Yeah, hello. I think we have everyone let in from the lobby, so I will kick off SEB's pre-silent call for the third quarter 2025. I would like to wish everyone a good afternoon and welcome to this pre-closed call at SEB's Q3 2025 call. My name is Par Andersson and I'm part of the Investor Relations team at SEB. This call is being recorded, and the script used for this call will be published on the Investor Relations website after the call. During this call, we will address the macro environment, the P&L lines, risk exposure amount, and capital. Following this, there will be a Q&A session. We will only answer questions related to already sourced information as well as publicly available data and refrain from answering questions on the current quarter.
If you want to ask questions, you must log on via the Teams app or your browser and raise a hand. Starting off with the macro environment, the average 3-month Stibor rate is lower in Q3 compared to Q2, and the Riksbank lowered the policy rate by another 25 basis points last week to 1.75% following the cut in late June. Following these cuts, SEB changed some of the bank's lending and deposit rates in Sweden. The majority of our rates are available on SEB.se. I would encourage you to visit this website continuously as we show most of our offerings there, and this is where the most up-to-date information is located. The average 3-month Euribor is also lower compared to the second quarter, and the European Central Bank kept the deposit facility rate unchanged during the quarter. This mostly affects our Baltic operations and mostly the deposit side.
You can find the relevant deposit rates and changes on the domestic SEB website for each of the three Baltic countries. Regarding sensitivity to policy rate changes, we would point out the simplistic view is to look at the Q2 2025 numbers, mainly our equity a little more than SEK 200 billion, the private and corporate transaction accounts within CIB a little less than SEK 200 billion, and the Baltic private and corporate transaction accounts a little less than SEK 200 billion, and apply a rate sensitivity for lower rates on this total of roughly SEK 600 billion. All of this data is available in our factbook together with the rate changes available on our websites. I believe there is plenty of data to capture the interest rate sensitivity for SEB. Before turning to the P&L, I just have some general remarks.
Both the P&L and the balance sheet are affected by FX movements. The P&L is affected by the average FX rate during the quarter. A stronger SEK leads to lower income and lower cost. The opposite applies for a weaker average SEK compared to the second quarter 2025. On average, the SEK weakened somewhat versus the Euro and was somewhat stronger versus the US Dollar. The balance sheet is affected by Ultimo FX rates where a stronger SEK reduces assets and the risk exposure amount. As our equity is SEK denominated and is not hedged, a stronger SEK affects the Common Equity Tier 1 capital ratio positively. The opposite applies for a weaker SEK. Ultimo SEK looks flattish versus both the Euro and US Dollar so far in the quarter. This would imply a fairly small effect on REA from FX alone.
In the Q2 2025 investor relations presentation that you can find on sebgroup.com, slide 41, the currency split of risk exposure amount was 46% in SEK, 33% in Euro, and 9% in US Dollar. A plus minus 5% change in SEK versus other currencies affects the CET1 capital ratio by around 40 basis points. Lastly, a third quarter is affected by seasonality given summer and vacation months where activity in July is lower. To this, please also factor in our comments at the Q2 result presentation about the healthy growth we had in both the credit and loan portfolio both quarter on quarter and year on year. When we said that a bit of caution is that we had a very strong catch up effect after a very slow April which meant that there was a lot of events and event related financing.
Those are short term in nature and not a guarantee for the future. I will now turn to the profit and loss lines net interest income regarding lending and deposit volumes. We have earlier stated that the statistics we, the numbers, do not define data in the same way as they are reported for the SEB group on all lines and I will hence not go into more details on the Statistics Sweden data. The one more day in this quarter will contribute around SEK 100 million positively. Regarding the moving parts on NII in Q3 2025, I will point you towards the Q2 2025 transcript from the results call where our CFO went through the effects in the second quarter.
On a group level, he commented that we can see that the negative impact from FX, which is around SEK 600 million, was largely offset by the positive day effect, which is the same order of magnitude. Market rates during the quarter have tracked largely in line with policy rates, so there been no sort of meaningful repricing effects that we saw previous quarters when market rates tracking ahead of policy rates trends, end quote. Our CFO also talked about the divisions, saying that the CIB had a positive impact in the quarter from higher lending volumes as we mentioned, but also an elevated NII from our investor services business. This is linked to the dividend season. This positive effect from volumes and investor services was largely offset by a lower NII contribution from the market's activity. Markets NII is now back to a more normalized level, end of quote.
Further, our CFO commented that within business and retail banking, in addition to the day count, the decline of around SEK 200 million compared to Q1 reflects the impact from lower rates on deposit margins. We also continue to experience pressure on mortgage margins in the quarter, although there were some stability and signs of improvement towards the end of the end of quote. Lastly, the CFO commented that the Baltic division saw a similar decline in the second quarter of around SEK 200 million, reflecting the lower ECB rates in the quarter, partly also here offset by higher volumes on both loans and deposits, not least in retail mortgages where we have in the quarter originated a record volume of mortgages. Broadly, loan growth remains healthy and competition remains stiff, end of quote.
