Good morning, and welcome to Nordea's 4th Quarter 2020 Result Presentation. Here in Helsinki, we have our Group CEO, Frank van Jenssen Group CFO, Ian Smith and Group Chief Risk Officer, CRO, Matthew Elderfield. My name is Matti Ahokas, Head of Investor Relations. As usual, we'll start with a presentation by Frank, and then we will take your questions. In order to ask a question, please dial in to the teleconference.
With those words, I leave the floor to you, Frank.
Thank you, Matti, and good morning. Today, we have published our 4th quarter and full year results, and we are showing good progress. Before going deeper into the 4th quarter numbers, I'd like to reflect about 2020 as a whole. This time, last year, I summarized our 4th quarter results as the first steps in our new direction with the following words. The results reflects our priorities and are very much as planned.
Now reflecting on our 2020 results, I'm happy to repeat the same message. It is not what might be expected after a year of COVID-nineteen pandemic, lockdowns and turbulence, but we are progressing. We have improved our performance, And we are delivering on our business plan and our key priorities. Our business volumes have grown, especially in mortgages, SME, lending and asset management. And we have gained market shares across the Nordics.
We have created better customer experiences, improved customer satisfaction scores and reduced customer complaints by more than 20%. At the same time, we have reduced our costs and increased operational efficiency. The resilience of our business model was tested and proven in difficult circumstances. The remarkable efforts of our employees and our advanced digital capabilities kept the bank fully operational with high levels of customer activity. It makes me very proud, but also very humble, to see all the extraordinary efforts of our dedicated, passionate and highly competent employees.
The results in the 4th quarter showed continued development in cost of business volumes and market shares in all countries. And I want to highlight that we saw strong growth in mortgages, SME lending and asset under management. All of these We're at record high levels. We are on track to reach our 2022 targets. We have steadily improved our cost to income ratio from 57.5 percent in 20 19 to CHF 54.8 billion in 2020.
In Q4, our operating profit was up 11%, driven by income growth and our return on equity was 8.5% or 8.4% compared to or compared with 7.6% last year. At the same time, Our capital base increased by €2,200,000,000 Costs were in line with our full year guidance Of below €4,700,000,000 costs in the 4th quarter were somewhat higher than in the previous quarter due to certain Nonrecurring items. We will continue working to improve cost efficiency and Expect operating cost to be below EUR 4,600,000,000 in 2021. Furthermore, the backbone of Nordea is strong. Our capital position and credit quality are among the best in Europe.
This means that we are in a good position To take our performance to the next level, there's still a lot of work to be done. The next two slides summarize the P and L for the quarter and for the full year. I'm going to take you through the key lines in each. In the 4th quarter, net interest income increased by 6%, driven by strong growth in customer business volumes. This was the highest annual growth since 2,008.
Our mortgage loan engine is gaining speed in all countries. In fact, our mortgage loan grew by a record 6%, the highest rate of increase since 2011. Our consumer lending volumes were negatively affected by lower customer demand during the pandemic. We saw positive SME lending development, especially in Sweden and in Norway, supported by the acquisition of SG Finance, which we now have rebranded Nordea Finance Equipment. Lending margins for Large Corporates also continued to improve.
Net fee and commission income was up 2% in the quarter, and good customer activity and higher advisory Fee income supported the growth, together with an 8% increase in savings income due to higher asset Management inflows. Car fees improved from the previous quarter but are still somewhat below the average precrisis levels due to COVID-nineteen. Net fair value results developed as expected given the more subdued markets in the beginning of the quarter and was down 13%. On a positive note, we witnessed a promising underlying development in Market Making. Customer activity improved from the previous quarter but was at slightly lower levels than last year.
It should be noted that the that during the quarter, we changed the way we report value changes in our Danish mortgage portfolio. We relocated €30,000,000 of positive net fair value movements to the net loan loss line where it more naturally belongs. This also reduces the volatility of the net fair value in line with our preference. Our full year costs were below EUR 4,700,000,000 in line with our guidance. Costs in the quarter were 3% higher due to certain nonrecurring terms items, mainly the integration of Nordea Finance Equipment and noncore IT impairments.
Underlying costs developed according to plan, and we were down 3% in the quarter. In 2021, we will continue to take actions to improve our operational efficiency. We will take cost out while managing ordinary cost pressure due to several factors. In addition to normal cost inflation, We will also have higher costs from the integration of Nordea Finance Equipment. We expect somewhat higher resolution fee and higher IT related depreciation and amortization.
