I would now like to hand the conference over to speak today, Jonas Söderberg. Please go ahead, sir.
Thank you very much for that. Also from the SEB side, a warm welcome to the telephone conference for the first quarter results. Johan will do a short introduction as our normal procedure. Then we will open up for the Q&A and hope to be able to answer all the questions. Johan, over to you then.
Thank you, Jonas. Good afternoon, everyone, and welcome to this year's first SEB quarterly and my absolute inaugural conference call with you guys. Welcome. I have a 10-page pack that we will go through. Just setting the frame, we have characterized the market circumstances during the first quarter as being two-pronged. We've seen continued uncertainty on the political scenes, geopolitical tension, a more allowing climate for protectionism to be spoken of, absolutely a debate on what pace will the monetary stimulus will be reduced going forward. In addition to that, there's been big focus on national elections, U.K., France, post Trump being elected in the U.S., et cetera. That remains.
On the other side of the coin, we really see stable to strong and very resilient financial markets, with the stock market performing very well, noting all-time highs in several different areas, continued tight credit spreads, low interest rates despite going up a bit, and a very good market to conduct business and banking. Flipping to the first page, the financial summary, page three. We today record a profit of SEK 5.5 billion for the first quarter. There are no one-off effects that have been introduced during this quarter. We do have some that we've adjusted for in the base for comparative purposes. I will focus on the underlying results during my presentation. That means that we recorded a 23% increase in operating profit coming from 10% on the income line, flat cost compared to last year, and continued low credit losses.
Return on equity is at 12.2%. When we do the base adjustment, we would like to say it is 11.7%. Common Equity Tier 1 improved by 10 basis points from 18.8 to 18.9, so continued very strong capital base. The credit loss level was a very low five basis points. Next page, net interest income. We recorded a 2% increase year-on-year. However, there are some pretty significant movements below that headline number. On the lending side, we increased 18% year-on-year, pretty flattish between the fourth quarter and the first quarter this year. We can also see here the negative effects of negative interest rates in particularly in Sweden, where the deposit income has gone down from SEK 0.6 billion to SEK 0.2 billion. Good activity in the client areas, but not really any larger lending stemming from traditional corporates.
There was some lending growth in the mortgage book and for SME and Mid Corp and particular areas such as Axin. The non-client-driven development should be noted that this is the first quarter we have included the new higher resolution fee going from 4.5 to nine basis points, that affected this quarter a negative SEK 211 million. We also did what we could classify as some pre-funding or early funding, raising SEK 38 billion of new capital in the bond markets whilst only having SEK 5 billion of redemptions, hence a negative contribution for the interest costs of that new financing. Flipping page to net fees and commission. We noted a 10% increase year-on-year, partly driven by a very active ECM, DCM corporate finance market. That is also to say not driven by fees coming from lending. We had a 10% increase in advisory secondary markets and derivatives.
We also had a net inflow, I would classify it as a modest one, of SEK 6 billion of increase in asset under management. Fairly high activity levels and a stronger stock market absolutely also contributed to having a better fee and commission line. We will go to page six and talk about net financial income. This is where we recorded the largest increase. It is a very high number of SEK 2.1 billion in the quarter. If we talk about the client-driven side, there were many positives. The markets area had good activity, both in particularly when it comes to hedging. We have now had nine quarters in a row on what is typically viewed to be a more volatile line above SEK 1.2 billion. In addition to that, we have some positive effects from our liquidity management in treasury, who benefited from cost-efficient funding.
Switching on to one of the most common slides that we show. This is really to set the tone for how we are trying to get our operating model to perform, and that is very strong cost control. When we talk operational leverage, it is based on a cost cap of SEK 22 billion for this year and for 2018. We here record well in line with that cost cap with a quarterly cost of SEK 5.4 billion. Income has come back a bit to where we would like to see it after a relatively marginally weaker 2016. We are back to 11.2 in the first quarter, in line with 2015, together this constitutes a good, strong continued development in operating profits. Now I will just flick through the different divisions, starting with Large Corporates & Financial Institutions, our wholesale banking unit.