Turning then to the net fee and commission income, a large part of the net fee and commission income derives from assets under management and assets under custody and is hence correlated to the general stock market development. Let's see how the market will close. Looking at the average quarter to date for like OMX M40 or OMX S30 and the MSCI World Equity indices, a simplistic approach indicates a slightly positive quarter on quarter impact on average net asset values. Turning to advisory and security related fees, we stated in connection to our Q2 report in mid July that we are heading into Q3 with all the summer months. That typically means somewhat lower activity across capital markets, although we do feel that we are very well placed to capture opportunities when they arise, end of quote.
As for activity during the third quarter, we do not provide any guidance, but as always, summer months, general market conditions, macro trends, and geopolitical developments typically have an impact on the demand for our products and services in this area. Turning to net financial income, we have earlier said that our best guidance for this line item is the average outcome we have achieved over the last 16 quarters. Since it is an income line hard to predict, that average was about SEK 2.5 billion per quarter as of 2025-02-02. Net other income, not much to add on that line. Total expenses in Q4 2024, we presented the updated cost target for 2025 of at or below SEK 33 billion, plus minus SEK 300 million, and assuming 2024 average FX rates, this number was FX adjusted SEK 32.7 billion in Q2.
The S&P share price impacts the cost base, where a higher share price increases cost. All else equal, the SEB share price compared to the second quarter closing has appreciated. Net expected credit losses in Q2 2025, we stated that overall asset quality remained stable. Imposed levies, repeating what we said in conjunction with the Q2 results call, imposed levies are expected to decline during the course of this year, starting now in the second quarter, and this is primarily related to the Solidarity contribution in Lithuania. For the full year, we estimated imposed levies of around SEK 3.5 billion, and we added that we should expect a total levy for next year of a similar magnitude as this year. End of quote. Tax, in conjunction with the Q2 report, we said that going forward, the tax rate of 21% is a good proxy for forecasting.
Turning to capital and risk exposure amount, SEB's current share buyback program amounting to SEK 2.5 billion is expected to be concluded no later than October 21, 2025. As stated in the press release on April 28 in connection with the Q4 2024 results, SEB deducted the full share buyback approval received from the FSA of SEK 10 billion until the end of January 2026 from the CET1 capital. Just a reminder of what we said in Q2 about the increased REA from the Baltic IRB models, we estimate that we will have a transitory increase in REA of about SEK 50 billion, translating into a capital impact of some 80 to 90 basis points of CET1 buffer on group level.
This transitory increase will remain in place until our models in the Baltics are approved, and it is difficult to estimate when this will happen, but it is likely to be a number of years. The dialogue with the European Central Bank is ongoing and we expect to recognize this effect gradually in our capital calculations starting somewhere towards the end of this year or beginning of 2026, and we see this effect being absorbed by the management buffer. We are now closer to the end of the year. No further updates on this have been given since the Q2 report, and we will not go into more detail on this topic. Risk exposure amount is affected by, among other things, FX movements, which I addressed in the beginning. You also need to think about the fact that lending volumes on a system level are growing again.
This concludes our prepared remarks on this pre-close call. Please monitor how the FX rates close at the end of the quarter for the most up-to-date data. Before we move on to the Q&A session, I would like to highlight that we enter silent period on October 1 and that our Q3 2025 interim report will be published on October 23, 2025 at 6:30 A.M. Swedish time. With this, we wish all of you a good day. We have a question from Magnus Andersson.
Yes, hi. Perhaps not directly related to the quarter, but I just wanted to ask you regarding AirPlus. If I recall, I think you said you would have implementation costs of around SEK 700 million in 2025 and around SEK 200 million in 2026. Can you confirm that?
I think. I mean, we haven't given an update on the outlook for AirPlus more than we have said that, you know, we will kind of fulfill the ambitions we had that it should be in black numbers at the end of this year, excluding restructuring costs, the next year including restructuring cost. I'm not sure about the SEK 700 million, but I think that was a number maybe mentioned in conjunction with the Q3 or Q4 report earlier.
Yes, I mentioned in conjunction with the acquisition, and I wasn't sure about the 200 for 26, whether that was updated or not.
It's not updated. There hasn't been any more answers given since the kind of last update, which was quite many quarters ago.
Okay. Secondly, I guess you won't comment, but just on this IRB models in the Baltics. You said that it would be gradually implemented towards the end of 2025 or in the beginning of 2026. You have no more color on that, I guess.
No more color, except what I said when I recapped what we said in the Q2 results call.
Okay, thank you.
I can't see any more hands, so maybe that was the question. We also have Sophie.
Thanks a lot for the update. Just very quickly, there are no one offs in the third quarter that we should be aware of?
Not according to our knowledge right now, no.
