Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2012 Results Conference Call. At this time, all participants are in a listen-only mode until we conduct a question and answer session, and the instructions will be given at that time. If anyone should require assistance during the conference, please press star and zero on your telephone. I would now like to hand over to the Chairperson, Annika Falkengren. Please begin your meeting, and I will be standing by.
Okay. Thank you, everyone, for joining. I will go through the highlights of the first quarter report of 2012 for SEB. Our key messages are stated on page two, and that is continued success of the customer business. In this quarter, we have advanced our position in several areas, and I would like to specifically highlight our merchant banking business, Northern Sweden Retail Bank, who both did very well this quarter. The continued strong asset quality, which results in low provisions for credit losses, and the continued focus on efficiency. Of course, we continue sticking to our strategy and delivering slowly, step by step. We believe that we have the right strategy in place and the right customer mix, and also that we do operate in the right region, and we will continue to stick to that.
On to page three, we think it would be appropriate to highlight one of the rankings that came out this year, and that is being the number one in the Nordics in the Prospera 2011 comprehensive survey. They have brought together 64 different surveys that were done during last year, and we have always had the first place in Sweden, but we have now, for the first time, advanced on our position in the other Nordic countries. We read this as a confirmation that our growth efforts in the Nordic region, growing as the corporate bank in the Nordics and Germany, are really paying off, and for the first time, being ranked as the number one bank for large corporate institutions in the Nordics. On page four, you can see the income statement. Our operating income decreased by 1% in comparison to the first quarter last year.
Costs were also down 2% in the same period. Compared to the fourth quarter, operating income increased by 3%, and costs were 4% lower. That means that pre-provision profit was SEK 3.9 billion, which is actually one of the best quarter results in a long time. Credit losses continue to be low, and operating profit after credit provisions was SEK 3.7 billion, a decrease of 13% compared to the first quarter last year. That is mainly due to the provision releases on the net credit losses line that we had last year. Otherwise, operating profit increased by 17% compared to the fourth quarter. On page five, we have a specification on the net interest income that decreased 2% compared to the first quarter last year, whereas the customer-driven component of net interest income increases by 13% Q1-Q1, driven by higher lending and deposit volumes.
The decline in net interest income from Q1 last year is mainly related to funding and other, which is impacted, among other things, by increasing financing and liquidity costs as a result of the new regulatory regime. Also, in comparison with the fourth quarter, the 3% decrease is mainly driven by lower net interest income within trading and also lower short-term interest rates, and, as already mentioned, continuing strengthening of our balance sheet. Looking specifically at margins on page six, we would like to highlight the long-term trend, and in particular, in the first quarter, we have refined the internal funds transfer pricing on lending and deposits to more fully reflect liquidity costs. Last year, we built substantial buffers in treasury to term out and increase liquidity reserves.
Now, we will charge divisions for this on a transaction-by-transaction basis to ensure they see the true cost of committed facility as an example. Excluding this technical effect, we see that margins on residential mortgage lending are trending upward, as is the case for SME lending. It's quite evident when you look at the 7% increase in the quarter in NII within retail, and it is 24% year-on-year. On the large-cap business, margins are stable, and margins are likely to grow only slightly as the capital markets provide a benchmark for funding. That is actually not so bad for us, given our leadership in capital markets. On page seven, you can clearly see the long-term trend on volumes regarding the NII. Both lending and deposit volumes grew by 3%- 4% each year.
The market share we have gained in the Swedish mortgage markets, however, means that the annualized growth rate on that particular product is closer to 10%. This quarter, lending our mortgage volumes grew SEK 9 billion on a SEK 330 billion book. Lending to the SME segment also increased. On a 12-month basis, our lending is up SEK 87 billion on the group level. Just a word on deposit volumes. In Q4 last year, we had a spike in deposits when customers had parked liquidity with us. That money was reversed in this quarter, but the long-term trend is positive, up SEK 76 billion from March last year. Finally, on page eight, you can see our long-term funding activities. Also, this year, we started to refinance maturing debt early. Of the SEK 75 billion maturing in this year, including subordinated debt, we have already issued SEK 40 billion.
