Good morning and welcome to Nordea Bank's third quarter 2025 results. I'm Ilkka Ottila, Head of Investor Relations. As usual, we'll start with a presentation by Group CEO Frank Vang-Jensen, followed by a Q&A session with Frank and Group CFO Ian Smith. Please remember to dial into the teleconference to ask questions. With that, Frank, please go ahead.
Good morning. Today we have published our results for the third quarter of 2025. Again, it was a very solid quarter for Nordea Bank. The past few months have reminded us that the world economy is delicately balanced. Political shifts and rising global tensions mean the operating environment can change quickly. Still, after the turbulent first few months of the year, the third quarter felt more calm and settled. Some of the earlier uncertainty around tariffs receded when the new EU-U.S. trade agreement was struck. The Nordic economies also continued to benefit from low inflation and interest rates, conditions that helped lift confidence. During the quarter, Nordic corporates signaled a renewed appetite to invest. That translated into increased demand for lending. Household activity also showed clear signs of picking up, though lending demand was still at muted levels.
While customers' main focus was on growing their savings, we also saw continued activity in investments. In this environment, Nordea Bank delivered higher business volumes and very solid results. Our performance again demonstrated the strength and quality of our pan-Nordic business. Looking at some of the highlights for Q3, our return on equity was strong at 15.8%, in line with our financial target. We have now delivered a return on equity of above 15% in 10 out of the past 11 quarters. Earnings per share were EUR 0.36, mortgage lending increased by 6%, and retail deposits were up 8%, supported by our business in Norway and Sweden. Corporate lending grew by 6% year on year, and deposits were up 1%. Assets under management were up 11% to EUR 456 billion. Total income was resilient, decreasing by 3%.
As expected, net interest income was lower following further policy rate reductions, decreasing by 6% year on year and by 1% quarter on quarter. Net fee and commission income was up 5%, rebounding after the market volatility seen in the previous quarters. Net insurance result grew by 10%. Net fair value result was in line with our expectations and fairly typical for the quarter, though was down 14% when compared with the unusually high level a year ago. Costs were stable year on year and quarter on quarter, supported by stabilized investment levels and careful management of headcounts. Full year operating expenses are expected to be around EUR 5.4 billion and well within our guided range. The cost-to-income ratio with amortized resolution fees was 46.1%. Operating profit was EUR 1.6 billion, 2% lower than a year ago, and stable quarter on quarter. Our credit and asset quality remains exceptionally strong.
Net loan losses and similar net results amounted to a net reversal of EUR 19 million. This quarter, we released a further EUR 50 million from our management judgment buffer. The release was driven by strong credit quality, reduced uncertainty, and lower credit risk due to lower rates and inflation. Our strong capital generation continued, and at the end of September, our CET1 ratio was 15.9%. That put us two percentage points above the current regulatory requirement. Today, we announced that we will shortly launch a new EUR 250 million share buyback program, in line with our commitment to regularly trim excess capital and return it to our shareholders, all part of maintaining an efficient capital structure. Our 2025 outlook is unchanged. We are well on track to meet our guidance for the full year, that is, a return on equity of above 15%.
With that summary, let's now take a closer look at the results, starting with the income lines. Net interest income remained resilient in the lower interest rate environment. Our NII was supported by both higher lending and deposit volumes and the contribution from our deposit hedge. The deposit hedge contributed positively to our income in the quarter, increasing NII by €
EUR 127 million year on year. Our net interest margin for the quarter was 1.59%. This compares with 1.64% last quarter and 1.77% a year ago. The difference was due mainly to lower deposit and equity margins, as expected, given the policy rate reductions. Mortgage lending grew by 6%, driven by strong growth in Sweden and our Norwegian acquisition. Excluding the acquisition, mortgage lending was up 1%. Corporate lending was strong and picked up further, increasing by 6%. Retail deposits were up 8%, while corporate deposits were up 1%.
Net fee and commission income increased by 5% year on year, supported by growth in all our main lines. The higher savings fee income was driven by higher assets under management, with positive net flows in all channels. In our Nordic channels, we had strong net flows of EUR 4.4 billion, driven by continued strong performance in private banking and our life and pension business. Net flows from international channels were EUR 0.6 billion, with net positive flows of EUR 0.4 billion in wholesale distribution. Brokerage and advisory fee income improved this quarter, driven by higher debt capital markets activity. Card, payment, and lending fee income grew on the back of higher customer activity. Net fair value result was solid in the quarter, although lower compared with the unusually high figure a year ago.
