Good morning, everyone, and welcome to this call for the Q4 and full year 2020. Together with me today, I have our CFO, Karl Sederfeld Head of Group Financial Strategy and Investor Relations, Lars Hoglund and Head of Accounting, Annika Engler. I will give you I will start by giving you an update very short about the progression of the bank and then with Karl. Karl will walk you through the key financial topics for the 4th for the quarter followed by a Q and A. So and I'm sure that Lars will also jump into this.
2020, a year like no other year. It has still been okay for the bank and with a good year with a good end of the year. We do have a volatile year behind with the pandemic and all of the impact that has had on the world. However, I think it's clear that bank the bank has managed the year very well. The result was stable with an underlying increase of 1% in this year when economies have been extremely volatile.
We have a very strong capitalization. Our credit quality is stable. Tiviu and RISC has once again rewarded us through very low loan losses. And the customers credit as the bank that they are most satisfied with. In the mortgage market, we have gradually moved closer to our back book market share, and we have been the biggest player in the market when it comes to net new lending.
The Savings business continues to attract volumes at a significantly higher market share than our back book and our early focus on sustainability within our saving business is clearly paying off. On the cost side, it is very encouraging to see that we have turned the trend, and we are very committed to deliver on our cost target of SEK 20,000,000,000 in annualized level by end of next year. And I feel very pleased with how the initial development has progressed, both in terms of the strategic initiatives communicated in 2019 and those in 2020. It moves according to plan and in some places even ahead of plan. So one way of showing that we feel good about the progress is that we have made a provision of SEK213,000,000 in Q4 to the profit sharing scheme Oktogonen.
The bank is delivering on the target of a higher ROE than the average appears, and the cost trend in the group shows clear signs of a positive and sustainable trend. So we continue with the same idea, the same goals and the same bank, but with a renewed and more efficient organization. This will help us reach our goals: higher profitability, lower costs and more satisfied customers. And that is our foundation for creating increased shareholder value also in terms of earnings per share growth and a stable dividend growth. I think I will stop here and leave over to Karl to take us through the key financial topics.
So please, Karl?
Thank you, Carina. I will touch upon a few selected topics and then we're happy to discuss all questions and details in the Q and A session. To start off with net interest income. As you can see on Slide 31, the development of net interest income in Q4 was very undramatic, being more or less flat compared to Q3. Mortgage volume growth remained strong and very stable.
Handelsbanken was the largest player in 2020 when it comes to net inflows and the market share moved closer to the back book during the fall. This is a core product for the bank, and the ambition is to further strengthen our position in the market. Demand was weaker on the corporate side in the wake of the pandemic, all in all, leading to more or less 0 sequential volume contribution to net interest income in Q4. As you know, the corporate volumes have been exceptionally volatile in 2020. But in Q4, the volumes appeared to have stabilized somewhat.
Year on year, we did see some growth on our home markets. But as you know, we are closing down operations outside of our home markets, meaning that the volumes dropped expectedly as a consequence of that. In terms of margins and funding, the contribution to the NII was also very minor in Q4, only negative SEK 14,000,000. Behind that figure lies an additional interest cost of Swedish SEK 70,000,000 for the SEK 81,000,000 we issued at the end of Q3. We have called the outstanding SEK 81,000,000 maturing in a few weeks from now.
So you can call it a temporary double funding cost in Q4 for the 81s. This negative impact was, however, offset by the final reversals of the negative impact we experienced during Q2 when we were early out restoring the liquidity reserve after the markets had been closed. Apart from that, the NII in Q4 was negatively affected by the strengthened Swedish krona by some SEK 30,000,000. So very undramatic NII development in Q4. And the conclusion is that margins overall were stable, which is also true for the mortgage margins in Sweden.
As we have talked a lot about during the Year, the net interest income during the prior quarters has been extraordinarily volatile. However, I think it's fair to say that we ended Q4 more or less back to a somewhat normal NII situation again, albeit with unusually weak corporate loan demand. If we move over to the fee and commissions, we can see on Slide 12 that Q4 reached an all time high quarterly figure. On Slide 13, you can see a rough split of the commission components, of which savings related commissions account for roughly half. The recovered stock markets, together with a very strong net inflow, drove savings related commissions up 11% compared to Q4 last year.