We today have the liquidity reserves and the financing structure we think necessary, and we will not continue to increase financing beyond the existing reserves, only replace maturing debt. Turning to page nine, net fee and commission income, the higher stock market level of the first quarter has not been enough to reach the average level of 2011. Additionally, during the first quarter of 2011, we had a large amount of so-called performance fees. Stock market volumes continue to be low, and activity in the area of M&A remains subdued. We also had communication between lines in equities, where more than 100 million was shifted from C to NFI, depending on the trading pattern. Total income was completely unchanged. The fourth quarter is usually strong when it comes to net fee and commission income, and the 10% decrease is mainly related to CISNA effects.
On page ten, we see that NFI income increased. Customer-related business has continued to be stable. Our trading is driven by customer flows, and it generated SEK 1.2 billion on this income line, as you can see on the blue bar in the graph located on the lower left corner. The increase of 12% versus the first quarter last year can be explained by two main reasons. First, during a large part of 2011, we had negative valuation effects on our portfolio. We have built a liquidity reserve of more than SEK 300 billion, out of which SEK 80 billion are marked to market daily. During this year's first quarter, these effects have been positive as rates have converged. Second, during the fourth quarter, we took an impairment of SEK 214 million, as we continued to decrease the value of our Greek sovereign bonds.
We sold off the remaining part of the Greek bonds in the beginning of 2012, and since these were already written down to market values, there were no negative effects on P&L. Going over to the cost side on page 11, costs decreased by 2% compared to the first quarter last year and 4% compared to the previous quarter. We maintain our cost cap and expect to come under SEK 23 billion by the end of 2012. Looking at the credit quality on page 12, it remains high. Credit loss levels were 6 basis points. More than 90% of our lending portfolio relates to the Nordics and to Germany. Moving on to the digital results on page 13, we see that pre-provision profit in the customer-driven business is up 15% compared to last year. Merchant banking had a stable quarter. Operating profit increased 11%.
It was the second-best result for the first quarter to date. Retail Banking reported a strong operating profit driven by higher volumes from an increased number of customers, both in private and SME segments. Wealth Management had a weaker quarterly performance due to the fact that assets under management had been lower on average, and performance fees were almost absent. Private Banking, though, continued to show good operating profits and attracted SEK 7 billion in new sales during the quarter. The Life division sees an increased interest in retirement advice. The operating result is somewhat higher compared to last year, but lower versus the previous quarter, which was a very strong quarter. Finally, the Board division had a free provision of 7% higher than last year and 16% higher than during the previous quarter. Lending volumes, though, moved sideways, but deposits increased sharply at the end of the year.
You may remember that Snorra's Bank went bankrupt, and a large number of customers chose SEB as a new bank, and they also stayed with us. Let's see. It's at page 14, I think. We have allocated SEK 16 billion more capital to the divisions to take another step towards Basel III. We still have not allocated all capital to the divisions for purpose of IAS 19, potential life implications and treasuries on the business. That concludes the run-through of the income statements. Before I conclude, just a word on our income anatomy. This is different than those of our Nordic peers. On page 16, you can see the clearest example of this, perhaps. Merchant Banking, where 2,000 large corporate customers provide approximately two-thirds of the income, and 700 institutional customers the remaining third. In the Nordics and Germany, these two segments represent SEB's major growth initiative.
Since 2010, we have attracted 224 new customers and increased the credit portfolio with SEK 110 billion. Also, existing corporate clients are doing more business with us. Generally, an existing customer uses on average seven to eight different product factors. According to Greenwich Associates, this is the highest figure among all European banks, really showing the relationship banking the way we work it. The net interest income is a small part of the income of the institutional segment. For large corporate customers, the net interest income part is only about 30% of the income. The rest is generated by cash management, foreign exchange, debt, capital markets, et cetera. To us, it is not a challenge if customers choose loan financing or prefer direct access to the capital markets, since we, as the leading capital markets bank, can support them with both options.
