Thank you. Together here with me, I also have Mr. Orlander, Head of Group Accounting and Michael Hallacher, Head of Investor Relations. And as usual, my comments during this presentation will refer to the slides available at handersbanken.com. To begin with, I would like to comment on the bank's performance over the last couple of years using Slide 2.
It is now almost 4 years since the Capital Markets Day in 2006 when we presented the new management strategy of taking down the risk level in the bank and reducing the earnings volatility, totally focusing on becoming even more Handelsbanken. Since then, we have done quite a lot of things. The sale of SPP, together with a number of other risk reducing measures, has significantly reduced our market risk. We have continuously worked with further improving the quality of our loan portfolio, improved the efficiency in Swedish branch offices and have refined and enhanced the ability to grow faster in our branch office operations outside Sweden. On Slide number 2, you can see one way to describe how shareholder value has been created over these last 4 years.
The slide shows the equity creation in the bank, and the figures have been calculated through adding back the dividends paid to shareholders to the adjusted book value per share. The return of the reinvested dividends have been calculated using an interest rate equaling the bank's cost for long term funding. Similar adjustments have been made for the share buybacks in 2,000 and 6,2007, and as you know, we have not asked our shareholders for any new equity. As you can see in the slide, the average annual growth in equity generation amounts to 15.1% with a great deal of stability and limited volatility over the period. Our business model has generated a very consistent performance in spite of the fact that we have operated in a financial crisis environment for more than half of the period.
I think the main reason for this stable trend is illustrated on Slide 12, which as you can see shows the profit before operating expenses in our credit and deposit business. You have seen this slide before, and the calculation is quite simple as we have just deducted loan losses from net interest income. Over the business cycle, credit losses tend to be the main driver of earnings volatility in the banking sector. And as can be seen from the slide, the bank has been able to deliver very stable income in the credit business, also after deducting the cost of the underlying credit risk. Together with our organic growth, this is in Handelsbanken really the key to create a stable and consistent increase in shareholder value over time.
Now let's go over and talk about the 1st 6 months of 20 10 and the Q2. Apart from walking through the numbers, I would also like to focus on 3 things. Firstly, financial market turbulence again increased in the period, and we therefore took the decision to invest in further strengthening our financial position. We decided to pre finance future maturities of long term bond funding. We have worked with a very large liquidity reserve, and we continue to improve our capital ratios.
Secondly, we saw a gradual increase in the demand for credits in the Q2 when both loan volumes and credit commitments increased. While this is certainly promising, there are still, of course, uncertainties as to the strength of the recovery. In the Swedish market, we continue to gain market shares in both the lending and deposit markets in the quarter. Thirdly, the U. K.
Expansion is picking up speed with our enhanced capabilities, and we have so far opened 10 branches and hired an additional 10 branch managers for new branch openings in the second half of the year. Moving to the profit and loss statement. You will find the 1st 6 months compared to last year on Slide number 4 and the corresponding figures quarter on quarter on Slide number 11. The operating profit amounted to SEK7,331,000,000 in the first half of the year and to SEK3,539,000,000 in the quarter. The return on equity was 12.8 percent for the 6 months period and 12% in the 2nd quarter.
And I think here it's important to note that the Tier 1 ratio has increased and now stands at 14.8%, which means that we are currently significantly above our long term target of 9% to 11%. The total capital adequacy ratio increased to 19.9%, and of course, our capital situation is something we will come back to when the new proposed capital rules are finalized. Net interest income was down 6% or SEK 633,000,000 in 20.10 compared with 2 with the decline mainly being explained by deposit margins being €420,000,000 lower and by minus SEK 214,000,000 related to exchange rate changes. The average lending volume was down 2%, and deposit volumes increased 2%. Adjusted for changes in exchange rates, lending volumes were unchanged.
Regarding the lending volume, I also want to point out that the deliberate reduction of lending in Handelsbanken International outside the bank's home markets reduced the volumes by some SEK 30,000,000,000. Quarter on quarter, net interest income was down by 4% or NOK 234,000,000. Here, the benchmark effect in STAAD SuperTEAK explain NOK 95,000,000 and exchange rate changes explain another NOK 8,000,000. The remaining part is mainly explained by increased funding costs related to our decision to pre finance future long term bond maturities and to the fact that higher short term interest rates increased the cost for the part of the liquidity reserve placed with the Swedish Riksbank. Credit commitments increased by 6% in the quarter, and the average lending volume was up SEK 18,000,000,000 or 1%.