We benefited from good levels of customer activity in a seasonal soft quarter, especially in foreign exchange and interest rate hedging products. Our market making result was strong. Costs in the third quarter were stable year on year. That development reflects our strategic investments spent in technology and other key areas leveling off as planned. It also comes from our usual cost discipline. We continue to actively manage our costs according to the operating environment, and headcount is lower. Looking at the full year 2025, our expectation is that operating expenses will be around EUR 5.4 billion, which is slightly better than previously anticipated. The third quarter cost-to-income ratio was 46.1%, unchanged from the second quarter. Our credit quality continues to be exceptionally strong. It has meant that net loan losses and similar net results for Q3 were again favorable, amounting to a reversal of EUR 19 million.
Loan loss provisions and write-offs have been low, well below the long-term average. That stems from customers' stable financial positions, as well as our diversification and prudent credit policies. Given the lower provisioning requirements and continued strength of our credit portfolio, we have released a further EUR 50 million from our management judgment buffer. The buffer now stands at EUR 291 million, compared with EUR 341 million in Q2 and EUR 435 million a year ago. Our capital position is strong, supported by continued robust capital generation. At the end of the quarter, our CET1 ratio was 15.9%, 2.3 percentage points above the current regulatory requirement. We continue to use share buybacks to secure an efficient capital structure and focus on shareholders' returns. Our next EUR 250 million buyback program will be our fourth this year. We will launch it on or around the 20th of October. Let us then turn to our business areas.
In Personal Banking, we delivered solid business volumes. Customer activity increased during the quarter, especially in savings and investments. This was visible in the strong growth in deposits, up 8% year on year. Many customers still feel somewhat uncertain about global developments. However, there are signs that confidence is improving. This was visible in higher activity in the housing markets, although the pace is still slow. We saw a further increase in demand for loan promises. Mortgage lending increased by 6% year on year. Here, growth was driven by Sweden and Norway. Excluding our Norwegian acquisition, mortgage lending was up 1%. Households also continued to put money into investment funds. Net flows in our Nordic retail funds were EUR 0.7 billion during the quarter. Demand for our digital services remained high. App users and logins grew by 6% and 8% respectively.
We also received more external recognition in this area, winning Best Nordic Digital Bank in both the Euromoney and Global Finance awards. The work we have done in digital has really moved us forward and means we have some of the best digital services in Europe today. Total income decreased by 3%, driven by the lower policy rates. The decrease was partly offset by the higher income from payments, cards, and savings. Return on allocated equity with amortized resolution fees was 16%. The cost-to-income ratio was 52%. In business banking, we performed well and delivered volume growth, supported by higher customer activity. Demand for lending grew in all markets, led by Sweden and Norway. That showed increased confidence among our small and medium-sized business customers, who continue to settle into the new operating environment. Lending volumes overall increased by 5%.
Deposits were up 9% year on year, also with growth across all Nordic countries. Our investments into developing our customer experience and digital capabilities are clearly resonating with our SME customers. We performed well in the annual EPSI Industry Survey, improving our customer satisfaction results relative to peers across all markets. In Sweden, we achieved the highest rating among peer institutions. We also received external recognition for our digital offering for SMEs, winning the titles of Best Corporate Digital Bank and Best Mobile Banking App in the Global Finance awards. Total income for Q3 was down 5% year on year, driven by the lower rates and net interest income. The decrease was partly offset by the higher net fee and commission income, where we had higher income from lending fees and debt capital markets. Return on allocated equity with amortized resolution fees was 16%. The cost-to-income ratio was 46%.
In large corporate institutions, we continued to use our expertise, Nordic scale, and strong balance sheet to support our customers with their investment and growth plans. Even as broader market uncertainty persists, Nordic large caps continue to be cautiously optimistic in their outlook. We saw a pickup in event-driven transactions and related financing, and robust demand for additional liquidity. That showed in strong demand for lending, with our volumes up 6% year on year, up from 4% growth in Q2. Deposits decreased by 7% year on year. This was mainly driven by a few larger customers in Denmark and Norway. Debt capital markets activity remained high, with broader-based transaction volumes among both corporate and institutional customers. During the quarter, we arranged more than 120 transactions. That makes it more than 500 for the year to date and reinforces our leading position in the DCM space.