Okay, and then my second question, I realize it's maybe not the third quarter specific, but you mentioned that the imposed levies should be similar in 2026 to SEK 3.5 billion in 2025. Is it the resolution or the Riksbank tax? I guess the Riksbank tax is going up in 2026 in Sweden. Is that included in the SEK 3.5 billion?
Yeah, I think first of all, you had the Swedish National Debt Office publishing some figures about the Swedish Resolution Fund at the end of this year. From what they published, it doesn't look like the fund will be full, meaning that there will be a fee also for next year for that one. As you said, there will be a slight increase in the Swedish risk tax going from 25% to 26%. You might have some of the Baltic levies also going down. In essence, as we said, I think it should be on a similar level next year as it is expected to be this year if the Swedish Resolution Fund is not full by the last of December.
Okay. Okay. As things stand out, the resolution fund fee will continue in 2026.
Yeah, at least according to what we have seen from the National Debt Office, that was during the summer.
Okay. Okay. That's very clear. Thank you.
Jakob Kiryuzan.
Hi. I just wanted to clarify. You made some comments around what your CEO had said, I guess at the conference. I may have missed a little bit of what you were saying exactly. The way I read it was Baltics still see tough competition but healthy loan growth. Repricing effects are so far not very material. Sorry, the kind of lagged pricing effects are not material from what you've seen in this quarter and on the group and AI Mortgage. AI could move to a more normalized level while you still see pressure on mortgage modules. Were those comments related to Q3? I just wanted to clarify that.
No, as I said, that was comment from the second quarter. Telephone conference transcript. Right.
Okay, this is just okay. Quiet.
Yeah, it's kind of reminders of what we said the last quarter. As I also said, we don't comment the current quarter in detail, but that was just to make you aware of what we said when we presented Q2 in mid July.
Right.
Okay. You haven't made an estimate or kind of a sensitivity for this quarter when it comes to timing effects.
No.
Oh, okay. Okay. Thank you.
Hi, Per, do you have anything to say on wholesale funding costs?
Not much. I mean, we have done some funding at good spreads lately as well. We have, I guess, more or less kind of fulfilled the quota for this year. There is maybe some room left for doing more, but we haven't made any comments about funding cost development in the third quarter.
Okay, thank you.
Probably I'm first day back. One thing I think in connection with the Q2 numbers, we did have some tailwind from low funding costs. We didn't comment anything specifically going into the third quarter. As per mentioned, we have done quite a lot of issuance. That is just maybe a little bit of flavor on that. Gotcha. Welcome back.
Thank you. Magnus, you had a question on the implementation costs. AirPlus, I'm reading from the transcript for Q4. When we announced the cost target for 2025, remember we had SEK 700 million in implementation and transaction cost related to AirPlus in 2024. We're expecting roughly the same size of implementation charges in 2025. There is no delta from the AirPlus implementation cost charges in 2025. I hope that's clear. Maybe the last one you asked on the timing of phasing in any REA for the IRB. As per mentioned, we are entering the end. We.
Q3 is towards the end of the year, so it could start in Q3, it could be in Q4, it could be in Q1. I'm just stating that Q3 is within the range of where we could start taking things. We have not stated that we will do it or not. Just let you know that it is within that range.
Nicholas.
Hi, just a follow-up on the costs. The cost in the second quarter were a bit lower than what we typically see. The Q1Q change was a bit more. It was down a bit more than what we typically see for the second quarter. Was there anything in terms of unusual effects or temporary effects helping the cost line in the second quarter? Also, could you please remind us what is driving the sensitivity on the cost line relative to the share price and how should we think about that sensitivity given that, as you mentioned, the share price is up quite a bit in average terms.
I think the share price affects, for example, cost for servicing the long-term incentive programs. Of course, with a higher share price there will be higher cost for that, but it's not massive money compared to the total expenses in the group. It's a slight higher cost with a higher share price. I think the important part is still that, you know, we have the full-year cost target, so that's what we are kind of aiming for. I'm not sure there were any specific items in the second quarter. It was more maybe the view of the market at that time. The important part is to reach the full-year target.
Is the hiring freeze still in place?
Yes, there is a temporary hiring pause for externals if it's not a kind of business critical position.
Okay.
Are the costs for servicing the long-term incentive programs impacting every quarter, or is it a particular quarter when you typically take those costs?
No, I would say it's more evenly spread. Again, of course, depending on the share price development. Yes, it's not a huge part of the total expenses for the group in a quarter. The higher share prices is like, negative, and the opposite for a lower share price.
All right, got it. Thank you.
Think about it a bit as some kind of watermark. As long as the share price doesn't increase above the previous high, then that effect shouldn't really be in place. Whenever the share price increases to a new high, then it's a drag on the cost line. That's kind of a very simplistic way to look at it, but I think that that will help you in your modeling.
Okay. Anything else? Otherwise, we will thank you for your time this day, and we will keep in touch until we publish the Q3 results in end of October. Okay, bye. Bye.