Good morning, and welcome to Nordea's Third Quarter 2020 Result Presentation. With me here in Helsinki, we have the President and CEO, Frank van Jenssen acting CFO, Mark Canborg as well as Group Chief Risk Officer, Matthew Elderfield. My name is Matti Ahakas, Head of Investor Relations. We will start with the presentation, and after that, you will have a chance to ask questions. In order to ask a question, you will need to dial in to the teleconference.
With that, I leave the word to you, Frank, please.
Thank you, Matti, and good morning, everybody. Today, we have published our Q3 results. But before going deeper into the numbers, I would like to bring us back to October a year ago. At that time, we published our new financial targets and updated our business plan. We needed a new direction and clear priorities to retake lost ground in business and become truly competitive again.
The recipe was and still is very customer centric and straightforward. We decided to focus on 3 key priorities: 1, to optimize operational efficiency 2, to drive income growth initiatives and 3, to create great customer experiences. In addition to our targets and priorities, we needed to change our mindset to prioritize, to simplify and make sure that everything we do starts and ends with the customers. At the end of the day, it is all about execution. And that is what we have done so far.
Despite the COVID-nineteen pandemic, we have continuously moved in the right direction. I'm happy to see clear improvements across the entire bank. During the pandemic, we have supported our customers in multiple ways, launched new products and services and increased our business volumes. Our asset our assessment is that we are growing faster than market in several areas. The Q3 was no exception.
The results were strong. We had high level of customer activity and increasing business volumes. This continues the positive trend seen in previous quarters. Our total income was up 4% compared with last year. We continue to progress towards our 2022 targets.
Costs were down 6%, and our cost to income ratio was 52% in the quarter. We have a strong capital position and a strong credit quality. Actually, we are one of the best capitalized banks in Europe with a CET1 ratio of 16.4%, which is 6.2 percentage points above the requirements. Our net loan losses were very low. We keep our credit outlook unchanged as economic uncertainty still remains.
All in all, many positive signs, but we still have a lot to do. And we are committed to delivering on our business plan and our financial targets. Let me now go deeper into the results. In the 3rd quarter, the global economy has seen a gradual recovery, but has also faced some setbacks in light of COVID-nineteen. The situation remains uncertain, but societies have been able to adapt to new ways of living with the pandemic.
In the quarter, our operating profit increased by 24% compared with last year. Mortgage lending volumes and market shares increased and SME lending increased as well. Furthermore, asset under management grew by 4% to a record high of EUR 326,000,000,000 At the end of the quarter, our return on equity was 10.1%. Our return on equity and operating profit were supported by very low level of loan losses in the quarter, but the underlying development is clearly positive. Our cost efficient efforts are generating the expected results.
Our cost to income ratio decreased by 6 percentage points from last year to 52%. Net interest income was 6% higher than in the Q3 of 2019. This is the highest growth rate since 2012 and was due to increased mortgage lending volumes, a higher market share as well as increased SME lending. In Sweden, in particular, we have very high customer activity and continued to gain market share. In large corporates and institutions, lending volumes were lower, which was due to a business driven decision to focus on profitability rather than volumes.
Lending margins improved in all countries. Deposits continue to grow. They increased by 16% in local currencies compared with last year and increased by 3% over the quarter. Net fee and commission income is still being impacted by lower levels of economic activity due to the pandemic and was down by 4%. Savings income was up 4%, driven by strong asset management inflows and performance in the quarter.
In Brokerage and Advisory, we had a good activity and concluded major deals in the quarter. Card and payment fees improved from previous quarter, but are still clearly lower than ARED's pre price levels. Net fair value result in customer areas was broadly in line with what we have seen last year. Moreover, we have continued to improve our performance in markets due to high levels of market activity. This led to a result that was 30% higher than in the same period last year.