Lastly, turning to page 17, it is a central part of our strategy to continue to strengthen our customer relations and to increase the number of customers in our area of focus. We can do this even in an environment where underlying risks remain, because we have a strong balance sheet with continued improved market access and a continued strong and stable asset quality. Capital measures have continued to strengthen during the quarter, and we report a core Tier 1 ratio of 13.9%. We have also improved the liquidity measure, so-called LCR, to 109%. This means we have the resilience and the flexibility that are needed in the new financial landscape in order to continue to support our customers going forward. It's also a good summary of the quarterly report. We continue to work tirelessly on our ambition to be the relationship bank in our part of the world.
We continue being inoffensive and maintain our financial strength, and we strengthen the long-term profitability of the bank by improving our cost efficiency. With that, I think we can open up for questions.
Jessica, we can now start to go into the Q&A session, please.
Thank you. If you do have a question at this time, please press star one on your telephone keypad. To cancel your question, please press the hash or pound key. Once again, that's star one to register a question and the hash or pound key to cancel. There will be a short silence while participants register for questions. The first question comes from the line of Nick Davey from UBS. Please go ahead with your question.
Yes, good afternoon, everybody. Nick Davey from UBS. Three quick questions, if I can. The first, please, on the LCR. You mentioned your group LCR. I think you also disclosed in your report that you have an LCR in dollars of 82%. Could you please just give us a sense of your estimated cost of closing the gap from 82%- 100%, please? The second question, you talked about pushing out the cost of liquidity and capital from corporate center to the various divisions and that keeping lending margins down in this quarter. You also mentioned that process carrying on further into 2012. Could you please just elaborate a little bit on that, about, for example, the discussions you've had with your various segmental heads about pricing up for Basel III?
Any areas where you think these higher costs of capital and higher costs of liquidity will be easily passed on to customers, or if this just will result in lower divisional profitability? Thirdly, then, and finally, please, just back onto the retail customers. You're pushing the number of customers that you've gained, I guess, in the last year by this pricing strategy you've adopted. Could you talk us through how you intend to embed those relationships within the bank? What kind of cross-selling opportunities you see there? Just a little bit more flavor, really, about how you keep these customers within the bank and perhaps don't lose them if we have another aggressor in the market. Thank you.
Hi, Nick. You know I can. On your question on the LCR, you're right. It's 109% in total. We're compliant in euro, but we're at 82% in dollars. I think the cost for pursuing this is going to be marginal. We were fully compliant in both dollar and euro at year-end. It's really a lot of different factors that weigh into this. By the end of this year, we will need to be fully compliant when disclosed according to the Swedish regulation. I expect the cost to do that to be marginal to fix the dollar compliance.
In terms of the cost of liquidity and the internal funds transfer pricing and the mechanisms for that, you're correct in that the further enhancement of that process during, as we go into 2012, has meant that we charge more to the different divisions, and it's a component of why margins are coming down in the merchant bank and in the retail operation. In terms of getting that process implemented, I think it's really a no-brainer that we and other banks around us do it. It's something that we need to do as a result of Basel III. We want to do it to reflect the cost of the raw material.
I think what's taking time there is to find the balance between doing it and getting the organization to understand how this works and how we want this to be flowing into the product pricing calculations and into customer profitability measurements and how we use it on a divisional basis. It's more a sort of rolling out of the whole process and as an educational exercise. For that matter, some system challenges to do it as well. Overall, it's directionally happening, and you'll see it happen gradually more over this year.