Adjusted for the strongest Swedish krona, the quarterly increase was 2%. We then go to net fee and commission income. That rose by 10% or CHF 376,000,000 year on year, mainly due to mutual funds and custody commissions being up CHF 275,000,000. In branch office operations in Sweden, net fee and commission income grew by 15% and in branch office operations outside Sweden by 6%. Quarter on quarter, net commission income was up marginally.
And here, higher commission on payments and advisory services offset lower commission on lending and deposits. If we then go to net gains and losses on financial items at fair value, This decreased by SEK758 1,000,000 to SEK924 1,000,000 year on year. And the change here is mainly explained by the extraordinary market conditions in Q1 2009 when the financial crisis caused extreme volatility and higher than normal spreads in the fixed income and FX markets. Compared to Q1, net gains and losses on financial items decreased by 15%, mainly due to lower earnings in the FX and fixed income business in Handelsbanken Capital Markets. And for the quarter, this was a little bit of a disappointment.
An extraordinary dividend of €130,000,000 related to the bank's holding Expenses remained roughly unchanged year on year and rose 2% quarter on quarter. And if you look quarter on quarter, staff costs were unchanged and amounted to SEK 2,400,000,000 but other administrative costs increased due to the increased cost for external services and IT. Loan losses were halved year on year to €920,000,000 lowering the loan loss ratio to 12 basis points. Net impaired loans fell by CHF 1,600,000,000 and amounted to CHF 2,800,000,000 corresponding to 17 basis points of the group's lending volume. If we look quarter on quarter, loan losses fell by 33%, and the loan loss ratio decreased by 5 basis points to 9 basis points.
Branch Office Operations in Sweden showed net loan loss recoveries, and outside Sweden, losses amounted to 35 basis points. Total loan losses amounted to €369,000,000 in the quarter. Turning to Slide 8. You can see the development in the Itrax Financial Index. The turbulence, as you know, in the financial markets intensified again in the second quarter and the spreads increased to even higher levels than seen after the Lehman default in the second half of 2,008.
At the end of Q2, Handelsbanken's CDS was among the lowest for any bank in Europe and 90 basis points below the average for the 25 large European financials included in the Itraks index. Our conservative stance when it comes to credit policy, capital, funding and liquidity has clearly been important in achieving this. Turning to the bank's financial position on Slide 9. You can see that the capital adequacy ratio was up 1.5 percentage points to 19.9% in the 1st 6 months of 2010. And this figure is probably one of the highest of any universal bank in Europe.
And that's in spite of the fact that a subordinated loan of SEK 5,200,000,000 was called in Q1, reducing the capital adequacy ratio by 0.9 percentage points. Total equity increased by €5,400,000,000 to €83,000,000,000 year over year. If we look at the Tier 1 ratio, that improved by 2 20 basis points to 14.8% year over year. And quarter on quarter, the increase was 20 basis points. Derivage risk weight decreased slightly in Q2, and credit risk migration was marginally positive.
This in turn led to marginally lower risk weighted assets in Basel II, despite an increase in total credit volumes. Moving to Slide 10 and the funding of the bank. You can here see the bank's issuance of long term debt in the first half of twenty ten. And as I just said, we here took the decision to act well in advance of coming maturities. During the first half of twenty ten, we have issued EUR 100 and SEK 70,000,000,000 in new bond funding.
Since we think it's important to have a well diversified funding base, We issued €61,000,000,000 in the more expensive senior unsecured bank bonds, side SEK109 billion in covered bonds. In turn, this means that we have kept a large reserve of unused covered bond material in the unused covered bond pool. Issues were done with up to 10 years maturity, and average maturity was 4.4 years. The issuance in the first half of the year means that the bank now has prefunded all bonds falling due until February 2011. While this, of course, had a negative impact on net interest income in the quarter, we believe it's a good investment going forward.