Our net fair value result was also supported by treasury income following positive revaluations. We are working to improve
cost efficiency and we
are gradually building a stronger cost culture. These efforts continue to pay off. Our cost decreased by 6% in line with our cost plan. We have improved our efficiency by reducing complexity in our operations, in our in processes. We have also fewer employees and lower staff costs.
The cost development was partly supported by VAT refund of EUR 26,000,000 in the quarter. We continue to project that total costs for 2020 will be below EUR 4,700,000,000 including a cost related to SG Finance, which we will consolidate from the Q4 onwards. The quality of our credit portfolio remains strong. Actually, we had a reduction in new defaults in the quarter and so positive net rating migration. In line with this, our net loan losses were close to 0 for all business areas and we had a net reversal of EUR 2,000,000 for the group.
We continue to make further provisions on oil and offshore exposures in LC and I and made some further write offs on our Nordea Finance portfolio. But these levels were not different from past quarters. The management buffer was kept in place at €650,000,000 since the economic outlook and the cause of the pandemic are still uncertain. We consider it prudent to keep our buffers in place. As stated in the previous quarter, we predict that full year loan losses will be below €1,000,000,000 Right from the beginning of the pandemic, we have been fully focused on supporting our customers.
As an example of this, we were quick to react and decided to grant installment free periods for customers affected by the pandemic. Approximately 95,000 customers, 95,000 customers took up the offer of this help to overcome temporary liquidity problems caused by COVID-nineteen. Around 50% of the COVID-nineteen related payment holidays will have expired by the end of October. When we look at the situation for those customers whose payment holidays have expired, we see that is stable. So far, the vast majority of customers are returning to normal servicing of their debt.
Our capital position is strong. We are one of the banks, best capitalized banks in Europe. Our financial strength gives us the resilience and also the flexibility to support our customers. We entered this crisis with a very robust position and have strengthened that even further since the outbreak of the pandemic. At the end of the quarter, our common equity Tier 1 ratio was at 16.4%, which is 6.2 percentage points above the regulatory requirement.
On top of this, we have already deducted dividend for 2019 and for 2020 from our capital. This corresponds to 1.8 percentage points in additional buffer. We intend to pay out dividend for the financial year 2019. The Board will refrain from deciding on the 2019 dividend payment before 1st January 2021. We will review the situation in the Q4 in light of any further communication from ECB.
Moreover, we are accruing the 2020 dividend according to our dividend policy and have the financial strength to distribute it. Let me now move to the business area results. In personal banking, we saw a very strong momentum in mortgages. Volume growth was up 6% in local currencies compared with 1 year ago. We have succeeded in growing volumes and market shares in all 4 home markets.
Total income was down due to extraordinary net fair value income in 2019 and the impact of lower card fees. In contrast, saving income picked up from the previous quarter. Net interest income was unchanged compared with last year, but clearly improved from the previous quarter. Customer satisfaction has improved since the Q3 of last year. We have seen clear progress.
For example, our customer satisfaction with online meetings has increased by 29%. Operating profit increased by 7% compared with the Q3 of last year and costs decreased by 13%. This resulted in a cost to income ratio of 54%. In Business Banking, total income was up 5%, supported by a 4% growth in lending volumes. Despite volume growth deposits volume growth was also very strong, actually 20% growth in local currencies.
Operating profit amounted to EUR 304,000,000 and was the highest level ever in the quarter. Costs decreased by 3%, leading to a cost to income ratio of 47%, down from 52 a year ago. We have now completed the acquisition of SG Finance. We're strengthening our position in the Nordic SME market even further. We expect the acquisition to have a positive impact on annual income of around EUR 140,000,000 during the full year 2021.
In Large Corporates and Institutions, we are progressing steadily with the pre positioning as a focused and more profitable business area. The work continues and there is still a lot more to be done, but this quarter was a good step in the right direction. Operating profit was at highest level since the Q4 of 2016 with improvements across all income and cost lines. Social income increased by 21% and cost decreased by 11%. Economic capital decreased by 13%, which is equal to EUR 1,000,000,000 This was driven by lower market risk and a reduction in low yielding assets.