However, there should be a net reduction in cost this year as well. And we expect the total cost for 2021 to be below EUR 4,600,000,000. The quality of our credit portfolio remained strong throughout the quarter and throughout the year as well. Our realized loan losses have been very low, And net loan losses in the 4th quarter were €28,000,000 As mentioned earlier, we realized a net fair value gain of EUR 30,000,000 from the Danish mortgage portfolio, which is now reported along with loan losses. The net loan losses for 2020 amounted to EUR 860,000,000, well in line with our guidance of below EUR 1,000,000,000 for the full year 2020.
During the Q4, we updated our detailed analysis of the impact of COVID-nineteen On our credit portfolio, our assessment remains unchanged. Only 4% of our total loans fall within the industry sectors that are deemed to be significantly affected by COVID-nineteen. We have retained our substantial management buffer of EUR 650,000,000 which will protect us effectively Again, losses. We continue to monitor the situation closely, of course, but we are but we consider it to be Too early to release a buffer at this stage. We find this approach prudent as the full economic impact of the pandemic on our customers and the societies around us remain uncertain.
Our capital position is very strong and among the best in Europe. Our CET1 ratio was 17.1%, which is 6.9 percentage points above the current requirement of ECB. We continue to generate capital and increase our CET ratio even after having deducted the proposed 2019 2020 dividends. During the pandemic, we have been able to support our customers, maintain our financial strength and ensure that we are fully operational. And in times like these, we understand the reasonings Behind the ECB's exceptional capital distribution recommendations for the entire European Banking Industry, We have followed the recommendations, even though they might be less relevant for us as a strongly capitalized bank.
Our capital and dividend policy is unchanged. Dividends are important to our shareholders and benefit both them and society at large. We consider dividend payment to be a matter of time only. Today, our board has proposed a dividend of EUR 0.39 per share for 2020. This is in line with our dividend policy.
In addition, the delayed 2019 dividend of EUR 0.40 per share is proposed to be paid out to our shareholders in 2 installments: the first installment of €0.07 after the Board decision in February and the remaining SEK0.33 after September 2021, in line with the recommendation of ECB. Thus, the total dividend payout in 2021 amounts to EUR 0.79 per share. Let me now move on to the business area results. All our business areas continued to show progress in the 4th quarter. In Personal Banking, we continue to see high levels of customer activity in mortgages in all countries.
Volumes increased by 6% in local currency. We also gained market shares across the Nordic region. The Savings business performed well, and the result picked up from the previous quarter. However, total income was down 1%, mainly due to reduced payment and cards activity, Higher deposits inflow and lower consumer lending volumes. Costs decreased on the other side by 7%, which led to an improved cost to income ratio of SEK 55,000,000 in line with our business plan.
Business Banking continued its strong performance. Income growth was supported by the impact of the integration of SG Finance, now called Nordea Finance Equipment. But the business grew also excluding this impact. This demonstrates our high level of business activity and our ability to support our customers throughout the year. Total income was up 8% due to high levels of customer activity and increased lending volumes.
Lending volumes were up 8%, with the strongest growth seen in Norway and in Sweden, where we also continued to gain market shares. Net fee and commission income increased by 2%, mainly driven by a strong equity capital market activity, while lower payments and card fee income continued to impact the result. The cost to income ratio improved by 3 percentage points to 46%, fully in line with our plan. When we look at last Corporate Institutions, they progressed well with its strategic repositioning, although there's still a lot of work to be done. Business activity remained at a high levels, And total income was up 8%.
Lending margins increased, and Investment Banking related products performed strongly. Due to the repositioning, lending volumes were lower And economic capital decreased by 15% compared with the same quarter last year. Return on capital at risk improved to 11%. The costincome ratio decreased by 3 percentage points to 49% in accordance with our plan. In assets and Wealth Management, we had a quarter of excellent volume development.
Our asset under management increased by 9% to an all time high of €354,000,000,000 supported by a record high retail inflow. We also saw exceptional strong demand for our ESD funds, We've contributed 70% of the net inflow in the quarter. Total income was down 6%, mainly due to lower income in Nordea Life and pensions. The cost to income ratio for the quarter was 53%. Let me now move on to a special topic for this year.
We are raising our ambition within the area of sustainability. The finance industry has a unique opportunity and obligation to help drive the transition to a carbon neutral economy. We're doing so Because sustainability is a crucial topic for our customers and all our stakeholders and because we think it's the right thing to do. As I say, it's in our purpose, together and for a greater good. Let me emphasize that sustainability is not a new topic.
