Good morning, everyone, welcome to this conference call for the fourth quarter 2014. Joining me today I have Mikael Hallåker, Head of IR, Lars Höglund, Head of Dept IR, and Jörgen Olander, Group Head of Accounting. The slides used for my presentation are, as usual, available at handelsbanken.com. On slide number two, I will, as always, start by showing you the value creation of the bank. As you have seen now for so many quarters, equity per share, including dividends, has continued its steady growth of 15% on an annualized basis. The board is proposing an ordinary dividend for 2014 of SEK 12.50, and in addition to that, an extra dividend of SEK 5. After deducting the proposed dividend, common equity tier 1 ratio at year-end still increased to 20.4%, up from 18.9% 1 year ago.
The board is also proposing a share split of 3 to 1. On slide number 11, you can see the profit and loss for the full year 2014 compared with 2013. The result for 2014 was the best full-year result ever for the bank, both operating profit and total profit increased by 6%. In the U.K., the profit rose by 41% and in Finland by 30%. Net interest income improved by 2% for the group, in the home markets outside Sweden, the growth was 11%. The strongest development here was seen in the U.K., the Netherlands, and in Finland. Net commission income improved by 10%, here mainly due to higher asset management and payment fees. Net gains and losses on financial items rose by 31%. However, adjusted for extraordinary capital gains early in 2014, the increase was 4%.
Revenues in total were up 5%, while total expenses were down 0.5% in local currencies or up 2% when converted into SEK. Loan losses increased in the fourth quarter, in total, loan losses amounted to 10 basis points for 2014. The losses in the fourth quarter were mainly attributable to a small number of old exposures in higher risk classes, and overall, the credit quality in the loan portfolio remained stable. On slide number 26, you can see that net interest income was down 2% in the fourth quarter. Adjusted for benchmark effects and high state fees, net interest income was down only marginally. All in all, lending and deposits in our home markets added SEK 30 million in the quarter, despite the continued decline in short-term interest rates.
Deposit margins in Sweden decreased by SEK 74 million due to the lower nominal interest rates, increased deposit volumes contributed SEK 5 million in the quarter. Lending margins in Sweden improved. Here, the margin on the Swedish mortgage portfolio rose by 4 basis points to 100 basis points in the quarter. Together with higher lending volumes, improved margins added SEK 54 million to the revenues. In the home markets outside Sweden, increased lending volumes contributed SEK 57 million and lower deposit margins and volumes, as well as somewhat lower lending margins in some markets lowered net interest income by SEK 29 million. State fees increased by SEK 41 million. The so-called benchmark effect in Stadshypotek decreased by SEK 48 million, some other effects, such as lower interest rate on equity, took away another SEK 56 million. Back to slide number nine.
We here illustrate the dramatic decline in net interest income in Sweden over the past few years. As you can see, since the peak in the fourth quarter 2011, the STIBOR rate has fallen by some 230 basis points. In the bank, as you probably know, we invest our equity short, and this means that on an annualized basis the interest income we receive on the equity has dropped quite significantly in 2014 compared to 2011. Deposit margin reductions in the same period, as we have communicated many quarters before, have also been high. Adding these two effects in Sweden, you can see from the chart that the negative impact in the fourth quarter of the historically low interest rate level is SEK 1.1 billion compared to the fourth quarter 2011, or SEK 4.4 billion on an annualized basis.
This is in spite of the fact that throughout the same period, we have increased our deposit volumes in Sweden by 14%. On slide 10, we translate the interest rate decline into what it means to earnings growth, certainly a meaningful impact. In 2012, 2013 and 2014, operating profit grew by 3%, 6% and 6% respectively. Without the negative interest rate effect on deposit margins and interest income on the equity, that growth would have been 10%, 14% and 14% respectively instead. I think this theoretical example shows the strong underlying earnings growth capacity in the bank under more normal circumstances than we currently see. On slide 16, we show you the development of our fee and commission income. That number grew by 10% year-over-year in 2014. Here fees from mutual funds management increased by 23% in 2014.
