Ladies and gentlemen, welcome to the Handelsbanken Q4 report 2017. Today, I'm pleased to present Rolf Marquardt. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Speaker, please begin.
Good morning, everyone, and welcome to this conference call for the fourth quarter of 2017. Joining me today, I have Lars Höglund, Head of Investor Relations, and Annika Engler, Head of Group Accounting. The slides used for my presentation are, as usual, available at handelsbanken.com. Let's start with slide number two. Summing up the year, the operating profit increased by 2% to SEK 21 billion, but adjusted for one-off items the increase was 3%.
The one-off items relate to capital gains in 2016 of SEK 1.7 billion from divestments of shares. The SEK 700 million reserve we took in 2016, a positive SEK 239 million effect in Q1 2017 from adjustment of the Norwegian pension plan, and SEK 576 million of dividends received from Visa Sweden now in Q4. If adjusting also for the allocation to Oktogonen this year the underlying growth was 7%, despite a major increase in the Swedish Resolution Fund fee by around SEK 750 million. The growth model continues to deliver with net interest income up by 7% and fee and commission income up by 6%. In total income grew by 5% adjusted for the one-offs. Loan losses decreased somewhat from last year and amounted to eight basis points.
The CET1 ratio at year-end was 22.7% after deducting the board's proposed dividend of SEK 7.50 per share of which SEK 5.50 in ordinary dividend and SEK 2 in extra dividend. The bank anticipates that the FSA minimum requirement was 20.2% at year-end, which means that the bank is within the target range of being one to three percentage points above the FSA minimum requirement. Turning to slide number five and the income statement for Q4. Net interest income increased by 3% from the previous quarter, driven mainly by increased business volumes as well as lower funding costs. The overall margin development was rather stable. Fee and commission income increased by 6%. Apart from normal seasonality, strong asset management fees contributed to the increase. Net financial transactions is, as you all know, a fairly minor income line for Handelsbanken compared to what you see from our peers.
This quarter it was a bit weaker than normal due to an early redemption of derivatives related to a restructuring agreement. Other income in Q4 includes the dividend from Visa Sweden of 576 million SEK. Reported income increased by 9% but adjusted for the Visa Sweden dividend the increase was 3%. Staff costs increased by 1% and was mainly explained by FX. Other costs including depreciations and amortizations increased by 490 million SEK. The normal seasonality in the past years has been an increase of around 250 million SEK. The further increase this time is explained by Brexit preparations, increased business development, and higher costs related to regulations such as MiFID II and PSD2. Loan losses amounted to SEK 1.1 billion, and the increase from Q3 is explained by two single exposures, one in Denmark and one in the U.K.
The U.K. case, which was related to the company Carillion, is completely closed. The Danish case has now undergone a reconstruction with new owners, and we therefore assess the remaining risk to be low. The underlying credit quality continues to be stable and strong. In total, the operating profit dropped by 8% from Q3. Moving to slide 27, you can see the quarterly development in the net interest income, which increased by SEK 190 million. The main drivers were firstly increased lending and deposit volumes in our home markets, which together added 118 million SEK in the quarter. Secondly, currency effects which added SEK 65 million. Thirdly, lower funding costs. This explains the bulk of what shows up as other in the Handelsbanken Sweden and the home markets outside Sweden in the table.
This is mainly explained by the net interest income that arises in group treasury when the actual funding cost for the group deviates from the internal rates paid by the business units to group treasury. It does, to a significant degree, represent lending margins. In Sweden, the mortgage margin was unchanged at 106 basis points, and the overall margin development was generally stable. On slide six, you can see the net interest income development in the past five years. We can again see that the net interest income reached its highest level so far, despite the doubling of the Resolution Fund fee in 2017. The last one and a half years have shown a very positive trend as you can see. When comparing the fourth quarter 2017 with the first quarter, the increase was 700 million SEK or 10%.