The payment fees have, on the other hand, seen a decline during due to lower card fees during the pandemic, Breaking an up until then positive trend. The sum of the remaining commissions, I. E, loan and deposit fees, guarantees, Securities commissions, etcetera, has shown a relatively stable development during the year. Note though that the scale down of our Non home market business means that especially the guarantee fees are trending down, all according to the strategic plan we to the 1.5 years ago. On Slide 14, you see a more detailed picture of the mutual fund business.
As you know, this is another core area for us, And the success is the result of a long term dedicated focus by the bank. In 2020, Handelsbanken attracted 46 Percent of all net inflows in the market. And in the past decade, the market share of the net inflows has been 24. However, the market share of the total outstanding volumes in the market still remains just below 12%. So it goes without saying that we see scope for further Strong growth ahead.
Despite the pandemic, the net inflows were 37% higher in 2020 compared to 2019. And if highlighting a special success, obviously, we can mention our sustainable energy fund, which attracted 27% All net inflows in the Swedish mutual fund markets in 2020. The sustainability focus is deeply rooted in our asset management operation. And at year end, almost 90% of the total mutual fund volumes was invested in funds with enhanced sustainability criteria. Clearly, our offering and focus goes in line with the customer preference.
Let's move over to costs. Q4 normally shows a seasonal uptick in cost, and that happened this year as well. When you look at the development over a long term perspective, on Page 9, you can clearly see that the negative trend up until then Up until the end of last year has clearly been discontinued. Year on year in Q4, the underlying costs were down 3%. And as you see on the next Slide number 10, the costs for the full year were flat when you adjust for one off Saint Oktogonen.
Please go to Slide 23. In Q3, we communicated a fixed cost target of SEK 20,000,000,000 in annualized Cost level by the end of 2022 and the aim of keeping that one flat in 2023. So in effect, you can say costs Of SEK 20,000,000,000 for the full year 2023. Over 2021 2022, we will target increased IT development resources equivalent to a total of SEK 1,000,000,000 of additional IT spend. This means that the underlying efficiency gains during 2021 will most likely be more or less offset by the additional IT cost.
During 2022, we expect to see the actual level of total costs moving down towards the SEK 20,000,000,000 level. On Slide 11, You see the progress on the program we launched in the fall of 2019, and the progress is largely progressing according to plan. Almost 60% of the targeted cost base has been addressed and almost 40% is now seen in the actual cost base. There have been some minor delays in the execution due to the pandemic. But generally speaking, the initiative is progressing according to plan.
We have now implemented a new organization in the bank, not only reflecting the regional banks in Sweden and UK, but also across the bank to create a quicker and more efficient organization where the responsibilities of all units are very well defined. All in all, we have more than 100 initiatives ongoing, all contributing to the cost reduction. We follow each and every one closely and of course also have time lines for all of them. Some of them like The branch operations in Sweden and UK are large, but many of them are considerably smaller. However, summing them up is what it will take us to reach the SEK 20,000,000,000 cost level.
Let's move over to the credit losses on Slide 18. The credit loss ratio was 3 basis points in both Q4 and for the full year 2020, and underlying credit quality remained strong despite the pandemic. In Q4, there were only fine tunings of the IFRS nine assumptions. And we can note that over the full year credit losses of SEK 7.80 SEK 1,000,000, SEK 5.64 million of them related to model based COVID overlay. And to remind again about the reason for the low credit losses, let's start with Slide 19, where you see EBA's updated transparency exercise based on June 2020 numbers.
This slide shows the European Bank's non performing loans and loans with forbearance measures. Net of reserves as a percentage of lending. Handelsbanken again had the lowest share of problem loans, and the difference compared to Nordic Piers also remain fairly large, which you see on Slide 20. On Slide 21, you see a key explanation for this, I. E, our preference for secured lending, which deviates again quite a bit from many of our local peers.
Then as a final remark on asset quality, please go to Slide 22. This slide shows 3 decades of credit loss ratio development on Nordic banks. And again, it is clear that having a deeply rooted conservative credit risk culture and close relationships with customers lead to lower credit losses over time, and in particular, during a stressed macro environment. Let me finish off on capital and please go to Slide 17. The CET1 ratio increased to 20.3% from 19.4%, which means that the bank is 7.5 Sorry, 6.5 points above the FSA requirement of 13.8% and 3.5 percentage points above the upper end of our long term target range.