This was mainly due to strong inflows, even though also a good equity market also contributed. If we take the perspective from the level two years ago, you can see the chart to the right, which shows the development for fees from mutual funds, other asset management and insurance. That level has increased by 40% on a 12-month rolling basis. Looking over the last five-year period, the bank has had the largest net inflows in mutual funds in Sweden of all large institutions. Also in our other home markets, the development has been strong. In the U.K., for example, asset management fees rose by 115% in 2014. This is much thanks to Heartwood Wealth Management, which now contributes more than 55% of fees and commissions in the U.K. On slide 17, we show the cost development in local currencies.
This is the sixth quarter in a row where costs in the Nordic markets, including Sweden, have decreased. Since the third quarter 2013, the cost reduction is around 5% in local currencies on a rolling 12-month basis. Again, this is the pure result of local decisions taking everywhere. Costs are adjusted to the current business environment in each location. At the same time, we have opened up 24 new branches in 2014. All our home markets added new branches in the year, and we have also continued to develop other channels to the bank, such as mobile apps. In Handelsbanken, we provide all different channels to all customers, and we let them decide themselves how to contact the branch and how to make transactions. This we believe is yet another of many reasons why Handelsbanken has such a superior customer satisfaction in all our home markets compared with peers.
On a group level, in local currencies, costs in the fourth quarter were at the same level as in the third quarter 2013. Cost income ratio improved to 45.2% for the full year compared to 47% one year ago. Moving to slide number 15, you see the profitability here in our different home markets for the full year. As you can see, Sweden and Norway are at 16% and the U.K. at 15%. While Finland reached 12% and Denmark and the Netherlands 9%. It goes without saying there is, of course, much more to do in all our home markets, even though the underlying results have moved in the right direction. The group return on equity for the full year amounted to 13.4%. On slide number 13, we show the financial position of the bank, which has continued to strengthen even further in 2014.
Core equity tier 1 ratio increased to 20.4%, that is after deducting the proposed ordinary and extraordinary dividend. Retained earnings, positive risk migration, positive volume migration were important contributors to the increase from 18.9% one year ago. Total capital adequacy ratio was 25.6%, unchanged compared to the third quarter and up from 21.6% one year ago. The board has now also decided on the bank's capital target in CRD IV. The target is formulated as a buffer in normal circumstances to the required level communicated by the Swedish FSA. The reason is, of course, that the capital requirements in the new regulation has a lot of different building blocks, some of which are variable, even quarter by quarter. The bank's core capital ratio should, in normal circumstances, exceed the required core capital ratio as communicated by the Swedish FSA by 1-3 percentage points.
Furthermore, the tier 1 ratio and total capital adequacy ratio should exceed the levels communicated by the FSA by at least 1 percentage point. The bank should also comply with all other regulatory capital requirements. In November, the Swedish FSA communicated its core capital requirements for the large Swedish banks, for Handelsbanken, this requirement was 17.7%, that is, of course, including all Pillar 2 add-ons. Regarding dividends, the board has stated that the bank aims for the ordinary dividend to have a long-term, stable growth reflecting the value creation of the bank. Furthermore, on the back of the very high number of days when our share price has recorded new all-time highs over the last few years, the board has decided to propose a split of 3:1 of the Handelsbanken shares. To slide number 18 and an update on our U.K. operation.
The U.K. has had another very strong year with operating profit in local currency up 28% year-on-year, in SEK, profit was up 41%. We have opened up 17 new branches in 2014, appointed another 10 managers for further branch openings. This year, we have also started the fifth regional bank headquartered in Leeds. The new regional bank will operate within Yorkshire and northeastern Great Britain. This is, of course, a strong sign of the fact that we continue to see very interesting opportunities indeed to expand our business model into more and more locations in the U.K. To summarize, equity per share, including dividends, continued to grow steadily by 15% per year since the start of the financial crisis in 2007.
