We are now going to start. A warm welcome to our press conference, our presentation of the interim report for the nine-monthly report for the bank. Annika is going to start the presentation, and then we'll have Q&A directly afterwards. All of us in the room, nothing separately with the analysts. After that, Annika will be taking interviews, et cetera, outside.
Thank you and welcome. This is the results for the third quarter. It has been a nice turbulent quarter in certain markets. Some days, it's been quite gloomy. Of course, the question is, are Asia and Latin America strong enough to carry global growth when U.S. and Europe are slowing down? We can see that more our clients are doing ever more business in Asia, and that's why we're expanding there.
In 10 days' time, from the slide, you'll be able to get to open up our new office in Hong Kong. Coming back to the quarterly report, we report an operating profit of SEK 3.7 billion. Pre-provision profit is up slightly compared with the previous quarter despite market turbulence. In difficult times, we see that our relationship banking model works so well. Our customers have actively sought help in handling this, and they have been doing more business with us over the quarter, both concerning deposit and lending volumes are up, especially in equity and FX trading, as also being high in customer activity. We have communicated earlier that we have capped 2011 expenses at SEK 24 billion, and this is a cap that is now going to apply until 2014. SEB has a strong balance. We have continued to bolster it, so well prepared.
We have a strong balance sheet, and we try to nurture it, so we are well equipped in a turbulent world, everything, so we can support our customers when they need us the most. The global situation is serious, but it's not an impossible one. We have to get used to the uncertain macro perspectives and also the situation in Europe. With this in mind, we also retain our very high safe harbor. This is a strong capital base as reassuring funding and liquidity buffers. Banks' balance sheets have been under scrutiny this quarter. I'd like to start our presentation by talking about ours. During this quarter, our capital position and the capital base has been strengthened further. We now have a core tier one ratio of 13.9%. We have topped our liquidity buffers further.
It now amounts to 3x shareholder equity in accordance with the definition that we have agreed jointly within the Swedish Bankers Association. With a wider definition, which some use, you include the unutilized capacity to issue covered bonds. If so, we'll be able to mobilize up to nearly SEK 560 billion. Since the end of the second quarter, we raised SEK 24 billion long-term financing. This is during the SEK 102 billion. We have now raised more than the SEK 98 billion that would mature during this year. Our funding needs for the coming year have now dropped nearly to half, SEK 60 billion-SEK 70 billion per year, from levels that have been nearly twice as high. This means that we retain and have a considerable buffer. We feel that this is going to be sufficient. This means that we will retain our matched funding over two years.
The NPL coverage ratios increased this quarter to 63%, the highest among the Swedish banks. If we look at the quarterly results in detail, we can see that it's a stable situation. The bank's customer-driven pre-provision profit is up to 6% compared to the previous quarter. Income for the first nine months of the year has increased by 6% compared to the same period last year. Compared to the last quarter, the income fell slightly from SEK 9.5 billion to SEK 9.2 billion. Costs are down 5% compared to the previous quarter and down 3% in the year- to- date. Our asset quality continues to be high. We have released SEK 33 million provisions net this quarter. Net interest income fell by 2% compared to the previous quarter, driven by lower NII within trading, which saw a total income that was somewhat higher and unchanged.
Customer-driven NII was up SEK 204 million. Net commission income held up well, down 2% from the second quarter, but 3% better than the same quarter last year. The net financial income showed a high level of stability and is up 25% compared to the same quarter last year and 10% from the second quarter this year. Life insurance income is down as a result of lower stock market valuations and the low interest rates, which primarily impact from a traditional life insurance portfolio in Denmark. If we look a little bit closer at net interest income, it's some SEK 0.1 billion. The customer-driven NII was up 6%. Third quarter isolated, which is a result of both deposits and lending volumes continued to increase. Total lending to the public increased by SEK 28 billion this quarter, of which SEK 15 billion was to corporates and SEK 13 billion to households.