If we then look at the Q2, you will find that the bond issues amounted here to €64,000,000,000 And we continue to work with the bank's unused liquidity reserves and these reserves were at all times kept above SEK550 1,000,000,000 However, I think you should note that going forward, the large volume of bond funding now makes it possible to take down the volume of low yielding Central Bank deposits held in the Swedish Riksbank without weakening the bank's strong liquidity position. On Slide number 6, you can see the quarterly development of the group's average lending volumes to the general public. After 4 quarters of reduced volumes, we saw a clear pickup in loan demand in the Q2, and adjusted for exchange rate changes, the average volume grew by 2%. It was also promising to see quite a strong demand for new loan commitments, which grew by 6% in the group to SEK 214,000,000,000 in the second quarter. In Sweden, loan commitments grew by 11%.
Loan commitments tend to be quite long and our quite large issuance of long term funding, therefore, of course, puts us in a good position to benefit from this trend should it continue. While the pickup in loan demand is clearly promising, I think it's fair to say that there are still many uncertainties surrounding the economic recovery. Finally, I also want to touch upon our growth model, where we now have increased the growth pace in the U. K. And I would like to start with Slide 23.
In the U. K, the analyzed operating profit grew by 2 0 7 percent to SEK 544,000,000 in the first half of twenty ten. The capability to grow has, of course, increased with the decision to move some central head office functions to the U. K. And by the opening of a 3rd regional bank.
10 branch offices were opened in the first half of twenty ten. And on top of this, an additional 10 branch managers have been hired so far for new branch openings in the second half of the year. In total, that brings us to 82 branches up to date. On Slide 24, we have illustrated the earnings development of British branch offices as they grow older. The x axis shows the number of branches by age on the right hand scale, and the blue and red lines show the average revenues and costs by age on the left hand scale.
It takes 2 years for the average branch to become profitable. And after that, the cost trend tend to rise at a very modest pace, whereas revenues show a healthy increase, as you can see. The U. K. Operation is quite a young business, but we know from our experience in other markets that the cost revenue gap tends to continue to widen for a long time also after the year 7.
And you can see the picture only goes to year 7. But for the future, we have good hopes that this will continue for a very, very long time, the widening of the gap. You see the picture. The graph also shows that the majority of the branches are less than 3 years old, and they are consequently not yet making any profits to speak of. But as they grow older, we are confident that they will perform in line with our previous experience.
Now turning to Slide 27, you can ask what are really the key features behind this development. Well, we have now used the same basic organic growth model for a very long time, and it has been continuously refined and we have gradually improved all the support functions and infrastructure to facilitate a cost efficient growth at a gradually higher pace. The branches have a high degree of autonomy and are responsible for all customers within their respective designated geographical areas. They get support from the regional head offices and from the Central Product Units and, when necessary, also from Central Head Office. While having decentralized responsibility, the branch offices are monitored through a centralized business control system, and they all work with exactly the same credit policy decided centrally many years ago.
Funding and capital is also made available from the Central Head Office. By having used the same model over such a very long period, the bank has created a very strong corporate culture. The business and client responsibility is totally owned locally, and each branch has its own profit and loss account. The business is really perceived as being their own, but of course within clear limits set by well defined group standards developed during some 30 years. The growth model is easy to understand.
It is scalable and repeatable, and it has been proven to be executed with the risks being at controlled and acceptable levels. So to conclude, the first half of twenty ten was overall characterized by continued financial market turbulence and by low credit demand from the corporate sector, even if a clear improvement was actually seen late in the period. The operating profit was up marginally from the previous year, but fell quarter on quarter, mainly due to the lower benchmark effect in Stadsepoteq, to our decision to invest in the funding and liquidity position of the bank, and of course, the Q1 included an extraordinary dividend from the Visa shares. We continue to focus on strengthening the bank's financial position. We issued EUR 100 and €70,000,000,000 of long term funding, continued to work with the liquidity reserves at a very high level, and the bank's capital ratios continue to decrease.
In the shorter term, this is good position to manage both continuing market turbulence and a recovery in the real economy. The bank continues to grow in the UK with an increasing pace in opening new branch offices. The earnings trend is positive, and with our enhanced infrastructure, we see significant potential to grow the business going forward. And that concludes my presentation, and I would like now to invite you all for questions. Thank you.
The first question comes from Mr. Nick Davy from UBS. Please go ahead.
Yes. Good morning, everyone. Nick Davey from UBS. Two questions, if I can. First of all, on the funding, just to come back on the concluding remarks you made there on your funding position.