For more than 10 years, it has been an important strategic priority for many parts of our business, And we have committed to several international initiatives in this area. In a recent ranking, Nordea was, again, among the top 100 sustainable companies in the world and the most sustainable bank in the Nordics. And now we are taking the next step, which is more ambitious and broader in scope across the entire bank. What is new here is that We are doing this work consistently, placing sustainability right in the center of our business plan. We firmly believe that the increasing demand for sustainable products and services It's good for our business and for society.
During 2020, we saw strong evidence of this demand. Approximately 80% of our Asset Management Fund increase was into sustainable funds. We are now also accelerating our efforts on the lending side, Supporting customers in the transition to more sustainable business models and ensuring that they have a plan We have a plan for sectors where the climate impact is significant. We are setting more ambitious targets where our own direct impact on the climate is concerned, including targets for travel and procurement. We also integrate sustainability in our people processes throughout the comprehensive diversity and inclusion plan.
In addition, climate and environmental risks will be integrated into our risk management processes and customer advice. I strongly believe that you should practice what you preach. And that is why our new approach is also visible in our ambitious climate targets for 2,030 and our aim to be net 0 by 2,050 at the latest. In working Towards these targets, we will further strengthen our lending our leading position in sustainability or in sustainable banking and help pave the way to a more sustainable low carbon economy. As a bank, we begin this year humble yet determined.
We are well on track to meet and deliver on our 2022 targets. Our focus will remain on our 3 key priorities: to optimize operational efficiency, to drive income growth initiatives and to create great customer experiences. In general, there are several signs that we are heading towards brighter times. We have found new ways of living, working and consuming. More importantly, the rollout of vaccines signals that We will eventually beat the virus.
The ongoing lockdowns and restrictions reminds us about the importance of endurance and patience. I would like to thank all our customers and other stakeholders for the flexibility and cooperation in these extraordinary times. Looking ahead, We need to balance recovery with readiness for some setbacks. The recovery is not going to be easy. Societies and businesses will need to fight their feet again.
As a strong and personal financial partner, we will continue to take action to drive sustainable growth and recovery together with our customers. This is the direction towards brighter times. Thank you for listening.
Thank you very much, Frank. And now it's time for your questions. And I would ask you to limit the questions to 2 per person in order to have as many as possible the opportunity to ask questions. Operator, please go ahead.
Thank you. The first question is from Johan Ekblom from USP. Please go ahead. Your line is now open.
Thank you. Maybe to start on
with the forward looking question on capital. How do you think about the moving parts in 2021 and potentially beyond? And I'm specifically thinking, I guess in terms of requirements, you mentioned the potential for a systemic risk buffer in Norway. What do you think the probability is that, that will not be recognized by the ECB? Secondly, You mentioned in your slides that you're currently using CET1 to fill some of your AT1 and Tier 2 buckets.
So Are there any plans there in terms of issuing that to optimize capital structure over time? And are you expecting any model reviews outcome Any model reviews outcome during 2021? So that's kind of the first maybe slightly broad question on capital. And then secondly, just we've seen your main shareholder being under Increasing pressure to think about their stake. And I realize that's maybe not for you to comment on.
But in terms of the toolbox that you have, Is there anything preventing you from doing a directed buyback? Should they decide or communicate their wish To reduce their stake. Is there any regulatory hindrance to that? I guess we have to think of after September, but You can just talk about how you think about that.
Thank you. It's Frank speaking. So let me just start With the latter parts and then enter into capital and then hand lower to Ian and Matthew to talk about the details that we are looking into but without giving any guidance. So We don't comment on our as you also alluded to, our shareholder base. Shareholders are always they are coming, they are going.
We have a main shareholder of Sampo. They are a shareholder of with 15.9% shareholding, and we don't want to speculate in that. We are in service of all the shareholders. Our focus in management is to continue developing the company, following our plans, Being a Nordic company, servicing our Nordic customers. And that we intend to progress also well with during this year and the coming years.
So no further comments on that topic. But I can say that buybacks, in general, is a part of our tool base. And as we have stated in our dividend policy and our capital policy, Then our long term intention is to pay out 60% to 70% of our earnings and capital exceeding that. We intend to use buyback as a tool to distribute to our shareholders. So that is nothing has changed in that regard.
When it comes to capital, we are, as you see, very, very strongly capitalized. We all need to understand that The current requirements of regulators are somewhat lower than they were precrisis, Which is natural, which it also should be as it was primarily the countercyclical buffers that were rolled back. We expect them to enter the scene again. The question is just when and with what speed. When we have accrued for our Full year 'nineteen 'twenty dividend, we still have an excess capital of 6.9% above requirements.
So no matter how you calculate, the buffer to requirement also after rolling or coming back to more normal requirements, You can say, well, it will be significant, but we don't want to speculate in the details in that. Ian, do you have anything to add in this to this topic.