Slide seven shows the net interest income development over the last seven quarters in local currency in each market. We had a good business activity throughout the bank, with growth in both the private and the corporate sector in all home markets during Q4. On to slide number nine. A well-tested growth model that is well established in our six home markets continued to deliver during the year and not only in terms of net interest income. As expected, our business is growing faster in our newer home markets, the U.K. and the Netherlands, but lending and deposit volumes are also growing in the other markets. Lending grew by 5% and the deposit volumes increased by 13%. Also, the net fee and commission income increased in all markets with a total of 8%.
On slide eight, you see the development of a net fee and commission income in the past year in local currency. We grow the business at a steady pace in all markets, which is an outcome of an increased focus on net fee and commission income-generating business, and in particular on asset management. It is mainly high fund and asset management fees which are behind the growth. During the second half of 2016, Optimix was acquired, which a large extent explains the sharp increase in the Netherlands. Slide 10 shows the development in our Swedish mutual fund business. We can conclude that the positive development in our Swedish mutual fund business continues. Since 2010, the bank has taken 24% of all net inflow into the Swedish fund market.
During 2017, the market share was 20%, which made the bank the biggest player in the market in terms of net inflows. On to slide 11. The asset management volumes have grown steadily in the Swedish operations by 15% over the last five quarters, and during the same period, the growth rate in the other home markets was 23%. The net inflow outside Sweden was almost SEK 10 billion, representing roughly a third of total net inflows to the group. In the U.K., for example, funds under management increased from GBP 2.9 billion to GBP 3.5 billion in 2017. Funds under management reached an all-time high level in all home markets during Q4. On slide 13, we take a closer look at Handelsbanken Sweden. In Sweden, the positive development continues, and the efforts are paying off both in terms of customer satisfaction and earnings.
Net interest income increased by 8% in 2017 and fee and commissions by 5%, driving total income up by 6%. A major part of the restructuring reserve of SEK 700 million last year has naturally been used in our Swedish operations. The average number of employees in Handelsbanken Sweden was 215 less in 2017 compared to 2016, and the staff costs dropped by 3%. At the same time, the investments in IT development increased, which together with the costs related to adjusting to new regulations explains the increase in other expenses. Loan losses continue to be very low and the operating profit in Sweden increased by 8% when adjusting for the restructuring reserve booked last year. The cost-to-income ratio in 2017 was 34.2%. On to slide 14.
In the U.K., the business volumes have grown steadily despite the fact that only a few new branches have been opened in last two years. In local currency, the net interest income increased by 11%, while the net fee and commission income increased by 22%. In Heartwood, funds under management have increased by GBP 500 million since the beginning of the year, out of which GBP 315 million in net inflows. Assets under management now amounts to GBP 3.4 billion, which is the highest volume so far. Net inflows per month increased almost 90% compared to 2016. Alongside the positive development in our fund management operation, the average household deposit volume increased by 47% compared to last year. All of this shows that our branches managed to capture a larger share of our clients' business, apart from the inflow of new customers.
We obviously continue to see good growth opportunities in the U.K., regardless of Brexit. On to slide 16 and a few words about the ongoing Brexit preparations. In 2010, the bank decided to set up a U.K. head office to consolidate the U.K. head office functions in London. Since then, the operations have expanded rapidly. At some point, it's time to take the last step and to establish a full-scale bank, and that is what we are currently preparing for. Brexit has sparked this process and possibly also shortened the time we will spend on it, but sooner or later we would have done so anyway. The work is naturally associated with costs and investments, and we estimate that the cost related to Brexit project during 2017 was SEK 86 million for our U.K. operations.
When adding costs at group level, the total cost adds up to SEK 104 million in 2017. During 2018, the Brexit project will move into its most intensive phase, and we estimate that the group P&L will be impacted by approximately SEK 300 million. The bulk of these costs will be carried by the U.K. and a smaller part by head office. The level in 2018 is not expected to increase thereafter and instead gradually decrease over the coming years. At the same time, it's important to underline that the actions and costs imposed by the process for corporate governance, reporting, IT, staff costs, et cetera, will lead to improved business support and preconditions for our U.K. operations from a business and efficiency point of view. Slide number 17 shows you our younger home market, the Netherlands. The development continues to be strong.