If you could just give us some kind of sense now that you have prefunded all your maturing wholesale debt for this year and into Q1 2011. What we could expect from you as a group in the second half regarding your funding outlook, whether you'll be opportunistic, whether you'll be nonexistent in the funding markets and I guess, more importantly, what you might think the impact to NII going forward will be from your funding operations? The second question is on asset quality. The impaired loans number at the group level has now jumped Q on Q for the first time, I think, in about 4 quarters. So if you could just talk around a little bit around that impaired loan number.
It looks to be predominantly coming from the Manufacturing segment. If you could just talk us through the trends you're seeing there. And also, obviously, if you could just reference the Finnish division, what you've seen there within Q2 that's driven the large loan losses.
Thank you. Thank you for those questions. The first question on funding, it's really very easy. You can see that if you refinance the bonds that are mature at the same pace that they are maturing, net interest income will not be affected, you're neutral. But if you pre finance maturing bonds in advance before they mature, as we have done in this quarter quite extensively, then that will have a negative impact on the net interest income.
And as we'll find, there are quite a lot of European banks that have done the contrary voluntarily or non voluntarily that they have actually not issued very much of long term bonds and are sort of behind the curve. And then, of course, you get an immediate positive effect on the net interest income. The long term effect of the bank, however, is, of course, something different. You asked what will we do in the second half, and that's really tactics that I don't want to go into. And of course, it depends very much on the markets.
I mean, we are in such a good position, so we are not at all forced to do anything. I could send my Treasurer, Mr. Bengt de Edholm on vacation until February without doing anything and then we're sort of up to the normal situation. But I'm not doing that. So we will follow the market closely and see what opportunities there are there.
The second question, asset quality. You said that the impaired loans jumped. I wouldn't call it really a jump. It's going from 14 basis points of total lending to 7 basis points. And when you are at 17 basis points and when you are at these levels, of course, very small instances can make this shift.
And as you know, impaired loans is really not taking into consideration at all the pledges that you got behind it. But your question is more profound than that, and you're asking what are the trends we see. Well, we now have credit losses of 9 basis points in the group, and the trends we are seeing are positive, migration is slightly positive, risk reporting is slightly positive and so on, on group level. So we have not got any other signs than that the total portfolio is going in the right direction. And as you also said, we had in this quarter credit losses in Finland.
And we are not talking about the vast number of credit losses. We're not talking about any trend or so on. But as you can see from the figures, we had actually in Sweden a situation where we had a net gain on loan losses.
Okay. That's very clear. Thank you.
The next question comes from Mr. Aron Eboss from Goldman Sachs. Please go ahead.
Yes. Hi there. Good morning. Three questions, if I may, one which is a bit of the repeat of the last question. Firstly, I know you are not focused on loan to deposit ratio and probably rightly so, but some of the other Nordic banks has commented that they at least don't want the ratio to go up.
I just wanted to see if this is something you're at all focused on or if you're happy with it to drift upwards as credit demand potentially take off and also potentially as corporates reduce their cash positions? And secondly, just a follow-up a bit to the last question. You mentioned specifically in the release that you expect to put some of your SEK 200,000,000,000 of Central Bank deposits to work or at least to move them out of Central Banks. Is there any chance you could quantify what proportion of that should we think about maybe half of it or something? And also when you sort of think about redeploying it a little bit, are you thinking about putting it on a 1 year maturity with maybe a 1% uplift?
Or is there any other way we can think about this? 3rd and finally, just a specific question on your U. K. Operations, if I may. I noticed that sort of 2 thirds approximately of your lending in the U.
K. Is to property management, if I read your tables correctly. And I realize with the large domestic U. K. Banks withdrawing or reducing their capacity quite a lot on the property management side, I was wondering if you saw that as a big opportunity or if at all you would like to tilt your mix away a bit from, well, 2 thirds of
questions. The first question, as you understood, it's related to the loans and deposit ratio. And we have no goals of putting the loans to deposit ratio in any sort of direction really. We don't see this as an issue at all at the levels that we are. As you know, we fund all our or has the possibility to fund all our mortgage business in covered bonds.
And if you look at the deficit that we have in the bank book deposits and loans, it's rather small. The key thing here is, of course, to have a liquidity planning process so that you're absolutely sure that whatever happens in the funding markets that you can handle such a situation and that you have got so long time to act that you can handle every sort of situation. And we have both reserves and match funding in such a way that we are well, well above that security limit. In a very long term, I think you can note that, of course, we have a deficit in the U. K.