That recorded a drop in operating profits of 3% adjusted for one-offs. This doesn't truly reflect how it feels in this business area. We've clearly seen a higher degree of activity than we did last year. Here it can be important to just remember that the resolution fee, the negative effect of the resolution fee for the first time introduced here after it's been hiked, together with less deductibility on subordinated debt, together with the market valuations of our derivatives and other similar products, they were all significantly negative, and they affected, in particular, this division. We've also seen high customer activity and a very cost-efficient development of this area. Cost income is down from 0.56 last year to 0.50 this year. There's been a meaningful improvement of operational efficiency. Sorry. Switching over to corporate and private customers. We noted a significant increase of 16% year-over-year.
We had somewhat of an increase in our mortgage book. It grew with approximately SEK 4 billion in the quarter. That equates to a 3.5%-3.6% increase, which is interesting to note, is close to half of the market increase on average. We also marginally expanded our lending to SMEs and midcaps with SEK 3 billion. Maybe most interesting here is that we added 2,000 new clients in this segment. That's SME and midcap clients. We currently state that we have 170,000 clients at a market share of 15%. This is one of the areas I think that has outperformed lately, and we hope it will continue to do so. Not too long ago, we had a 10% market share in this area. Switching to our last two divisions. Baltic had a very strong quarter, and it's encouraging to see that now all the three Baltic states are performing.
Here, we do see some organic increased demand for the lending product. We also, of course, are in a much more stable position than in previous paths, where we now have no real worries about the quality of the credit book. This quarter, we actually had a writeback of SEK 19 million. All this together makes for a significant jump in return on equity to be meaningfully above 20% right now. We've also done a major switch in our core systems in Latvia, which was a successful event, and we're very happy about that. In Life and IM, I'll just state that we had the modest increase in asset under management, of course, helped by some strong financial markets. We also had a 20% increase in our premium income for the Life division. We're going according to plan.
However, I would say that the savings area is still a main focus for us for the rest of the year. Last slide before we open up is just to conclude. We aim to qualify this quarter as a solid first quarter, helped by our diversified funding mix, business mix, strong capital position, and very low credit losses. We do see the financial markets to be fairly supportive in this environment, and we will continue to focus on productivity gains, operational efficiency, and enhance the client offering through digital channels for the foreseeable future. With those words, I'll just conclude there. Jonas?
We open up for questions to Johan, and we also have Jan Erik Back, the CFO here in the room.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for a name to be announced. Please stand by while we compile the Q&A queue. Your first question comes from Geoff Dawes. Please ask your question.
Hi, thank you very much, everyone. Geoff Dawes here from Société Générale. A couple of questions from myself, both on the Merchant Banking division. The first one is, you kind of hinted at this in your report, and I think another bank mentioned it as well, which is that there's been quite a strong take-up of corporates not lending bilaterally with you and going to the capital markets instead, and that's played on volumes and revenues in the start of the year. Can you just give a bit of color on that trend, whether that's something that's a start-of-the-year phenomenon or something that's a change that we'll see throughout the year and possibly impact your revenues going forward? The second question is just a bit more broadly on the Merchant Banking revenue line.
When can we expect better corporate performance, better corporate activity to start showing up more clearly in the fee income line? What are you waiting for, or what are you looking for to see that become a little stronger? Those are the two questions. Thank you very much.
Thank you for those. Starting with the interlinkage between loans and bonds. I think it is true what you say and what we've indicated, but don't forget, it's on the margin. We have seen a much more active bond market. The companies that access the bond market always have a natural choice to do it through a bank financing. As we've had a fairly disappointing, but still a fair belief in that disintermediation will continue, that has an effect on the margin. The more important takeaway is that underlying general demand for credit is low. That is, leverage is not going up amongst corporates. Organic investments are not picking up in tandem with the leading indicators and the surveys we see. They seem very optimistic despite whatever you see in the market. It hasn't really converted into a large investment boom of any sort.
