Good morning, and welcome to Nordea's Second Quarter 2021 Result Presentation. Here in Sunny Helsinki, we have our Group CEO, Frank van Jenssen Group CFO, Ian Smith My name is Matti Akas from Investor Relations. As usual, we'll start with a presentation by Frank, and after that, To ask a question, please remember to dial in to the teleconference. With those words, I leave the floor to you, Frank. Please go ahead.
Thank you, Matti, and good morning. Today, we have published our 2nd quarter and half year results. We continue to progress well with our business plan, and I'm happy once again to report strong financial performance. COVID-nineteen has, for obvious reasons, dominated our agenda for the past 5 to 6 quarters. The bigger picture is now getting clearer And somewhat brighter, all the past few months, Nordic societies have gradually started to open up.
Restrictions are easing, vaccination programs are progressing and a return to a post pandemic way of life is on the way. However, We still need to be mindful of potential setbacks due to unpredictable virus variants. In all this, we continued to deliver on our commitments, Standing by our customers and supporting them in the transition to a post pandemic environment, Our mindset and focus are clear. Everything we do starts and ends with our customers. In the Q2, we continued to drive customer and business activity.
We increased volumes and gained market shares across the Nordics. These positive developments led to strong quarterly results. High income growth, Firm cost control and lower loan losses resulted in a significant increase in our operating profit. Income grew by 16% year on year. We continued to grow our revenues faster than costs, improving our cost to income ratio to 49% from 52% a year ago.
Costs are developing in line with our plan, But significantly higher income performance has led us to slightly update the cost outlook for 'twenty one. Credit quality remains very strong, and we expect 2021 loan losses to be significant below the 2020 level despite the continued uncertainty. Our return on equity increased to 11.4%. Our solid capital generation continued, and we have one of the best capital positions in Europe. All in all, we are well on track to deliver on our business plan and financial targets.
Let me now move on to the detailed numbers for the quarter. In the Q2, our operating income increased by 16% year on year driven by high levels of business activity. Mortgage volumes Continued to grow significantly as did SME lending, asset under management increased by 24% to an all time high of €387,000,000,000 This was driven by a strong performance and continued solid net inflows, especially into retail funds and private banking. It is encouraging to see that our internal distribution channels are performing well in line with our business plan. Net interest income increased by 13%, the highest growth rate in 10 years.
Net fee and commission income grew by 30% to its highest level ever, mainly driven by higher savings and advisory commission income. Our net fair value result was solid and at a more normalized level compared with the same quarter last year. Customer activity remained high and customer net fair value revenues were stable both in relation to Q2 last year and a very strong Q1. Both of our financial targets, return on equity and cost to income ratio, are meeting our targeted 22 levels this quarter. Naturally, we are happy about this development and work is underway to ensure we consistently deliver on our targets and progress even further.
In the Q2, net interest income increased by 13% year on year. This is an even higher growth rate than in the previous quarter and is the strongest development in 10 years. I'm pleased to see that we are a top performer in this important area. The growth was driven by high business activity, increased volumes and improving margins. Mortgage volumes were up 6% And SME lending was up 8%, and we are gaining market shares in many segments.
This shows that with a firm focus on customers' customer experience, We have been able to deliver good business momentum and drive income growth. Lower funding costs are And exchange rates effects also contributed positively to the result. Looking at net fee and commission, It was up 30% in the quarter. This is our highest quarter ever. The comparable figure for 2020 was naturally low.
But during the 1st 6 months of this year, We have consistently driven high levels of business activity. The main driver of The growth was an increase in savings and investment commission income, which was up 37%. We witnessed high levels of customer activity in our Brokerage and Advisory Services, especially through healthy deal flows in our Equity and Debt Capital Market Businesses. Card income has started to recover, and that is a leading indicator of post pandemic economic recovery. As expected, Net fair value result returned to more normalized levels during the quarter.
Continued high activity in customer areas contributed well as did our treasury investment portfolio. We are committed to continuously growing revenues faster than costs. This require us both to drive income growth and continuously to work on our cost base to improve efficiency. In this Q2, we made further progress in improving our cost efficiency, the significantly higher business activity and strong performance led to higher revenues and profits, but also somewhat higher operational costs. Our costs, excluding resolution fees, increased by 4%.