One of the highlights of the quarter was a green bond for the Kingdom of Denmark, valued at DKK 7 billion. Market conditions remained volatile for equity capital markets and Mergers and Acquisition. However, several M&A transactions were announced, and ECM activity showed signs of recovery. Total income was resilient, decreasing by 2% due to the rate reductions. Net fee and commission income was up 4% due to event-driven business. Return on allocated equity was 16%, and the cost-to-income ratio was 41%. In asset and wealth management, we drove solid business momentum in our private banking, and investment performance was strong. We continued to perform very well in private banking, with EUR 1.5 billion of net flows. The third quarter is typically quieter on account of the holiday period. However, customer activity was at a record high.
We were very proactive towards our private banking customers through our advisors and across various special events during the quarter. In Sweden, we drove high investment activity, including helping our customers take part in several IPOs across the Nordics. The steadier markets and more positive sentiment also helped after the volatility of spring and early summer. In our international channels, net flows were positive as well, amounting to EUR 0.6 billion. Wholesale distribution continued to stabilize, contributed EUR 0.4 billion of that, with the remainder from international institutions. Net flows in life and pension were EUR 1.2 billion, which was a record high. Gross written premiums amounted to EUR 2.9 billion, compared with EUR 2.6 billion a year ago. Asset under management increased by 11% year on year to EUR 456 billion, driven by the positive flows and strong market performance.
We were pleased to see strong interest in our new Empower Europe fund that invests in the drivers of Europe's transformation: energy resilience, reshoring, and defense and cybersecurity. Total income was down 1% in the quarter, driven by lower net interest and net fair value income. Net fee and commission income was up 1%, driven by the higher assets under management. Return on allocated equity was 33%. The cost-to-income ratio was 44%. In summary, this was not a good quarter for Nordea Bank. We are well on track to deliver on our target of a full year return on equity of above 15%. Our performance so far this year clearly highlights our strength, our strong customer focus and offering, our highly profitable and well-diversified pan-Nordic business model, and our scale and efficiency.
Nordea Bank also has the advantage of operating in the Nordic markets, all of which are globally competitive, innovative, resilient, low-risk, and highly digital. All that makes the Nordics and Nordea Bank well-equipped to navigate the current global shifts. Finally, we have our Capital Markets Day in London coming up on the 5th of November. There, we look forward to presenting our plans and financial targets for our next strategy period. We will share the concrete steps we are taking to build on our successful foundation with continued focus on our four home markets. These will enable us to drive above-market business growth with improved cost efficiency through our Nordic scale. They will also position Nordea to continue delivering market-leading return on equity and achieve superior earnings per share growth. Thank you.
Operator, we're now ready to take the questions. As a courtesy to others, just a reminder: if you can limit yourself to a maximum of two questions, please. Thank you.
If you wish to ask a question, please dial Pound Key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial Pound Key six on your telephone keypad. The next question comes from Andreas Hakansson from SEB. Please go ahead.
Good morning, everyone. Let's skip the P&L questions for now. Can we just start with you talked about the recovering activity levels towards the end of the quarter. Could you tell us a little bit about where you see those activities picking up, what segments and what countries? If you can talk about your outlook a little bit into Q4 and maybe even for 2026. That's my first question.
Morning, Andreas. Sorry, I was waiting for your second one there as well. Good morning, it's Ian here. It was certainly a good pickup towards the end of the quarter. July and August are traditionally quieter, given seasonality, but seemed quieter than usual. The key things that we saw coming through again in September, at the end of Q3, were strong demand on corporate lending, fairly evenly split across business banking and large corporates. Some recovery in our corporate activity levels was helping to drive fees, and good market performance helped with AUM. We also saw good flows coming through, particularly on the Nordic channels, life and pensions, and private banking. Fairly broad-based, both on the corporate lending side and on activity levels that drove fees. The weaker spot is mortgage markets, as we all know.
Although Sweden is reasonably active and we performed extremely well in Sweden, other markets are still pretty slow. I guess Norway has some good activity levels, more muted on housing, so I'd say corporate-led. We'd like to see that momentum sustained into Q4. As we've seen through this year, things are generally quite finely balanced. I think we go into Q4 with a genuine sense of momentum, and we hope that will continue to build slowly into 2026.