In assets and wealth management, we had a strong net inflow of €4,600,000,000 This is the highest quarterly inflow since 2016. Asset under management increased by 4% compared with the 3rd quarter of last year and now amount to EUR 326,000,000,000 Customer satisfaction has been improving. We have continued to display a high level of productivity towards our customers. The proof is in the customer satisfaction figures as well as the business volumes. Total income increased by 4%, while cost continued to decrease, resulting in a cost to income ratio of 50%.
When we set the new direction for the bank a year ago, we needed to have a new mindset. We didn't need fundamentally to change our strategy. We needed to get things done and to step up. That was a reason why we updated the business plan and launched 3 key priorities as well as new fair lines and targets and operational performance indicators. These tools and metrics help us to assess and understand how our business is developing and ensure a close follow-up.
It is a transparent way of measuring the progress. 1 year after the Capital Markets Day, we are on track and progressing as planned. Naturally, we still have a lot of work to do, but we know what it will take to achieve the targets. The business areas have now been in the driver's seat for 1 year. They are entirely accountable for the income, costs, risks, customer experience, investment decision and capital management.
All business areas are progressing towards the targets. For LC and I, the 3rd quarter was promising, but further acceleration is needed in order to meet the targets for 'twenty two. Looking now at the group as a whole. Our business volumes have continued to increase in a range of areas, particularly in mortgages and SME lending. Our customer satisfaction levels are higher now than prior to the outbreak.
We have launched new products and services for our customers. For example, we launched a new corporate netbank, added green mortgages to our mobile bank app and launched a new fund combining sustainability and
innovation.
Savings business has been under some pressure due to the pandemic, but we are now recovering and seeing strong inflow in the 3rd quarter. At the same time, we have ensured that our engine is more streamlined and more efficient than before. We have started to build a strong cost culture, simplify our work and have more focused operating model. In the coming year, we will explore new ways of working and the potential not only to change working life, but also to lower our costs. All in all, we are progressing, but we still have work to do.
As a next step, our clear target is to improve even more. The COVID-nineteen pandemic has somewhat dominated our 1st year with our updated business plan and new targets. As a bank, we are ready to tackle all the challenges that come our way and make continuous progress. I feel both humble, but also glad that we have been able to provide care and support to our customers over the past few quarters. At the same time, we have proved the resilience of our business model.
The progress we make every day confirms that our plan is the right one. Going forward, we will continue as we started focusing on the execution and thereby staying on track. We remain committed to delivering on our financial targets and meeting our key priorities to optimize operational efficiency, to drive growth income initiatives and to create great customer experiences. In doing so, we will also continue to fulfill our responsibility towards our customers, employees and shareholders. This benefit both society and our business.
Thank you for listening.
Thank you, Frank. We are now ready to take your questions. Operator, please.
Certainly. Additionally, if I have called your name incorrectly, I do apologize. But please, as a matter of course, do identify yourself when you are given the floor. So we begin now with Mr. Tasim from Deutsche Bank.
Please go ahead.
Thanks for taking my question. Yes, good morning. I have two questions, if I may. First one is on costs. Just wanted to ask how should we think about your cost guidance going forward?
I mean, 9 month underlying cost is about SEK 3,200,000,000 and unless you have a major boost in 4th quarter cost, it will be below your guidance. Headcount declined more than 1100, if I'm not mistaken year to date. Stock costs are like 14% lower year over year. So in the light of all these, how should we think about 2021 cost outlook? Are you ahead of your targets here?
That's my first question. And my second question is on capital. If you can walk us through the known headwinds and tailwinds on capital for the coming quarters. Thank you.
Yes. This is Frank speaking. Can you hear me?
Yes.
Good. Thank you. So on the cost guidance. So we are, as you see in the quarter, running with a cost below €1,100,000,000 then we are having a VAT refund of €26,000,000 in the quarter, which we need to be aware of. And then again, also remember that our resolution fee is coming in, in the first half of the year.