This was primarily due to the inclusion of the beer finance equipment, increased provisions for variable pay linked to our strong performance and exchange rate effects. Adjusted for these items, Costs were at the same level as last year, which I'm pleased to see. Given the items mentioned, costs for 2021 are now expected to be around €4,600,000,000 whereas they were previously expected to be below SEK 4,600,000,000. All in all, We will continue to optimize and to increase our operational efficiency. The quality of our credit portfolio remained very strong.
Realized loan losses were very low and amounted to net reversals of €51,000,000 The reversals were driven by the improved macroeconomic environment and portfolio quality. We have kept our substantial management buffer largely unchanged At €610,000,000 as planned, we utilized €40,000,000 of the structural part of the management buffer to cover IFRS 9 model updates during the quarter. Given that we are moving towards a post pandemic environment, We expect net loan losses to be significantly lower this year than in 2020. However, our assessment is that it is still too early to draw conclusions about the full economic impact of the pandemic on our customers. Therefore, we maintain our management buffer largely unchanged against potential future loan losses.
Our capital position continues to be among the strongest in Europe. By the end of the quarter, our CET1 ratio had improved to 18%, which is an increase of 220 basis points on last year. It is now 7.8 percentage points above the requirement, even after The deduction of the unpaid dividend for 2019 2020 and the accrued dividend for 2021. We remain committed to our capital and dividend policy, which include delivering an efficient capital structure. The Board is ready to decide on a dividend payment of a maximum of €72,000,000 and expects to distribute this in October, after the current restrictions are lifted.
Furthermore, we intend to launch a share buyback program in the Q4 of this year and have started the application process. Let me now move on to our business areas and their respective results. I'm pleased to see that all business areas are delivering strong performance and progressing according to their business plans. In Personal Banking, We continue to see high levels of customer activity in all countries. Mortgage volumes were up 6%, And we continue to gain market shares across the Nordics.
Both mortgage and deposit margins improved. Our improved performance is a result of focus on strong customer service, particularly in terms of speed and availability and disciplined pricing. We continue So progress in developing our omnichannel banking model and building enhanced digital capabilities. 65% of all private customer fund sales are now made through digital channels. Customers can now both apply for a mortgage and receive a digital loan promise smoothly via the mobile app within minutes.
They can also sign mortgage agreements digitally and switch between variable and fixed interest periods within a few with a few taps. These examples mainly apply to customers in Sweden, but we are now implementing the same features in other countries as well. Return on equity or we can start with return on capital at risk improved to 19% And the cost to income ratio improved to 49% from 54%. In Business Banking, we had a strong quarter with higher levels of business activity. Customer lending volumes grew by 8%, supported by the acquisition of Nordea Finance Equipment.
Excluding Nordea Finance Equipment, lending volumes grew by 4%. Business momentum remains strong, particularly in Norway and Sweden, and continues to be driven by higher engagement with both new and existing customers. We have now rolled out Our new netback to more than 50% of our corporate customers and will continue to add new functionalities going forward. Our leading position within sustainability strengthened even further. Overall, our sustainability lending grew by 20% In the quarter, our Capital Markets business performed very strongly in the Q1 And the same continued in the Q2.
Savings and payments income also picked up following a more subdued period related to COVID-nineteen. Return on capital at risk improved to 18%, And the cost to income ratio improved from 50% to 44%, its best level to date. In Large Corporates and Institutions, we continue to progress well with a strategic repositioning. The repositioning plan includes a decisive focus on profitability, which has also been visible in improved margins and lower capital consumption and lending volumes. Our performance is steadily improving.
The cost to income ratio improved to 41% in the Q2. Social income was up 9% driven by strong commission income. We hold leading market positions across the Nordics in debt and in Equity Capital Markets and M and A advice. We have capitalized on the strong customer demand for these services and have a solid project pipeline in place going into the second half of the year. Economic capital is decreasing and efficiency is improving.
Return on capital at risk was 16% in the quarter. In Asset and Wealth Management, asset under management increased by 24% to an all time high of €387,000,000,000 Customer activity remained at very high levels, Especially in our internal channels, net inflows into retail funds were strong, particularly in Denmark and in Finland. In Private Banking, we gained many new customers and saw a record high net inflows, which amounted to €2,000,000,000 in the Q1. Social income was up 28%, mainly driven by the growth in asset under management and the cost to income ratio improved to 41% from 57%. Interest in our sustainability products continues to increase.