Secondly, it's the M&A side, which has not really materialized either. We are dependent on having a very confident client base within the corporate space that trigger these events for it really to happen. That leads me into the second. I think there are two things if you are like us waiting for the income line for LC&FI to make a more meaningful uptick. First, it's just a function of the company's behaviors. We are securing right now the best possible market position we can so we can capture it. We do need a more active M&A market. We would like to see investments growing and that they are asking for financing from the banks. That's pretty much it.
We have a pretty good market on DCM and ECM, but they are relatively small compared to the fees that also need to come before we say we fire on all cylinders from the lending side. The lending fees are still important to us.
Okay, that's very clear. Just to be clear as well, you're confident that this is a kind of market trend issue rather than your own position in the market. There's no loss of market share. You're just waiting for the whole market to rebound, is what I take from your statement. Is that correct?
Absolutely. If anything, I would dare to say that we have a very satisfactory market share position in what has been slightly lower.
Clear. Thank you very much, everyone.
Thanks.
Thank you. Your next question comes from the line of Willis Palermo. Please ask your question.
Hi. Good afternoon. Thanks for taking my questions. The first one is on volume growth outlook, and especially in the mortgage side, where you pointed last quarter the ambition to grow a little bit quicker than what you've done recently. It's still increasing slightly but much slower than the market, and I was wondering what kind of growth you hope to achieve, and if you intend to gain market share, or what's your assumption of the market growth overall?
Okay. Thank you. I'll just frame the answer from where we stand. We did indicate that we would be open for getting closer to the market average. Right now we are having a slight uptick. As you might know, we've actually been reducing in growth number. That has stopped. We stabilized to have a small, almost not noticeable, but still a small uptick in the growth in the volume of the mortgage book, 3.5%. The market has actually come down a little bit. It is not very much, but that's roughly around the low 7% year-over-year in growth numbers right now. What is important to understand that we don't only view this as a weakness for us. We have a bilateral discussion with every mortgage client in this bank with a pretty conservative estimate about what they can carry in debt, et cetera.
They amount to this. We do not have a simple ambition just to go up to the market average, but we will allow for it to happen. We don't have the most stringent, call it restriction, if it would be a little bit faster. For the longer-term outlook, I think it's definitely important to keep in mind that the price increases that we've seen over and beyond the new housing that has been constructed has driven part of this. We've seen house price appreciation in Sweden, where the mortgage book is more or less exclusively targeted to, of 8%-9% per year for the last few years. It's really a call for that. Many people are saying it's not going to continue forever, that price increase.
I'm looking here at my CFO, Jan Erik, if you wanted to add something on the mortgage outlook.
I think that was the full version you want, I think that was fine.
Thank you very much. The second question is on asset pricing. In the corporate book, as two peers announced a price hike in some area of their books, which is administratively set rate. I was wondering if you plan to do the same, and if yes, how big the portfolio would be.
Yeah. First, just let me give my personal opinion about asset pricing on corporates. First, the banks who have communicated, they talk about SME mass market and some real estate companies. Second, over and beyond that, we have the real large corporates. I'll frame my answer in those two. On the large corporates, which is a significant part of our book, we have a much higher proportion of larger wholesale banking clients, is very much a market-dictated price. You can't really just increase the price and get anything done. Here, we don't see really any improvements in margin. It's really correlated to the credit spreads in the overall market. Liquidity continues to be very high. Money is cheap. There are a lot of opportunities for anyone to borrow from multiple sources or banks.
On the more mass market, SME, Mid Corp, and domestic real estate, the dynamic is slightly different. We have not said that we would reprice it to the same extent that others communicated, because it's really the function of a bilateral discussion. The overall market position is such that there's not an easy way to reprice upward. There is, for the same reason I mentioned for large corp, it affects the smaller ones.