Thanks. I booked my flight ticket to London, so I'm not wanting to front-run your whole Capital Markets Day. If we look at the number of FTEs, they're falling quite nicely now in the last two quarters. Would you say that that's you starting to execute on the cost plan that might or might not be presented in the next couple of weeks, or is that just underlying delivery, so to say?
Hi, Andreas. Frank speaking. I'll say that we will come back to this question in two and a half weeks. What you see this year is that we have adjusted the cost base of ours to the environment somewhat. It's not been a big change, but of course, you should expect us to continuously become even more efficient. Let's come back to that topic.
OK, thank you. That's it.
The next question comes from Markus Sandgren from Kepler Cheuvreux. Please go ahead.
Morning, everyone. Just following up on Andreas 's question, how about the sentiment in Finland? It seems to be struggling a bit. That's my first question.
Let me take that one. Finland is a more stable country. I think that is built on cultural reasons, but also historical reasons, for natural reasons. A more stable, more cautious, but very profitable and a very solid country to run a bank in. Right now, there is a bit gloomy view, but it is being addressed. The government is doing, in my view, the right things to get the economy back on track, lowering the costs, lowering the taxes to increase growth. Although it goes slowly, I do sense that the trend is upwards now when it comes to sentiment and also the confidence in the future. There is a slight tendency to talk down the country, and that's a cultural thing. People are aware of it. Let's see. When it comes to the substance, actually, people pay the bill. They have a lot of liquidity.
It's just sitting, a little bit lack of confidence. Let's see how it will develop. I'm not that skeptical and neither that negative. Finland has what it takes.
OK, good. Secondly, on asset quality, it seems like you're really delivering well there. You're still reiterating that you want to release this management judgment buffer gradually. What kind of risks are you—I mean, is it just because you don't want to give it away in one quarter, or is there anything that is related to risk? It seems like your underlying asset quality is much better, and we're through the rate hike cycle, and most of these effects should be visible now. What's the reason to keep it more than to just be gradual in releasing it? Thanks.
Markus, it's Ian here. You're right. The portfolio is performing extremely well, and all of the leading indicators, as well as the actual level of loan losses being low, are pretty strong. We're a bank that moves with caution. It is harder to find reasons to hold on to additional buffers, given the strength of the portfolio. We've always been fairly clear that we'll either use it if we need it or release it. We have further said in the past that we wouldn't expect it to still be with us, certainly by the end of 2026. We'll continue to stay close to what's happening in the portfolio, and if we continue to see the strengthening that we've seen throughout this year, it'll be hard to hold on to that management buffer.
Oh, very good. OK, thanks. There's no reason to change the outlook of 10 bps losses through the cycle, at least not for the coming two and a half weeks.
No. It's a question that comes up quite often. We will talk about that a bit more on the 5th of November, but no changes.
OK, very good. Thanks.
The next question comes from Martin Ekstedt from Handelsbanken. Please go ahead.
Hello. Good morning, and thank you for taking my questions. First, I listened to Ian Smith speaking at a conference between quarters regarding the Danish business, the preoccupation currently. We talked about the Finnish business before, right? You stopped reporting on a country basis more than a decade ago, but trying to piece this together from your facts. I saw some weakness in fee income, perhaps, in the divisions, but no immediate red flags. I just wanted to check if you could share some more detail on what this preoccupation has been about, what you've been focused on, what the underlying cause was, perhaps, and if this turned positive in the right direction in Q3. Thank you. That's the first one.
Yeah. Hi, Martin. Yeah, you're right. I did say that we were very focused on improving performance in our Danish business. It's a very competitive environment there, both on the household and business banking side, with occasional aggressive pricing moves from some of our competitors in that market. Let me take household first and then business. On the household side, we suffered also from, I guess, some operational glitches and other things. That means we haven't been as quick as we are used to in terms of turning around customer decisions and other things. We've taken strong action to address that. I think the early signs are that we're now very much back in the saddle in terms of providing quick decisions to customers, supporting their home purchases and other things that are important to them.
On the business banking side, it's just been a very, very competitive market with some quite aggressive pricing. You have to be pragmatic about that. We will pursue good business, even if we have to give away a little bit on pricing. It has meant that occasionally we will walk away from some things. I think we've got a good balance now in terms of winning the business we want to. I'm pretty confident, and I know Frank will want to say something on this, but I'm pretty confident we've got the right formula, and we'll start to see Denmark improve.