The board is proposing an ordinary dividend of SEK 12.50, and on top of that, an extra dividend of SEK 5 and a share split of 3:1. After deducting this proposed dividend, common equity tier 1 ratio increased to 20.4%, up from 18.9% one year ago. The bank had its best full year result ever with operating and total profit up 6% in spite of the negative effect of falling Swedish interest rates. Theoretically, without this effect of the historically low interest rates, the profit growth would have been 14%. Cost efficiency has improved, and the cost decline in Nordic markets has, cost-wise, financed the expansion cost in the U.K. and the Netherlands. With that, I conclude my presentation and open up for questions. Thank you.
A reminder to press 01 to ask a question. Our first question comes from Jan Wolters from Credit Suisse. Please go ahead.
Morning, Jan Wolters, Credit Suisse. A couple of questions. First, on the credit quality. In the report, you said that the loan losses this quarter are taken due to a number of old exposures. If you could elaborate, what changed in this quarter that made the bank take the losses now rather than previously? That's my first question. The second one is around the capital target or the buffer 100 to 300 basis points. If you could separate the drivers here in terms of currency movements or pension movements in pension liabilities and capital requirements for that, and any other relevant factors that is adding up to the 100 to 300 basis points. Thank you.
Thank you very much for that. Regarding the credit quality, as you see from the report, it was also stated in the press conference that the higher credit losses in Q4 comes from two cases, one in Denmark and one in Sweden. That is the explanation of the higher level. With credit losses, it's of course always a matter of having the ability to explain to the auditors that you actually can see so much risk so that you can take the credit loss. We take, as you know, credit losses as early as we can, but it goes without saying that at year-end, et cetera, there are maybe more possibilities than otherwise to do some calculations. It's two cases, one in Denmark and one in Finland. Sorry, well, one in Sweden and one in Denmark.
When you look at the credit quality as a general remark, the migrations that we've seen year-on-year is actually slightly positive. We had a slight negative migration in Q4, but that is very small. When we look at the underlying figures, it's a very stable portfolio. The second question, the capital target. Yes, you mentioned a couple of items when deciding on the buffer levels, the 1%-3% over the Swedish FSA number. It's a combination of the things you talked about. It's also, of course, in anticipation of what kind of freedom one must have because of variations in the mix of the business and so on. We want to, with this capital target, really get the message out that we will be targeting a level which, of course, should make any bondholder extremely safe and happy.
At the same time, since our business model, as you can see from the historic figures, have been very good at producing good amounts of capital, not only for regulatory purpose, but also for our high growth, and on top of that also have generated extra capital. We want to give an indication on the upper band where if we are close to or above that, we will communicate how we look at that. As you know, if there's a question of distributing to shareholders, there are two means. It is buybacks or in the form of extra dividend. As you can see from the proposal from the board, it's proposed SEK 5 in extra dividends to the annual general meeting.
Okay, many thanks. Just one follow-up question, if I may. What is the most appropriate response, do you think, if there is a prolonged period of negative rates? If we look at the different ways that the bank can mitigate. Thank you.
Yes. It's a very good question. Our answer to that is really, of course, a very granular one. That is to say that it's up to each branch office to decide on how to go about this. There are, of course, a toolbox of different things you can do in order to make sure that the total outcome of the customer relationship is satisfactory. You could, for instance, turn to charging for accounts, or you can say that you're only allowed to have this and that amount on an account that has zero interest rates, or you can start actually charging negative interest rates also on deposits. There is a large toolbox. In such a scenario, a general observation is that it depends very much on how the Riksbank goes about such measures.