Sustainability products are the primary driver of our growth in asset flows, generating more than 90% of the net flows in the 2nd quarter. Customer demand for digital services has also been high, and we expect this to continue. We are developing further functionalities in all our digital channels that will match the best in the market. During the first half of the year, we made good progress in 2 priority areas at the core of our business: sustainability and digitalization. We launched our new sustainability strategy in February this year.
The implementation is progressing well across the whole bank. We are actively engaging with our customers, preparing sector specific targets for the most climate exposed sectors and developing internal competencies in ESG areas. We are determined to ensure that we reach our target to become a net zero commission bank by 2,050 and to reduce emissions from our lending and investment portfolios by 40% to 50% by 2,030. We will continue to enable our customers to make sustainable choices and support them to in the transition towards a low carbon economy. It is encouraging to see That sustainability is becoming more important for our customers.
The demand for sustainable products and solutions is clearly increasing. We are growing our sustainability linked lending. Our ESG saving products are gaining in popularity, and we remain a leading arranger of sustainable bonds. These are just a few examples of the impact our customer offerings are having and more is to come. I want to highlight that sustainability is not a project for us.
It is an integrated part of our value proposition to customers and how we organize our internal operations and manage our risks. It's a lifestyle. It's our DNA at the core of our purpose. Digitalization is a trend that has clearly accelerated in the wake of the pandemic. At Nordea, we are making very good progress in developing our omnichannel banking model.
Our mobile app now has more than 1 €1,000,000,000 logins annually. And it has an excellent App Store rating at 4.5 to 4.6 stars out of 5. Moreover, we are continually adding new functionalities to the app. On the corporate side, we have rolled out our new netbank To more than 50% of our customers, our digital services have attracted higher levels of activity And customer satisfaction is good and continues to improve. We well built on our digital capabilities, developing them even further to meet changing customer preferences and needs.
When mentioning digital development, it's not an eitheror, but rather a both and topic for us. We do not prioritize Digital development over in person service, but want to show care and understanding and deliver great experience in all customer interactions no matter what the channel is. To conclude, the 2nd quarter was strong for us. We continued to increase volumes and gain market shares. We grew income faster than costs.
We continued to build a strong cost culture. We had loan credit losses and very good credit quality. We maintained a very strong capital position and improved profitability. We are well on track to meet our financial targets, a cost to income ratio of 50% and a return on equity above 10%. It is key for us to maintain this performance level consistently and improve even further step by step.
We will continue to focus on our 3 key priorities, creating great customer experiences, Driving income growth initiatives and optimizing operational efficiency. And, of course, do all things A bit better every single day. That is our mindset and way forward. For the benefit of our customers, shareholders and society at large. Thank you.
Thank you, Frank. Now it's time for the Q and A session. Operator, let's start please. Thank
you.
We have a question from the line of Adrian Cighi from Credit Suisse. Please go ahead.
Hi, there. This is Adrian Chigi from Credit Suisse. Thank you very much for taking my questions. I'll start with a bigger picture question. One of your shareholders this morning wrote that it's time to increase the RoTE target to 12% to 14%.
This quarter, you had 11.4% ROE and around 13% ROE. And yes, we had write backs, which we can expect to reoccur. But Nordea is also running with a Potentially higher equity base, which will hopefully decline over time. Where does management see the right level of expectations given the footprint and business model? And the second question, last quarter, Jan mentioned that you're running with a 14% to 15% CET1 for internal planning purposes.
We still do not have the communication from the Finnish regulator on incorporating the Norwegian systemic risk buffer impact, which you mentioned is 95 basis points. Can we assume that the 14% to 15% internal CET1 target Potentially absorb some of that or even all of that 95 basis points? Thank you.
Thank you for the questions. Let me take the first one about the targets and then, Ian, please take the capital position and our like forecast. When it comes to targets, we have a 3 years plan in place with targets 2022 targets. And you're right. We have been we have had or experienced very strong progress in basically all the time And significantly, income I should say, income growth with a very firm cost control Also in the Q1 of this year.