I can only echo. It's a fine quality. It's a good business. We want to see more growth. I think we control that ourselves and will ensure that we do what it needs to take to ensure that will happen. All in all, no red flags, but more growth to come.
OK, understood. Thank you for that clarity. Perhaps a quick one on the deposit hedge. You said earlier in the presentation that the deposit hedge contributed positively to NII in the quarter. I just wanted to check, do you rather mean it had a positive quarter-on-quarter effect? Because if I read the presentation in the back correctly about the impact of NII, it's still negative by EUR 28 million in the quarter, right? In that case, when would you expect this to turn positive, looking at the trajectory, perhaps Q1 2026? Is that the correct read? Thank you.
Yeah, so you've picked up correctly the moving parts in Q3. The deposit hedge is still contributing to dampening the impact of rate cuts, and will continue to do so as we see rates move down. If we think about Q4, all of the different moving parts mean that Q4 NII will be lower than Q3. There's often a lot of interest as to when the trough in net interest income might occur. Given the unexpected Riksbank cut recently, it's now sort of, is it Q4 this year? Is it Q1 next year? Certainly, Q4 NII a little bit lower. The rate reductions are expected to be, in the absence of rate cuts, probably about 12 basis points of impact in Q4. That's half of what it was in Q3. The deposit hedge contribution is relatively linear on that basis.
If we've got half the rate cuts, it's probably half the deposit hedge contribution in Q4. I hope that helps.
It does. Thank you very much. That's all from me.
The next question comes from Shrey Srivastava from Citi. Please go ahead.
Hi, and thanks very much for taking my questions. I'll keep it shorter term, given the CMD, and it's happening in sort of two and a half weeks. First one, Treasury net interest income. It's actually quite a significant delta on the quarter-to-quarter result. What exactly does this consist of? Is it to do with timing differences in Sweden or Norway, something else? I note you don't specifically cite this as a one-off. Could you elaborate on why or why not you expect this to persist going forward? That's my first. Thank you.
Treasury is pretty active in managing funding costs quarter-on-quarter, as you'd expect. That can be slightly opportunistic sometimes. The level you saw in Q3 is, I'd say, probably normal. It's been higher in previous quarters where we've had some specific timing effects. I think what you're seeing here is active management from Treasury of the funding base, and the levels you saw in Q3 are not a bad guide to what we have going forward.
Great. Thank you very much. My second one, on these sort of collateral management initiatives that helped RWAs in this quarter, you mentioned in the second quarter that improvements in sort of collateral quality could offset a third of the sort of fully loaded Basel IV impact. I just want to inquire about timeline, if that's all right. This would point to about EUR 10 billion odd of RWA benefits. Is there any timeline in which we can expect these?
Yeah. It's a good question, Shrey. I guess the start point for this is what we discussed in Q2, which is that as we transition to the full sort of output floor impacts, we get closer to standardized risk weights on our IRB portfolios. If you remember correctly, the pro forma impact of that was reported at around EUR 30 billion. We said EUR 10 billion related to appropriate recognition of collateral on standardized mortgage portfolios. That's about a third of the pro forma unmitigated RWA inflation due to output floor and other Basel IV effects. We said on that EUR 10 billion of mortgage impact that we would work on the ability to capture the data and use it properly over the next couple of years. What you've seen in Q3 is the impact of picking up those portfolios that are already standardized and taking advantage of that collateral data.
All our other portfolios that in due course will be impacted by the output floor are all IRB, and there isn't anything to be gained at this stage. We focused on those portfolios that are already standardized, and that drove 10 basis points of CET1 improvement. In terms of the rest of the stuff, we'll phase that in as the output floor starts to take effect. I don't have a clear timeline yet. We'll work on that and share it with you. The main thing is that where we had an advantage or where we had a benefit that could be delivered today, we focused on that, which is the portfolios, which happen to be two key mortgage portfolios in Norway that are on a standardized basis. We've delivered around EUR 1 billion of RWA relief from that.
Brilliant. That's very clear. Thank you very much.
The next question comes from Sophie Petersen from Goldman Sachs. Please go ahead.