So I think thank you, Frank. I mean, in regards to how we might execute a buyback, I think we would be We'd look at all options, and I don't think anything is off the table, but that's certainly something for later this year. On moving parts Going forward, Johan, very specifically, we recognize that in due course we'll come back to In a sort of pre crisis requirements there or thereabouts, we still have a substantial headroom over those Historical requirements. In terms of the Norway proposal, We don't think it's needed. We think we are already holding enough capital to deal with the objectives of the Norwegian authorities.
And so We are making strong representations in that regard. In terms of optimizing capital, yes, it makes sense for us to use our excess CET1 at the moment and not issue AT1 of Tier 2, but we will optimize Once we're able to start distributing CET1 capital again. And then in terms of model reviews and other regulatory actions, Matthew, do you want to Just sort of say how you're seeing that in this year?
Yes. So in terms of the model application process, we're still on track to hit our deadlines. In fact, our pre application for the retail RB models went in last week. The full application will go into the end of March for the non retail. That will be the case towards the summer for the pre application and then in the autumn.
So we're on track for that and then And the ECB's hands to approve that, but we feel very confident about that. And just to add very briefly on the systemic risk buffer, just to be clear, there's still a number of processes Still to go through, the Norwegian authorities have applied to the European Systemic Risk Board, but that needs to debate it. The ESRB has Previously noted, this raises questions about complexity and level playing field. And then after that, it's to the Finnish and ECB authorities to determine how to adapt this Possibly. So there's still a number of steps, and it's still under active discussion amongst the public authorities.
If I just may, Johan, add there that in the report, we also write about 2 other aspects, which is the structural FX Relief we are going to get now in the Q1 and the removal of the Finnish risk weight floor, but you see that in the report and roughly Maybe 30 basis points impact positive from those.
Yes. Thank you.
And the next question is from Nick Davy from Exane BNP Paribas. Please go ahead. Your line is open.
Good morning, everyone. Two questions, please. The first, just picking up on this dividend discussion. Could you just Help us to better understand the dialogue that you've had with ECB on what you've announced today. And the second question would be on the Large Corporate and Institutional Business, where net interest income held up really well Against the backdrop of a falling loan book, both in the quarter and in the year 2020, I just wondered whether you could comment on the sustainability of net interest income in that unit looking forward?
Yes. Thank you. Yes. In regards to dividend, as I also stated in the presentation that we are following the recommendation of ECB That we have done all the time and that we also are doing now. But of course, with our strength and the growth we have been showing And the of course, the need to come to back to normal, we are proposing to the AGM The board is to decide about a dividend or mandate the board to decide about a dividend of €0.39 And then when it comes to 2019, delayed dividend.
We are the Board is going to decide In February now in February, about the first installment of €0.07 and then the remaining part to be proposed to be mandated the board in at the AGM to be paid out all after September 2021. That is in line with our dividend policy, and it is also following these recommendations. And of course, we do it because we want to do it And we intend to do it. So nothing further to comment there. When it comes to LC and I, I'm pleased to see the progress.
They are doing a lot of activities Later on, the promise we gave you at our CapEx and Lager stay, so trim down the costs to reduce I'll trim down the EC employed in that unit and to get up the ROCA of the business. And they are delivering. It's the 1st year of out of 3 to reach our targets, but I think it's promising signs. And I cannot see why we should not be able to continue the development. What has happened is that we are They have looked into the low yielding, you can say, businesses.
And volume is not merit anymore. That is profitability. And that is in line with what we have said before. It will probably lead to a smaller LC and I but certainly a more profitable and a more focused LC and I. And I think what we see here after 2020 and especially in the latter part of 2020, that is fully in line with our plan, And we intend to continue that down that path.
Thank you. Sorry, could I ask
a quick
follow-up on the dividend? And sorry if it's a stupid question. But Given that you're intending to pay out in the course of this year more than 100% of your 2020 profits, Does that require specific ECB approval? Or do they think of it the way that you think of it, that one dividend relates to 2019 earnings and one relates to this year? And if you need approval, have you got it already?
Thanks.
So Nick, no approval required for dividends From ECB. And so they're briefed on our plans. And So there's no impediment for the board doing what it wants to do as far as we're concerned, subject, of course, to any sort of blanket Or industry recommendations from ECB. But just echoing Frank's comment, I think the ECB has acknowledged privately and publicly indeed that things need to get back to normal. Thank you.
Thanks. Thank you.
Next question is from the line of Magnus Andersson from ABG. Please go ahead. Your line is open.