And regarding-
I'm cautious is what I would like to say.
Regarding size, I think that the size of our corporate book that is having this price mechanism of that we can increase by just announcing in the paper and increase the whole back book is very limited and is smaller than the numbers that we have seen from the peers that have reported earlier this week.
Thank you very much.
I would add one thing, and that is we have not seen the consequence of their communication being materialized as we are working in the same market, and we are competing for the same business. It is interesting they say that, but I don't think they've been very successful.
Okay. Thank you.
Thank you. Your next question comes from Mats Hokers. Please ask your question.
Yes. Good afternoon. Mats Hokers here from Danske. Question also on the large corporate financial institutions division income side. The income is flat year-over-year, but the lending has grown quite a lot. How much of this is a function of lower margins? Have we, in your opinion, now seen the trough, so to say, in the lending side, and should we expect this to start to increase? On a follow-up question on the same, you mentioned that you had the negative value adjustments on the financial income in LC&FI. How much was the figure in Q1?
Sorry. Could you repeat the second half of the question, please?
Of the first question or the second?
The second.
You mentioned that you had some negative value adjustments so that the 9.7% ROE in the LC&FI is not the actual figure that one should
Okay. I'll try to do both. On the first one, there has been margin pressures on the loan book. Credit spreads have gone down significantly over the last two, three, four years. As you know, we have an average maturity of that, let's call it two to three years, maybe even a bit longer for certain areas. It takes time for the whole thing to reprice. For the last years, it's been repricing at a tighter credit spread. That part, I would say that it stabilized lately on a low level. The margin pressure measured as credit spreads. It doesn't feel like it's continuing, but it's not materially improving. We're not calling the uptick, rather just calling the, maybe as you said, trough. That's a little bit of a brave statement, of course.
In certain areas, they just can't go lower because they are so very low. We also had a slightly improved mix in the lending book. We did see last year a more active market when it comes to lending in acquisition finance-driven deals. The private equity space, taking companies private or switching assets within the financial sponsors has been very active. Interesting, we've had some pockets here where we've done really, really well. That is not a margin increase. That's catching the opportunity out there improvement, where you actually get to have a more meaningful part of your balance sheet deployed in higher yielding assets. It's very quiet on the investment grade side. As you know, from there's a lot of that pressure coming.
When it comes to my comment about it feels better in LC&I than we note on the return on equity of 9.7, I'll answer it like this. We've said that the quarter had a resolution fee cost to the bank of SEK 211 million. We've said that reduced deductibility on subordinated debt has a yearly effect of SEK 360 million negative. The market valuations on the XVA for the bank, I'm saying all this, is minus SEK 284 million. If you add them together, you get a very meaningful number, and a very meaningful part of that is for the LC&I division. I don't think I can be more specific than that, as we've not broken out the numbers by division. I'm again looking at Jan-Erik, if you want to add something.
No, again, I think you captured it. That's literally right. The majority of that is in the LC&I division. It's a detail, but when you say lowering of the deductibility on subordinated debt interest, it's actually taken away completely. It's an abolishment of deductibility.
Yeah. It's a tax increase, I think we say, of equivalent to 2% increase from 2023 to 2025.
That's right.
Great. Very clear. Thanks.
Thanks.
Thank you. Your next question comes from Riccardo Ravia. Please ask your question.
Good morning. Actually, good afternoon to everybody. My first question is, again, if I can get back one second on the repricing of the corporate book. Just to try to be a bit more precise, out of something like SEK 500 billion corporate book, how much do you think you can tackle in terms of repricing? 30% of that, 50% or whatever? Second question I have is, I noticed an immense jump in assets under custody this quarter to SEK 7.4 trillion, almost SEK 7.5 trillion from SEK 6.9 trillion. There is a difference of SEK 600 billion in only three months. I was wondering what that is, and if there is no fund in that numbers, what portion of this immense amount of money you can eventually convert into assets under management over time? The third question I have is on the PD models.