When it comes to deposits in when it compared to loans. And that has to do with the fact that when we start the branch office, we tend to start with the lending side. And then in our experience, after some time, some years, the deposit side comes on. So this is a very, very natural thing. So if you look at the very long trends, if you look sort of 20, 30, 40 years ahead, you shouldn't just take the current trends and extrapolate it.
The second question, yes, we have said that since we've now done so much prefunding and we have sort of €80,000,000,000 to €120,000,000,000 placed with the Swedish Riksbank. And as you know, as the Riks Bank has increased the interest level in Sweden and the gap between the funding and the rate that you get with the Swiss Rigs Bank has widened. It means that it's a good thing to maybe remix the different portions of the liquidity reserve. And also, the total amount of the liquidity reserve is at such height that there is no problem whatsoever to take down the total size on that. I don't want to go into details on how that will technically be done.
Basically, it, of course, will have a positive effect. The amount of effect, of course, depends on the nitty gritty and the tactics, how you do it. It's not something that you do just from one day to another, but I would anticipate us doing this in Q3. 3rd question, U. K.
You talked about the property related lending. And really, our credit policy is not at all focused on having certain parts in certain sectors. Our credit policy is very clear. We look for very good clients with very good repayment capacity. If they got good repayment capacity and we feel ourselves absolutely sure that the client can repay the loan, we grant the credit.
Then we take the pledges as security as well, but we never base our decision on the pledges or securities as such. It's the cash flow that we're looking at. And from that, when you then go the other way around and you divide the portfolio and you place it into different industry codes or sector or whatever, you get a table and you can look in the table that it's property related or industry related or so on. But that's not actually the important thing. The important thing is the clients and the structure of the companies behind it.
So you shouldn't place too much information value on that. And it's not that we are in the property sector picking up things that the other banks are leaving. But in general, I think there's another good point about the U. K. Of course, the situation in the U.
K. Banking industry is such that many very good clients don't find that they get good service that they deserve with some of the big clear banks. So yes, then, of course, we've got a good opportunity to take on those clients. So if you look at the numbers, we have a very healthy growth in both of number of clients and profits and so on in the U.
K. The next question comes from Mr. Johan Ekblom from Bank of America. Please go ahead.
Thank you very much. Johan Ekblom from Bank
of America. I think most
of my questions have been answered, but maybe if you can comment a bit on the loan loss development in Sweden. And I guess what drove the reversals there? Clearly, it seems like the reversals shouldn't be sustainable going forward, but I know you don't like to give forecast, so maybe talk a bit about the underlying trends in the domestic business.
Yes. You're right. We don't do forecasts. And if you look at the reversals, it's you can't say it's any sort of trends or any large single number on the other hand either and so on. I think it's an effect of that the downturn in Sweden.
As you probably remember, it came very quickly after the Lehman. Up till then, it was rather happy days in Sweden. And then came Lehman and it was a total standstill and it kept on for that. But it was a rather short period. So really, companies were very good at offsetting this by taking down their subcontract thing in China and so on.
And those few cases that had problems and where we have reserved really when the economy has started to move in the right direction now has then really regained and repaid. So it's an effect of that. But I don't want to go into any sort of forecast on this. But the real economy for Swedish companies is definitely going in the right direction.
Okay. Thank you very much.
So far, I maybe should add, but I mean that's what we have seen so far.
Thank you. The next questions come from Ms. Fiona Sottfeld from Execution Nobel. Please go ahead. Hi.
Could we talk about credit spreads? I was trying to understand with the such low to 0 multi reversals in Sweden, when you have the CHF 43,000,000 change on Slide 33 in lending margins. I think you talk about it being due to the mix. But what's happening on overall corporate margins? Are you seeing that it's difficult to pricing through now that credit quality is so good?
And then the second area is on deposits. I think one of your competitors mentioned that they passed on the 25 bps rate rise. They more than passed it on. I think they raised 27 bps. I just what are you doing on deposits in rising rates?
Thanks.
Right. Thank you very much. I hope I get the questions right. And let me try. The first one is a question a question regarding the €43,000,000 on Page 33 concerning margins, lending margins going down in Sweden.
