaround was based on a broad mix of measures with lower capital consumption, lower costs, and fewer employees, while simultaneously growing income by almost 30%.
We have done what we said and a bit more. It has been a benign market in this period with very active capital markets, all-time high asset valuations, and very low loan losses. However, we clearly differ from our peers in the way where we have permanently reduced capital and costs in the same period. Our four strategic pillars introduced at the Capital Markets Day in 2019 were clearly the right ones. Number one, we have de-risked our balance sheet and reduced commitments where they do not meet the cost of capital or increased prices and auxiliary business to lift returns. This has been a successful strategy for us that will also continue going forward. Number two, we have streamlined our markets business, for example, by simplifying our product range and reducing inventories.
Number three, we have developed our ESG offering and capabilities, notably within the bond area, where we are now the clear market leader in the Nordics and well underway with our industry deep dives to build the needed data quality around our clients' carbon emission exposures. Lastly, we have refocused and shortened our international presence to the locations our clients value the most. We decided to fully exit Frankfurt, Singapore, and Russia. This leaves us with a prioritized and continued presence in New York, London, and Shanghai. This has so far led to a significant repositioning of this business with 27% lower capital, costs down 14%, 37% fewer FTEs, and 28% higher income, lifting our full year 2021 return to 15% with a cost-to-income ratio of 42%.
Yes, this slide I'm really proud to present with some of the hands-on activities that have brought us here. Before going into the graphics, it is clear that a repositioning like this start with people. A continuous focus on growing our people and ensuring a diverse and inclusive culture has been key for this strong performance. Another way to show how we have strengthened our platform is to look at how we have increased customer profitability through enhanced business selection and pricing together with our clients. This is also a key building block for our future success. What you can see in the top graph is the share of capital not meeting our return hurdles. Midyear 2019, close to half of our capital was classified as low returning, whereas today, we have reduced that to less than 20%.
This has been achieved by both large and small day-to-day items in close collaboration with our clients. We have demanded a larger share of available ancillary income and required adequate pricing for our balance sheet commitments and advice. Here I must say that we have seen more acceptance and understanding from our clients towards higher pricing and more capital light business volumes than I expected at the time of the Capital Markets Day in 2019. This clearly shows the strength of Nordea's brand and how closely we partner up with our local clients in this region. Having said that, we have, of course, also seen some full client exits in this process. Performance management is also about everyday tasks, such as cleaning up currency accounts, having correct NACE or industry codes, timely reviews of internal ratings and updated client IDs, et cetera, et cetera.
We now have a very disciplined approach to pricing, return hurdles, and not least, the continuous monitoring and follow-up of individual client plans. With markets streamlining in the bottom illustration, we have made significant progress and are now running a structurally different business with permanently reduced costs and capital consumption. We have a very strong and clear strategy serving all of Nordea. Naturally, income levels are also supported by positive market sentiment, notably an incredible first quarter of 2021. However, our underlying business is simply just performing better. We have refocused our efforts on our core corporate clients, both within LC&I and business banking. We have reduced our market risk and counterparty credit risk capital significantly through lower inventories, shortening of duration, active hedging, and less OTC products, while also ensuring that all production costs are adequately priced.
We have introduced a flat country-based client-focused organization and taken out more complex products. All in all, Markets has delivered 48% higher income, 24% lower costs, and 31% lower capital since the Capital Markets Day in 2019. Everything that we have achieved over the last two years gives me absolute confidence that we will deliver on our plans for 2025. How will we win from here? We will do this by raising the bar across five clear strategic main drivers. One, sales excellence to increase income per client for our Nordic core clients through higher intensity and cross-selling with a partnership approach with our existing client relationships. Two, selective growth and investments, targeting pockets of growth in profitable corporate lending and fund financing, and selectively investing in our capital light growth areas in investment banking and equities.
Three, increase operational efficiency, front to back optimization of our full value chain, including outsourcing and partnerships on parts of our infrastructure where we deem ourselves uncompetitive. All this to lower our cost to serve and increase our client satisfaction. Four, accelerate capital excellence through improved IRB models, replacing our current risk weight floors, risk sharing transactions, and pricing of the Basel IV impact, and with full implementation of FRTB. Five, become the number one ESG corporate bank in the Nordics by leveraging our strong position and facilitating EUR 200 billion in sustainable financing in the next four years. We also expect tailwinds from lower resolution fees. From lower resolution fees and new IRB models, we expect a combined two percentage points higher return, expected to impact our P&L from 2024 and onwards.
With this clear strategic plan and increased ambition level from the proven initiatives from the last two years, there is no reason why we can't further improve our performance and reach our 16% return target with a solid and future-proof business mix. Let's look more closely into two of the most important strategic drivers in our plan. Firstly, selective growth and investments. We will invest in capital light growth within capital markets financing, strengthening our capabilities in corporate finance and equity sector research, especially in clean energy, healthcare, and tech, as well as to further strengthen our high yield DCM origination and distribution capacity. Further, we are in the process of applying for a full U.S. broker-dealer capability to support clients through securities underwriting. We continue the successful delivery of our return-enhancing path in markets, continued focus on capital efficiency, and identified unique pockets of growth.
We will also selectively grow our profitable corporate lending in the Nordics and fund financing. We expand in ESG and transitions advice, which we will tell more about on the next slide. We are confident we will win in these selective growth areas that will all support our long-term competitiveness and return targets. Secondly, we will accelerate capital excellence. To reach our profitability targets, we will be selective in how we deploy our balance sheets, and we will constantly seek to optimize the triangle between income, cost, and capital. We will apply a number of levers. This includes implementing our new capital models, adapting our balance sheet and pricing to future capital regulation, such as Basel IV and FRTB, and finally, by leveraging our credit capabilities to share and distribute risk.