If you can share with us when you think you're going to get the approval, what the impact is going to be, and the same thing on IFRS 9. Thank you.
Okay. We'll divide it between us. I'll start with the repricing of the SEK 500 billion book. First is, over three years, you have had the opportunity to reprice most of it because there's not a percentage point of it. It's the natural repricing will happen as and when an engagement matures. As you also probably heard, I'm indicating there's not a very large repricing uptick right now. The drop that we've seen coming to market often up until now has meant that you enjoy a lower credit spread than you previously did. That, of course, hurts our NII. Some of the margins, but very few in this bank, are actually administratively set in the corporate space for the mass market. Was that okay on the first question?
Yes, that's okay. Although I was wondering whether in your previous statements you were flagging that on the large corporate side, given the ample liquidity in the market, repricing is not going to happen or something like that. This is the message I got, but I'm not sure.
I'm not saying exactly that. I think it's very difficult in the current market to reprice large corp investment grade. If I sit here and talk about this in a quarter or end year-end, it's going to be the mix of our lending book, if anything, that could explain why we've developed. The volume is, of course, is also an unknown factor here. We do make some good money when clients are active in more transformative ways, and we haven't seen that. We call it sometimes the elephants where we really have to stomp up and help our clients.
Okay. That's clear.
Jan-Erik, you want to-
Okay. The assets under custody, Riccardo, if you look back in the fact book back to the quarters from 2015, we peaked at SEK 7.6 trillion worth of assets under custody. Then we dropped at SEK 6.4 trillion during last year. The biggest reasons for that is market valuations and high equity portion of that. Then it's combined with inflow of new things. Of course, now when we have put our new custody platform out in the market, we are hopefully capturing more market share in that segment. Regarding the conversion into assets under management, I think that is not a strong correlation between those two of assets. It's two different business lines and two different set of offerings. You shouldn't make too strong case between those two.
All right. Thanks. Thank you.
Perhaps, Riccardo, I'll pick up on the last question on the PD models, and I think you asked about IFRS 9 as well. If I start with the PD models, I met with the regulator yesterday as we always do ahead of launching our results, and I think we're on track with our application of the models, and we expect them to be coming back and finalizing that work during the summer. In terms of effects, we're looking for 0.4 or 40 basis points improvement on the ratio. From that, I can't 100% promise right away, but that's the best estimate so to speak. We also put aside, as you know, a 15.5 today. That's today's value, so to speak, of the risk exposure amount buffer that we put aside in our balance sheet last year-end. Well, a bit over a year ago.
Those two things I expect to be coming our way during the summer. In terms of the IFRS 9 effect, we are not commenting on that yet. We will come back later in the year just on the back of as soon as we start to throw numbers around then they will be out there. I think we need to be a little bit further down the road of all the modeling before we do that. What I would say, though, is that I don't expect us to come out unfavorably against the market median on that. I think we'll come out on the better half.
Okay, thanks. Thank you.
Thank you. Your next question come from John Walter. Please ask your question.
Yes. Hi, John Walter here, Credit Suisse. Just couple of questions follow up from the conference in Stockholm. First, capital is solid, I think you earlier in the day alluded to the strong capital position without saying much more around it. I do understand it's too early to talk about capital repatriation, just conceptually, right now the safety margin is around 150 basis points. Is that, in your view, still the reasonable buffer that the bank should run with? That's the first part of the question. Secondly, do you see enough growth opportunities to argue for the board at some point that excess capital should be kept in the bank and used for growth rather than paid back, or how do you view that dynamic? That's my first question, please.