Okay. I can comment on retail and the cross-selling. We have an ambition of actually all customers that do come in, that they should become full-service clients. Of course, the enormous amount of clients last year, we did not succeed. More than 70% of all new mortgage clients of this bank become full-service clients. I think so far that has really worked well with the cross-selling and everything else that comes with that. I think the signs we're seeing in retail and also the way we've been able to churn the mortgage portfolio with higher interest rates is that they actually do stay, and they're very happy with that. I think from that perspective, this has been a good move for retail. We continue to grow, despite not exactly the same pace. We can also see that actually Swedbank is back on the mortgage market and actually quite aggressive.
We are taking it a little bit slower there.
Okay, thank you.
The next question comes from the line of Geoff Dawes from Société Gén. Please go ahead with your question.
Hi. Good afternoon there. Geoff Dawes here from Société Gén. I've got one question, really, on the merchant banking division. With the new business equity allocation, you're making a 15% ROE. I assume when you look across your divisions, that's probably the one number that you want to get higher. Can you just give us a little bit of clarity on where you would like that number to go and how you would see that burden being split between pricing power, as you put it, and just sitting back and waiting for economic conditions to improve and therefore the fee income line going up? Thank you very much.
Hi, Geoff. In terms of pushing out more capital to the divisions, we've done that. As you say, we pushed out another SEK 15 billion when we go into 2012. It's meant that the business equity that is allocated to the division has gone up by 40% in the case of merchant banking and a similar number for the retail bank. Which direction do I want it to go? North, obviously. I think one important factor, even though I won't quote a number in terms of the ambition there, is to remember the cross-selling ability in the merchant bank and the width and depth of the relationships that the merchant bank often has with its customers. Therefore, the product penetration, which is on the mature customers on eight to nine products per customer, is a key ingredient in improving the ROE number.
That also means that we can expand on income generators, which are capital-light. I think in terms of the pricing power, once you can get too stuck on the NII and capital-heavy products, it's also important to look at the other ones, which are stable and strong in that division.
Okay, so essentially, fee income needs to go up to hit a higher ROE in that division?
Fee income, net financial income, you know the trading operation produces a steady SEK 1.1 billion - SEK 1.2 billion every quarter, which comes through in NFI. It's not only fee and commission. It's NII, it's NFI, it's fee and commission.
I think the point I'm making is that the product penetration produces income on several income lines. Don't get too stuck on the NII line.
Okay. That's clear. What would the target be? A number starting with 2 for that division in the 20s?
I wouldn't mind, but we haven't expressed a specific target.
Great. Thank you.
The next question comes from the line of Henrik Christiansson from Citi. Please go ahead with your question.
Good afternoon. Henrik Christiansson from Citigroup. A couple of questions on costs. Firstly, on staff costs, they're ticking up about 4% Q1Q. Is there an annual salary increase in there, or what's driving the increase? Secondly, also on your cost target of SEK 23.1 billion, what sort of revenue growth do you assume when you set that target? How sensitive is that target to a pickup in activity levels? Do we have further levers to pull if there is a slowdown in activity?
In terms of the staff cost increase Q1Q, you've got the, I think in Q4, what you see there is the adjustment of variable pay pools, which in Q1 goes back to a more normal level, even though it's a lower run rate than in 2011. That's basically behind the delta between Q4 and Q1. When it comes to the revenue, sorry, the cost line and its underlying assumptions on revenue, I would say that we think there's obviously a link, but the whole point of the exercise is to de-link those two, to decouple. I think the underlying assumption here is that we have an organization which is hugely focused on the revenue generation and to service the customers and that we can cap costs without hurting the revenue line, particularly. I think we're off to a good start on that.
Thanks.
Our next question comes from the line of Christopher Roskvis from Barclays. Please go ahead with your question.
Hi. This is Chris Roskvis from Barclays. Just one quick question on funding. It was just with given the efforts that you made to improve the balance sheet of the bank, are you getting credit for this in the funding markets? Is it something that we could see come through in your margins?