Year- to- date, it is especially the retail businesses behind this. Also, this year- to- date, lending has increased by SEK 108 billion and deposits by SEK 102 billion. This means that our loan-to-deposit ratio is now 134%. Margins are relatively stable both for deposits and lending. Net interest income from funding, in other words, liquidity management and funding operations, is down SEK 291 million compared to the previous quarter. As I mentioned before, the reasons are slightly different this time. A third is driven by the lower NII within trading and capital markets as we have been continuing to decrease the bond portfolio that we hold for customer trading purposes, but also because the customer activity that generates NII has been lower this quarter. Thirdly, it's driven by traders' bond portfolio, which we have sold off bond holdings, but also shifted to papers with lower risk and stress situations.
For instance, having lower volatility in market valuations. This effect has some SEK 100 million. The last third is primarily due to the inverted yield curve. We can see the one-year, two-year interest rates have dropped by 1%, 2%. We can see the drop in interest rates. We haven't actually taken out the full costs of this from our customers. We have adapted to the pricing situation. It means that the more expensive raw material costs will be priced properly. Looking at the situation, turning to net commission income, it's more or less unchanged quarter on quarter. Net commission income from institutional clients within equities as well as generally with derivatives and cards has increased while commissions on assets under management and custody have fallen during the poor stock market development. In this business climate, there have been hardly any larger corporate transactions.
Net financial income is up about 10% from the previous quarter. It is mainly due to strong FX flows driven both by high market volatility and high customer activity. Equity trading has also been strong while fixed income has faced headwinds because the spreads have widened and the yield curve has flattened, as said. This result shows that SEB's trading business is built on customer flows. SEB is by far the leading player on the Nordic exchanges. We have the most stable business. It's apparent when you look back and see that we have only positive trading days. This quarter, we have only had one day which had a negative result. Our trading is built on customer flows, and we can see both being active as customers in both FX and equity. We have also written down the value of our Greek sovereign bonds this quarter.
Our holding is now valued at SEK 383 million, which is half of face value. This is in line with the write-downs that Brussels has come up with. Market valuations of our sovereign holdings have impacted NFI with just SEK 200 million. We can see that we also reduced our exposures and sold our holdings. The overview is of the holdings of the Italian ones. If we move on to costs, we're going to stick to SEK 24 billion until 2014. Investments still need to be made within that cap of SEK 24 billion for our divisions, and the divisions therefore have to keep track of their cost levels, including investments that they wish to make. The cap always applies. In addition, we will also increase our focus on staff and support functions.
That's where we have the majority of the gross SEK 3 billion of cost savings we need to make up until 2014. The areas we will focus on in particular are procurement within the bank, further prioritization of IT investments, and the continued potential to try and identify potential for cooperation within support functions. We will also try and simplify our governance models and the way we work across the bank. During the third quarter, the costs are decreasing by 5% in the third quarter and 3% year- to- date. Moving on to NPLs, the non-performing loans and credit losses. NPLs continue to fall also this quarter. In the Baltics, NPLs are down by SEK 477 million to SEK 13.5 billion, mainly due to a more vibrant corporate sector. Outside the Baltics, NPLs are down by SEK 1.4 billion.
Compared to our entire loan portfolio, the gross level of impaired loans is 0.9%, down from 1.3% a year ago. This quarter, we show a release of credit provisions to the tune of SEK 0.2 million. We are slowing down the pace as we intended to do, and the degree of reserves is unchanged. In the Baltics, we've recovered SEK 2.5 billion of credit provisions since the summer of 2010 as a result of NPLs falling by 25%. In total, we have SEK 33 million in net releases this year. If we look outside of the Baltics, SEK 169 million in credit losses during this quarter was, and we still are at very low levels. As a result, our credit portfolio and our asset quality remains very high. Moving on to the divisional performance, most of them report a higher result this quarter.
In particular, the merchant bank has seen an excellent quarter, the third best result ever in the merchant bank. It has been qualified and characterized by high customer activity and good progress in all business areas, especially the areas of corporate banking and FX, but also equities saw stronger results. Operating profit overall increased by 12%. If we look to the first nine months of the year, merchant banking increased in all countries where they operate. Our retail banking also showed better results, up 4% quarter- on- quarter. We continue to grow in retail banking. Both deposits and lending volumes are up. We have improved our market position in the area of small and medium-sized enterprises. Within cards, our revenues are up as well. Especially in the merchant acquiring business and in wealth managers, we see that given the development on the stock exchanges, there are certain developments.