Okay. I can start. When it comes to repatriation or share buybacks or dividend, there is no such plans. Of course, we are getting up to a 2% buffer with the numbers that we've now shown, similar to Q4. I think it's always an ultimate question for the board, I guess. I think there is a particular acceptance for the buffer to be a bit higher given some of the uncertainties that we are facing. Those stem from two places. First, with the next resolution fee rounds and/or another bank tax and what it means for profit and repricing or pass-through to clients. When you have those really fundamental things around you actually like to have a little bit more buffer rather than less. Secondly, it is part of the transformation agenda. There's no lack of identifiable disruptors.
It could be growth that this money also could be, of course, allocated towards, but it could also be forward-leaning in the digital concept that we actually want to have a little bit of extra cushion seeing who's going to be successful here. As you probably have seen, we're launching now quite a lot of new things in the bank. Jan, do you want to add something to that?
Well, no, not really. I agree with everything you said, obviously, maybe just to say that conceptually, as you say, John, the willingness to repatriate capital, it's too early to talk about it, really. Conceptually, that willingness is there, provided we have a couple of things in place, and one is regulatory clarity, including the points that Johan raised on taxes and resolution fund fees and regulation, also that we have political acceptance around in society to repatriate capital from the banking sector. I think we're getting there on both counts, but not quite yet.
Okay, thanks. No, that makes sense. The final one was just if you could update us on the sensitivity for 100 basis points higher short rates, then also say whether or not that sensitivity include the effect from the STIBOR floors. Thank you.
Yes, John. When we talk about it, they do include that effect. What we've said, and we stick to it, is that on the downside, not that we believe in a downside from here, but if there was a downside, it'll be something like SEK 3.8 billion for 100 basis points. Whereas on the upside, it's more like SEK 2 billion for 100 basis points. I think you may see us, when we go forward, adjust that number somewhat upwards as a result of the continued large deposit intake into the bank. We're sticking with that number for the time being.
Okay. No, that's very clear. Many thanks.
Thank you. Your next question comes from Ronit Holtz. Please ask your question.
Hi, good afternoon. It's Ronit from Citigroup. I had two questions. One is a boring, specific one, and one is a bigger picture one. I guess let me throw the boring specific one out first. In the other elimination, the net financial income, the trading line, whatever you call it these days, that was an unusually big number. I know you've called out the consistency at the overall group trading income, being very consistent. Could you just talk a little bit more around the SEK 572 number in other elimination? You call out liquidity portfolio gains in your release. When I'm thinking about the next few quarters, that number's been more like a couple of hundred. It's been all over the place, a couple hundred million usually. What's the right run rate to think about on that one?
I don't know if Jan Erik would want to take that one. The second one, which is a bigger picture question aimed at really thinking about the CEO transition. Annika's run this bank forever, and of course, you've got a very strong team there, and things don't change just because the CEO changes. Over the decade plus that Annika ran the bank, before in the 1990s, SEB was perhaps maybe seen as more of a volatile, inefficient bank, and you became associated with much more consistency and higher efficiency. If you think ahead 10 years, and if you're lucky enough, Johan, to get 10 years running this bank, how will you look back? What were the biggest change over the next 10 years? Is it the whole technology space? Is it the digital challenge? Is it something else completely?
What's the big transformation or the big change that you have to wrestle with over the coming decade?
Hi, Ronit. I'll start on the first nerdy question then, and while Johan is digesting your second one. I think from the other end in eliminations than the trading line, as you say, you saw a bit over SEK 500 in this quarter, and you had something like close to SEK 200 in last quarter. I think we're pointing in the report to similar things as I've seen probably have happened in the other banks that have reported during this week. It's basically two headings. One is the market valuations of the liquidity portfolios, and it's the anomalies in the market where treasury operates as the result of the negative interest rate environment, where there's just been ability to fund and to execute in a very optimal way during this quarter. It's really those two things.
Maybe if you're looking for a run rate, it's somewhere in that delta between Q4 and Q1.
I just average the two and take that?
No. You'll have to figure out your own level there, Ronit. I'm not going to give you any more guidance than that.