Yes, I think so. Ulf and I and others here have, of course, traveled to see debt investors. I think there's no doubt that the debt market is very open to our institution in all the geographies where we could want to issue. We are dragging our feet a little bit on the implementation, or we're going to drag our feet a bit on the funding plan from now on. We've had SEK 70 billion that we have wanted to do in this year. We've had SEK 10 billion mature in Q1. We've done SEK 40 billion. We were early out in this year, but we're going to be a little bit slower going forward. We do feel that, as we started in the first question, talked about the LCR, that we are there in terms of moving out further in terms of duration. We don't need to.
The NFFR measure, which is far away in time and still under heavy debate, is nothing that's chasing us at the moment. I think the funding markets are open. We've got good pricing, and we can do it in markets and products where we want.
Okay, thank you.
The next question comes from the line of Sofie Peterzens from JPMorgan. Please go ahead with your question.
Yeah. Hi. I just had a couple of questions. One question is regarding the fee and commission income. Some of your kind of core fees are down, such as custody. How should we look at the fee line going forward? Do you really believe that you can kind of reach the level that we saw, for example, in previous years in 2012? The second question is regarding your deposits. Could you just explain what was driving the deposit outflow that we saw in the quarter? Yeah, that's my question.
On the fee and commission structure and so on, I think there are two things to note, really, in terms of the net fee and commission income side. One is on the custody and mutual funds, where we didn't have any performance fees to talk on this quarter. We only had SEK 10 million or so. Last first quarter, we actually had SEK 155 million. In last Q4, the previous quarter, we had SEK 222 million. Of course, when we don't have any performance fee, this shows up on that line. That explains why it's not higher in this quarter. The second thing to note is that we are lower on the secondary market, and it's coming down from SEK 525 million in the previous quarter to SEK 366 million.
That is mainly to do with the way that the sort of income structure within equities has been in this quarter, and we expect that to be coming back again. We have made less on the fee line, but we made more on the net financial income line on the equity side. That was a little bit more than SEK 100 million or so in this quarter, actually. Those two sort of reasons explain why we are a little bit weak on the commission income in this quarter.
It was on the deposit side. Is that correct?
That was correct.
Yeah. I think it's on the deposit side. I think I explained a little bit that we have seen a very sharp inflow of deposits towards year-end, but we believe that a lot of customers parked the liquidity with ourselves just to be on the safe side when the financial markets were a little bit worrying. That had an impact in terms of the regulatory side as well because it meant that we had to haircut all those deposits in case of liquidity buffers, so we couldn't really meet the LCR at year-end. We have, of course, explained this now to the Riksbank, to the government, as well as to DFI, and been very clear that it doesn't make sense for us to see sort of corporate deposits being so much haircut, both in terms of the LCR as they are in the NFFR.
We are hopeful that we will get some sort of response to that. In particular, we think that they will look at that from the NFFR point of view.
Okay, thank you.
The next question comes from the line of Johan Ekblom from BOA ML . Please go ahead with your question.
Thank you. I just wanted to come back to the trading and, I guess, the interaction with the fee income line you were talking about. When I look in the fact book, at the breakdown of your trading, it looks like FX was basically flat Q-on-Q. Fixed income was up marginal, but it's a small number. The whole delta really comes on the equity instruments and related derivatives. When I read the text, it says that the underlying customer business was stable, and the big improvement Q-on-Q is basically from the treasury, I guess, tighter credit spreads on the liquidity portfolio. How do I reconcile these two? I mean, the big delta comes from equity, looking in the fact book, and you're saying that it's coming from tighter credit spreads. What's really the underlying driver here?
Thank you, Johan. I think, unfortunately, it shows up as equity, but I wouldn't view that as really being equity-driven income at all. One of the reasons was, of course, what we just discussed in terms of the fee structure and where we made more on the equity side on the net financial income this quarter, but less on the fee and commission side. That is not what we believe should be the long-term story of how equities will generate these numbers. As you can see, they historically don't really have been in the 400 level as such. The second reason they are high this quarter is also due to IFRS. It's that when you issue equity-linked bonds, you get a bond that is marked to market.