Operating profit increased by 48% in local currency compared to 2016. The business volumes grew rapidly. Lending was up by 25% and deposits by 72%. Also in the Netherlands, the bank has the most satisfied customers and the distance to our competitors is particularly high. Optimix that we acquired in 2016 contributes highly to the increase in net fee and commission income. Cost-to-income ratio fell by 1.9 percentage points and return on equity exceeded 14%. We are obviously very happy about the development in the Netherlands and continue to have high expectations on our Dutch business. A few words on cost development. Please go to slide number 24. As earlier mentioned, the bank's proven growth model continues to deliver. We have higher levels of customer satisfaction than peers, a good business development and stable growth.
This strategy, in combination with Brexit, digitalization and new regulatory requirements, calls for an increased level of development and investment. Having said that, we are always very focused on being cost efficient and we continue to be so. In Handelsbanken Sweden and in capital markets we today run the operations with fewer people than a year ago. This is offset by new employees in our younger home markets as a consequence of continued growth. All in all, the sum of the staff cost development in our home markets in 2017 was flat. The cost focus is also seen in the item other costs, which represents roughly 15% of the cost base that have been unchanged during the year despite the increased business volumes.
The cost increase is explained by Brexit-related costs of SEK 104 million and increased spending on business development and regulatory development. These costs show up under the items purchased services, IT costs, and the cost for employees in IT departments. For 2018, as I mentioned previously, the cost associated with Brexit are expected to be around SEK 300 million. Back to slide 18. After deducting the proposed dividend, the CET1 ratio dropped by 90 basis points from Q3 to 22.7% at year-end. The bank estimates that the CET1 requirement by the Swedish FSA at year-end was 20.2%. The bank is therefore well within the target range of 1 to 3 percentage points above the FSA minimum requirement. As we mentioned in the previous interim report, the impact from adopting IFRS 9 in Q1 2018 is limited, and is not expected to affect the capital ratios for Handelsbanken.
As you all know, in December, the Basel Committee presented its proposal for a revised capital requirement framework. The new rules are suggested to be implemented between January 1st, 2022 and 2027. Although the Basel rules are now known, the full implications of the standard can be assessed when the rules in EU and Sweden have been finalized. Despite this uncertainty, our overall assessment is that the bank already, at the end of Q4 2017, had a level of capitalization in line with the requirements communicated in December. In our assessment, the current capital requirement add-on for mortgage risk weight floors has been deducted, as it is closely linked to the Internal Ratings-Based approach. The liquidity position remains to be strong. LCR according to the EU standard was 139%, and NSFR was 102%. To summarize on slide 20.
When adding another quarter, we see that the stable trend since 2007 continues with an average annual growth in equity per share, including dividends of 15%. The fourth quarter showed a strong business development with increased net interest income and net fee and commissions. Brexit preparations, our increased focus on IT development and regulatory changes increased the administrative costs. Loan losses increased due to two single exposures, but for the full year, the loan loss ratio dropped one basis point to eight basis points. The Common Equity Tier 1 ratio was 22.7%, and the bank is within its target range. The proposed dividend per share increased from SEK 5 last year to SEK 7.50 this year. We see good further growth opportunities in the bank. With that, I conclude my presentation and open up for questions. Thank you.
Thank you. Ladies and gentlemen, if you have a question, please press 01 on your telephone keypad now and you will enter a queue. Our first question comes from the line of Willis Palermo from Goldman Sachs. Please go ahead, your line is open.
Hi, good morning, and thanks for the presentation. My first question is on the volume growth expectation that you pointed to and the further improvement that you can see compared to a strong 2017 where it grew 5%. What would be the driver of improvement for 2018? If you could be a bit more specific, maybe by geography, by sector. Also, if you could comment on the mortgage side in Sweden. The beginning of the year is likely to be strong, but what would be your best guess for the full year in terms of growth?
Hi, Willis, and thank you. About volume growth, as you probably know, we don't make any forecast about that. I think looking back at the development we've had during 2017, that is what you can have in mind when you look at the future. Our growth, we have seen no major changes in the demand for new loans, it's a quite stable picture. We have no reason to believe that it should change dramatically. I think when it comes to specifically the markets outside Sweden and in particular U.K. and Netherlands, that growth comes from both existing customers, but also from us acquiring new customers. The pace in which we do that's based on organic growth, and that continues. I think also when it comes to corporate lending, there is no specific sector that really sticks out here.