Yeah, hi. Thanks a lot for taking my question. My first question would be on M&A. We have seen quite a lot of M&A rumors across Europe, but not so much in the Nordics. If you could maybe just more broadly talk about M&A, how you think about it, how you see the banking landscape in Europe change, and also in the Nordics potentially change over the next 5 to 10 years, and kind of how you think Nordea should be positioned with a five-year view, if you take into consideration more M&A, more competition, what you're doing to kind of offset this. My second question would be around the dividend. I recognize you have the CMD in a couple of weeks' time.
Could you maybe just talk about how you expect or how we should think about the potential interim dividend going forward and what the considerations would be for splitting the dividend into an interim and final dividend? Thank you.
Thank you. This is Frank speaking. I think both are excellent questions for the CMD. I'll push them two and a half weeks forward. It's strategic questions and tactical questions, both of them. I think let's keep them out of this call and then ensure that we have time enough to discuss it when we meet in London in two and a half weeks.
OK. If I may ask something different, in terms of the FTEs, we saw, as already was commented, a decline in the FTEs. Could you just maybe discuss which business units, which countries saw the biggest declines in FTEs, and how we should think about it?
I think you should not put too much into it. What we have said all the time is that we, of course, focus a lot on OpEx and thereby headcounts. As the year started very much different to what we had planned due to the trade tariffs and the volatility and the uncertainty and the geopolitical tension, we knew that this year would be challenged on income. Our response to that, of course, is first to push hard on the income side and the activity level, but secondly, to ensure that the costs are trimmed as good as they can with a more operational focus, not a structural focus. That is what you see. There is no funny stuff. There is no magic. It is just that the business areas are looking into ensuring that their business is as efficient as they can in the current operational environment.
When it comes to what I think that you are asking for as well, it is that how would it look in the future? That is one of the topics that we will come back to in the Capital Markets Day at the Capital Markets Day in two and a half weeks and talk about how we see the headcount development and also the cost base in the years to come.
OK. OK. That's clear. Thank you.
Thank you.
The next question comes from Namita Samtani from Barclays. Please go ahead.
Good morning, and thanks for taking my questions. My first question, just the hedge contribution on net interest income in 2026. I noticed it's gone up versus what was previously disclosed in the second quarter by EUR 35 million. I was just wondering why that's the case. Can you help me think about the hedge impact beyond 2026, i.e., in 2027 and 2028, even if it's just qualitatively? My second question, I just wondered why Nordea is not part of the nine European banks who are going to launch a euro-denominated stablecoin. I just wondered what your plans are with stablecoins going forward. Thanks.
Morning, Namita, and thanks for your questions. Yes, we've tweaked slightly our hedge volumes, as you can see on slide 17. We're always just alive to opportunities to manage our NII sensitivity. That means we've kind of lowered the overall estimate of sensitivity slightly. That has the impact of, certainly in the current environment of rates coming down, helping a little bit with the start of 2026. We've also seen, as I said before, an unexpected Riksbank cut. In a sort of expected environment of stable rates thereafter, we would then expect to see kind of stability in terms of hedge impact on NII. We always said that '25 and a little bit into '26, you'd see some help from the hedge and stability thereafter. That remains how we think about it. Your second question, just on the initiatives that other banks have banded together to look at stablecoin.
It's certainly an interesting initiative. We talk to those other banks fairly regularly about how they're thinking about it. They've made it clear that they're open to other banks joining that initiative in due course. We have a lot of different options that we're looking at and working on on the payment side. If that were to be relevant for us, we'd look at it pretty closely. I think it's overall a pretty positive initiative. I think there are plenty of options that might turn out to be better than a digital currency for the euro and solve the issues that the ECB is trying to solve with its digital currency. We'll keep a close eye on that.
That's helpful. Thanks very much.
The next question comes from Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Hi, good morning. Thank you for taking my questions. The first question is on asset management profitability. You previously mentioned that the customer preference in asset management has been recently concentrated, mainly in lower risk and lower margin products. What are the key levers for Nordea to improve the margins in the asset management business over time? Given the rate trajectory appears to be bottoming out, do you see the potential to convert part of the customer deposits or excess liquidity into investment products and asset management over time? The second question is more general. Given that we see that operating momentum is steadily improving and activity levels are picking up, what do you see as the key risks and challenges for Nordea's business going forward? Could you share some color on your current dialogue with the regulators?