And you're right, it's really a mixed question. In nominal terms, I think it's fair to say that the margins have been stable, but you got a mix thing here that we have more volumes in Stadssipotiek and less than in the banking book in terms of different parts. Then when it comes to the deposit side, you may have seen that we officially, of course, announced the sort of the general changes we do in we made a change after the 8th June when Riksbanken increased the interest rate. And as you see in there, we did not change our interest given to clients on transactional deposits. We did some slight, slight changes when it comes to some saving accounts.
But I think, in general, if you're interested in what's happening here in net interest income, it's a good thing to follow when we publish the general changes in the interest rate terms we offer for clients. You will also find that we have an effect in Q2 of SEK 83,000,000 in terms of increased margins on deposits, although it has been a short period. I believe the best thing to do maybe is to compare it with the STIBOR. And I think the average STIBOR went up by 11 basis points. So if you have an increase of more of another 11 points, one would probably assume more million if you see all things being equal.
Can I just have a follow-up on the funding you did in Q2? I mean, are you willing to say anything about the rate at which you're able to fund in senior and in covered bonds?
Of course, as you've seen in the slide, we have a mix of covered bonds and senior bonds because we think it's very important not to only issue covered bonds and to preserve a huge reserve of unused covered bonds going forward. So that's really strengthening itself. Having said that, of course, it's more expensive to issue senior bonds. If you're interested in the levels, we have in our fact book a list of, I believe, the largest transactions. And if you want even more details, you can have it.
But of course, it shifts between different currencies and different maturities and so on. But you will find in fact book a list of the larger deals.
Okay. Thanks. The next question comes from Mr. Andrew Lim from Matrix. Please go ahead.
Hi. I just wanted further clarity on the impact of SEK 187,000,000 on Page 33 coming from the refinancing on a quarterly on a quarterly basis that figure should be about 0 going forward?
Yes. The SEK187 1,000,000 you see on Page 33 is that we have prefunded the SEK 170 1,000,000,000 pre funded future maturities and in total down €170,000,000,000 But it's also the effect on the liquidity reserve that we talked about and its others. I mean, it's a residual of other things. So it's I just want to point out that it's a total number. But your question really refers to what will happen in the future.
And if we don't if we keep the same prefunding, that is that we just now roll the maturing bonds at the pace that they mature, then nothing all things being equal, nothing will happen to net interest income. We will stay at the level that we are. But if we prefund at a higher or even more than we done, we extend it even further in time, then of course it will have a negative impact on the net interest income. But if we do as rather many banks in Europe have done that we do not prefund, we are slower in funding than maturities come, then it will have a positive impact on the net interest income. I mean, as I'm sure everyone realized, it would be very easy for me to increase the net interest income by, let's say, SEK300,000,000, SEK400,000,000 in a quarter if I didn't have the long term view.
So it has funding is really very important when you look at net interest income to see have you extended the funding or the contrary.
All right. Secondly, sorry, I'm muted benchmark effect. Could you explain more precisely what that is?
Absolutely. The benchmark effect has to do with Stad Supertjeck, where we found ourselves in covered bonds and we have 12 maturities. So when we issue bonds, we issue it, you can say, in 12 types of bonds, each with different maturity. And we issue constantly as we go along. And that means that when you look at the matching and compared with the asset side, the mortgages that we finance from a quarter to another, it may be a gap between the asset side and the funding side that has to do with the fact that the time span between these benchmark series is really 9 months.
But over time, the benchmark effect will be 0. But between quarters, you can get these kind of differences. It has nothing to do with taking interest rate risk. It has nothing to do with taking match funding or liquidity risk. It just has to do with the fact that the volumes meeting the funding are in between the average maturities of the asset side, if you see what I mean.
So there will be positive effects and negative effects. But if you put if you accumulate that over time, the effect is 0.
Okay. Thank you very much.
We have a question from Mr. Jakob Khloussah.
Jacob Khloussah from Autonomous. Just two questions. Firstly, on your just covered bond pool, could you just tell me how much excess collateral you have at this point or collateral? And also what level of OC you think you need to safeguard your ratings on that on your kind of bond programs? And then just secondly on your net interest income, the effects here on the Riksbank liquidity portfolio, if you don't do any changes, what would be your interest rate sensitivity at this point?
Are you still looking at basically SEK 2,500,000,000 for 100 basis point increase? Or would that come down substantially?