In private banking, we've improved our already very strong position in life. It continues to lead the unified insurance market in Sweden with a market share of 24%. This business continues to do well despite the sharp fall in equity markets. We are only 3% lower from this quarter. The stock market development, in combination with the relatively low interest rate environment, has impacted the traditional life insurance business with 25% one quarter, quarter- on- quarter. For the fourth quarter in a row, the Baltic division recorded profits both before and after provision releases. The results increased by 7% before compared to the previous quarter. NII is up by 8%, supported by higher interest rates, as well as the fact that we have higher corporate lending volumes to some extent. This quarter is especially interesting to look at how our customers actually act.
Amongst our private customers, generally speaking, we see that they are affected by the European sovereign debt crisis. In the more uncertain market environment, they've become a lot more careful. They've sold many of their equity mutual funds. They choose regular deposits, which has increased by SEK 13 billion so far, average SEK 6 billion in the third quarter. They have also chosen to invest in funds with absolute return funds and money market funds, where SEK 10 billion has been transferred during this quarter. What stands out most is the fact that our customers are now choosing rate mortgages. At new sales in September, 71% of mortgages were fixed at one year or even longer. One year ago, that figure was at 27% only.
For 1,000 new individuals have chosen to become private banking customers of SEB, and new sales amounted to SEK 22 billion, an increase of 37% year- on- year. Our customers are more and more choosing to conduct their banking transactions when and in the way that suits them. Our mobile banking services have increased drastically. The number of logins in our mobile bank has doubled this quarter. So far this year, we've had 6.4 million logins. Among SMEs, activity levels and credit demand continue to be stable. We are noticing a growing level of caution in relation to future activities. Companies are to some extent drawing down on existing credit lines. We are also seeing some raising of new financing and credit exposure, even if we include factoring and property, recently increased by 21%, 5% this quarter, 21% for the full year.
We continue to renew customers, 6,200 so far this year, and this has led to a market share which continues to rise for us. We are nearly at 12%. We choose to only consider customers who moved all their payments business to us so that we have the entire cash management. That's a full customer. There are others who have separate transactions and parts with different banks. We consider them when we are their house bank. If we move on to large corporates and institutions, we see that they have prepared for a worsened economic environment by securing their funding and reviewing their credit lines. They are using derivatives to hedge against interest rates and foreign exchange risk, as well as commodity exposure.
Our credit exposure has increased by 8% so far this year to large corporates. We have also helped our friends to raise money in syndicated loan markets, and we have participated in as much as 80% of all transactions so far this year. Our institutional clients have chosen to reallocate their portfolios, which in turn has led to both higher equity trading, up 14%, and also increased foreign exchange trading, up by 17% in this customer segment. We continue to be the leading equity house on the Nordic and Baltic stock markets. To sum up all the customer segments and look at the total credit exposure of the bank, it is clear that so far this year, we have had a steady and fairly broad growth. Credit exposure has increased by SEK 70 billion to corporates, SEK 37 billion to households, and SEK 33 billion in the area of property.
In total, the credit portfolio amounts to SEK 1,751 billion compared to SEK 1,609 billion at year end, if we exclude the German retail. As I mentioned, asset quality remains high. Going forward, we're expecting credit growth to slow somewhat, partly due to the macro environment and partly due to the fact that a number of businesses, such as mortgages, for example, were agreed before the summer, but they were only paid out after the summer. We see a reduction at a slower pace. Our main scenario is that volumes will grow at a slower pace as we move into the fourth quarter. We've also reported on our success in the growth initiative of large corporates in the Nordics and Germany. Here, expansion is still according to plan. From the beginning of 2010, we now have 162 new large corporate customers.