What are the key areas of their focus and the main issues that regulators are mostly concerned with at the moment? Thank you.
OK. Thanks, Gulnara. On your first one on asset management profitability, yeah, there's certainly been, in terms of appetite during this year, more focus from our customers, whether they be household customers or institutional, right across the spectrum for lower risk. We see that, for example, in our life and pensions business, where flows are really, really strong. Quite a lot of that money is going into bond funds, reflecting that lower risk appetite, with therefore a bit of a mix shift that has diluted the margin. We've seen similar mix shifts, I guess, in our international and wholesale business, the business we do outside the Nordics. We saw really, really strong flows, good money coming into the institutional side at the end of last year and beginning of this year.
That new money is welcome, but it's coming into a part of our business that's a little bit lower margin. There are mix shifts there that are customer-driven. Our own response is to ensure that we've got brilliant products. We have introduced some new funds and products through the course of this year. One we talk about in Q3 has just been the success of our Empower Europe fund that's got off to a really good start, popular with a range of investors and at good margins and pricing. I think there are plenty of strings to our bow. We are always focused on efficiency. That's also key to continuing to sustain the profitability in our asset management business. Your point on do we have opportunities to convert excess liquidity, the first thing to say is customers decide that. We provide good advice, but customers will decide.
I think it's reasonable that as customers are thinking about what to do with their deposits, particularly when rates are lower, they'll look at our attractive range of investment products. Customers will decide that. I'm pretty confident we'll pick up, if customers are moving money into more fund-based products, we'll pick up a really good share of that. Your second question, what are the risks and what are regulators talking about? Very broad. I think regulators are, I think, quite focused on operational risks at the moment. They're very alive to geopolitical threats and challenges. What they want banks to do is to be very thoughtful about that, to be investing, as we have done, in technology and risk management in order to keep the banking system safe and sound. There are still some difficult situations out there in terms of more aggressive nation states, et cetera, et cetera.
I think those sort of operational issues are very much to the fore with regulators. I think they feel relatively comfortable about the sort of strength of the banking system, whether that be from a capital or liquidity perspective. We aren't seeing particular focus or stress on that. I guess the EBA stress tests, the system came through with a good pass mark. I'd say their focus is on operational issues. If I turn it back into the things that we're focused on, we're very thoughtful about growth and the things that we can do to help deliver growth in our business, whether that be about filling in gaps in our offering, enhancing our offerings, those sorts of things. That's a key focus area for us. Look, that's a question that we could talk for hours about.
Thank you very much.
The next question comes from Bettina Thurner from BNP Paribas Exane. Please go ahead.
Yeah, hi. Good morning. I have two quick questions. The first one touching on Namita's question on the structural hedge earlier. Looking at the CPU curve that we have now seen over the last 12 months, how do you think about or what are your limitations of either increasing the hedge or increasing the duration of the hedge, perhaps to get a bit of a yield pickup from this CPU curve? If you could just talk what would be possible, what you maybe are thinking about right now. The second one was just on the reciprocation of the Norwegian residential real estate risk rate floor increase. You said there is no impact on your RWAs. I was just wondering whether that is the result of having gone through the retail RRB exercise of the ECB last year and having those add-ons.
As a consequence, whether that would reduce sort of the 4 billion- 6 billion mitigation power that you're expecting to realize. Thank you.
I mean, Bettina, thanks for the question. Realistically, we are not focused on increasing the scope of our hedge. The opportunities to hedge more deposits are relatively limited in terms of our own positioning and the markets we operate in. For example, there is not a lot of market depth in being able to use derivatives to hedge short-term Swedish or Norwegian krona deposits. It's just a feature of where we are. Actually, I think we're in a good place. The hedge works. We've seen it work, this rate reduction cycle. We tweak it a little bit, primarily with regard to managing our NII sensitivity. It's not something that we can or propose to use opportunistically for both reasons of how we think about hedging, but also practically speaking, there aren't too many opportunities. On the Norwegian residential risk weight piece, some of it is related to add-ons.
We don't see this reciprocation as limiting our ability to deliver those RIA reductions. That's primarily because we also operate with other floors and things that mean that this increase in risk weights has no impact on us. Don't be concerned. We still have a firm line of sight onto the delivery of 4 billion- 6 billion of RIA reductions through removal of add-ons. We're making progress on that, and we expect to deliver.