There have been talks about QE and other things, also, of course, what happens with the market rates in such a situation. I think the best answer is if you look at the value creation of the bank, the first picture I always show, if you would have asked me in 2011 and say, "Ulf, you will lose SEK 4.4 billion on a yearly basis because interest rates will drop. How will you offset that?" I would not have had a good answer on that. As you can see from the figures, it has been more than offset when you sum up all the actions that our branches have taken. I guess that is really, in my mind, the beauty of the Handelsbanken system. You have to be prepared for the worst and hope for the best.
The answer to your question is very different from branch to branch.
Okay, many thanks for your help with that.
Our next question comes from Mr. Anton Kuchař from UBS. Please go ahead.
Good morning. Thank you very much for taking my questions. Just a couple of questions, please. First, can you elaborate a little bit more how your branches in Sweden are responding to the falling interest rate environment that we have seen in the last couple of quarters? Can you talk about any repricing on any of the products that the branches are trying to pull through to defend ROE against the contracting deposit rates? Secondly, please, can you talk a little bit about the risk of introduction of risk weight floors on corporate exposures? One of your peers have raised this topic recently. Given your strong track record, and therefore low risk weighting on the corporate exposures, do you see this as a particular risk to your capital planning? Thank you.
Right. On the first question of how the Swedish branch offices have reacted, if you look at the historical numbers, there is a variety of answers that have counteracted the downturn in normal interest rates. One is, of course, that our branches nowadays typically are doing much more work when it comes to alternative investments to deposits. That is to say mutual funds, insurance solutions, but also other sort of securities that can be offered to our clients. As you can see, we are currently taking more than double the back book market share in these kind of products. We are taking the new production. You can see that on the commission side. Another factor, as you've probably seen, is the ongoing cost efficiency measures. Again, different in different branches, how they do this.
Of course, supported by general technical development, meaning that our branches, to a large extent, can use the same internet platforms that we have put out for our clients. Of course, there's always the possibility to work actively with the pricing of your products. As a general observation, when you add up what has happened in the market, as you know, our branches have the price towards the clients, and since we are very well handling our clients, in effect, we are price takers. We follow the price, the market price, for instance, in mortgages. You can see from the figures here that the mortgage margin has gone up four basis points in the quarter when you add it up. Again, I want to stress, in Handelsbanken we don't sit at the central head office and decide these things. They are decided out there.
If you sum up the decisions that have been taken out in the branches, this is the result. Risk weight floors, that's an interesting issue. The debate is, of course, ongoing out there with the Basel Committee, also how and if this should be implemented in the EU. You also have got, of course, national differences in this view. As you probably know, the Swedish FSA has been very skilled in implementing extra capital charges for the large Swedish banks in a risk weight regime, basically. That means that what has been communicated from them, as well as the Swedish National Debt Office and other parties, except for Swedish Riksbank, is that they are, in total, rather happy with the current regime in Sweden.
Which means that in my mind, if Sweden were forced to take on minimum risk weights on corporates or leverage ratio as more than a backstop. As a backstop, that's one thing, but as a real restriction, then in anticipation, you would have to reduce the kind of buffers that have been implemented in the risk-weighted regime. Having said all this is probably a rather long journey. By getting out our capital goal, which is of course the capital goal in CRD IV, in the current, what we know now, we think it's good for the investors to know where we stand and how we reach them with the information that we got. I think both risk weight floors and leverage ratio will be a question mark for quite some time, if it will come and in what form.
Thank you. That's very helpful. Our next question comes from Mr. Christopher Ruth, Chris from Barclays. Please go ahead.
Yes, good morning, Christopher from Barclays. Whether you can comment on if that's more of a temporary nature, these buybacks, or if this is something that you expect to continue. I suppose this is somewhat difficult to guide on the treasury trading and rate environment. If you could just add some color, that would be most appreciated. Secondly also, I was just looking at the NPL formation. You've given us color on the provisions, but I just wondered if you could confirm if the NPL formation that we see is driven by the same few exposures that you mentioned in Sweden and Denmark.