We've increased the number of client advisors by more than 100 positions, and credit volumes have increased by SEK 87 billion within merchant banking. In summary, our home markets are relatively speaking better off in a much better situation than many other European countries, even if we are in no way immune to the ongoing macroeconomic uncertainty and effects. As we go forward, we have a rather bleak base scenario. It's going to take a long time before the effects of the difficult structure of the imbalances have been managed and worked through the system. In line with this, we now see that both households and corporates are a lot more cautious in view of the economic development. It is against this fast drop that we are prioritizing a strong balance sheet, and we want to be well prepared.
In this environment, the banking system will be forced to hold capital and liquidity buffers that in one way or another will be formalized in the upcoming regulations. The extent to which this happens is unclear. It is clear that it's going to be more expensive for us and our customers to run and buy banking services in the future. Provided our relationship banking model and a robust balance sheet, we are well prepared to continue to support our customers. Just as previously, flexibility and resilience continue to be the hallmarks for us. We've increased our focus on cost efficiency by putting a cap of SEK 24 billion on yearly costs from now until 2014.
Thank you, Annika. Now, it's time for a Q&A session. Jan Volt first. Here you go. Apologies, says the speaker. Remember to introduce yourselves when you take the floor.
Remember that we have a webcast with simultaneous interpretation so that you get the microphone.
Working from Deutsche Bank, I'd like to ask the interest rate on the margin, two-thirds of the downturn this quarter, with the presumption we're talking about quarter to quarter, as you write in the presentation. Are your own measures that have taken place changing the liquidity portfolio, or rather the risk there, and then divesting the bonds? How long do you think that this process is going to continue? Are you down at the level in risk and the equity and in the portfolio that you're satisfied with?
In all essential, I think we are quite satisfied. Considering what's happening outside the window during the third quarter and the darker clouds that are forming, of course, that scenario is in all essential. I think we are quite pleased with the way that the portfolio has been put together.
I don't think we have to use we have enough buffers in place to be able to use them now, actually.
Another question, which had to do with the underlying margins, when we're talking about customer margins, when you look at the accounts, you can see what is considered a margin per customer, slight minus during the third quarter if you look at this. Has the board been thinking about how you can get a sort of payback? This means an extra added cost versus customers. It's not quite clear in your accounts.
We spent quite some time looking at that. What you have been able to see is a relatively small effect if you look and compare quarter to quarter. Of course, what you can see in corporates and also retails, the marginal change. It's gone up during this quarter.
We can see that with the liquidity costs will actually then mirror reflect the new raw material costs. This is a living debate.
To go. Thanks, Bob.
Tisha at the back of the room, go ahead.
Tisha?
Tisha?
Yes.
Go ahead.
[Foreign language]
About the margins, I was wondering if you could give us a little bit better of a forecast of what you expect, both on corporate and for mortgages. The margins have gone up dramatically by 10%. Could you give us a little bit more guidance on what's happening there? A second question, could you say a few words about treasury-related net interest income in the future? If you saw the total effort of building buffers, et cetera, how do you see the development going forward?
You're coming to say about burying the treasury?
Beginning with the margins in treasury, just as Annika mentioned, what we've done, and Annika showed us on a slide as well, is that we have replaced some of the higher coupons with lower ones. We've really given priority to safety in our portfolio. I think we've more or less completed our work there. We won't see any major change there. The size, the extent of the buffer, and the funding buffer we've produced so far is something we've also more or less completed. We prepared for more difficult scenarios. The more difficult scenario has arrived. Now we really have to make full use of the buffer we have available. I don't expect us to increase any comfort margins any further or remove various items out of the portfolio. On a quarter-to-quarter basis, the impact is not expected to be negative in the future.
No, that should not be necessary to any real extent. We might take action so that we don't move on the day one of quarter two. We might see an impact of things being done in the middle of a quarter. In terms of our general direction, I'm quite pleased with where we are. We can mention the mortgage margins, I have to mention. Others can respond as well. We feel that the retail banking has a problem. We could bring in many more customers in our retail banking. We feel that we've had a fairly good offering to offer advisory services, not just for deposits, but also for mortgages. We think that we should be at least at 15% or above. We're working upwards slowly. We're very much an urban bank. In the larger cities, we have many of the mortgages.