That has led to us meeting our targets, both of these actually. Where we are now is to Consistently make sure that we are meeting our targets and continue progressing onwards, in line with what we have been saying earlier. In the fall, we will continue and finalize The strategy work with the Board for the period going forward, and that will also lead to us concluding on targets for the future. Let's see how we will when we will and how we will communicate and let's come back to that one. But the first thing is to finalize the strategy work and then conclude about the future targets.
And we expect to Communicate in the I should say in the beginning of the next year about the both the strategy and the targets for the coming strategy period. Over to you, Ian, when it comes to production of capital requirement, please.
Good morning, Adrian. So Yes. We have thought long and hard about impact of the Norwegian SRB and the extent to which it's Reciprocated. And it's interesting to note that a number of our home regulators have Kind of passed on the decision at the moment about reciprocation, and I think that means they're looking at it very carefully, and in particular, the SRB's guidance on looking for overlaps in capital requirements. That being said, we feel very confident that we can absorb the worst case outcome.
I suspect it pushes us towards the higher end of that 14% to 15% range, but it is very much factored into our plans and everything that we say about capital return.
Thank you very much. Very clear.
Our next question comes from the line of Sophie Pettersen from JPMorgan. Please go ahead.
Yes, hi. Here is Sofie from JPMorgan. So in your presentation and report, you mentioned that you are Discussing already with ECB a potential share buyback. Could you kind of give us a little bit more details around potential So what you have done so far? Have you already submitted the formal application?
And kind of how we should think about the share buyback in the 4th quarter? That would be my first That question. My second question is that you target the fees to income ratio in 2022. This is kind of unchanged. I recognize this, but consensus is at 48%.
Given that you slightly With your cost guidance for 2021, do you how should we think about this 50% gross income Target in 2022, do you think there is upside to over deliver here? Or do you expect Nordea to come in at 50% in 2022. Thank you.
All right. Should I yes, let me start with the first one buybacks And then you can take over. In regards to buyback, so we have commenced the application process and in line with what we have been saying earlier. And we plan our intent To start the buyback program in Q4. That is what we can say now.
And When we have more information to share, we will, of course, come back to you. Ian, anything to add here?
Yes. Sophie. Look, we've been talking to the ECB about share buybacks for quite some time. It's been on the agenda since the 2019 CMD. So it's a continuing dialogue.
We've submitted an application. We're not At this stage, talking about quantum, that's something for later. But we're well aware, of course, that the ECB has Not yet announced any lifting of restrictions, but the direction of travel has been pretty clear. In the absence of negative surprises, they would expect to do so. And of course there is a sort of timetable and process for doing these things and we are been ready for some time.
And so we want to be sure to be on the starting blocks when the restrictions are lifted. So yes, we've Commence the application process, as Frank has said, including having submitted an application.
And may I just ask, in terms of the share buyback program, I mean, You don't want to comment on the potential size, but it is fair to assume that you could potentially Utilize that full €500,000,000 of shares that you have Board approval to kind of do Or would that be to optimistic, do you assume?
I don't think the shareholder approval of up to 500,000,000 of shares Well, simply to give us plenty of capacity and flexibility as we talked about last quarter. I'd say, we will not be drawn on quantum at this stage, but we expect to be ready to go when the restrictions are lifted.
Coming back to the question about the cost income. So our targets for 2022 is €50,000,000 But what we also have said before that is or earlier that is, It was a target that was set as the right one for the coming period. And then we would and will progress Beyond the €50,000,000 and continuously improving. And I think the most important drivers to remember, that is our 3 key priorities. They are out in the entire organization.
It's a guideline. It is Supported by activities, tactical activities, strategies and so in every corner of the bank. That is to drive income growth initiatives. It is to create great customer experiences and it is to optimize operational efficiency. And now it at least after 2 first quarters it has made us pass The target of EUR 50,000,000 we have to see how the coming quarters will look like.
And we are doing everything that we can to continuously every day strengthen the bank and thereby progressing. What that will lead to exactly in 2022, that is up to be seen. But the start of the year has been good. And we are We our mindset is going to the bank, going to work every single day and do it a little bit better than yesterday. So let's see how it will bring or what it will bring.
Great. That's very clear. Thank you.