Yes. Thank you, and good morning. I just wanted my first question is on cost and your outlook for 2021 of being below €4,600,000,000 I was just wondering if you could give us some more details on how you're thinking around Headcount, development, staff costs, IT costs, year on year resolution Pharmacy, so that we can get some kind of feeling what the main drivers will be here? And also related to that, what kind of integration costs you're expecting for the former the Nordea Finance Equipment? Thanks.
Thank you. So as we know, this year, we guided for below To come in below €4,700,000,000 and then we did that. We included Our integrated started to integrate SG Finance 1st October, leading to it being a part of our P and L for 1 quarter. And of course, the year this year, they will have full impact. So that, of course, will elevate the cost level some.
Next this year, we are guiding for below 4,600,000,000 including SG Finance now, Nordea Finance Equipment. So that's a start point. Then of course, beneath, we need to on the line, we need to Be aware of what does that mean. And if you look at the cost inflation, The depreciation depreciation and appreciation, and you look at saw an expected somewhat higher resolution fee. And finally, the Nordea Finance Equipment cost.
To reach below 4.6 €1,000,000,000 we are talking about across takeout of around €250,000,000 in that area. So that's like a start point. And the levers will be FTEs, where we just will continue to increase efficiency. We'll challenge ways of working. Everything that doesn't add value for our customers, we will, of course, try to do differently But primarily to remove.
And then it's about IT. It's about locations. And I think that's the main drivers. Ian, would you have anything to add when it comes to cost takeout for the coming or this year.
Yes. Just to supplement your response there, Frank. So we're continuing to do all the things That you'd expect us to do on cost, as Frank described. And that gross takeout of circa 250 is pretty substantial. But the thing is going the other way.
Those headwinds, particularly because we've been investing heavily in the business, so depreciation and other things, do absorb a reasonable chunk of those gross cost takeouts. So we need to be reasonably clear The net cost we'll see a net cost reduction into next year. We will absolutely go below €4,600,000,000 But it won't be to the same extent as you saw between 2019 2020. And that's because actually we made such good progress in some of those areas. So definitely continue doing what we're doing.
You'll see net cost out. It will come from FTE and of a sensible savings, but we do have to deal with some of those headwinds. Do
you have an explicit target for headcount reduction In 2021?
No. We don't have such targets. But in general, I would say banking industry is in a transformation. And In general, the number of employees working in Universal Banks will, in my opinion, continuously decrease in the coming years. There will be a lot of automation, digitalization.
But on the other hand, there will be new tasks that are within the area of digitalization and other Technology areas. But the total number of employees in a Universal Bank as ours will decrease the coming years. And so I think you will see the same direction as and the same speed as you have seen in 2020.
Okay. My second question would be on asset quality, just considering your low level now and that you keep your management Profit over €650,000,000 if you can say anything about the outlook for 20 21, 2022 there given that the world slowly would normalize?
Yes. Thank you. Matthew, would you take this question?
Sure. So I think in general, our Objected impact from COVID-nineteen is unchanged from the analysis we did in Q2. You may recall, we looked at that from a number of different perspectives. We had a new run of our stress test model, our IFRS 9 model, and we also do a bottom up customer review. We've done that again in Q4, looking at, for instance, the customer bottom up analysis, 25% of assets.
And basically, the projected impact is the same as we see in Q2, except now the forecast losses are ahead of us because, as Frank said in his presentation, we're not seeing the realized losses yet. We have the management judgment buffer in place, so they're ready when they are realized. So overall, and taking account of the buffer in place, we loan loss levels in 2021 to be lower than in 2020 and will be back to more normal levels in 2022.
Okay. Thank you very much. That's all for me.
Thanks.
Next question is from Antonio Realis from Morgan Stanley. Please go ahead. Your line is open.
Hi, everyone. Thank you. It's Antonia from Morgan Stanley. I've got two questions, please. The first one is on M and A.
I mean, the most recent SG Finance acquisitions Provides a good template for accretive deals. It's clear you want to pay cash dividends, but can you remind us what is your latest Thought process 1, deciding whether to use the capital for dividends, share buybacks or M and A? And in particular on the M and A side, can you just remind us Where you see sort of the best opportunities to grow across which products? And my second question is on the SME loan book. You've been gaining market share here mostly in Sweden and Norway.
How do you see your market position versus competitors? And how do you balance the market share gains while at the same time defining margins And credit quality in the SME space. Thank you.
Yes. Thank you. Let's take the M and A first. So We are our primary focus is to grow organic organically, and I think we have shown that. We are In a good position to do so.