So the question, of course, what will include in SDP Finance be the next level of 2021. And we don't we have decided not to guide off that yet. We want to just have a little bit more visibility during Q4. But I should say the majority of what we have done on the cost side is definitely structural. So of course, there are some tailwind from less traveling and so but that is just minority.
The absolute biggest part is structural. And we will come back with our guidance for next year. For this year, we are reconfirming our guidance to come in below €4,700,000 and that is including €1,000,000,000 that is including the integration cost and also the run cost for SG Finance in the Q4. When it comes to capital, yes, you have the figures. I will let Marc go through the bridge.
But we are having a very strong capital position, and I explained the start point and also the buffers. And we, as I said, have accrued for, of course, for 2019 dividends, and we are accruing for full 2020 dividend as well. So we intend to pay out dividend, but are, of course, following the recommendation and have decided not to take any decision before 1st January. Marc, would you try to explain the different movements, please?
Yes. Thank you. As you have seen in our development in our capital position in this quarter here, it has strengthened further, and that has partly been due to reduced market and credit counterparty risk. It is related to the implementation of the SME supporting factor, and then it also has a FX effect. And if we look forward, then given our dividend policy of accruing 70%, then we will be building capital when we look ahead.
We do have here in the 4th quarter a 35 to 40 basis points impact from SG Finance that will reduce our CET1 capital, while we also have forecasted that the consequence of the changed software deduction rules will give a positive impact of 25 basis points.
Thank you, Matt.
Thank you very much.
Our next question comes in from Mr. Andreas from Danske Bank. Please go
ahead. Good morning, everyone. So it's Andreas Hokanson here from Danske. First one was a bit interrupted when we were tied to the previous one. But on the capital distribution question, we appreciate that you want to pay and that's good news, of course.
But have you had any discussions with the ECB how they are thinking about capitalization? I mean, it seems very much like a political decision up until or what we have today. But have you any view on how to think about next year?
Yes. We intend to pay out the dividend. We have refrained from deciding about it before 1st Jan. We are expecting some further communication from ECB in, I should say, November, December early December. We have no indication pointing in any direction that should be else and we have that we have communicated earlier.
So let's see how it will play out.
Okay. Yes, we'll wait and see. Then on the NII, it is particularly strong in Sweden, in basically all divisions. And could you tell us a little bit what is driving this? Is it the funding impact of having deposits flowing in?
Or what's driving it? Because it looks very strong.
Yes. We have a very strong development, and we have had that for some time in Sweden, and it has definitely not been less in Q3. We have strong growth in mortgages, strong inflow of new mortgage customers. Volumes are growing. I don't have the exact number here, but I should say somewhere 6% and so when we are gaining market share and have done that for the entire year.
And it looks quite nice in Q3. On the SME lending, we are also growing with very high numbers if you look in local currencies and having good speed. So it's just a very good activity level. But actually, we have that we have experienced a very good activity level across the entire group in all the countries. Marc, could you give just a little bit more flavor behind the NII from Sweden?
If there are any particular things, just a short one to add.
Yes. Maybe let me comment just on the funding cost. As you can see, we have a very strong net stable funding ratio of approximately 15 115 percentage points. And that has given us the possibility to issue in the lower end of our guidance for the year. And going into 2021, we also see with the deposit inflow that we are getting that we can lower our expected issuance.
So this have supported our funding cost. There is a slight headwind with the increase in deposits until we are able to reduce the funding cost, but nothing of material impact.
Good. Thank you, Matt.
And then finally, to follow-up on NII. Two small things. Have you seen any impact on the TLTRO money you took in, in the middle of the summer? And then also, you had a strong growth in Danish mortgage lending. I think it was 5% year on year, which is then quite much more than the system growth.
And given that liquidity is so aggressive, could you tell us how can you be so successful in that area in Denmark?