Our next question comes from the line of Magnus Andersson from ABG. Please go ahead.
Yes. Good morning. Just following up there on costs And cost efficiency, we can see that you still have a very good momentum in headcount reduction. I think headcount is down now for the 8th Quarter in a row. But just when I look at Nordea without being explicit about Level since we will come back with new targets.
But if I look at the best banks in the Nordics in terms of cost efficiency, they're running now at between 40% 45% or at least Below 45%. How do you look at yourself in this context given your size and complexity? Do you think that you could reap Scale benefits and eventually become in line with the best banks or even more efficient than the average of your Peers? Or do you think that your complexity and size always will be a disadvantage as it has been since Nordea was created some 20 years ago? That's my first question.
Yes. So on the question, Whether I believe or if I believe that we can reach the levels that you mentioned, my clearly answer is yes. I'm absolutely convinced that we can do so. Of course, it will be supported by technology. It will be supported by digitalization.
And the way that customer interaction and also digitalization is going or the direction is going, It will enable us to reach scale benefits also, for example, in what earlier was a branch network As there's not really any big scale benefit running for our Brands network in 4 different countries, right? It's very local business. Now it's starting to become a different game. As for example, our digital Capabilities, when you look at the within our capabilities, when you look at the app, in this app, we have now more than €1,000,000,000 logins, right? It's developed on the same platform by the same guys.
We try to basically Do it equal in all countries, of course, adjusted to what is needed to be local and local language. It's a huge scale benefit. And there, of course, will be more to come. But it's nothing that will come tomorrow. But I'm sure I'm convinced that we will be able to reach a very strong costincome ratio in the long run.
That said, you, of course, short term needs to remember that When you look at the 4 countries when it comes to and it's very important not to look at return on equity because That is actually very different. And also some of the countries that are having a structural higher cost income as of now, They are running with a very interesting and very encouraging return on equity. But in regards to cost income, We have, for example, Denmark that in the industry is like, I should say, 60 country. And the same goes for Finland, while Sweden is probably 40% or somewhere there and always similar, right? So when you come and look at our bank, right, then and add it, then you have, Of course, a structural start.
That we will long time mitigate by scale benefits being very clear about What is Nordic infrastructure and what is local? We want to be super local, but we want to build it on the Nordic infrastructure. And digitalization And the future infrastructure will enable us doing so. That is my convention.
Okay. Thank you, Frank. I guess we will come back to this in the beginning of the next year when you present your plan. Then secondly, just on a more detailed note on NII. When I look at the consensus forecasts, it's Pretty clear that there is no expected TLTRO III impact in there for 2022.
So my question is just should our expectation be another 50 basis points on the €12,000,000,000 you have in that program?
I think it's too early to tell, Magnus. We're very prudent about that. There is a requirement to meet Certain lending thresholds and there's still 6 months or so to go before that's measured. So I think it's appropriate to set it to one side for the moment, and we'll know towards the end of this year about how we're progressing against the lending thresholds.
Magnus, as you know, there's also been a really slow development in the corporate lending market in the Nordic. So The market is soft at the moment.
Yes. Soft but improving. Yes. Okay. Thank you very much.
Our next question comes from the line of Johan Erikglund from UBS. Please go ahead.
Thank you. Just two things. Just coming back to the capital return and the buyback. Do you have In your conversations that you've been having since 2019 with the ECB about capital return on capital planning, When they look at buybacks, is that purely based on capitalization? Or do we need to think about a Q4 2021 buyback being somehow linked to your total earnings in 2020?
Just trying to think kind of how we can see are there any important thresholds such as crossing 100% total payout, etcetera, that The ECB looks particularly closely on. And then secondly, just coming On the cost side, I think when you presented the cost numbers, you kind of said, here's a fixed cost target for this year. Long term, the intention is to reduce cost in absolute terms. Can you maybe talk about how much of the cost This year, would you say it's driven by the increase inactivity that we've seen? So Apart from the variable staff cost, is there anything else we need to consider when we think about what cost could be next year, say, if we see a normalization in EBIT levels.