We have already proven that this is a powerful tool, reducing our capital by 27% since our last Capital Markets Day, but we can do even more. Our new capital models are set to become more competitive as the risk weight floors we have incurred for our two largest capital-consuming sectors are expected to become more aligned with those of our Nordic peers. We will share risk on selected corporate loan portfolios, which will free up capital and enhance profitability and protect against loan losses. This is a good example of how we prioritize return over income and size. Finally, we will also originate to distribute as a way of continuing to support our clients with their financing needs while optimizing the use of our own balance sheet. All of which makes us well prepared for the full implementation of Basel IV and FRTB.
On the back of these initiatives and the other drivers I've already mentioned, all our business units will become more competitive and more profitable. I will now turn to one of the most important trends in finance and one of our top priorities, sustainable finance. Sustainability is both a license to operate and a key enabler in our 2025 plan. As the leading provider of Nordic sustainable bonds and loans, the best provider of Nordic ESG research, and with our full Nordic client relationship coverage, we are in a unique position to support our clients in their transition to a low carbon economy. We will leverage our Nordic number one position to facilitate EUR 200 billion in sustainable financing over the coming four years. We will cement our leadership by investing further in sector advisory capabilities, product development, and transition expertise.
We will engage closely with our clients to understand their specific transition plans so that our highly skilled staff can support them with the best advice, and we can ensure our own transition plan is fact-based. As our clients transition to more sustainable business models, the benefit for us is future-proofing our business and our capital allocation. We will expand our sustainable offering across bonds, loans, research, and advisory to support our clients and capture the business potential. We are committed to our group target of a 40%-50% absolute reduction in financed emissions by 2030. We have already lowered exposures to these sectors by approximately 20% since 2019. As part of strengthening our sustainability profile, we are today also announcing a full exit from the offshore segment, an emission-heavy and high-risk sector.
This means we will fully run off our EUR 1 billion lending portfolio. Our initial sector deep dive suggests that many of our clients have ambitious carbon reduction targets and that they are with us on this journey. We aim for credible client transition plans covering approximately 90% of these exposures by 2025. To conclude, a 16% return is truly best in class for an LC&I business. We will drive core income streams and invest in and focus on capital light services. We will be the preferred ESG partner financing our clients transition while delivering on Nordea's overall emission target. We strive to accelerate capital excellence through continued efficient balance sheet utilization, new capital models and risk sharing.
Finally, maybe even more most important of all, none of all this will be possible without our passionate and competent people and our ability to attract and retain the best talents in our industry. This is about hard work, a winning team mentality, and a relentless drive for everyday improvements to realize the full potential of this repositioned platform. We have come a long way, but we have so much more to go for. Thank you, and I will now hand over to Snorre Storset, who leads our fantastic Asset and Wealth Management business.
Thank you, Martin. My name is Snorre Storset, and I'm the head of Asset & Wealth Management. Nordea is the largest asset and wealth manager in the Nordics with more than EUR 400 billion in assets under management. Since 2019, our assets under management have grown by EUR 86 billion. This organic growth alone is similar to the size of, for instance, the second largest asset manager in Norway or the second biggest fund companies in Sweden and Denmark. We've seen strong improvements in financial performance since 2019, but there is still a lot of untapped potential, and therefore we'll raise the bar and take a larger share of the attractive growth in the savings markets in the coming years. We have a solid starting point.
With a leading Nordic private bank with assets under management of EUR 123 billion, the leading and only globally competitive Nordic-based asset manager with assets under management of almost EUR 300 billion, and the leading Nordic life and pensions company with EUR 8 billion in gross written premiums annually. We provide high quality investment products to our customers with strong performance. 93% of our GIPS composites outperformed their indices over the last three years. The majority of our funds, representing 2/3 of our funds assets under management, have a 4 or a 5-star rating in Morningstar. This top-tier investment performance supports our long-term net flow outlook. Let's now look into the split of our business. Our expertise in asset management is very strong, both in products and in distribution.
This is a key enabler for growth across our group in private banking, in Personal Banking, as well as our continued international expansion within actively managed specialist products. Our leading multi-asset capabilities are particularly important as balance funds and discretionary mandates represent the core part of the portfolios for most of our personal customers. We have a well-diversified split of assets under management across countries and across segments. This ensures critical mass in our four home markets as well as in third-party distribution. We've seen a strong improvement in our financial performance since 2019. By the end of 2021, we already surpassed the financial targets we set for the end of this year.
The top line growth in asset and wealth management is primarily driven by our assets under management and their growth, which have in total increased by EUR 86 billion since 2019, as I already mentioned. Let's look into the drivers of this. We've seen strong inflows of net new money from all channels with total net flows of EUR 36 billion in the last two years. Our investment performance has been very strong. We have delivered an average annual outperformance before fees of 204 basis points per year over the last three years, and that is a great achievement. This has added EUR 5 billion-EUR 6 billion a year in additional assets under management. Finally, the assets have grown due to the positive general market developments.
On top of this, margins in institutional and wholesale distribution have increased by 18% year-on-year. This is due to the shift in product mix to a higher share of net flows from equities and liquid alternatives. Disciplined cost control and reduced business support costs further contributed to the significant improvement in operational efficiency. As a result, when we add this together, the cost-to-income ratio for the business area improved by 14 percentage points in the last two years. What do we expect for the coming years? We are accelerating our growth with full focus on the profitability and using our scale benefits. In private banking, our targets imply a double-digit income growth in Sweden and Norway, and more normalized growth rates in the more mature Finnish and Danish markets.