What we have seen in our corporate-related business, we have a good business momentum that shows up partly in lending growth, but also in other areas like cash management and so on. That is not related to any particular industry. Then finally on the mortgage lending in Sweden. I know that the expectations from many have been that the price decline we have seen during fall maybe should lead to a slowdown in the lending growth. That has not been the case, and we have no reasons to believe either that that should change going forward because it is quite stable. I think it is actually driven by a few different factors. First of all, there has been a significant supply to the market of new apartments and so on, and that's also part of the reason for the declining prices.
There is still a turnover, so apartments are being sold and the stock of private-owned homes is increasing. That also is an underlying force for continued growth, and it has been continuing to grow in a stable way. Also to comment shortly on the margin development in Sweden related to that market, that has also been stable also in Q4 and was rather stable during the full year of 2017.
Okay. Thank you. If I can just pick up on your comment on the corporate volume growth. Was there any noticeable pickup in corporate volume growth at the end of the year compared to the rest of 2017? If yes, was it across the board or still in property management related sector?
The growth was quite at the same level when it comes to corporate lending. The changes and increases were mainly related to property management. It has been quite flat for other industries.
Okay, thank you very much. My second question is to follow up on the property management sector and Handelsbanken exposure. Just looking at the disclosure in the fact book and assuming that I can compare that with peers, what could you say to make us more confident that having twice the level of your closest peers in terms of, if I group all the countries, is the right level as a proportion of the loan book? More specifically, in this sector, volume growth appears also to be much higher than peers. Is this the result from a better franchise or do you think there is an overestimation of the risk from peers?
I think first of all, we grow our business organically. It is related to where we can actually make business. Certainly, property management is an important part of total lending in society. It is for quite natural reasons, I think. What is really important to underscore in our case is that we are really conservative when we do this in our assessments. We want to be really on the safe side. I think that has also helped us. We haven't seen that many credit problems so far in Sweden related to property developers and the like. That is an area where we have been very conservative and that's something that's good now, I think. We have an exposure, but what we do always when we take on board new customers is to be really conservative and stick to our strict credit policy.
That is also what has been underpinning the very strong credit development we've had over the years, particularly in bad times. That's the approach we do have. I also think I'd like to add that one reason why we have a certain degree of concentration to that sector is the growth levels we have in the new home markets. What we typically see there is that when we start out, property management lending of good quality is easier to attract. It takes longer time to build relationships with other kinds of companies and to grow business volumes in those areas. It's also a reflection partly of our establishment process. Over time, that balance is likely to shift.
We see that in a number of customers in the U.K., for instance, that it started out with a lot of property management. We still have large volumes there. We have also attracted over the years quite large significant number of SME customers and so on. The balance might change as a consequence.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Jan Wolter from Credit Suisse. Please go ahead. Your line is now open.
Hi, Jan Wolter here, Credit Suisse. Thanks for taking my questions. Just a couple questions as a follow-up to the meeting in Stockholm this morning. I think you spoke about the subsidiarization of the U.K., stating that this is something that Handelsbanken has planned early on or from the start. I think Handelsbanken's operating model so far been run or running the company with branch structure outside Sweden. Has that changed? Should we expect that, for example, Netherlands and other Nordic branches can be converted as well to subsidiaries? Is this just something more specific for the U.K.? The second question is around the exposure to the U.K. company which defaulted there. I understand Handelsbanken sensibly reduced the exposure materially, lowering the loss. In principle, this was an unsecured exposure.
How much of Handelsbanken's U.K. book of GBP 213 billion or so is unsecured? Is any other part of the property management book unsecured as well? Thank you.