We've made many readjustments where we haven't perhaps levied all the charges that others have started to charge customers. We're not the market leaders either. It's a matter of striking the right balance. We have to see about mortgages. We've been at about 15% to 60% for the margins in mortgage. It's slowly moving upwards. We'll see how it's going to impact us in the future. We've continued with some caution. With the mortgages where we have had business, we've been clear on the payback requirement for the customers if you borrow at more than 75%. We did this at an earlier stage. We want the customers to know that even if you're getting a fairly cheap deal as a customer, we don't want them to borrow too much.
After a period when you've taken market shares by working on the price, for example, you're now leveling out in terms of the market shares. Yes, you could say that. Overall, demand is also reducing after all. There was a very large number of potential mortgages that had been provided, mortgage promises to customers, which didn't all materialize in the end. We see lower activity. As a bank, looking at our customers and our mortgage customers, we feel that they are generally speaking in fairly good health. We work differently. We want them to make their installments on their mortgages. We want them to have a clear savings profile. Our main focus has been to work with the customers where they don't borrow more money than five times the gross income of the household. This is a good approach to teaching them how to look at their total borrowing.
It's not a general stop. It's not a halt. We might see a slowing down. Can you please pass the microphone two steps forward to Mats and then Magnus, followed by Hampus?
Up to you, Adolfsen.
Mats Adolfsen, Novia, first a question which has to do with the Baltics. Of course, you can see profits have been taking place a number of quarter to subjective quarters. What do you think about the recovery there? When we heard there were some stress tests that you are able to cope with the stress tests and you manage that. Many of the banks in Europe are going to have to get more equity into the banks. Magnus, have you some sort of feeling that the picture of competition has changed? If people from abroad are less active, is this every reason for you to actually forge positions ahead?
Concerning the Baltics, we gave the message that we will get to halve the dissolution rate during the second part of the year because we also have taken it for granted that they also would be exposed and be vulnerable because there are a lot of exports to the rest of Europe. We see this process in the Baltics. We can see in Italy so many still healthy companies. We can see the sort of fitch in the curve has been broken. We can see they are now cautiously on their way upwards. We will just see that we can see that in the Baltics, we think that perhaps they will import the problem as it exists. I would like to say that during the second quarter, most banks are slightly cautious. Concerning we haven't seen the same call for demand.
This is why we had to look at this in the bank. Where do we want our lending? In the Nordic companies, we invest, of course, in the corporate in the Nordic countries, but also medium-sized companies, small medium-sized companies where we want to grow, and also households. We have to look and see where we can grow more. You can grow rapidly in the area of commercial properties, but we are slightly cautious. We have been very perhaps a bit cautious in looking at different segments. We can see the price picture is also variable. We can see that concerning in the area of corporates, we can see a different. What about Germany? The situation for Germany is a surprisingly good situation. Perhaps this has to do with the relationship banking model that we still go out there. We visit our customers.
Of course, we had a large customer a month ago or so. That's not sort of, say, haven't in the past been so used to work with banks in that way. Banks are interested in the whole of their balance sheet, et cetera. Of course, if you have a strong bank contact and if someone else was trying to access a certain customer, then it might be quite a lot of banks have good levels of equity and some less. Of course, generally, the trend is going to be more expensive to borrow, and it's going to happen quite rapidly. This change in stress test as it is right now shows that the requirements are beginning to be quite high. I went to a meeting at banks last week. Of course, now their time should be given to actually leverage upwards. This is not going to happen.
The time is not going to be available, and we can see it's going to favor us as a bank. We have to see that we, in the long term, use our equity in the right way. Now, anything you would like to add to that, Magnus?
Annika, are we back up to?
Annika has mentioned that the foreigners aren't here anymore. Before and after the summer, we see significant differences. Before the summer, we saw many of them returning. We had a lot of competition between local banks as well. After the summer, all the international players have disappeared. We see a lot more discipline in pricing of use of capital from the local players. We can choose here when and how we want to use the reserves we've built up. Could you pass the microphone to Magnus, the other Magnus?