Okay.
Okay. I'm now leaning back and thinking big picture here. I think the 1990s characterization is fair, I think it would be one of the most disastrous things ever if I could not earn the trust to maintain what we have achieved over the last 12 years with Annika. That is from volatile and unpredictable to transparent, predictable, stable, and well understood. It's also a matter of doing what we say we do. I think that's becoming more important, understanding valuations in this industry. You get very heavily penalized and I have been part of the group executive committee for some time and understand behind what Annika has done lately 100%. Fully aware that we all need to get to know each other. Now don't underestimate the bank and don't overestimate the CEO.
This is a well-established modus operandi over the last decade, which you do not change, and we have no willingness or ambition to do so. Looking if I get the luxury to do this for 10 years, I think we could sit on a call like this, and if we do well or if we do poorly, could be described to a certain meaningful extent by two things. More and more things are becoming commoditized. It is more difficult from when I started 20 years ago to have an easy way to affect the price. You are now going to have to be operational efficiency. A word like operational efficiency, productivity, these are really characteristics of typical industrials now commonplace in banks. We look in the same way of unit labor cost, and these are quite a new concept for financial services industry. That's where we're going.
If you can conduct a successful business and every year outperform your competitors half a percent or a percent on the cost line or in productivity, you will win. Here, some brave bets need to come from banks in the future on what information technology to buy, to use, and how to deploy it. Can you do it successfully? The other area is client standing. We have a very strong belief that technology is great, but it is twice as important in combination with people. You cannot only think that digital will replace insightful discussions and emotions of conducting business with each other. We frame that often as advisory capabilities.
Tandem with deploying information technologies goes an increased demand on insights, because I think these two will be the two metrics, and I really strive to make this bank the best in the kind of marketplace where we operate. Strong customer relationships driven by advisory approach and technological excellence. That is not too different from the past, but they are all going to come into crunch time. You have to make some decisions. I think we've just started.
Thank you.
Thank you. Your next question comes from Jacob Kruse. Please ask your question.
Thank you. Hi, it's Jacob from Autonomous. I wanted to ask you on this digital thing you were discussing. You had a slide showing that the branch visits were down from, I guess by about 60% since 2012. I think your branch network has been cut by about 3% or 5% in that time. I guess my two questions are, firstly, do you think you need to make some changes there? Secondly, how low does this branch visit number need to go before you basically rethink the logic of having a national branch network at all? My second question, I guess on the same topic, when you look at your internal processes, how much of those would you say are automated at this point?
How much time or how many staff FTEs are spent on processing and handling the data that gets created in your business? Just a quick, do you give your NSFR ratio? Could you guide us to roughly where your NSFR stands at the moment? Thank you.
Thank you. There was a few questions there, Jacob. Thank you very much. First, I'll start by saying I enjoyed your piece on the minimum banking. I'm sure the 17 branches, I think you suggested instead of 1,100, was a very thought-provoking idea. Thank you for that. I think we are between a rock and a hard place when it comes to the branches. The direction is clear. We are currently we have halved the number of visits in the branches in the last five years. We're down to less than 200,000 visits a quarter. Now we just recorded a 50 million touch points with our clients on the mobile only. In this context, internet, not mobile, fixed places on desks is not growing. It's actually marginally declining.
The telephonic services that we provide is stable at a very high level, 2.5 million client contacts a year. We are, of course, viewing and following these patterns very closely, and it is a very challenging thing to reduce the physical places you operate in the best way. Not least because you don't have a homogeneous client base right now. You have the majority just want digital and mobile, and a minority who is a very strong minority, and you hear their voices everywhere, want to maintain the physical presence. We are reducing. We will continue to reduce. I also want to insert a complicated picture. We have a relatively speaking, when you think about retail banking, we have a relatively large SME and Mid-corporate banking, which has not at all the same characteristics as private individuals.