The first question, you can say that if you take the total liquidity reserve and you deduct the SEK200 1,000,000,000 that we have placed with central banks and you deduct also our bond portfolio of €78,000,000,000 The rest is the unused covered bond reserve pool. Of that, part of that is in Sweden. You will find in on our homepage a weekly number. The Swedish FSA has an inspector that comes once a week and look at all the securities to get the exact number and certify the exact number and that is constantly published. To that, of course, you should add the Norwegian covered bond portfolio, the Finnish, Danish and to a smaller extent that one in U.
K. When it comes to the effects of using the deposits at the Central Bank more efficiently, I don't want to go into any numbers here, but if you take the €100,000,000,000 that we have placed with the Swedish Central Bank, and of course, one could argue that you should have, of course, some money maybe still left, but SEK100 1,000,000,000 is quite a lot of that. So if you take a portion of that and put it into use, either as sort of the average funding of your lending or other uses, you can get the feel of what could be happening here. And I think we will, going forward, always have these tactical considerations on how should you go along with the liquidity reserves going forward, placing it in the most efficient way. It has to do with new regulations coming on, which probably won't be clear until sort of year end or so on.
But it also, of course, has to do with how what kind of interest rate spreads you have for carrying the different parts of liquidity portfolio. And I suspect this will could change quite a lot when nominal interest rates goes up.
Okay. Thank you.
We have a question from Mr. Jantan Joshi. Please go ahead.
Hi. This is Jantan Joshi from Nomura. Sorry if you've already answered this question. I came in late on the call. The first question is your NPLs increased by about 10% this quarter.
If you could tell us where this increase is coming from, that would be helpful. And secondly, the coverage ratio has gone down this quarter. I know you don't guide in terms of coverage ratio, but I mean, how should we think about this developing from here on? Thank you.
Thank you. My simple answer on question 2 is that you shouldn't think about it at all, to be quite honest. At these levels, these levels of impaired loan losses, we are going from 14 basis points in our total lending of impaired loans in Q1 to 17 basis points in Q2. And that's really rather random. It's such a small change and it has to do the fact also that impaired loans that figure does not take into account the securities that you got.
If you got a loan of €100,000,000 and you got very good securities for €95,000,000 but €5,000,000 is impaired and you take that as a reserve, then the whole of the €100,000,000 becomes impaired loans, if you see what I mean. So 5 reserves. So that's very much affected on what you got in the portfolio and what kind of pledges that you got. So that's why I joke a little bit when I say you shouldn't look at it at all. We don't look at it because it's the reserve rate doesn't say anything.
You have to look at the underlying things. But the important part of your question, I think, is what's happening with the credit quality in Handelsbanken. And my answer to that is that we see an improvement quarter on quarter, positive migration, the risk list is shorter and we feel that if you look at the group level that we are the credit portfolio is improving. We are now at 9 basis points in terms of credit losses on a group level as you've probably seen.
I just wanted to know which area the NPL formation is in. I realize it's a very low level. I just wanted to see if there's any particular area of stress or is it generally spread?
Well, you could easily see in our report that in this quarter, we actually have net gains in credit losses if you take away the credit losses that we post in Finland. So that's the answer for you.
Thank you.
The last question comes from Mr. Fried Soss Birenz from Arctic Securities. Please go ahead.
Thank you. If you go back to Page 10, please on the funding, I wonder if you could just split the maturities regarding covered and senior? And also if you could give any further details of the average maturity of the total long term funding? And also what it was after Q4, 2009 and the new issues in 2009, what maturity they had? Thank you.
When it comes to the SEK 100 and 70,000,000,000 that we have issued, you will find in our fact book that Page 28, you will find the maturities and the prices that you will are asking for. And you will have to also, of course, look in Bloomberg's and so on if you would look at all our maturities. We have said in the report that when it comes to the SEK 170,000,000,000 that we have issued in the first half year, the average maturity of that is 4.4 years. And you also know from what we say that this means that we now have pre funded all our maturities up to 2 1011 in February. So that is my best answer.
But if you want to have all the details, please look at Page 28 in the fact book.
Okay. Thank you.
There are no further questions. Please go ahead, speakers.
Thank you very much then for joining us today. And as usual, we are, of course, happy to answer any questions that you have. So please don't hesitate to contact Mr. Hallacher or his colleagues or myself if you got any further questions. Thank you very much.
Goodbye.