Welcome to SEB's Q4 2025 pre-close call. My name is Pawel Wyszynski, and I head up the Investor Relations team here 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. We will address the macro environment, the P&L lines, the risk exposure amount, and capital. Following this, there will be a Q&A session. We will only answer questions related to already disclosed information as well as publicly available data and refrain from answering questions on the current quarter. To ask questions, please raise a hand. Starting with macro, average three-month STIBOR is lower in Q4 compared to Q3, and the Swedish central bank lowered the policy rate by another 25 basis points in effect from October 1st. Following these cuts, SEB changed some of the bank's lending and deposit rates in Sweden.
Most of our rates are available on seb.se. Average three-month Euribor is rather flat compared to Q3, 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 websites for each of the three Baltic countries. Regarding sensitivity to policy rate changes, we would point out a simplistic view is to look at our equity, roughly SEK 220 billion. The private and corporate transaction accounts and savings accounts within business and retail banking , roughly SEK 370 billion. And lastly, the Baltic private and corporate transaction accounts, roughly 200 billion SEK. Apply a rate sensitivity for lower rates on this total of roughly SEK 800 billion.
All of this data is available in our Fact Book and together with the rate changes available on our websites. I believe there is plenty of data to capture the interest rate sensitivity for SEB. On the Q3 results call, we said that looking forward, we continue to expect our net interest income to bottom out some three to six months after the last rate cut, bearing in mind that it is based on how our balance sheet looks today. So, volume growth and proactive repricing could impact those dynamics. Now, 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 average FX rate during the quarter. All else equal, a stronger SEK leads to lower income and lower costs. I'll try to mute someone. Yeah, okay.
All else equal, a stronger SEK leads to lower income and lower costs. The opposite applies for a weaker SEK. Compared to the third quarter 2025, on average, the SEK strengthened marginally versus the euro. This would imply a smaller headwind on the P&L from FX. 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 marginally stronger versus euro and USD so far in the quarter. This would imply a small positive effect on REA from FX alone.
In the Q3 2025 investor presentation, you can find on sebgroup.com on slide 39, the currency split of risk exposure amount was 46% in SEK, 33% in EUR, and 8% in USD. A plus-minus 5% change in SEK versus other currencies affects the CET1 capital ratio by around 40 basis points. I will now turn to the profit and loss lines, starting off with net interest income. Regarding lending and deposit volumes, we have earlier stated that the Statistics Sweden numbers do not define data in the same way as they are reported for SEB Group on all lines, and I will hence not go into more details on the Statistics Sweden data. Regarding the moving parts on NII in Q3 2025, I would point out the Q3 2025 transcripts from the results call where our CFO went through the effects in the third quarter.
Starting off on the group level, our CFO commented net interest income increased slightly despite downward trending interest rates, explained in part by higher day count in the quarter, some positive effects from FX, slightly lower deposit insurance guarantee fee, and the lower short-term funding costs. For the business and retail banking division, our CFO stated that NII declined by around SEK 100 million compared to the previous quarter, and primarily reflecting the impact from lower interest rates on deposit margins. Competition in the market remains firm, and mortgage margins moved largely sideways in the quarter. For the Baltic division, our CFO stated that net interest income was largely unchanged as the impact from lower rates was partly offset by higher lending and deposit volumes across both private and corporate customers.
Lastly, on Treasury, the CFO stated that NII was positively impacted by the yield curve as well as favorable funding conditions within short-term funding. To conclude on NII, minor FX headwind from stronger SEK versus EUR, lower three-months STIBOR, and some favorable conditions in Q3 from short-term funding. Let's see if these favorable conditions remain. Moving on to 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 quarter will close but looking at the average quarter of the day for the OMX Nordic 40 and OMXS30 equity indices, a simplistic approach indicates marginally positive quarter-on-quarter impact on net asset values.
Turning to advisory and securities-related fees, we stated in connection to our Q3 report that fees are seasonally softer in Q3 across most capital markets-related businesses, including issuance of securities and advisory. We also stated that this line was particularly strong in the second quarter. There have not been any larger transactions where SEB has been present during the fourth quarter, according to public data. Moving 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 that is hard to predict. However, looking at volatility as of lately, it has been muted, especially on the FX side. Moving to net other income, not much to add here. However, I see some analysts including several hundreds of millions in Q4 on this row.
Not sure what that includes, as we have not guided for anything specific here. Moving to total expenses, the cost target for 2025 is SEK 33 billion, plus minus SEK 300 million, assuming 2024 average FX rates. FX adjusted as of Q3, this number was SEK 32.6 billion, plus minus SEK 300 million. In connection to the Q3 call, we said that we see some potential for possibly accelerating the Air Plus implementation program a little bit further. We also said that the further cost target does imply that there are some effects to be expected in the final quarter of the year. Moving on to net expected credit losses. In Q3 2025, we reported three basis points, but despite this, we took SEK 100 million extra in portfolio overlays. Moving on to imposed levies.
At the Q3 result, we said that further guidance for imposed levies, now also including the Riksbank's introduction of interest-free deposits, now amounts to SEK 3.6 billion. Moving on to tax. In conjunction with the Q3 report, we said that going forward, a tax rate of 21% is a good proxy for forecasting. Moving on 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 January 27, 2026, as stated in the press release on October 22. In connection with the Q3 report, we stated that it is the pro forma management buffer of 290 basis points that we use for our capital planning purposes, i.e., adjusting for the remaining uncommunicated impact from the REA effect in the Baltics, which is being phased in. So, from a buyback perspective, this forms the basis for our proposal to the board.
As you know, we deduct the impact from share buybacks on our CET1 capital ratio and hence our management buffers when a buyback application has been approved. Last year, due to the elevated buffer position going into the year-end, we made an application for a full-year SEK 10 billion buyback and hence deducted that full amount from the buffers at the end of 2024. You should expect us to adapt the size of our application and hence the CET1 impact at the year-end 2025 to the current capital position. On dividends, our ordinary dividend policy is a dividend payout ratio of around 50%, meaning the span is 45%-55%. The special dividend that we paid out last year and the year before that happened at a time when we were far above the 300 basis points buffer range.
In Q3, we took 18 basis points for the phasing in of the REA increase in the Baltics. We said that the remaining impact from the REA increase is around 70 basis points, which we expect to phase in over the coming three quarters, i.e., Q4 2025 to Q2 2026. We also stated on the Q3 call that we expect the operating risk to be a negative of around 15 basis points in the fourth quarter of this year. 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 our silent period on January 1 and that our Q4 2025 interim report will be published on January 29 at 6:15 A.M. Swedish time. With this, we wish you all a happy upcoming holiday season. With that, if there are any questions, I open up for those. Magnus.
Yes, hi. Just first of all, on a detail level, that the impact on the reserve requirement, I guess that you book everything up front in Q4.
Yes, we do. And that's included in the SEK 3.6 billion that we talked about in Q3, correct?
Yeah, yeah. Okay. And secondly, just when it comes to the priority in terms of capital payout, is it correct to assume that, I mean, first of all, obviously ordinary DPS, then share buybacks, and after that, special dividends?
I can't really answer for the board, but I think that that would be their preference, yes.
Yeah. Okay. Thank you.