Thank you, Magnus.
Thank you. My name is Magnus Andersson. Again, I was wondering about cost savings of SEK 3 billion, in excess of SEK 3 billion. How much of it is in HR and employees? How much in terms of cutbacks do you see in staff until 2014?
Annika, I think it's important to remember that until 2009, we had 500 net, 900 if you include the normal turnover of employees. We made significant cutbacks in that area in Sweden, at least. This time, we've chosen not to count the number of heads. It's going to impact consultants to a great extent. People are quite shrewd at coming up with other ways of delivering and providing their services. We want a cap. We can look at the total numbers. Over time, I think that we will have a more streamlined organization.
It hasn't been calculated with an assumption that there's going to be fewer of us. We want to work more behind the person and work on our prioritization process, of course. All in all, we will have a lower headcount. We don't have any exact numbers. We see how much we can stick to the caps. In merchant banking, for example, they're taking on people. They're on a net increase. This quarter, we see that we have a slight increase in the number of employees. We've had a number of summer replacements, people substitutes. It moves up and down a little bit. All in all, it's down. It'll have to be down a little bit. We don't know the extent. You won't split it into headcount and other types of savings. No, no, no, no. We're using a cap across the board. It has to be resolved.
We'll have to be clear in how we communicate in the organization. Thank you. Can you pass the microphone to Hampus, please? He's on the same row as you. Thank you.
[Foreign Language]
Hampus Bolin, I'd like to ask what you think. Some of the Swedish banks, they've been quite restrictive concerning their mortgage lending. SEB has continued, as in the past, business as usual and perhaps slightly more aggressive with prices. Now SEB has sort of toed the line with the rest of the commercial banks and a more stringent approach in this area. How much of turns should you feel about because with the banks with their own price setting? We know that, of course, it's quite difficult in Sweden. We're not looking at the situation with disposable income, et cetera. How does one do with a bank to be able to not cause the same problem yourself?
I think that you do have a credit policy which is quite firm and fixed and that you work continuously to review and assess it.
Where you can see we have a value of about 50% with newer mortgages, it's been higher. But 2% of our portfolios are over 80%, 85%. Very few are above the level. It's not due to individual decisions. We are not market-leading. It's a building society like Stadsbibliotek and Swedbank. They're about 40% of the mortgage market lending situation. Our customers have more or less to a greater extent been borrowing in other banks. We feel that this is a matter of a link that you have with your customer and repayment capability when talking about mortgages. We feel that the situation is quite good as it is. We are exposed quite a lot in the urban areas concerning mortgage lending. There's no point of sort of lending on the sort of expected cash flow situation and then perhaps looking at the isolated apartment in question.
Secondly, certain banks that work with corporates and others and helping with sort of hedging solutions and everything from this to currencies. During this quarter, they've showed a lot of dramatic growth in the balance sheet and income statement because looking at the hedging and liability provisions have impacted quite a lot due to the falling interest rates. We hardly see a trace of this behavior in SEB, even though you have the same sort of capability concerning those particular banking deals.
Is there any reason to do different kinds of behavior or accountancy methods between your bank and others?
No, not really. I think it takes you back to the big question of how much you buy on your own behalf in your own books. I think it's very clear that SEB isn't doing that. We haven't done it for the past 12 years. We work with customer flows. That's our focus. During a quarter like this one, we can benefit when we act on the basis of the customer flow. With other positions, I have to say it has been difficult to surmise what would happen since August, September. OK, any further questions? I don't see any hands in the air. The central bank is not raising interest rates. They've reduced the path of the policy rate. I come from Express, and I should say for the customs. It's fairly expected, really.
It was more a case of the market noticing that the Swedish Riksbank has maintained the higher levels for a while. It was rather expected to see this development. Compared to others, Sweden is a little bit higher than other policy rate paths. It was somewhat expected. I don't think it's going to impact our actions to any greater extent. In that case, this concludes our press conference. Thank you very much to all for participating.