We have changed the focus in the bank. We have a Very high momentum and are showing good growth in the core areas of the bank. When it comes to M and A, we would like to do bolon acquisitions. It needs to be in the core of our strategy, basically supporting the profitable parts of our business or at least supporting a profitable business to be even more profitable. And it should be in the Nordics As we are Nordic Bank, Nordic focused and we'll continue to do so or be that.
So SGE Finance is a good example. It strengthened our customer offering within the SME segment, And it was a good and it is a good business that will add profitability and efficiency cost efficiency to The size is good. It's not too small. It's not too big. It's 350 new colleagues we have gotten and a fine cash flow, I should say.
So we have, of course, a wish list, if you can say so, and are working with that continuously. It might be within more like SG. It could be in savings. It could be in life It could be in Asset Management on that area, but it could also be elsewhere. But that is like it needs to be in the core of our strategy.
So let's see how it will play out the coming period.
But as
you mentioned, we certainly have the capital. And the you can say the way we basically try to look at it is that we want to have a stable dividend, 60% to 70%. It needs to be predictable and sustainable. And that's why we changed our capital policy dividend policy 1.5 year ago. If we then have excess capital, then we intend to distribute it to our shareholders by buybacks.
And whether we have extra capital or exceeding capital or not, of course, also is a little bit dependent on about whether we succeed with these M and A transactions or not. Yet we need to remember that The sizes like these bow lawns, they don't employ that much capital. So they are actually quite Easy to make and still have a very, very fine payout together with buybacks for our shareholders. Let's see how it will play out. When it comes to SME business, then we are not changing market shares.
That we will never do. We cannot see why we should start, why we should not, you can say, defend our market shares because we have a very strong book And it's in areas where it's profitable. So therefore, our start point, of course, is that we grow in line with the market. And then it seems like We are doing better than market. Our we're very our customers do want to do a lot of business with us.
We are having a lot of new incoming business, especially in Sweden and in Norway, and that has led to a fine growth Rates and also gaining market share. And that we want to continue to do if it's profitable. So growth cannot come on behalf of margins and low profitability. That's for sure. But we have managed to both grow and improve our ROA for the group.
It's very clear. Thank you.
Next question is from Adrian Chi from Credit Suisse. Please go ahead. Your line is open.
Hi, there. Thank you for taking my questions. I have two questions, 1 on NII outlook and 1 on operational performance. On NII, Q4 saw a number of positive developments on both margins and volume. How do you see these developments into 2021?
And you can give us some more detail on your TLTRO benefits in NII currently and how you expect them to develop into 2021? And secondly, a broader question on your operational performance. You gained market share, increased margins while your competitors are coming on pressure on the spreads And while cutting costs truly an exceptional feat. How do you think this explain can be explained? Is this sort of Realizing some low hanging fruit?
Or is there something else that you can sort of continue to deliver on?
Thank you. So the first one It was about net interest income development. And Ian, please take that one. Just to make sure that I got you the last question, was that about Denmark in particular? Or was it a more broad question how to balance the growth and the decreased cost base at the same time?
Well, it's across all retail markets really where you gain market share and Improved margin.
Yes. Good. All right. Yes, please. On
net interest income, we've got some Really positive momentum going into 2021. The volume growth and really, we've Because we've been able to hold margin and grow in sensible spaces, there's a good following wind. So Our expectation is that we'd see net interest income increase again in 2021 overall. And those moving parts really are it's driven by volumes. And while we'll always see competition, particularly in the mortgage space, that'll put pressure on margins, we get A bit of offset from managing our funding costs effectively.
And so we'll continue to focus on that detail. Specifically in terms of TLTRO benefit, there is no benefit in our numbers so far. We would expect to see of the additional interest, I suppose, from meeting volume requirements. If and when we're able to realize that, you'll see that come through 2021. And we're making good progress in terms of Meeting those lending volume requirements to enable us to qualify, but that's a 2021 item.
So I think we'll see some benefits on the funding side, continued volume development in line with market, and We've been good at managing margins so far, and we'll continue to do so.
When it
comes to the retail, You can say momentum where we continuously show good growth and at the same time Reduce cost and improve efficiency. I should say that's a matter of lifestyle. So Our lifestyle is to consistently and as we all know, retail is about details, Consistently focus on the cost, be cost efficient, try to reduce complexity, Try to be very simple in our approach, our process and so and then very, very close to our customers, Available 20 fourseven. When you succeed with that by that, then having low cost becomes a lifestyle. It becomes Culture.
And we are starting to have a to build a strong cost culture. And it's not a campaign. It will not go away. It is like brushing your teeth that you do several times a day, and you do it every day, and then you're normally in good shape. That is what we are doing.