Perfect. Thank you so much.
The next question comes from Nicolas McBeath from DNB Carnegie. Please go ahead.
Hi. I first had a question on AI. If you could please update us on any progress you have on implementing AI, any tangible productivity gains so far that you could share. Bottled Teddy's here.
Let me take that one. Yeah, we have hired us, Frank. We have good progress, I would say. We have learned a lot. We keep learning and do mistakes as well, right, where we always underestimate the effect. I would say that we feel increasingly comfortable with the implementation we have done. The question, of course, is how much and how fast can we scale? We will talk about that at the Capital Markets Day. I would like to come back to that. There's no doubt that there are areas where you would experience it's more costly than we would have assumed, and thereby, you can question the business case. There are clearly areas where you can scale and where it makes super good sense. I think we are very much well aware of these areas. It will be a topic separately at the Capital Markets Day.
Let's come back to that, please.
All right. Thanks for that. I was thinking about your previous cost-to-income target for 2025, which seems to have been removed, as far as I can see, in this quarter. Based on your new cost guidance, it implies that if you can keep Q4 revenues in line or slightly above the Q3 level, you would be around 46% cost-to-income. Do you think that is too optimistic, or why do you remove the target? Just related, does the removing of the target suggest anything that you don't think it's as useful anymore to think about targets in relation to income for cost? Should we think more that the cost targets from here would be on absolute terms rather than in relation to revenues, such as cost-to-income?
Hi, Nicolas. Let's leave this question about costs in the future for the 5th of November. Let me be clear that there's no removal of our target for this year. Maybe we didn't emphasize it as strongly in Q3, partly because we expect to deliver. If I think about where we are, we've been now, I think, relatively clear on cost, a really good cost performance this year. We said we would be around EUR 5.4 billion for the full year, and that's probably where I think some of market expectations need to adjust a little bit in terms of thinking about full year 2025. Broadly speaking, I think income expectations for the full year are more or less in the right place. There's some uncertainty. We saw a good September. We would like to see that momentum sustained through Q4. Let's see. Costs we know about, we're very confident on.
We think that 46% cost-to-income ratio, our range was 44%- 46%. We think 46% cost-to-income ratio for 2025 is within reach.
All right. Sounds good. Thanks for that.
We have time for one more question. Unfortunately, we need to stop. Apologies for not getting through the full queue this time. Last question.
The next question comes from Magnus Andersson from ABG Sundal Collier. Please go ahead.
Yes, thank you. Hi. I was just wondering about how you look at your cost-to-income ratio from a relative perspective, versus your peers, on a like-for-like basis, if you adjust for different treatment of taxes and fees. Thank you.
Yeah. It's a good question because I think sometimes perceptions don't always reflect reality. Certainly, the way we look at it is, other than a couple of our peers, I think the two obvious ones, we're pretty much in the pack with certainly two of the big Swedish peers, Danske. I think also the critical thing is you see the focus that we have on costs and where we expect to end our year. I think, and Frank may want to come in with some additional color on this, we see ourselves as pretty much in the pack and with some opportunities to tackle that. We talked before about capturing the benefits of our Nordic scale, and we think there is untapped potential there. We said that that is going to be one of the key themes at our Capital Markets Day.
I think we have a good base to work from.
OK, thank you.
All right, Ian, anything else that you want to highlight before we close the meeting?
I think there's been a few questions around how we expect to finish the year, whether that be about our cost-to-income ratio, whether momentum will be maintained. I guess just to reiterate, I think generally speaking, the market has a good sense of full-year income expectations for Nordea Bank. Net interest income will be lower in Q4 for the reasons we've outlined. On the fee and commission side, look, we saw a good September, but that needs to be sustained. Just to remind people that we did have some non-recurring gains, around about €10 million in our fee income base in Q3. That needs to be knocked out in Q4. We feel very good about costs. I'm absolutely confident we will deliver on our return on equity target, which is our primary target for the year. We also feel pretty good about our cost-to-income ratio target.
That's income-dependent, and there can be some puts and takes in that. No, Frank, I think we've covered the key issues. I'll hand over to you.
All right. Thank you. To all, thank you so much for the call and the good questions. I'll just say welcome to our Capital Markets Day on November 5. Thank you so much. Have a nice day.