We see strong opportunities to grow through new customer acquisition and by increasing income in our current customer base through an expected shift in product mix from single equities to managed solutions and alternatives, a more holistic advice, and a larger share of wallet. We will also continue to expand our international asset management presence through third-party distribution. Here, we can really leverage our Nordic credibility in distribution of sustainable products. A higher share of equities and alternatives will support margins. All this will together drive the ROCAR even higher from 31% to 38%, mainly by income growth from higher assets under management. In addition, our operational efficiency will also continue to improve, although at a more measured pace to around 40%. The main reasons for this is our scalable income growth combined with our strong cost discipline.
There is a significant untapped potential for scalable growth in asset and wealth management. The expectations for digital excellence are as high in private banking as in Personal Banking. This goes for our existing customers, but even more so when winning the next generation. Customers using our digital services are more active, and they do more business with us at a lower cost to serve, and therefore, also they are more profitable. This growth opportunity we'll capture with all the capabilities to do so. We'll invest more in our digital savings experience to engage and advise our private banking customers. This means a digital savings experience with seamless advice across all our touch points with the customer in digital and in human contact. We'll win by being better at digital than other incumbent banks and by being better at advice than digital-only players.
In asset management and life and pensions, we leverage our world-class ESG offering and our ability to provide tailor-made investment solutions at scale. Let's dig a bit deeper into those areas, starting with private banking. In private banking, we are the largest in Finland and number two in Denmark, and these are our two more mature markets. In Finland, we will maintain our position as market leader and grow selectively within the high net worth and ultra-high net worth segments. In Denmark, we introduced a new inducement-free business model and an optimized service model last year. Now we'll gain the rewards from those. We see significant growth potential in Sweden and Norway, where we're currently growing fast from a more modest starting point.
We aim to increase our market shares in these two high-growth markets over the coming years, and we'll accelerate our growth through a couple of key levers. We will use the full scale. We have a significant customer potential in the bank. We are not yet fully capturing the potential to service the whole family of our customers, including affiliated companies. This means that our ability to also offer pensions and loans could be better. The same goes for customer acquisition. Today, about one-third of new customers come from internal referrals, and two-thirds is external acquisition. However, most of these external leads have some other business or dormant accounts within the bank, so we can capture this momentum better. We will invest in even better collaboration with Martin and LC&I and Nina and Business Banking for corporate management, private equity partners, business owners, et cetera.
To capture this, we are focusing on disciplined prioritization. Across the four markets, we will benefit from our new digital solutions and will meet the higher demand for discretionary solutions. This will release time to improve customer load per advisor and focus on customer service and customer acquisition. We'll maintain our high customer satisfaction through proactive ongoing advice and a customized offering. We'll capture a larger share of wallet on both sides of the balance sheet for our existing customers, their spouses, and affiliated companies. We will acquire more new customers by leveraging relationships elsewhere in the group, and we will ensure even higher customer satisfaction through proactivity, omnichannel advisory, and tailor-made offerings. Let's now turn to asset management. In asset management, competition is global, even in the Nordic countries. Our success here is based on two levers.
Firstly, it's product development, so creating actively managed products with distinct characteristics. Secondly, it's distribution, driven by our understanding of how such products fit into the external distributors' model portfolios. On the product side, we see significant growth in tailor-made solutions. We started with scalable discretionary solutions in Denmark, and now we will bring them to the whole Nordic market. Liquid alternatives is another pocket of growth. We have two of the five largest liquid alternative funds in Europe, the Alpha 10 and the Alpha 15, and net flows last year of EUR 2.5 billion. We're the market leader in sustainability-linked products, as Ian mentioned earlier, and within fixed income, we're the market leader in European covered bonds and have a strong position in corporate bonds.
This just shows the full scale which we can increase and broaden during the strategy period, contributing to the group growth. Within private assets, we build on key strategic choices. We build on partnerships and joint ventures, where we expect to close an increasing number of funds. We expect to continue to win mandates in private debt. The demand from our private banking customers has increased for all-in-one private asset fund solutions. In total, we have an all-weather product range of export quality within ESG equities and fixed income, private assets, liquid alternatives, and balanced solutions that fit well with customer model portfolios in Nordea as well as with external distributors. Building on this, we'll grow further in institutional and wholesale distribution by deepening our long-standing relationships in Europe.
I'm proud to see the strong franchises we've established in countries such as Spain, Italy, Germany, France, Switzerland, and the U.K. in recent years. Now we'll establish at least one new significant institutional markets in the U.S. or in Asia during the period based on a handful of large tier-one mandates we have won there already. The total income from asset management products in the group is expected to grow to around EUR 2 billion by 2025, supported by strong sales in all internal channels as well as the continued growth in institutional and wholesale distribution just described. We've consistently invested in our ESG capabilities for the past 15 years, and ESG considerations have been integrated in our investment processes since 2010. We provide world-class sustainability-linked products across asset classes and with excellent track record and strong net inflows.
The differentiation we have on ESG in both our broad STARS funds and our thematic funds has also led to an increased sale of higher margin equity products in institutional and wholesale distribution. We have the largest climate fund in Europe, which recently has been an important contributor to our AUM growth. Now we will build this position further. We'll continue to invest to ensure that we stay on top and capture the accelerated demand for sustainable products. During the strategy period, we expect to double the share of AUM that on a portfolio by portfolio basis is consistent with a net zero target and have an investment strategy that will ensure it stays aligned. We believe strongly in our ability to impact through dialogue with companies and have a stronger focus on engagement and active ownership than Nordic peers.