Perhaps also seen an increase in loss in Finland, which I think you mistakenly mentioned there for a while, but if there is something increasing in Finland as well, if you could just comment on what that is that we see in the report. Thank you.
Thank you. Yes, it was my mistake. The two items I referred to was in Denmark and Sweden, and it's not Finland. We don't see any trends in the underlying portfolio. We have very granular data, of course, on each and every credit, and we follow this very carefully. The credit quality of the portfolio is very stable. We had, as I said, a positive migration side, positive migration for the whole year, although a small negative migration in Q4, but that's really when you round the figures. When it comes to the NPL, actually if you deduct the two cases I'm talking about, the number would have gone down. As you know the counting rules for NPLs is that when you take a credit loss you will affect the whole credit, although you might have 100% ultra good collateral for the remaining part.
That is the number that you see there, not taking into account the collateral you have. Trading result in treasury. As you have seen from the figures, we are attracting quite a lot of deposits because we are attracting new clients to the bank. Therefore, of course, also in managing our funding situation, we from time to time do buybacks of funding that we have previously issued. That has been the case in Q4. Technically what happens is that if you buy back a bond that has been outstanding in a high or issued in a high interest rate environment, of course when you buy back it, you take it as a trading loss. The good news is, of course, that you will get better funding situation in the future as you understand because on the asset side nothing has happened.
You exchange more expensive funding by buying it back. Then, of course, when you issue the new issue, you fund at lower interest rates. Yes, there is such an effect as you can see and mention in the segment that is not a segment, but it's other, and it's in the treasury department.
Should we expect that this could reoccur if this pattern of deposit inflows continues and the pricing of those versus your wholesale funding costs is the same as it was in this quarter, then you would react in a similar way. Is that correct?
It's not a strategic thing. It's a tactical thing quarter by quarter. It also has to do a little bit about the benchmark issues that we have in Stadshypotek. We have some benchmark issues that are maturing here during the spring and so on. It's naturally in order to get a very good maturing structure to do these kind of things. It's more of a tactical nature than anything else. It's not a structural thing. It might vary a bit from quarter to quarter, actually.
Okay. Thank you very much. Our next question goes to Mr. Omar Keenan from Deutsche Bank. Please go ahead.
Good morning. Thanks very much for taking the questions. I had a question on interest rate sensitivity. In the Sweden banking division, you have SEK 415 billion of deposits. One of your peers has said that roughly three quarters of their retail deposits now essentially pay nothing. I was wondering if you could disclose what proportion of those deposits essentially there's floor risk around that and there's nothing being paid. I just have a follow-up question on interest rate sensitivity. Thanks.
Yes. If you look in Sweden, you can say that about half of the deposits in Sweden is currently giving zero interest rate on the deposit side. My answer is 50%, about 50%.
Okay. Thank you very much. I guess if we're thinking about an updated interest rate sensitivity, the equity base is something like SEK 120 billion. Bearing in mind the interest rate sensitivity increases, is SEK 3.2 billion for 100 basis points in the right ballpark, or do you think it's higher or lower? Thank you.
I leave it to you to calculate which portion is what. I think the whole issue of falling interest rates and the mechanics that we're seeing is very well captured on slide number nine when you compare it, for instance, with the situation in 2011. We're talking ballpark SEK 4.4 billion on an annualized basis. You also will find in the report that the total amount year-over-year is SEK 1.3 billion. That is the effect of deposit margins in Sweden and also the effect of the equity of lower nominal interest rates.
Great. Thank you. That's very clear. Could I just ask a follow-up question on capital and sustainable payout ratios? You've been giving us your view that you need to operate with a capital buffer of 1 to 300 basis points, and there's a lot of room within there for you to operate. At the top end of that range, there doesn't seem to be excess capital, but at the bottom end of the range, there might be some. If we ignore that and just think about what is a sustainable run rate payout ratio for Handelsbanken, clearly you're committed to the 50% ordinary payout. Given ROEs, you grew balance sheet at 7% last year. What do you think is a sustainable payout ratio that the market can assume? Thanks.