Let me take the last one and then, Marc, you could elaborate on the O2 one. Now we are, of course, very humbly. We have worked hard to regain business momentum. It started actually a little bit earlier in Denmark, And it just takes time. But when you get the organization aligned, if you increase accessibility, have a lot of activity, I should say, 20 fourseven, are having all employees to understand why we're here and really feel passionate about what we are doing, and that is really what they have done, then you just see a nice pickup.
And at least normally, you do that. And that is what we are experiencing in Denmark. They had some tough years years ago and continuously have improved. And now they are just in a good position, I should say. But of course, it is up to us to every day to be there for our customers.
But they have to see the pride well in Q3 but also actually earlier quarters. Marc, the other question, please.
Yes. As you are probably well aware of, we have participated with approximately €7,000,000,000 in the TLTRO, and we have done that for the reason that this is at attractive funding levels. If we are able to demonstrate growth in our lending, then we will get a further reduction in the rates, and that will give us upside on the NII in 2021.
Our next question comes in from Mr. Magnus Andersson from RBN. Please go right ahead. Hi. I think it's Magnus Andersson at ABG.
But I'll just go ahead and start off with your follow-up from the CMD. When I look at the LC and I division, it looks quite good year on year with NII up despite lending down, costs are down, you have reduced economic capital and risk weighted assets. So I was just wondering, at this DMD, you were talking about the potential income loss of some €150,000,000 if I remember correctly. So I would just like to know whether that has come through or how much that has come through. And secondly, as the headcount is down by more than 200 employees and your cost trajectory is quite nice, if you have you expect to do more there?
And finally, on capital, you were talking about a year ago about SEK 1,500,000,000 reduction in economic capital. You're down SEK 1,000,000,000 from Q3, I think you're right, SEK 1,300,000,000 since June. Risk weighted assets, you were talking about down roughly SEK 8,000,000,000. I think you're down just SEK 2,500,000,000 or so. So what should we see there going forward on this topic?
Thanks.
Yes. Thank you. So yes, we are basically delivering on the plan we had. And of course, the COVID-nineteen created some volatility that pushed us a little bit backwards. But then we needed to work even harder, and that is what we have done with low yielding assets and getting down the volatility and thereby the easy employed in LC and I.
And I think that we what we are seeing now is the first steps in the right direction, but there is a long way to go, right? So one quarter doesn't create a more profitable business area, but it is certainly a good step in the right direction. Cost will continue to be trimmed down. We are, as we also have said, closing down some of our footprints outside the Nordics. We are working on the capital employed to get that down even further.
We are working with a focus on profitability and not on volumes. That will lead to a more focused, a more profitable unit but probably also a little bit smaller unit or division. And that is what our intention is. It has not really been visible in the income lines yet. We are sleeping with our boots on, so let's see how it will play out.
Of course, if we can do it without income impact negative income impact, it will be nice, but it's too hard to forecast implications. As we said, we expect some negative impact, but let's see how it play out. But the work will continue. And I should say, when I look at Q3 compared to what we said in the at the CMD, I think we are as expected, and we'll just continue to move forward.
Okay. So we should expect to see continued reduction of risk weighted assets and economic capital in this area?
Yes. As good as you go, right? And then the question, I think, long term mid long term, of course, is one is to deliver on a 2022 plan to get them up to a better shape when it comes to to the business up to a better shape when it comes to profitability. But of course, the next step to take is how to create a real profitability that is corresponding to the other business areas in the bank. And that work, of course, is the next one to look into.
And that, we, of course, will try to figure out how to do that. And I have started that work, I should say.
Okay. Thank you very much. And my second question is related to an area we haven't talked about so much since you took over as CEO, but an area we talked a lot about before that, it's mainly IT spending, where we've seen that I mean, they peak if I add capitalized IT cost and IT cost in your P and L, you clearly peaked in 2017 and then they have come down quite significantly. So I'm just wondering, have you achieved everything you intended to achieve in terms of platform integration across the Nordic countries when it comes to lending, deposit, payments, etcetera. Are you on track there?