We have one of the largest teams of ESG analysts in the industry, and we actively exercise our votes. Last year, we voted on 95% of all AGMs where we had the ability to vote. That corresponds to 4,200 AGMs. We now initiate engagements with the top 200 emitters across our portfolios. By this, we'll ensure to deliver on our sustainability targets, and we expect at least 80% of the top 200 emitters in our ESG portfolios or other portfolios, so all our portfolios, to be aligned with net zero or else be subject to active engagement by 2025. This shows that through our actions, we can create positive, sustainable impact on our business and for the broader society.
In asset and wealth management, we are committed to deliver a return on capital at risk of 38% in 2025, supported by a cost income around 40%. We will be the best wealth manager in each of our four Nordic home markets with a significantly higher market share in Sweden and Norway, supported by our globally competitive asset management and the leading life and pensions company in the Nordics, and leveraging the demand for tailor-made solutions and offering our customers a sustainable choice as a leading ESG provider with global reach and capabilities. Thank you for listening, and I will now hand the word back to Frank for a wrap-up.
Thank you, all our business area heads. To conclude, we have a strong position, but we are hungry and determined to achieve more.
We raise the bar on our financial performance with a firm ROE target above 13%. We are operating in the Nordics, one of the most attractive markets for banks globally. We have a strong business franchise, streamlined business, and strong performance, delivering market-leading returns. We are growing, and we want to grow further, profitably. We have good opportunities in all countries, and we manage our portfolio thoroughly and decisively. As said, plans and priorities are worth very little without the determination to deliver. That we are committed to do as a team. We will deliver. Let's now move to your questions. Thank you.
Welcome back. Now it's time for the final Q&A session of the day. We look forward to your good questions as always. Just a reminder, if you ask questions through Teams, please remember to have your camera and microphone on.
We'll start first with questions from the Teams side. Before that, there's been quite a lot of questions emailed recently, on a topic which we'll take firsthand here.
Ian, could you clarify in your presentation the EUR 15 billion-EUR 17 billion planned capital payout between 2022 and 2025?
Sure, Matti. First of all, I'm sure you'll understand that the bulk of it is dividends. We have a strong track record as a dividend payer. You understand our dividend policy in terms of a 60%-70% payout ratio. That's the lion's share of it and, obviously, something we approach with great confidence. We have buybacks in our pipeline, if you like. As I talked about today, you can think of almost EUR 3 billion of a pipeline of buybacks in 2022. We started the year with around EUR 800 million of capacity in our first buyback program. We announced the second buyback program of EUR 1 billion last week.
As I said in my presentation, we're already in discussions with the ECB for where we go next in the second half of the year and discussing an application of at least a further EUR 1 billion. The bulk of that, EUR 15 billion-EUR 17 billion comes from dividends, where we have a strong track record and a pipeline of buybacks. We then have the opportunity from 2023 onwards to continue to address our excess capital, through buybacks or other means. That's really how you take care of the EUR 15 billion-EUR 17 billion.
Thank you. Let's now take questions from the teams. The first question comes from Antonio Reale from Morgan Stanley. Please go ahead.
Hi. Thank you for the presentation. My first question is actually a follow-up on Ian's question just now on capital returns, because as you said, you've led the way in Europe when it comes to capital, and you've been open and transparent in sharing your thinking also with the regulator before. We're seeing yourself as well as other banks in Europe commit to return capital to shareholders over the years, not explicitly day one, but indirectly committed to pay out most of the organic capital generation until the steady-state CET1 is reached. That's exactly what you seem to be doing.
Is that the modus operandi, first and secondly, if that's the case, you're targeting 15%-16% CET1 level in 2025, which is still very high. My question is, why is that the right level for a bank like Nordea? My second question is more general on your initiatives with respect to revenues and partially linked to M&A. When I think of the drivers of the plan in the last 2.5 years, what the market really liked was that the story, a lot of the initiatives related to your story were that you present the work in management's hands. This was the case not just on cost savings, but also for revenues, where you focused on fees, particularly coming from asset management distribution.
You focused on closing the gap in market share in mortgages and SMEs. You've basically reiterated a lot of those messages. More of the same seems to be what we walk away with today. My question is, I mean the comp is pretty tough in some of this, in some of these initiatives you flagged, because obviously you've done extremely well. The bar is higher. Thinking about the record year we've seen in inflows. I've listened to your initiatives. My follow-up here is where do you think you can improve market presence and product penetration? Can you maybe give us some more examples for us to get a better idea? Is this the same area where you'd be open to consider any M&A options? Those are my two questions.
Okay. Thanks, Antonio. I'll start with your questions on capital. I mean, broadly speaking, I think you've understood it well. I think what I would point to, you know, I can't comment on other banks' plans in this regard, is we've already, we've throughout had a sort of clear commitment to dealing with a clear capital excess. I think the ECB has got comfortable with our levels of capital and thinking about capital requirements. There's clearly some developments still to unfold with the restoration of buffers and others, but I think they feel pretty comfortable. That's why we were the first cab off the rank.
That's why, you know, by the end of this year, we'll be well on the way to having repurchased, you know, something of the order of 7%-8% of our share capital. We're actually doing it. I think I'll point to our record on dividends. Of course, you've absolutely captured it. This is about continuing what we've demonstrated in terms of our ability to generate profits and pay dividends, continue the work on addressing our capital excess and manage things down to where we expect to be. That last point is, I do wanna come back to this. 15%-16% is not a target. It's a planning assumption.