Johan, so look, on the conversations with the ECB, There's no suggestion of a sort of aggregate limit on payout or anything of that nature. They have a Well, I think a very sensible approach to this, which is our discussions have been about what does the capital Surplus look like right now? How is it projected to develop over the next couple of years? And also how are the capital requirements Backed to develop over the next couple of years. So I think the short answer is they look at it in sort of absolute capitalization terms.
And certainly, our conversations around buybacks and our plans there are phrased in that context. There's no aggregate sort of limit or threshold or anything.
Thank you, Jan. When it comes to the cost, so our focus is cost income. That's why we have a cost income targets. And it will and it is our metrics that we very much measure during the organization. Then to give a guidance, this year as well as last year, we gave a guidance of taking it down from SEK 4.7 billion to below SEK 4.6 billion.
And as we said also in the Q1, it is, Of course, with that high activity level, it is being more difficult to beat the target, but we are doing what we can. Q2 is just showing very, very strong business activity, a lot of volume And improved significantly improved performance on income and profits. That, of course, also brings some costs. We have been able to basically absorb all the costs when it comes to IT, when it comes to Call centers, advisor capacity and so. So that's very I'm very pleased to see that.
And it's really good to see that we have Continued to improve the operational efficiency. There are some one offs in this quarter that lead to us Being around 4.6 percent, perhaps slightly above. And that is why we think it's prudent just To you now guide for what we said about below, that is more around now. So structural, no change. We're fully in line with our plan.
But temporary, we have some few one offs that is Adding a little bit cost and therefore we update our guidance for the year. That is the way we look at it. So I'm very pleased with the progress that we are making And we are fully in line on the line with our plan. When it comes to the future, what we have said is that it is cost income That is the important part. And it is a delta between income growth and cost growth.
Potentially, that is the most important part. Whether cost will come down, whether they will be stable, whether they will go slightly upwards, That is a matter of how much business activity we will have. But what we have said and what we stick to and are very determined to do That is to continue to improve operational efficiency and thereby improve our costincome ratio in the years to come. Did that answer your question?
Yes. Thank you.
Our next question comes from the line of Andreas Hoekasson from Danske Bank. Please go ahead.
Thanks, and good morning, everyone. And just more some follow-up questions. Just on the cost guidance again, just to make it clear, I understand that the so called increased cost guidance you now have about around 4.6. It's driven by better revenue momentum. If we would see a slowdown on the revenue momentum in the second half, Do you see that you have flexibility to go back towards below SEK 4,600,000,000 or Does the increase really capture the activities in the first half?
That's the first question.
Potentially, that might be the case. I don't hope that it becomes the case because then it will as you said, it is clearly linked to income and business activity. And if but if it is a case, then let's look into it. Let's look into it.
Yes. Okay. Fair enough. Then just on your overall return on equity target, as someone said before, you're above. And if we adjust Your capital, you were significantly above.
And loan losses is at very low level. And You say that you have the €610,000,000 buffer still in there. So could you tell us first, What was the loan loss provision level you thought about when you gave us the above 10% ROE target? And given the environment we see, if we assume that there's no 4th wave and given the high capital or Provision in that you have, do you see any way that provisions in 2022 could reach the level that you thought about when you set the target?
Matti, do you remember what we had in our assumptions? So, Ian, going forward, we have not disclosed that. But I would assume that It would be more normalized year, right?
Yes. Around 15 basis points was the target level at The time which is the historical average and has been for a long time in that structure before 2019.
That's what I was thinking. But if we look now at the environment and where you are with your very high coverage ratios, Do you see any scenario apart from a shocking economy driven by 4th wave, whatever, but in a normal environment Where we could actually reach 15 bps in 2022?
We are bankers. So we, of course, are cautious. So let's see. But as of now, of course, the economies look like they are progressing. On the other hand, as we also stated, it is too early to conclude.
So let's see how it will play out.
Okay. Fair enough. Thank you.
Our next question comes from the line of Antonio Reale from Morgan Stanley. Please go ahead.
Good morning, everyone, and thanks for the presentation. It's Santelli from Augustani. Just two questions for me, please. The first one is on the sustainability of your core revenues going forward. I mean, I look at your numbers and you seem to be doing everything right.
Gaining market shares on loans, including penetration in asset management. You've reached a new record high in AUMs. Even your work on wholesale banking seems to be paying off We're allocating the capital. So how sustainable these trends are going forward, particularly on core revenues, NII and fees? And where do you see Levers to go forward from here.