Hi, Jon. Thank you. Regarding the U.K. sub and the strategy we have is that, yes, we have communicated that at some point we would have done this anyway to form a subsidiary. Also to be clear on that, we haven't made a final decision. We are making preparations, and it's very likely that we will go down that route, and we will have to as a consequence of expectations from U.K. authorities. What we mean by that is that because you're completely right, the strategy we have normally is to run our operations through branches, and that is not going to change. We will stick to that. The reason why we've had a different way of thinking in the U.K. is that there are ring-fencing requirements when you become big enough on the retail deposit side.
At some point we will hopefully reach the level of having GBP 25 billion in deposits from retail customers. Then we have to subsidiarize and create a ring-fenced bank. That is why that has been something that we have been aware of that would happen someday. Now this development has been sparked by Brexit. Now we have to start it earlier, and we also have to finish that work within a much shorter period of time than we probably otherwise would have been forced to as a consequence of Brexit, because we want to finish this before March 29th next year. That is the change. Actually it is not a change in our attitude and strategy when it comes to the other operations we have in the home markets outside Sweden.
Then when it comes to the exposure against Carillion, yes, we reduced that. We started to see some signals early on in 2017. That wasn't a major thing, but it was things we didn't like to see, since we are very conservative when it comes to credit risk and credit risk management. We started to reduce our exposure, and we did reduce it significantly before this fall. Yeah, that part of the exposure that we had left was unsecured. You asked about how a big part of the portfolio we have in the U.K. that is unsecured, and also referring to property management. That is almost exclusively supported by collateral. We always try to get collateral when we have the chance to do so. It is, of course, a different story when you participate in syndications with major corporate customers.
It's different in this case. I think you have the figures on top of on your mind, Lars Segerlind.
Yeah. Hi, Lars Segerlind here. No, just to underline what Rolf is saying, also looking at the U.K. portfolio, a vast majority of that portfolio is secured with collateral. In the case where there is unsecured lending, of course, we use covenants and other terms and conditions to protect our exposure. Looking specifically at U.K., it's a very large majority which is secured.
Thank you. Just to follow up there. Can we assume that the property book, which is SEK 125 billion in the U.K., that's fully secured? I guess that this did not fit in that, it was not booked in that part of the lending book. If I understand correctly, it was booked outside. We can assume that the SEK 125 billion or so property management exposure in the U.K., that's all secured then. Is that fair?
Yeah, it is a fair assumption. This was not a property management company, it was a servicing company.
Sure.
Yeah.
Okay. Many thanks for that.
Thank you. Next question comes from the line of Jacob Kruse, Autonomous. Please go ahead, Jacob, your line is open.
Hi. Thank you. Just three quick questions. I guess first on the cost guidance, you helpfully talked about the cost increase for the U.K. in 2018. When it comes to the other investment spending, the IT regulatory, do you have some idea of how your what the cost there will look like for 2018 and 2019? Is there a continued ramp-up or potentially a decline? My other question was just on the U.K. Have you looked at all at what the impact on funding cost will be for the U.K. loan book once you subsidize it, if any? Then lastly, just a question on loan losses. You seem to have extremely low impairments on the balance sheet, and I guess this quarter, your actual loan loss annualized 22 basis points was higher than the combined impairments that you have on the balance sheet.
Is there an element where you are a bit late in recognizing problem loans, or was this a very specific issue for those two exposures that they came out of nowhere? Thank you.
Hi, Jacob. When it comes to the cost development and the development we will do apart from the Brexit preparations and the subsidiaries. We don't give cost guidance, as you know, but we have, during 2017, increased our capacity when it comes to carry out development. It takes time to build it. Often you start off by hiring consultants, then you try to replace them through employing people. If you look at the numbers, you can see that in the other operations where we have a lot of the activities being carried out related to development, the number of employees has increased. Another way to put it is that we have increased our development capacity, and that capacity we can expect that we are going to keep.
In addition to that, we have the Brexit-related costs, which we have estimated to be approximately SEK 300 million during 2018. Going forward, that number will be slightly reduced in 2019, then continue to decrease during the coming years. I think it's also fair to expect that in the long run in the U.K. We are recruiting new people for governance reasons and the requirements we need to fulfill running subsidiaries. It will not come down to exactly the same level where they were before, but it will go down over the years. I hope that answers your question. I'd also like, when it comes to the cost development, you also should put this in the context of how our business is progressing.