It recognizes that we're dealing with a number of moving parts over which we have some control in certain areas, but you know, limited control elsewhere. We think it's important to plan prudently, but we think the right place to be for us is around 15%. That's a 13% regulatory requirement. Of course, what we have in the Nordics, different from elsewhere in Europe, is a series of macro-prudential buffers that increase the capital requirements. We think 13% regulatory, 150-200 basis points management buffer gets you to around 15%. That's our target.
Good. On the other, in regards to the other question, perhaps I should take this one. I agree with you, it's very much of the same. Of course, added and adjusted and strengthened it in order to take us to the next level. Most of the things actually are in our own hands. It's hard work, it's focus, it's not coming by itself. We also have peers that are both active and ambitious. We are fully aware of that. That is also why we are investing in this coming period to ensure that we stay ahead. Let me just walk through each of the four countries briefly, so you get a sense of feeling of how our thinking is.
What we have to think about that is where is our current back book size of sort of position, market position, and where are we currently in our speed, in the momentum in the market. Starting with Sweden, we can improve all business area, grow all in business areas, grow our market shares in Sweden. Mortgages, SME, we are growing faster, clearly faster than the market. We're gaining market share, and we want to continue to do so, and that's why we are investing. We have now increased speed. We have shifted gear on the private banking business, and we would like to take it to the even higher level and continuing to gain market share.
We come from a clearly lower market share compared to the other countries, and that is what we are going to change. It will, of course, take many years. The pace is high, and we are shifting a gear as well now in wealth. Finland, strong market position, growing in line with market in BB, LC&I, and we can do even more on the wealth side. Then in the retail business, we are outgrowing the market, and we intend to continue to do so, I should say. Norway, also a market share that is in general lower than the other countries. We are growing faster in business banking and intend to continue to do so.
We are expecting to grow roughly in line with market and perhaps a little bit above on the household side. The wealth side, there we have a lot of things that we can improve, but the speed is good nowadays. When it comes to Denmark, really strong growth in mortgages, and we expect that to continue. We are gaining market share and have no other plans. Business Banking, as we have been talking about, a repositioning from where we were too less cost-efficient and too low profitability. Now we have turned it, and we expect some growth but lower probably in the other countries due to the market is growing slower.
Our wealth business is clearly a business that we even though it has a strong position, we can grow even further, and it is starting to be visible now. We have the LC&I position, which Martin talked about. That is profitability, probably slower growth, but increasing profitability in all the areas. Does that give you a sort of picture of how we are thinking?
No, it's very clear, very helpful. Just on the M&A side, any sort of products or geographies you'd like to have more of?
Yeah. It is in the Nordics. It is in the core of our four business areas, and it should be in a business where we either will strengthen the market position in a country or more countries, or from the offering side, we will strengthen our offering in general. We have sort of a short list. When targets are starting to get available, then of course, we will show very, very big interest. Of course, the price has to be right, it has to be available. Let's see how it play out.
Okay, thanks.
The next question is from, Maths Liljedahl, SEB. Please go ahead.
Yes. Hello, and thank you again. Yeah, the first question was actually regarding Denmark, but now I think, Frank, you gave us a lot of details here. How you could transform to a profitable growth in Denmark was the first question. The second is more on capital. You said here that you had a new capital model regarding sustainability. Does that mean or the shift to green, does that mean that you will have higher risk weight and really allocate away from, yeah, you mentioned offshore, for instance? Could we assume that there will be less RWA growth compared to loans? I think you also mentioned that in the first presentation.
Is that part of the capital planning or how far are you on implementing the sustainability-linked risk model? I know Natixis has come at least some way on this. Thank you.
Nina, will you start with business bank then-
I can take then, Maths. Yes, Business Banking. As I mentioned in my presentation, we have now come to the phase where we have turned the profitability, as Frank said, and now it's time to go for growth. That is about finding the right customers, which I believe are the mid-sized companies that will benefit from the local expertise combined with high quality products and the specialist advisory that we have to offer through our Nordic size. In this way, we will also diversify the business with our customers, the relationships, which will support the profitability measures.
Bolt-on acquisitions, could that be a measure?
We are always open to look at something, but at the moment, we have everything we need for the organic growth.
Okay. Thank you.
Yeah. Hi, Maths. You know what? At the moment we're not specifically tying sustainability to capital charges or capital allocation. Clearly, as we reshape our portfolio, that almost happens a little bit by default in that, you know, we will be squarely behind those customers that are committed to transition with credible transition plans. The real benefit that we'll see between now and 2025, because I think there's a long way to go on sustainability, but in terms of capital intensity comes from probably two areas in our corporate business. One is the introduction of our new models.
That should enable lower risk weights, particularly in commercial real estate and shipping, where we have higher risk weights than our peers at the moment, because of the requirement to introduce new models. Also then just being really smart about how we allocate capital for return and continuing what we've done in the last couple of years in LC&I.
Okay. Thank you.
The next question is from Riccardo Rovere, Mediobanca. Please go ahead.
Thanks, thanks for taking my follow-up question. It's a follow-up for Ian, if I may. Before, Ian, you mentioned that at the end of the day, the buffer you want to retain remains in the 150-200 basis points, if I got it correctly. If that is correct, I was wondering, when I look at slide 13 in your presentation, the very last number in the bottom part of the second chart says 200-300 basis points. What is the difference between the 200-300 basis points in that chart and the 150-200 basis points above the regulatory requirement? Why is that 200-300 basis points?