That's my first question. The second one, just to sort of anecdotally see What you're picking up from your network, we're seeing easing measures implemented by governments across the Nordics. And You're one of the lead Pan Nordic Bank. How are you seeing spending and savings patterns change as some of these restrictions post COVID get listed both at the retail and corporate level across the key countries you operate in? And how do you see or expect this to change your FEMIX going forward?
Thank you.
Thanks. Looking at the revenues, What I'm very pleased to see in this quarter that is, it is really the core lines that are growing Very significantly when it comes to income. Net NII is clearly up, And that is driven by solid volume growth and stable, I should say, margins. Commission income that is build up on asset under management, which has a strong performance and a solid inflow in line with our plans and the strategy of ours. And especially our internal channels has a lot of activity.
And then we have in the Investment Bank Very high activity. We are well positioned and that also adds. Then we do see that, for example, cards are starting slowly to pick up, and it will take time. But clearly, there is a change now, so something is happening. Then the net fair value, which was very strong in I should say extraordinarily strong in Q1 is, I should say more normalized this quarter.
And perhaps it could be a little bit miesling, say, normalized, but what is that? But looking at the customer driven activity FX, equities and so, it is a solid and strong quarter again. And then the trading results, these are lower due to the market situation in Q2. So It is a high quality in this quarter higher quality this quarter in my book compared to the first one. And it's built on mortgage growth of 6%.
We are gaining market share in all four countries. There is, as I recall it, No growth below 5.5%. It's in the range of 5.5% to 7.5%, something like that growth rate in each of the countries. SME business is growing very nicely as well across the Nordics and especially a very high speed in Sweden And in Norway, and the savings business also picking up as we discussed very nicely. And that for me, that is a core.
And then the cream, like the extra, that is like the ones that We see now and then where things start to pick up very fast or we have some very special quarter. And we are happy about that. It's just that the hard work, the long term value creation is coming from the solid growth within there like The broad part of our business. And that is developing very nicely. And I cannot see any things as of now that should make that change.
Of course, there will be lower growth rates now and then. And so there can be corrections in markets. And so but structurally, We are in coming into a continued better and better position, which is just encouraging to see. The answer question was about was that about cost spending? So how customer and inhabitants are behaving in the Nordics?
What's that question?
Yes, customers, how they are behaving, how the savings versus spending patterns are changing as restrictions get lifted, both at the retail and corporate, And how that will affect your P and L or free mix, if any?
Yes. That's a little bit tricky question. As now Ascetitis in the Nordics are opening up, right? So all countries are lifting restrictions. It's clearly more activity in restaurants, in traveling and so even though still a lot of staying home During the summer, but clearly an increase in activity And also a different type of spending, if you can say.
So that's positive. Then when it comes to Activities that will drive our income, of course, then it is a little bit more tricky question. Why? Because the housing market was very Active during the entire pandemic. That was not expected.
In hindsight, it's very easy to conclude that, of course, this would be the consequence. But I don't think that many has expected it to be that active. Whether that will continue Or it will reduce speed a bit. It's up to be seen. On the Otter side, contrary, you have the SME business now.
And I would expect that to start to slowly to increase activity. And there are also different lending and similar That borrowing money that needs to be done as there has been state packages that needs to has to be repaid. That would be investments that needs to be done, building out inventories. And so I would assume that the activity within SME goes up a bit. And then you have the Investment Bank and you have LC and I.
That's a different question. It is very active as of now. Whether that will continue and how for a long time, hard to say. So that's my like my conclusion or at least my comments as of now. Anything to add Ian?
Thank
you. Our next Question comes from the line of Robin Rallne from Kepler Cheuvreux. Please go ahead.
Yes, good morning. So on the back to the SME lending that you just mentioned, so 4% online growth year on year and I guess Norway and Sweden Those are the contributors. Have you been focused on any particular sectors? Or is it more broad based? And what How are you seeing in terms of activity across the sector?
I guess it ties back to a little bit to the previous questions. And then secondly, on mortgage lending in Sweden. So you have maintained price discipline looking at the disclosed statistics, But still, you have grown fairly well. Do you think you are losing out on growth due to pricing? Or is this not a factor that's have any impact?