We have a strong business development, and we have a nice income growth coming from many different sources in all the different home markets. That is the starting of the day. Our thinking about what we need to do in terms of business development, we did increase the pace last year, that is also what now shows up in the numbers. We have to also prepare for new regulations. That is something that to some degree also has to help the business development. It's not totally disconnected from business development. I think a good example of that is all the improvements we have made in the offering we have and the internal support we have for giving customer advice when it comes to savings and investments.
That is something that was initiated as a consequence of MiFID II, but it has helped a lot also from a business perspective. To conclude on that, the capacity we have now built is something we are going to keep. The U.K. and creating the subsidiary and the potential impact on funding costs. What we plan to do, but it hasn't been completed yet, what we plan to do is to continue to run our liquidity risk management and funding centrally based in group treasury here in Stockholm. They will be deeply involved, and we assess that the funding cost will not be impacted too significantly, at least when we do that. Finally, regarding loan losses and the levels. Everything we can see in our books is that the credit quality remains to be very strong.
If you look at the payment behavior of our customers, if you look at non-performing loan levels and so on, it is very stable. In these two cases, I think the Carillion is really a very special case. It was a well-known company with a strong reputation and a really solid company, and they have been a customer of ours for many years. This is a case that we rarely have seen, but we have taken a full loss. We have nothing left there. In that case, I think we have not been late. We acted early to reduce the exposure when we started to feel uncomfortable, and we took the full loss now. We have no exposure left in that case. The other case that has been painful to us is the Danish case.
We have been conservative all the way through when we have made the provisioning in that case, but it has deteriorated in a way that we haven't been able to foresee. We have used really conservative core stale values on the collateral when we have made the loan loss provisioning in that case. Sadly enough, it hasn't been enough. Now that has been reconstructed, and they have new owners. The risk has now been reduced, and we don't see major risk going forward. I would say that in both these cases, we have acted, but in the second one, it has been difficult to assess in advance, and sometimes that happens. We try not to be late in the process. Rather, we want to be in the other end and act early to deal with problems.
Okay, thank you. Just from that point of view, does it not concern you at all that you've identified so few impaired loans, just 30 basis points of your loan book at the moment?
No. We are happy about that. We go through our books deeply every quarter in particular and all the time. The big advantage with having that situation is that it's very easy to detect problems. If we list our 25 biggest highest risks, the numbers you find on that list very soon become very low. In that kind of environment, it's really easy to see where you have the risks.
I'm happy about it. It is the way it should be. In my mind, it's definitely not a reflection that we sort of miss out on things that are risky.
Okay. Thank you very much.
Lars want to add something else.
Yeah. Maybe to add what you already know, of course, Jacob, our business model working locally in the branches close to the customers means that we take a lot of action very early before things become a problem. In some cases, it means the customer is actually changing banks before any problem occurs. This boils down to our entire view about the importance of credit management throughout the lifetime of the credit. That should normally generate lower levels of impaired loans than for other banks.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, I remind you that if you do want to ask an audio question, you will have to press 01 on your telephone keypad now. There will be a brief pause whilst any further questions are being registered. Our next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead. Your line is open.
Thank you very much. Just one question from my side, sorry, I had to disconnect for a while, apologize if you have already answered to such question. On the payout ratio going to 90%. If I remember correctly, some of your previous comments, you were, how can I say? You were not inclined to wait for the, let's say, for an enemy like Basel IV that was never coming. Now you have brought your payout ratio to 90%. Is this the level you think we could keep as, let's say, as sustainable in the, let's say, in the next couple of years before maybe you will have to start again thinking about the potential impact of Basel IV whenever this will start being introduced?
Okay. Thank you, Riccardo. First of all, the payout ratio of 90%, behind that is the strategy that we have communicated and continue to stick to is that when we think about the payout and the payout ratio. Number 1 is to be compliant, that means that we want to be within the target range and to have the margin to be able to cope with some volatilities. It could be migrations, it could be changed asset values, or it could be changes in models and so on. Secondly, we want to have the capacity to grow in the way we want to without any restrictions. That is the foundation. What is then left is something that we potentially could and want to pay back to shareholders. That's the way we think about this.