And then when it comes to driving business, then we As we know, that a couple of last years, we have continuously worked to move forward our position, Be close to the customer, be clear in our priorities, be open up meeting customers in all channels, Be more digital even more digital savvy. And that is all adding up now. And we have, I should say, a very I'm very humble about But we have a very strong position in all the four markets. And that, we intend to continue doing. Then you can say where is the cost takeout coming and the efficiency mainly coming.
And I should say We are now entering an area where or a timing phase where we will see more Focus on getting more efficiency out of our engine, our big engine, technology operations, data, The key processes. And so and that work, I expect to lead to significant efficiency gains. So as you what you have seen in 2020, we intend to continue to do, and then let's see how it will play out. But as you know, All our business areas are running for lower cost income improved cost income ratios this year, leading to the €50,000,000 for the group in 2022.
Can I just follow-up on the TLTR to clarify? Is your current take up of TLTR around €7,000,000,000
Yes, that's right. So we give those numbers in the report, Antonio. So About €7,000,000,000 we're currently booking it at the sort of the regular rate. If we qualify for the premium, then there's some benefit coming through 2021 in due course.
Thank you very much.
And next question is from Andreas Hoganson from Danske Bank. Please go ahead. Your line is now open.
Thanks and good morning everyone. I mean we've gone through most of the details. So I'll start with a little bit broader question. Had your Capital Markets Day in 2019, talking about 2022 targets, and you're now very well on track on delivering on that. Are you planning or are you thinking about hosting another Capital Markets Day late this year?
Because then we're getting very close to 2022 Where you're going to start to give us targets about 2023, 2024? Is that on the agenda at all?
Yes. I don't I would not say it's exactly on the agenda right now when we are going to keep The Capital Markets Day. But certainly, we intend to have new Capital Markets Day. But let's see when it will happen. But I think the question to at least address it, that is a we are, of course, starting to internally Work with the strategy and the targets beyond 2022.
And so I think let's see what will happen during the year. But what I should and would tell you, Andreas, that is, as we have said also earlier, Dave, that is, For us, it's about delivering on the 'twenty two targets, and then we continue to improve from there. So the CMD targets in 'twenty two, that is like the first step, and it doesn't stop there.
That sounds good. And then a little bit more detailed question. And we talked about it already on your loan loss, Not guidance, but your reasoning around 2021. I mean, when I look at how you provision in 2020, it feels like you very much Follow the spirit of IFRS 9 taking losses upfront as quickly as possible. And then we see in the second half, you've been at a very low level, And you continue to have your very big buffers.
And some one of you said that it's too early to release that buffer, which I probably agree with. What should really happen in the economy for provisions to move up sharply from the second half in the year? Wouldn't you have already taken that? And don't you have those buffers exactly for a potential increase during 2021?
Yes, Matthew, please.
I think I agree with your analysis. That's exactly the case. So we've done our analysis, as I described earlier. We see The wave of loss is still to come, but we have the buffer in place to absorb them when they do come.
And I think, Matthew, just What I'd add is, there's still a great deal of uncertainty. Nobody really saw the force of the lock Downs that we saw over Christmas and beyond. And so I think our sense is that 'twenty one is still too difficult to call In terms of just how things might happen. And I think in terms of what happens in the economy, we're going to have to see how people emerge from The ending of government support schemes and other things. We think we're in really good shape, but the uncertainty is still there.
And so I think that's why we think of 2021 as still not being benign by any stretch.
Yes, absolutely.
And next question is from Sophie Petterson from JPMorgan. Please go ahead. Your line is open.
Yes. Hi. Here is Sophie from JPMorgan. I had a follow-up on the dividend and buyback question. So just to clarify, When I look at the ECB website on the 2019 2020 dividend, it says that you need to join supervisory team Basically to give the sign off to be able to pay the dividend.
So could you just confirm that you got the JST Approval both for the €0.07 dividend and the €0.72 dividend for 2019 2020. So that would be kind of just a clarification. And then also a follow-up on one of the earlier questions. On the directed buybacks, hypothetically speaking, are you able to do a directed buyback where you buy back shares From Purity 1 order or several orders, is that are there any legal limitations or restrictions That it would make Nordea not able to do that. So if you could just comment on Carsten, the legal framework around Being able to buy back shares potentially from 1 or several owners or all owners at the same time.
And then my second question would be on net interest income. If I look at your list Prices in Sweden on mortgages, they are around 20, 25 basis points above your peers. In Finland, most Mortgages, as far as I understand, are linked to your right or 12 months where you are going to get some reset in the first half of the year. So How should I think about kind of margin trends, especially on the mortgage side in the Nordic region in 2021? Thank you.