Thanks, Riccardo. They're completely different. What we portray in that chart is the excess capital above our operating requirement, if you like. What we show at the end of that chart is 200-300 basis points over the course of the period to 2025 in excess of our operating level. If we say that operating level is 15%, that is 13% regulatory requirement plus 150-200 basis points management buffer. Then we'll have 200-300 basis points above that for deployment, either in growth in our business, M&A, or return to shareholders.
Right. Okay. I got it. Now, in the 200-300 basis points, is the EUR 15 billion-EUR 17 billion included in the 200-300 basis points at the very end of the period?
So-
The 200- 300 basis points would be something eventually on top to be added to the EUR 17 billion, EUR 15 billion-EUR 17 billion.
Our estimate of EUR 15 billion-EUR 17 billion over the period includes addressing our capital excess, and that 200-300 basis points is part of our capital excess during the period. It's included.
Okay. Right. Okay. Got it. Thank you very much.
Next question is Magnus Andersson, ABG. Please go ahead.
Yes. Hi. Two explicit questions to you, Martin, on LC&I. First of all, you touched upon it just now, Ian, again I think, first of all, on this new IRB capital models, can you give us a feeling for the size, the impact they will have on risk-weighted assets and also timing? That's the first one. When it will come through, if that is also in 2024? I think you mentioned the resolution fund fee there. My second question is: how long will it take to phase out the offshore portfolio?
Yeah. Hi, Magnus. Good to see you. On the first one, the IRB models, remember that this started in the spring of 2018, right? We are expecting the first half of 2023 to have this in place, so it's a long journey. Remember, we are the only bank that has done this with size, right? When you enter a new regulatory regime, you get risk floors, basically, and they are very high in the two most capital-intense sectors we have, and those are CRE or commercial real estate and shipping. We have had in some instance around 100% floors, right? You know, 2021 return of 15% was done at those very high floors. I bundle resolution fee and MDA for you not to ask this detailed question.
Spring of 2023 is the IRB models and then resolution fees sometimes after that.
How much do risk-weighted assets fall in H1 2023 because of this?
Yeah. We have not given the risk weights, but if you look on the EC, which I typically start from, it's between something like EUR 300 million-EUR 400 million.
Okay. Thank you.
The second question was?
On the offshore portfolio, how long does it take to phase it out?
Yeah, exactly. We have said that we will do it within the new plan. You know, I aim, and you should expect this to be done well before 2025.
Yeah. Okay, good. Just if I may push my luck, Ian, on your ROE calculation, ROE target, just one detail there. Your group tax rates seem to be above the individual corporate tax rates in the Nordic countries. I don't really understand why. Just so my question is that something you can work with, getting that down? Or what kind of tax rate do you assume? Do you assume that you will remain between 22%-23%, even if the tax rates are 22% in Denmark and Norway, 20% in Finland and 20.6% in Sweden?
Thanks, Magnus. We have, I guess over the last 18 months, managed to work down our effective tax rate. As you say, the blended average of each of our countries is lower than we've reported. That's because you get the odd sort of lumpy item, prior years and other things that come through that. We are, you know, continuing to eliminate that sort of friction, if you like. We guided, I think we gave some guidance that we would be around 23% in 2022 and continue to make progress. We do have some things going the other way. As you know, Denmark is proposing to introduce an increased tax rate for banks.
That'll push us up a little bit, but we're working around about sort of 23% as our assumption for 2025.
Oh, okay. Thank you.
The next question is from Nicolas McBeath, DNB . Please go ahead.
Thanks. First a question on the cost growth guidance of 1%-2%. Just wondering if you could please clarify if and how the Swedish bank tax and changes in regulatory costs are included in this guidance. If so, how much you have assumed in reduction in resolution funds is by 2025 versus 2021. Also on cost, if you could clarify how much in capitalized IT investments you assume over the coming years, and what about depreciation and amortization. Really, I'm wondering if capitalized IT investments on the balance sheet will move materially over the coming few years. That's my first question, please.
Okay. Thanks, Nicholas. Our guidance on 1%-2% CAGR is all in. That's the entirety of our cost base. Clearly, we're specifying a CAGR because you might have some differences between years, not least as we work through impact of Swedish bank tax, et cetera. All inclusive, everything that we expect to incur and manage through that. In terms of our assumptions on resolution fund fees, all of the projections suggest that by 2024, the funds will have reached their target, and we're expecting to see a substantial reduction, particularly in relation to our largest burden, which is the European fund, in 2024.
We haven't given a number on that, Matt, I think, in the past, so I'm not gonna give it today, but a step down in resolution fund fees from 2024, we certainly expect to see that.
Okay. Second question please, on capital. If you could please explain the estimated Basel IV impact by 2025, as you showed in one of the slides in a little more detail. How much RWA increase do you see from market risk and how much from operational risk? How much have you assessed on those two changes respectively, please?
We haven't given the split, but we said less than 5% in terms of RWA inflation attributable to both of those, and that's what we intend to deliver.
Okay. Thanks for that.
The next question is from Sofie Peterzens, J.P. Morgan. Please go ahead.
Yeah. Hi, here is Sofie from J.P. Morgan again. Just a follow-up on Basel IV and the capital target. The capital target of 15%-16% under your plan, is that kind of Basel IV basis? You don't expect basically any relief in your core equity tier one target post moving to Basel IV. That would be my first question. Then my second question would be on kind of growth opportunities in pension and life. I guess this is one of the areas where we could potentially see the best growth opportunities. If you could talk a little bit more about the pension and life market and where you see the best opportunities here. Thank you.