And will you I mean, we talked about the close potential closing down on some older systems in 2021 and beyond that. Is that still on plan? Where are you there?
Yes. We are following our plan. But on the question, have we like concluded everything and finalized the work? And so absolutely no. But we are progressing, and I think we need to divide it in some buckets.
So we'll say the core banking work, the core banking platform, the main engine in the bank, that work is progressing. Of course, there has been during the last years, there has been adjustments here and there. There has been agendas that has taken some attention and so. But in general, we are progressing. So nothing particular to say there.
We just continue to build the system. And then the main effect from the core banking, you can say, will come when we close down the legacy systems, and that is some years out. But what we have achieved that has actually benefited the bank very, very nicely, that is a new mobile banking platform. And that, we have rolled out. We finalized the work rolling out in Norway in the Q1.
And that is a platform actually the first time in Nordea's lifetime where we have a common mobile banking platform, the same one in 4 countries, supporting all our customers. And today, that is it's very high rated. It's 4.5, 46 rating in the App Store. And we have more than 1,000,000,000 logins now across the Nordics. And with that, of course, it's much easier for us to add products, to add digital services, digital sales.
And then we need to connect it even better with our data warehouse. And that is basically what we focus on now. 2 things: 1st of all, to increase a number of digital services and digital sales. That's one. We have a road map we follow.
Every 3 quarter, we basically add news and then we prolonged with 3 months, so we continuously roll it. And then we have like 120 services we want to add, and we are somewhere around 45, 50, I should say, right now in my best guess would be my best guess. And then we have the data, and that is what we are starting to work hard on, how to use more data in our digital interactions in order to stay relevant and in order to be personal in a digital meeting. And I think we are starting to see some small, nice steps forward, but of course, this is a big large work we have in front of us. But we know how to do it.
So the work has started, if I could say so.
Okay. Thanks. And finally, for me on a more detailed note in terms of IT expenses, I saw that in other costs, the information technology cost in Q3 is the lower number lowest number I've ever seen, and I went back to 2,004. So the question is, is there anything particular in there? Or is it really a step change in your IT cost level in the P and L?
We have reduced from last year, that's for sure. But I don't recall any particular, Marc, do you, in the quarter?
No. I think we have if it's the booking of the VAT refund actually that goes into that line and that distorts it a little. So I think that should be taken into now. Can you confirm that, Matti? Yes.
Yes, thank you.
All right.
Okay. Thank you. So that's on the IP line. Thanks. Moving along, our next question comes in from Mr.
Antonio Reali of Morgan Stanley. You have the floor.
Hi, good morning. It's Antonio here from Morgan Stanley. Thanks for taking my question. I've got 2, please. The first one is on NII.
You've been successful in recovering your sharing mortgages in Sweden. What are the trends that you see in Sweden, both in terms of volumes and margins? And also, what do you expect going forward on your Nordic markets in terms of NII? That's the first one. The second is really a follow-up on one of the previous questions.
As far as I understand, one of the elements ECB will assess when deciding on dividends is based on, among other things, the sort of the single bank's 3 year capital projections, inclusive of regulatory headwinds. Now I appreciate the color you provided on Q4, but can you remind us further ahead where is Nordea in the regulatory capital cycle? And what's embedded in your plan forecast beyond Q4 when it comes to regulatory headwinds, please? Thank you.
Yes. So let me start with the mortgage market. And so and then Mark and Matthew, you can take the capital forecast. Of course, we cannot give a clear guidance there, but at least if we have some information we can share, then we will do that. Mortgage markets volumes are growing in all four countries and actually showing very nice development.
We are having a growth rate of, I should say, 5 percentage point across the Nordics, and all markets delivering and also gaining market share. So that's very positive. Sweden is even higher, I should say. Norway is actually also showing good progress, but Sweden is even higher. And that has just led to good volume and thereby NII development.