Taking the last question first. Mortgages is, to a large extent, a commodity. So you have to have the right price. And there is a, I should say, narrow range. And then you should position yourself within that range.
We don't want to be price leader and we are not. We are in the middle or perhaps even sometimes a little bit above the average. And then there are a lot of other things that need to be in place in order for you to win the market: Availability, digital solutions, high activity, partnerships, All these things have to be in place. And I think what has led us to have a Strong and continued improvement with this within this area, Morgans area across the Nordics for the last, I should say 10 quarters. That is the combination of these things.
And price is just 1. But that is like in old days like petrol. It's a bad conversation comparison these days. But it has to be in the range. And then it's all the hard work that comes on top of that.
So I cannot see why that should change. The mortgage market in all the years I have been working with it has been exposed to hard competition. That is the case as well as of now. And you just have to be on your toes every single day and do the utmost To help your customers. And then normally doing things in the right way, it will lead to you growing In line with your back book market share.
And if you're doing a little bit better, then you can increase the market share slightly. So that's how I see it. What was the other question?
On S and E lending? Yes.
I have no information about any specific sector Focus, right? And it has a little bit broad.
I mean, certainly in Sweden across the board, Norway, there's Probably a slightly richer mix in real estate, but that's Norway. But yes, we're across the board really. No standout sectors in SME.
And less real estate in Sweden relative to the market. But no and there's no right it's not a clear strategy that We want to gain any segments. So we look at the repayment capacity for each customer And of course, then within our strong credit assessment, we basically are open to do business with most customers within the segments they operate, If they are the right customers.
Operator, we'll take the last question now.
We have a question from the line of Mats Liljeldahl from SEB. Please go ahead.
Thank you. Last and final then. Down to more details. On capital, I noticed that Credit risk is down in the quarter. What was the main driver on that?
I noticed also economic capital is down In LC and I, is there a change in business mix since you're growing in SME? You should probably consume a lot of capital or what is Driving that. And then if you can just share more details on the geographical performance on the different markets. It looks like Sweden and Norway, as you said, are very strong Finland, perhaps a tad weaker. If there is any Large geographical differences as
you see
it now and probably going forward. Thanks.
Thank you. Ian, please, the first one, then take the last one.
Sure. Hi, Mats. So yes, our sort of, I guess, capital net capital generation in the quarter is from 17.5% to 18% driven by profits and then also improvement in credit quality. We've just seen Over the last couple of quarters, positive credit ratings migration across the portfolio, And there's a bit of a lag effect, so we're really catching some of that up in the Q2. We're just seeing stronger Portfolio performance across the board.
So those are the two drivers of the capital generation.
No real mix shift in the exposure?
No, no. Just improvement across the board. And look, I think That's really positive to see. We need to keep an eye on it. We're still emerging from pandemic and see how our SME customers in particular faring.
But generally speaking, we're seeing credit rating upgrades across the board.
Yes. When it comes to the activity, then, of course, it is we have 4 times 4, if you can say. So 4 countries, 4 business areas. So we'll have to assess each of these. But if you take the like the conclusion and then look at retail And SME, for example, within household and SME within each country.
Then In retail or household, all markets are performing very well, I should say. High growth, good savings activity, Improving cost to income, efficiency coming up. So I'm pleased to see the financial development there. When it comes to SMEs, then we have a very strong momentum in Norway. We have A very strong momentum in Sweden, very good performance in Finland, But quite low growth for the reason that the market is very growing very if it's growing at all at the moment.
But we are having a very strong franchise and are having a quite profitable business actually And very well run business in Finland. And in Denmark, it's they're doing all the right things at the moment. We are Exiting certain, I should say, customers in industries that has been having a little bit too much risk, That is visible in our growth. But I would expect Denmark to basically come back to a more normalized growth pattern in the start of next year, something like that. So all in all, a very strong position, I should say, in all eight businesses across the four countries.
Okay. Thank you.
Thanks.
Thank you for your questions. And I know there's a couple still ahead, but we have a tight schedule. So If any further questions, please call us at Investor Relations. And any final words from you, Frank?
No, Jose, thank you. And good talking to you and wish you all a nice summer. And then We speak and we are always available. So just reach out. Thank you.
Thank you.