You hedge that, of course, by buying an equity option that will offset what you have to pay to the customers in terms of returns. This quarter, when the market went up, the customers gained on that in terms of their bonds. That meant that we increased our liabilities because we have to pay that to the customers. That created a negative effect on the debt instruments and related derivatives. The offsetting positive side was that we had equity options to hedge these. That is what we're trying to note in this quarter, in this note under the table, which says that around SEK 330 million, which is SEK 290 million more than last quarter, actually came from this type of IFRS effect that we believe just to be bogus, more or less. The high equity side is due to those two effects.
If you sum them up, you end up at some SEK 440 million or so. The true story is that we did gain on FX, and we had a pretty good valuation in terms of the credit spreads on the excess liquidity we have invested on the bond side.
Perfect. Very clear. Thank you.
Our next question comes from the line of Omar Keenan from Nomura. Please go ahead with your question.
Hello. Thanks for taking the question. I wanted to ask two, please. Firstly, on mortgage margins, it seems that your margin development has been a bit more positive than the system-level trends are implying. I would have thought that specifically variable margins are more flat quarter on quarter. Is there something SEB-specific for the margins? Is there some catch-up in the mortgage margins versus the other banks now, or have you changed the discounts that you're charging toward customers? The second question, please, on your corporate outlook. What are you seeing in terms of corporate activity levels in the quarter so far and your expectations for the rest of the year? Thank you.
Okay. On the mortgage margins, I think what we're seeing is a little bit of a flattening out on the frontbook margins. I think when we looked at the last quarters and so on, there seems to be a little bit of a new level established somewhere in between, I would guess, you know, 80- 90 to maybe a little bit more in terms of the frontbook margins where they are. We have seen renewed competition in a way or interest from some players, like someone reporting tomorrow on that one. It is not very likely that we will see a lot of improvement on the frontbook side from where we are today, but it's more a story of the backbook getting closer to where the frontbook margins are.
We're still talking about the level where we're probably somewhere around 20 basis points lower on the backbook compared to where the frontbook is. That will be a story continuing for the next two years or something as we retry the backbook.
Okay. I can comment on the climate for corporate what we're seeing. I think what Magnus Carlsson commented on the press conference today, heading Merchant Banking, was that he has never seen so little M&A business the last two quarters, actually. We almost had a knee in the first quarter, and we actually see everything that is going on. Of course, that was really a low mark. Of course, here somewhere, we do believe that the corporates will start to move a little bit. They are very, very cautious. On the other hand, we feel comfortable on capturing whatever there is to get. I think, of course, Europe is a bit worrisome because Europe looks pretty weak. On the other hand, we see some healthy corporates growing in Germany, and we also see healthy Nordic corporates growing outside the European region.
With that in hindsight, I do think we still are a little bit optimistic regarding the activity from the Nordic corporates going forward. Of course, it would not be in the pace that we could have hoped for or wished for maybe half a year ago. It looks like it's slightly more subdued.
Okay, thank you very much.
Our last question comes from the line of Claire Kane from RBC. Please go ahead with your question.
Good afternoon. I just want to follow up on one of your comments on funding. I think you said you plan now to just issue what is coming up for maturity. I guess that'll be a lot less than what you've done in past years. Is this a change in your outlook for growth? Clearly, you've done a lot more mortgage lending more recently in the past couple of years, and covered bond issuance has been much higher than what has been redeeming. Is this more that you are happy now with where you are with household lending versus corporate lending? Do you think demand is reducing? Is it that you want to fund through different means rather than covered bonds? Thanks.