Thank you. It's a good question, but I think you are looking for the wrong answer in our view, a number here. We are on the contrary of the firm belief that the first thing you have to do is, of course, to be compliant with regulation. Secondly, the capital generation that you have should go, of course, to the growth you will have. There is a natural pace in Handelsbanken of how fast we can grow. That has to do with credit policy and also, of course, our conservatism when it comes to good order and so on. It's a decentralized decision. For instance, how we expand in the U.K. After that, and that everybody knows it's a very good investment that we are doing, and you can see that from the figures. That's very obvious and very good from a shareholder perspective.
If we generate capital above that, we are very happy to distribute that. Looking from the period since Lehman, you can see that we have grown value by 15% on an annualized basis. That's equity per share, including accumulated dividends. Last year, the payout ratio happened to be 72%, something like that. Now we're at 73%. It's very counterproductive, in our view, to have a goal for the payout ratio. The goal should be to maximize value for shareholders, but do it in a way, of course, that you are compliant with regulation so that you don't get negative effects from authorities who are ultimately threat to be taken over by the authorities in the long term.
Maybe just lastly, for the coming year, are you still thinking about paying out above the ordinary payout ratio with an extra dividend, or has your thinking evolved between extra dividend and buybacks?
Yeah, good question. The board has also stated, you can see that from the report, that the aim with the ordinary dividend is that it should show a long-term and stable growth that reflects the value creation in the bank. Again, on top of that development, the ordinary dividend, if the bank has excess capital, we are very happy to distribute that. That can be in two forms. One is the more flexible tool, you can say, during the year when it comes to buybacks. Then you have the, of course, the annual general meeting, typically the time of the year where you can have the chance to adjust with extraordinary dividends if that is the case.
No, that's understood. I guess my question was, in the past two years, you made a decision specifically to go for extra dividends rather than buybacks. Do you foresee that thinking changing? I guess, was the question that I was trying to ask.
Sorry, I misunderstood you. I don't want to out rule anything. It's good to have the buyback possibility in the toolbox. We have also, I think, I have to say, clearly observed that more and more investors tend to favor dividends over buybacks. I think before the financial crisis, in my view, my best estimate would be that it would have sort of a 50/50 among investors, while nowadays I would say maybe 80/20 or something like that in favor of getting the value creation that can be distributed to give it in the form of dividends as opposed to buybacks. Having said that, buybacks is a flexible tool, so it's good to have it in the toolbox.
Okay, great. Thank you very much.
Our next question comes from [inaudible] from Goldman Sachs. Please go ahead.
Hello. Thank you, Mike. I got a very brief question coming back to the loan losses we've seen. You basically now had two quarters in a row where you basically had more loan losses than you would usually have. Particularly this quarter now being at a level you've seen last time in 2009. Being devil's advocate, it feels a bit like lightning striking twice. Can you basically give us an idea if you feel like there's a cleanup element in there, so you're very confident that this not moving from two quarters to becoming a third one and going on? Particularly when looking at the breakdown, it's the first time when I look at your provisions and how it breaks down, while that you actually had underlying a substantial net write-off in there of SEK 177 million.
Is this actually saying that you now also see exposures that you feel like you can't recover and therefore feel you have to take higher provisions?
When it comes to credit losses, to me the best way to look at it, and when you look into the future, is to look at our very granular credit ratings. Each and every credit in Handelsbanken is assessed at least quarterly by the branch office in terms of looking over the credit rating scale that we have. That, and also there is a lot of control mechanisms ranging from auditors, central risk control, et cetera, following that this dynamic rating is actually working in a coherent way throughout the group and in each branch office and so on. It is a very, very good system to follow what is happening in reality and in real time. As I said, from that material, it's a very, very stable development.