I should say, short term, I don't experience or expect any, at least from my view, no big changes in that picture. Volumes are and activity are high is high. And I don't see any big movements in NII with the information as is we have now. Would you confirm that, Matti?
Yes, absolutely.
Good. When it comes to the capital, do we have anything to add that we could share?
Yes. So as mentioned or maybe starting out with our reformulation of our dividend policy being a relative payout, that has meant that our capital position is more stable than we have seen in the past. And as I mentioned, we are accumulating capital through only reserving 70%. If we then look forward and we expect a normalization in the world following the COVID crisis, then it is fair to assume that we will see a reactivation of some of the countercyclical buffers with a phase in for this. So we do expect our capital requirements to come up again.
However, given the very strong capital position we have, then we also expect that our capital position will be stronger and therefore also support our strategy we have in relation to the dividend policy complemented with share buybacks.
Yes. And I'm pleased we could also add that our policy is to have 150 basis points to 200 above the requirement, that is unchanged. Yes. Yes. Good.
Thank you, Marc.
Now we continue with Mr. Riccardo Rovere from Mediobanca. Please do go ahead.
Yes. Good morning to everybody, and thanks for taking my question. 2 or 3, if I may. The first one refers to Slide 10. You provide you nicely provide a loan amount under a payment holiday of around SEK 19,000,000,000 and you're saying that today 5% or less than 5% is going sour after the expiry of the moratorium.
Do you see any reason why they 65% should all of a sudden deteriorate much more than that. And when I look at your €650,000,000 COVID overlay that you have taken in the 9 months and it isn't changing this quarter, Is that compatible with this kind of 5%? Or do you or is it compatible with an higher number than 5%? This is my first question. The second one is on a bit on funding mix.
Deposits are growing faster. I was wondering whether this could eventually change your issuing profile over the next of the foreseeable future or maybe even better, if you could or you think you can move some of these deposits off balance sheet into assets under management, wealth management or whatever? Last question I have is just want to hear your opinion on this topic. There is a debate in the market about banking consolidation. With a multiple tangible equity, which is, let's say, kind of 1% and is definitely 3x larger, 2x larger, in some cases, 4x larger than most of commercial banks in Europe.
I just, be curious to hear your opinion on if you have one and if you want to share that with us, of course, on cross border M and A, if you are a believer in that or if you are not a believer of that, if you want to share your opinion on this topic with us.
All right. Thank you. So let me start with the last question. Then Marc, you can take the deposit and funding. And Matthew, perhaps you could talk about the risk side with that, would be okay.
Consolidation, we I don't want to speculate in consolidation in Europe or I guess what will happen in the future. In Odea, we are doing everything we can to deliver on our strategy. That is what we try to do a little bit better every single day, helping our customers improve the business, deliver on our key priorities. And our strategy is to grow in the Nordics. We are having a focus on the Nordic countries for home markets and just continue to deliver on that one.
That is what we're here for, and that is the comments I have to that question. But let's go to the credit side, Matthew, first, I think. Please.
I think the starting point is to say that on payment holidays, the regulatory rules in general have been that when you're granting the moratoria, you don't have to trigger customers into forbearance. But as we've said in the presentation, about now 50% of our payment holidays have now finished. So we had a pretty modest number, which has tailed away. Now we're rerating the customers, we're rescoring them and we're seeing less than 5% going to forbearance. Is that covered by the management judgment buffer?
Absolutely. We've got a very significant management judgment buffer. So the size of the forbearance, the size of the flow into Stage 2 is certainly not a concern.
Perfect. Thank you
very much. Thanks.
Very clear.