There, the physical meeting place is a still much more important prospect for the future. The corporates do not use online and mobile banking to the same extent. Even if they do, which they do in many areas such as trading and payments, they do not reduce their demand on individuals and meeting. It's actually just being able to process double, triple the amount of transactions without costing anything more and without reducing the opportunity for clients to meet us and talk advisory topics. That's just complicating the picture as where we have done very well lately is in the SME and Mid-Corp. We have 170,000 corporate clients now beneath the level we call large cap, which is typically 5 billion-10 billion SEK on sales. There, the dynamic is very different.
Of course, we've just launched a concept store inspired by some of the more tech-savvy companies to completely reshape the idea of having flagship stores and places to meet. Everyone is playing around with things like pop-up stores, and we've introduced a bank bus, so we don't need to be physically in a fixed place. We drive around, and you can see us there, depending on demand. All this being said, the direction is clear. There is a lower requirement to be in physical places all over. We are not the largest retail bank in this country. Internal processes, you asked, I can't quantify the number of people here off the cuff. I'll say, I think this is a big opportunity for us. What we've done very successfully is launching new things to the client.
We are reviewing now many of the largest internal processes. We've had massive efforts, energy, and time spent on them. Parallel to what we're launching for our client base, but it's of course not visible, we're launching internal operational efficiencies. You have seen, for example, FTE reductions in LC&FI to the tune of 20% over the last few years. From 2,400 people, now we're doing 2,000. These are some of them very much in between this technical development and the real impact on the price. We can reduce there. You don't see it on the cost plan because we redeploy that in new investments in information technology, and that's very much in line with our strategy, freeing up as much we can to have forward-leaning investment being materialized in the bank.
Maybe on NSFR, Jacob. We have migrated to compliance over the far last few years, and today we are where we need to be. We haven't disclosed the number, but we are in full compliance now. NSFR has been postponed, as you know, from 2018, 1st of January to what we believe is probably 2021. We are already there, so you won't see any negative effects on the P&L coming out of any further migration.
Okay. Well, thank you very much.
Thank you. Your next question comes from Adrian Twigg. Please ask your question.
Hi there. This is Adrian Twigg from RBC. A lot of discussion on the corporate repricing and why it is very difficult to reprice the corporate book in the current environment. I have a follow-up question to this, please, especially on the interest rate sensitivity of this book once the interest rates actually go up. Do you see the increased disintermediation process we talked about at the beginning as potentially offsetting your ability to reprice some of these corporates once interest rates actually go up? Do you incorporate this in your SEK 2 billion sensitivity estimates, if so? Thank you.
Okay. I'll try to answer it. It's not a meaningful effect that we have taken into account should the bond market, in an increasing rate environment, be so significantly developed that it actually hurts the big book, the SEK 500 billion, I mean actually SEK 1,000 billion if we expand the definition of what we have on the books. It will, of course, on the margin give us more fees and commission as we are one of the leading DCM or debt arrangers in the regions where we operate. I wouldn't do an adjustment really of any meaningful size to think about an increase in interest rates. Of course, increasing the net interest income you would receive from lending. Tailing it off in any meaningful size because of disintermediation.
However, I would have a little bit of a differentiation on fees and commission between banks who actually will capture that momentum that we have seen. It's much smaller numbers, of course, if you look what banks are making. We do have a very interesting reference point. I think the U.S. would typically say that 75% of the capital in the fixed income credit space is raised in the bond market, 25% by banks. A little bit old data, but the inverse, the reverse relationship in Europe. We've talked about it for decades, and I think it's slowly happening, but very slowly.
Very helpful. Thank you.
Thank you.
Was there another? No, we don't have-
There are no further questions at this time. Please continue.
Okay. We have spent an hour together, and thank you a lot for all the questions and also for listening to the press conference earlier today. If there are any further questions, just reach out to us in the IR team, and we will support you. Thank you for today, and see you out there.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.