Okay. Sophie, I'm sorry, I didn't catch the entirety of your question there. I think you said something like, is there any relief assumed in relation to Basel IV? Was that correct?
Yeah. I guess the expectation is that in some cases we could see lower, kind of Common Equity Tier 1 requirements in Europe once we move to Basel IV. I mean, 15%-16% Common Equity Tier 1 under Basel IV seems quite high to me. I was just wondering how you think about that potentially.
Sure. Okay. That's very clear. It would be wonderful to receive a gift from the regulator of that nature. We haven't assumed it. Look, I think we all understand that in the Nordics we operate under higher capital requirements than elsewhere in Europe. You know, we get on with that, and we still manage to deliver strong returns. We haven't assumed any relief in terms of capital requirements to compensate for Basel IV. If for some reason that was to come through, I think that would be you know, helpful, but it's not part of our plans.
Just to clarify, the 15%-16%, it is not a target of ours. It's a conservative planning assumption. We clearly are hoping it will be lower, but are also cautious when we plan for the future.
Maybe I can comment on the life and pension side. Because clearly, life and pensions is a part of our accelerated growth, both in savings products and in protection products. On the savings side, we have seen for the last years, very nice development in occupational pensions together with the Nina's customers. We have seen a very nice development in endowment products, both in Personal Banking and in asset and wealth management or private banking. We are also seeing a very nice development in the life insurances, often linked to the mortgages and totally integrated into the customer journeys when you do mortgages as well.
Definitely, and we believe that this will continue, and it will continue to be an important area for us, both on the savings side and supporting then more of the investments into funds that we talked about the growth in asset management, but also actually on the life side. You are right, in short.
Thank you. That's very clear. In terms of M&A, would you consider kind of M&A in the life and pension side, or is the focus more on the banking side?
I think if you look at the life and pension side, of course, we are the largest life and pension business, but it's still a local market in each country, given that this is very much linked to the Social Security system in each country. From that perspective, obviously, if there are good and attractive alternatives available as both creating customer and shareholder value, we would at least be interested in looking at it.
That's very clear. Thank you.
The next question is from Anders Håkansson, Danske Bank. Please go ahead.
Yeah, thank you. Sara, it's a question for you. I'm looking at slide 16 from Frank's presentation, where he shows the profitability by different countries and business areas by 2025. I see that within Personal Banking, Denmark has significantly higher profitability than the other Personal Banking markets, which is clearly not the case today. Just trying to understand, what is it that really gonna change in Denmark that's gonna push up the profitability that much?
Well, Denmark has had a higher than normal profitability already now. What we will see in the coming years is that there will be the risk floors terminated in Denmark and the market floors that will come. It will be slightly lower. That will then you know do more than actually the addition of the or reintroduction of the countercyclical buffers that might come. It is also capital related in that sense. It is the growth that we expect also that the income growth in Denmark has been good, and we expect that to be to continue.
I can add here.
So-
Anders, I can add here, if you look at the cost-to-income historically compared to where we are now, the Danish retail business has improved significantly. It's just, you know, it's no silver bullet. It's just hard work, working with efficiency, the process, get the cost down, and then full speed ahead on the growth side. That they are doing in Denmark. It is also a very big change that has happened in, I should say, some five years max, four years, perhaps.
I see Business Banking, on the contrary, is on the low end. Is that because Commercial Real Estate is included in that bucket? Or what would explain that very big difference?
As I said in my presentation, we have been maybe earlier times concentrating on volumes more than the wider relationship with good diversification across the product lines. We have been working hard to get our profitability to where we want that to be. Now we will continue that work, and at the same time, we will start growing, and that is our expectation. Grow, find the right customers, find the right broad relationships where the ancillary business is supporting the profitability.
Structurally, you are, your question is also correct. The majority of the Danish commercial real estate business is within BB, while LC&I is having a very small one. Looking at some of the other countries, the picture is a little bit different. That is a drag on return to the Danish business banking, but benefiting on the cost income, but at the end of the day, it is a return account.
Okay. Thank you.
also the mix. I mean, LC&I has the commercial real estate in Sweden and Finland and business banking in Denmark and Norway, and that's for different reasons.
Yes. Great. Thanks.
Thank you. We'll now go to the questions from the chat. The first question is, what kind of investments will be done in the best-in-class omnichannel customer experience?
Sara?
Yes, we have been investing a lot in the digital front, if I put it that way, and overall our mobile platform. We will of course continue to invest to reach the level as said, that we will have full digital offering across all of our services and products. Therefore, it is a continuation of the path that we've already seen. We will continue to make sure that we are, I would say, one step ahead of others.
To add, it's also very much about combining the channels. Today, it's working, it's effective, it's super good channels, but we want to combine them even further. When you start one in one channel, you continue in another one, you speak to a spouse about the apartment that the family has been falling in love with, and then you finalize in the fourth one. That should be a very seamless, very personal experience. Combining these using the same data, insights, analytics would be also something that we will, as we have planned, doing in the future.
Absolutely. I would say more of data and analytics related investments than in the past.
Mm.
Just to bring it back to how we think about it, I mean, it's one of the biggest categories in our infrastructure spend budget.
Yeah.
Has been for the last two to three years. It's so important because it moves the needle with customers. We're determined to prioritize that. We also incur just regular P&L expenditure to support digital development as well. It's the most important sales channel.
The next question is: growing in savings in Sweden is one of the strategic priorities for Nordea. How do you expect to compete with players like Avanza and Nordnet who have been highly successful in this field?
If I'll-
Sara and Nina?
Yeah.
Oh, Sara.