That means also that the payout ratio for next year is something we will make that decision then. We don't make any forecasts about that. That is the way we approach this. That's the strategy. When we then turn to the question of Basel IV, what now has happened is that the uncertainty is still there because we don't know about the implementation in EU and in Sweden, in particular, when it comes to the capital requirements. To calculate the risk exposure amount using the standardized approach and the floors, that is something we now know more about. Since that has been finally proposed, now it's easier for us to know approximately where that will end. We have greater certainty there.
When we run the numbers and then apply the different capital requirements that the Swedish FSA applies today, we come to the conclusion that we are already in Q4, and now then have a level of capitalization which is in line with the requirement we would face when fully loaded in 2027. That is a fairly conservative assumption because we have then included very significant buffer requirements that we think could be changed and at least will be reviewed during the implementation process both in EU and in Sweden. The conclusion we have made around this topic as a consequence is that we don't see any restrictions today related to capital and Basel IV as a consequence. We have to wait for the final details before we know exactly where it will end up.
Yeah. Very clear. Yeah. Thanks. This is the feeling I hear from your answer, it's fair to say that the current stage, Basel IV doesn't seem to have a major role when the board has to decide the remuneration of shareholders.
That's correct. I also think what will happen, of course, when we calculate our risk exposure amount and the capital ratios, of course, the capital ratios will be impacted, but when it comes to the capital requirement, we are in line. You're correct, it doesn't as a consequence impact that thinking now.
Very clear. Thanks. Thank you again.
Thank you. Now our next question comes from the line of Michael Green from Bank of America. Please go ahead, your line is open.
Thank you. Morning. I just had three quick questions on the U.K. bad debt. You mentioned in your remarks that you'd sold down the Carillion exposure quite substantially. I was wondering if you could tell us what the size of the position was at the peak, so we can just get an idea of what the concentration would have been. In your remarks, you referred to the top 25 biggest risks. I was wondering if you could tell us what the percentage those would cover in the U.K. and how that would compare to Sweden. Finally, again, just thinking about this exposure. Clearly the whole bank's philosophy and the foundation has been built on strong credit underwriting.
I was wondering if you could just give us a bit more of an understanding of what you think went wrong in your underwriting process, and what lessons you've learned, and whether this is something that should be read broader into the rest of the book. Thank you.
Thank you, Michael. When it comes to Carillion and the size of the exposure, we haven't communicated how big it is. It is a very significant part of the loan loss we have taken this quarter in the U.K. We have not communicated which exposure we did have before things started to turn wrong way and when we started to scale down. The exposure was slightly more than twice as big when we started that process in April. We acted early, and that's because we are conservative. We saw signs, not very obvious signs, but things we simply didn't really like, and that's why we started to try to step down our exposure. I must say that the Carillion case is really a very special case. Carillion has been a customer of ours for many years. It's not a new thing.
It's not a new exposure. It has been a well-known, well-established, and a strong company from everything we have known. It has been so all the way along until early 2017, when we started to change our minds. I think starting from what the company was and what we could know about it is, it's not strange that it turned up in our books, I must say, because it was, at that point, a very solid company, but sometimes it could go wrong, and it went deeply wrong in this case, unfortunately. When it comes to what has really happened and what is behind this, we have to wait and see for the investigations that are now ongoing, and I guess a number of people are waiting for that to show up.
When it comes to the top 25 exposures I referred to, that is nothing we communicate more specifically about. What I can say is that the credit quality we have in the U.K. is strong. As is the case for us, often when we have credit losses, it is a question about one or a few single names, the underlying credit portfolio quality is very stable and strong. That is also very much the case in the U.K. We have been conservative during the years because we know about the potential dangers that you could face as a bank if you expand them and don't keep very strict control on credit risk. We have done so, and we have shown that over the years. The U.K. credit portfolio is of strong credit quality and stable.
I think I also covered the third part of your.