Hi. Yeah, you're right in that we're going to issue basically what's maturing and not do more than that. We've done a lot over the past few years. We started out early already in 2009 to issue quite heavily. We've built up a strong, very liquid portfolio. We have fixed our LCR ratio. Even though, as we discussed, we have a little bit of a way to go on the dollar LCR, that's marginal. There's really no need to term out more or to bring in much more. That should not be seen as a reflection of a sort of expectation that growth will be slow. I think there's no reason for us to just keep loading on buffers. Buffers need to be used as well and put into work when demand comes back. Even though we don't see that today, we're willing to do that.
It's...
If I may add, there's also a question that we already, when we sum up our deposit base and add on top of that the long-term funding, we end up with about SEK 150 billion or so of long-term stable funding in excess of what we have in lending. How would one explain that? If you sum up what we have issued compared to what has matured in 2009 until today, we actually have issued SEK 160 billion more of long-term funds than what has been maturing. We have created a situation today where we have much more long-term stability to the balance sheet. The question is, coming back to an earlier question, how do we then treat this from a regulatory point of view?
Until we have clarity as to whether we can get a 75% credit or maybe a 60%, but anyway, much more than the 30% we are given today in terms of NFFR and LCR and so on, there is no need to go out and further issue because we want to know for sure what type of rulebook we need to live by. If those are to be changed, we're talking about a large number because we have some SEK 500 billion, more than SEK 500 billion of corporate deposits. Of course, a 20% change of the weight is SEK 100 billion of long-term issuance needs. That's why we feel that we have established a position today where we can be a little bit more cool in terms of the outlook for what may happen with the regulatory side before we decide on what to do next.
Okay, thank you. It's very clear.
The next question comes from the line of Maths Liljedahl from Nordea Stockholm. He just took back his question. We do have another question coming from the line of Chintan Joshi from Nomura.
Hi. A quick question from me. Last quarter, one of your competitors was highlighting that in the SME sector, there was potential to materially reprice margins. I see some commentary in your reports highlighting some improvements in SME margins. I just want to see what you've seen in the marketplace, if there has been any repricing efforts going on on the SME side or if there's potential for that. Thank you.
Hi, Shinten. Yeah, you're right. I think the SME sector is one where we feel we've been quite successful. We've been capturing a lot more volume. You know we set up a target for the SME segment a couple of years ago to gain a % of market share each year. We're on track with doing that, and we're bringing good asset quality. I think the pricing has been quite good in that segment. I would agree with that, that the pricing opportunity has been there in SME.
Are you seeing any more repricing from current levels upwards in the marketplace from your peers or yourself?
Yeah, I think we see more potential. I can't speak to the competition, but we see more potential, yeah.
Thank you.
Our last question comes from the line of Henrik Christiansson from Citi. Please go ahead with your question.
Hi. Henrik here again from Citi. Just a question on MI and the change in internal funds transfer pricing. Could you maybe provide a split of the impact of that change to lending, deposits, and funding in the Nordics? You might have given that in the press conference this morning, but I just want to get that clarified, how that moves between the various lines.
Hi. No, we have not provided that. I think it's because we believe that the way to charge for things today is a better way to do it than we did the last quarter, of course, since we have made those changes. We're not going to give a number for exactly what that impact was on the NII deposits as well as on the funding and other. We will go from where we are today in terms of those margins, and that's what you should be looking at, which means that the margins will look a little bit lower on lending, for example, compared to what they were last year. That's a little bit of an optical effect.
Okay. This won't have any impact on the volatility of the NII going forward, will it? It was just internal funds transfer pricing.
Yes, just internal funds transfer pricing to make sure that the divisions and the client people actually understand the true cost of liquidity instead of, as we did last year, building up the buffer centrally. We did decide not to charge it last year because we wanted to make sure we established a true and fair level. As we discussed in the previous question, we now believe we have that buffer that we need to have. Therefore, we can now start to make sure that we apply that to the businesses so that they actually charge the customers as well.
Very clear. Thank you.
We appear to have no further questions at this time, sir. I hand the conference back to you.
Okay, thank you. Thank you all for participating. Please have a good day.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your line. Thank you.