Yes. Thank you. So let me take the last one first. And then, Ian, please take the dividend buyback and Buyback question. So in regards to retail mortgages, Dan, I think you all should always should see Mortgages to be under price pressure.
That's like the essence. It's sort of commodity, so you need to have that as a start point. We have not grown on behalf of the market margins. They actually have been stable, actually a little bit upwards. So that is positive.
And we have, at the moment, no intention to change in pricings as such. But as always, it is a question for the countries to continuously have the price that they believe is the right one in the market. There's no signs that we will at least we're not striving for a lower growth this year compared to last year. So let's see how it will play out. I think when you look at the The margin retail net interest income, then our primarily our Growth will guide for how we how that line will develop, at least with the information we have for us now.
Hi, Sophie. It's Ian here. So I guess, generally speaking, regulators don't approve dividends. I think because we're in this slightly unusual period of blanket recommendations to conserve capital, etcetera, etcetera, The ECB wanted to at least be explicit with institutions on the small dividend that's permitted at the moment, And I can confirm that the ECB has been has said they are fine with our proposal there. It was an easy decision for them.
In terms of later in the year, we don't expect to have to seek approval. We simply wait for the market conditions to be regularized. So not expected to have to jump through any specific hurdles there. On directed buybacks, there is no legal impediment. And in fact, we have the necessary authority from shareholders to conduct a directed buyback if we chose to do so.
But of course, the mechanisms that we'll deploy In terms of how we undertake a buyback, that will be a matter for decision by the board later in the year.
Okay. And the next question is from Riccardo Ribeiro from Mediobanca. Please go ahead. Your line is open.
Thanks for taking the question and good morning to everybody. On just to get back on the dividend side, And sorry to be maybe a bit brutal. On from all the statements that you have made so far on the topic, is it Fair comment to say that at the moment there is a dialogue discussions with DCB So convincemake them understand that Nordea should not be treated Like weaker or much weaker rings in the chain, that is a different situation. Is that a fair comment? Did I get light from all the statements that you have made so far?
This is my first question. The second question Is on Wealth Management, which we have seen fee income being Heavily supported by Wealth Management in this quarter, which is, say, understandable given the markets. Where do you see the contribution of Wealth Management on profits going forward, should we expect you to continue to invest in that area given that it's also Capital light. Do you where do you see the contribution of that area in the future? And if I may, very quick quick, very, very easy and quick one.
In your guidance So less than €4,600,000,000 cost. Do you expect people to get back to the office, to get back traveling, having Back some part of these costs?
Yes. So let's start from the backwards. The 4,600,000,000 when we're guiding from that, that includes that. During this year, things will start to normalize again. Then we don't want to come back To where we were, having the same number of locations, headquarters, same path of not traveling and So that we are changing, but we are planning for a normalization during the year.
When it comes to Asset Management, then I expect them to continue to grow strongly. And especially our internal channels, our they have started To the where we have started to see good growth there, and there we can do much more. And it starts with our internal channels. And then We, of course, also grow outside the Nordics. And I strongly believe that we can do much more.
At the end of the day, we are here to earn money And to create a profitability and a growth that is consistently consistent. And so a Focus on the P and L for especially, you can say, the Wealth part, the Private Banking units, but also The P and L unit in Asset Management, that is already in place. And I am sure that they are also dreaming about that in a night. When it comes to dividend, Ian, you can supplement here. But we are following the recommendation of ECB and are very much welcoming that they now clearly are coming going back towards more normal situation, A normal more normal situation.
And we are following our dividend policy. Dividend is important For not only our shareholder but also society at large, they will benefit societies. And therefore, We want to pay out dividend, and we intend to pay out dividend. And there's no information that we have inside now that should Change that position. Then of course, the work can change and so but that we always need to live with.
But there is a reason for why our board is proposing this To the AGM.
Yes, that's right. And Riccardo, rest assured, we make the case to the ECB on a regular basis at all levels About the distinction between our strong position and concerns about the general sort of industry. So we're absolutely on it. Privately, rather I can't repeat sort of privately the views that they advanced to us, but you can Definitely see our board's confidence and intent in there. So I think you should take from that.
That concludes the meeting here.
Very, very clear.
We're running out of time.
Very clear answer. Thanks.
Thanks, Mario. Thank you for your questions. Thank you for your interest. And as always, feel free to contact us at Investor Relations. And talk to you later.
Thank you very much.
Yes. Thank you. Talk to you.