We're talking really just rounding off figures in Q4, and looking for the whole year, we have a slight improvement. On the ground of that, I have said, and we also see in the report that our best estimate is that it's a very stable situation. We are not proud of having 10 basis points in credit losses, although I know quite a lot of European banks that would be extremely happy of that kind of level. We are not. We aim at zero. Of course, we look very seriously into each credit loss and ask ourselves if we could do something better. On your cleaning up remark, of course, we have looked at every possibility to take a credit loss. That is without any doubt.
Okay. Thank you very much. Very helpful.
Our last question comes from Mr. Jacob Kruse from Autonomous. Please go ahead.
Hi. Thank you. Just two questions. Firstly, on your property management business in Sweden, you've been shrinking that this year while growing the remaining overall property management business and your lending book, which is quite a clear contrast to some of your peers like Swedbank, which is growing it very aggressively. Have you changed your approach to this market, or do you feel other market participants has become more aggressive and you are not willing to compete for some of those loans there? Or would it be a view of a buildup of risk? Secondly, you say in your discussions about risk weight floors that they would replace the transitional rules potentially. Are you suggesting that they would be a regulation that would not be held against the current FSA capital hurdle rates as the current transitional rule under Basel II is? Or is that relating to something else?
Thank you.
Thank you. I'm not exactly knowing what you are referring to. We have on page 36 in the report, we have a split when it comes to property management, and you can see there that the figures have actually gone up when it comes to the total figures.
Yes
then there are some-
I'm looking at the next page
changes and so on.
I'm looking on page 37.
In general, I would say, there was one question in the press conference, maybe that is the best way to what you're after is that when you look at lending to corporates in Sweden, the whole market, it has gone up very slightly, while we have not in Handelsbanken. We mentioned at the press conference also a little bit about that the risk willingness in Sweden has undoubtedly got up in the market. There's a lot of money around, of course, we have the same credit philosophy, credit policy throughout the business cycle. Yes, there are deals that we are not competing for, but it has nothing to do with price or so on. On the private mortgage side, we are holding our position, and that has to do with the fact that the branches, of course, defend their clients.
We are, as I mentioned, a price taker, which means that we follow the price in the market. We're not a price leader. As you see here, the price has gone up four basis points in the quarter.
Yeah. No.
On transitional rules, I was just referring to the whole notion of minimum corporate risk weights, ultimately leverage ratio, non-risk weight regime, contra the risk-weighted regime which Sweden has implemented. My remarks was on a more general level. I'm not saying that I don't believe that there will be transitional rules in the future. Indeed, as you know, Basel Committee is now eagerly contemplating what kind of mechanism that could be with standardized risk weights and so on. I'm talking about whether it will be a backstop, something that you check, or if it will be the hard measure under which you, under no circumstances, might go under. I think on a higher level, I think it's very fair to say that the Swedish stance is that the Swedish regime with high capital requirements or buffers, which is not hard, as you know.
The Pillar 2 Swedish requirements are not hard in the sense that you will have to close the bank if you go under the figure that the FSA wishes us to have. If you do not show that you have the ambition to go over and come back to that kind of number, of course you are in trouble. That is a different system to where you have, say, a number, pick your number yourself, 10% or whatever, and saying that under that number it's goodbye, and over that number it's okay. The Swedish regime, by having this inbuilt flexibility also in situations where not only the countercyclical buffer may go down because there are harder times, but also other things may happen.
I think in my view, it's a very intelligent piece of legislation making sure that the capital requirements are adjusted to the situation of the economy and the banking system in a fair way, not to get out resolution situations where it would not benefit the whole society. We can discuss this a long time, the debate will of course go on.
Okay. Thank you.
There are no further questions from the telephone.
Okay, I thank you very much for attending. As usual, if you have more questions, we would be very happy to answer them. Just give us and our IR department a call. Thank you very much for attending. Bye-bye.