I'll start.
Snorre, yes.
Yes.
Yes.
I'll start then first, then you can continue, Snorre. First of all, we are investing in this, in the digital space, with savings services, as said already many times. With that, we expect, first of all, to reach the similar and fully match to the customer experience in terms of digital services. What we have that the mentioned you could say competitors don't have is the very broad customer base that we have. We have lots of potential from our customer base, and then connecting that to our digital services and the analytics and the data that we just mentioned. That will accelerate our growth. All in all, we've just started, but we've also already now succeeded.
For example, last year in Sweden, our inflows were double of our market share. We are taking market share already actually in all countries, but especially now in Sweden. We're in the beginning here. We will grow significantly here. Anything you wanna add, Snorre?
Yeah. I think we can say also that one of the key things where we are different from them, obviously, is that we can offer real advice to our customers, combining the human and digital, but adding much more in the digital area than what we have done so far, also when it comes to more holistic advice. We have Nora's, as Sara mentioned, which is more of a robo-advice solution, but now we will add much more holistic advice into the digital as well. Similar to the tools that we've been using to support our advices, we will make this available for customers, and we will link it so that we, the customer can choose how to do this with us.
That will actually be a very, very different experience as well from what you get from Nordnet or Avanza or some of the other digital-only players. We will win against these players, and we've continued to take a higher market share on net inflows than we have on AUM.
Thank you. The next question is, how do you view the growth outlook in fees outside of savings? Is there a catch-up to be had in payments and cards, for example?
Nina, Martin, Nina first.
The market is recovering now very, very satisfactorily after the pandemic when it comes to cards and payments. We expect this trend to continue going forward.
Anything to add, Martin, from LC&I?
I mean, if you look on the LC&I NCI, we are expecting that to grow from here. I mean, 2021 has been a very, very exceptional year, of course. By 2025, we expect LC&I's NCI and NII in combination to be higher than in 2021.
Thank you. The next question is, could you comment on the gross cost savings targeted in EUR million terms for structural cost savings and operational efficiencies?
I think it's better to think about how we manage the whole picture. We're not talking about the different gross moving parts here. We've got a complex picture to manage. I think that targeting 1%-2% CAGR is. It balances neatly, I think, the requirement to invest in general infrastructure, but also in our growth areas. I think that's the best way to look at it. Our focus, rather than thinking about all of the different moving parts in terms of gross or absolute costs
Is to deliver on our cost-to-income ratio. As long as we're continuing to deliver positive jaws as we expect to, we're heading in the right direction.
Perhaps just to clarify again, as we have also done earlier, that we have a plan and measurement or metrics following our efficiency is the cost income. We have two parameters to work with. We have a plan that will lead us to a very profitable situation and very efficient situation in 2025. If one of these levers are not playing out as we expect them to play out for different reasons, then of course, we'll work even harder with the other one. What I'm trying to say is that we have shown that we are quite good at working with our cost side and that we will continue to be. If it's needed to work even harder with it due to a lack of speed on the income growth, then of course we would do so.
That's why the cost-to-income ratio is the most important part.
I can see there's a follow-up question from Magnus Andersson. Please go ahead, Magnus.
Yes, hi. I just had a follow-up there on cost. In your presentation in 2019, the most important lever, that was more of a cost story overall, of course, but one of the most important levers was fewer people until 2022. As you mentioned in your initial statements here, you have reduced the number of headcount by 7%. If I look from the nearly 27,000 you have now until 2025, where will you be? What's the headcount outlook in the current plan?
We don't have any headcount outlook, at least not that we give out publicly. You should expect the number of people working in Nordea to decrease and to continuously decrease. That is nothing particular in Nordea. We will be more efficient, continuously improve our efficiency as one of our three key priorities. I think banking in general, it's becoming much more a digital game. You will see, as we are doing, heavy investments in digital and in technology, and the number of people as such will decline over, I think, many years to come. In the case of Nordea, we expect to see that.
It is not a dramatic decrease, but it will, like, incremental decrease due to the cost efficiency and the investments in technology.
Okay, thank you.
We have some further questions from the web. Has the cost cutting in the business support space, in particular, had a negative impact for the business? Do you believe you're striking the right balance between growth and cost cutting in your future plans?
That's a question for the business areas. Who's going to be the first to answer?
I'll go first. Look at our numbers and our progress so far, and then you have the answer.
Martin.
No, I share that. I think it is a fine balance. I mean, we are having less and less kind of low-hanging fruit to operate. I mean, we have found our level now in terms of FTEs and also on kind of staff costs, right? After a very draconian repositioning, right? Then it is kind of the LC&I's consumption of the group's resources that needs to kind of be aligned with. We have more to do, but it is more the everyday efficiency and
Yeah, I could add that we will continue to manage costs well. Of course, the key focus is very much on the income. As Nina said, I think we've proven that we can manage the cost well, and costs will be always related to income. If we see income not being what we expect, we will of course react with cost management. I think we have a very good equation in terms of cost and income.
It's a much more polite response than with the CFO behind closed doors.
We're soon running out of time for today. The last question from the chat is, what would it take for Nordea to reach a return on equity of 14%?
Yeah. We have a return on equity above a target, above 13%, meaning better than 13% is a firm target with a firm timeline. We have a track record of delivering, and we will deliver. The question, of course, is how high can we get it? Let's see, but 14% is nothing that frightens me.
Okay. That was the last question. Over to you, Frank.
Yes. Thank you, Matti, and thank you, team. Thank you all for your participation. It has been a pleasure, and looking forward to speaking to you soon. Thank you so much.