And then if we look finally on the funding mix and the deposit inflow, then it's clear if you look across almost all banks, then we have generally seen a high increase in deposit inflows. This partly relates to, you could say, some changed habits from the public and, of course, also corporates, but it also relates to the level of liquidity in the system through the Central Bank facility. So it is too early to conclude whether this will be a longer lasting effect following the crisis. However, as mentioned, it gives us some possibilities to optimize our funding profile, which we, of course, will take into account. And as always, we are focusing on, you could say, growing our asset Wealth Management business and, you could say, for savings for our customers.
Good. Thank you, Marc.
Thanks. Thank you very much.
You're welcome. We continue now with Ms. Sophie Hidderson from JPMorgan. Please do go ahead.
Yes. So here it's Sophie from JPMorgan. So just to go back on the M and A question, how do you, in general, view M and A opportunities in the Nordics? I recognize you want to deliver on your strategy, but will you continue to do small add on acquisitions or would you also consider something more strategic? So that would be my first question.
My second question is that could you give an update on where we are on the model approvals from the ECB? And any view on the expected benefit from these? And when should we expect the benefits or the model approval to come through? And then my last question would be on the Swedish mortgage rates. A number of your peers have got the rates on Swedish mortgages in the past 2, 3 weeks.
But you hiked them 10 basis points in June for the 3 month rate. Do you have any plans of following what your peers are doing on the rate side in Sweden? Or do you think you just have a better offer and don't need to adjust your pricing? Thank you.
Good. Thank you. Let me take the M and A question, Good. Let me take the M and A question, and I can take the Swedish mortgage as well. And Marc will take the models together with Matthew or you decide who to take it, right?
The M and A strategy, we have a strategy of doing bolt ons in the Nordics. There needs to be in the you can say, in the core of our strategy, strengthen our customer offering and supporting our business in the Nordics. And Jensidige Bank, as we acquired some time ago and the closure closing of SG Finance deal here 1st October is examples. They are clearly strengthening our franchise, our customer offering and are also generating some profit. We are prepared to do more if we have the right target, and we are looking.
So let's see how it will play out. When it comes to the mortgage market in Sweden, in particular, as I understood you asked to, so we are having the, you can say, a good growth. We are having a strong inflow of new customers. And our team in Sweden are just daily monitoring to have the right pricing. So let's see how it would play out.
It is we are using market prices and are following it closely. So I don't have more further comments to that. When it comes to models, Matthew, would you take it then, please?
Yes. So our applications for changes to models go into the ECB in 2 phases next year. It will take about a year or so after that for the approvals to come through. It's too soon to say how much of a capital improvement there'll be from that. We're still finishing our work.
We're still talking to the ECB. And then on the horizon, obviously, we've got Basel IV with the floors coming in as well. So I think premature to talk about the capital impact, but we're definitely on track with the application process.
Good. Thank you.
Thank you. That's very clear.
Operator, we still have time for one final question.
Okay. And the final question comes in from Ms. Namita Samtani of Barclays. Please go ahead.
Good morning. I just see your 2nd largest shareholder making comments that Nordea is far too conservative on 2022 target. So do you have any comments to make on this? And secondly, on impairments, you write in the report some customers may suffer further from the COVID-nineteen crisis after support measures have expired. But can you tell us how we should look at 2021 impairments?
So will it be sort of the middle year before going back to some normalized level in 2022? Thank you.
Yes. Thank you. Yes, the first question that we don't comment on. But on the impairment, Matthew, would you give an update there?
Yes. So the exact timing of future impairments is obviously still uncertain, but I think the key point to say is that we have a very big buffer in place. We've already incurred €850,000,000 of loan losses this year, but a large proportion of that are management judgments anticipating expected losses for the future. We expect our net loan losses certainly to be lower next year than last year, but we have those buffers in place irrespective of exactly when those underlying loans occur.
Good. Thank you.
Thank you.
Thank you. Thank you very much.
Now it's time to conclude. Thanks for your good questions. And if anything further, you're always welcome to contact us at Investor Relations and looking forward to speaking you at a later stage. Thank you very much.