The Board is proposing a dividend of SEK 4.10 per share, which is exactly 25 percent of total net profit for 2019 2020, I. E, what the Swedish FSA stipulates as of now. This quarter, there are several remarks to be made about the capital and SREP. First, on the CET1 ratio, The risk exposure amount has increased by SEK 46,000,000,000 as UK volumes have moved to the standardized model on group level. This is less than we estimated earlier, and the lower figure is a result of slight change in portfolio composition and calibration of the calculation.
We choose to input these figures a quarter before we had to do it as well. Then the previously deducted dividend proposal for 2019 earnings have been added back. And then, of course, the dividend proposal for 2020 has been deducted. 2nd, on the SREP side, the absolute majority of the impact from implementing the European banking package in Sweden is now in the numbers. Also, the Q4 estimated SREP level includes the risk weight floors on Swedish CRE, which increased the S rate by 40 basis points.
So this means that most of the forthcoming items regarding capital that we flagged in Q3 are now factored into the numbers. The key remaining topic from Q3 that has not been included relates to the Norwegian FSA's proposal of risk weight floors on Norwegian CRE. A worst case scenario for the bank would suggest a negative impact of around 40 basis points on the capital buffer to the SREP. However, it could be significantly less and the timing of the implementation is uncertain and depending on the legal scope for a level of reciprocity among other things. Many of you are likely to ask about the capital plan after December when Current dividend recommendations by the FSA will expire.
First, let me stress that we are in the middle of the second wave of the pandemic, And it is too early to have a clear view on the general economic conditions 8 months from now. We have little reason to front guess what the view of Swedish So it will be as we approach September. And in the end, the decision around dividend and capital distribution is a Board decision, which is based on an overall assessment. So for now, all we can refer to is that the bank's long term capital target range of 1 to 3 percentage points above the SREP under normal circumstances. Obviously, we are not in normal circumstances currently, but we will, of course, come back and address the situation in the coming quarters.
In any case, our capitalization is a very strong situation and place to be in. And that's really good in terms of enabling us to support our customers and aim for growth in the bank. So to sum up, Net interest income was very stable in the quarter with strong mortgage lending, muted corporate lending, fairly neutral margins and funding effects And some FX headwind. Commission income reached all time high. Again, this is the success of our Savings business and in particular our sustainability focused mutual funds.
The work of streamlining and strengthening the branch operations and the offering to our customers Has kicked off well. The cost progress continues in the right direction, and the bank remains firmly committed to the cost target of SEK 20,000,000,000 by the end of 2022. Asset quality remains very strong despite the pandemic, and the capital position is extremely strong. So with that, let's open up for questions. Thank you.
And please, can I ask you all to You get 2 questions each and then you definitely you can move back in line and wait for the 2nd round of yours As well, but two questions each? Thank you.
Thank you.
We have a question from the line of Magnus Andersson from ABG. Please go ahead.
Yes. Just on first on the capital, although you don't want to speculate about what's happening in the future, just From here, you since you added back the 2019 accrual, I guess that we should accrue 40% From now on? And also then if we if I assume that you arrive Through the second half of the year and the dividend ban is lifted or dividend restriction is lifted on the 30th September And you would feel overcapitalized. How do you look at share buybacks versus dividend to potentially adjust Such an overcapitalization. And also there, if you could say something about the IRB overhaul, if that is something during 2021 that worries you, if that's a large Uncertainty factor for you.
Okay. Thank you, Magnus, for that question. First of all, let's address, yes, you're correct on that. We will accrue 40% Of the 2021 results going forward. And then obviously going into the fall, we will have to see what happens.
And obviously, when we're back in normal times, we will target our target range again of 1 to 3 percentage points. Choosing between giving dividend and doing buybacks is not something we have addressed yet, but obviously And that will come down to the valuation of the equity as well. That will affect the decision. But both options are obviously available. So that's a good situation to sit in.
And then what was the 3rd?
I think what you referred to IRB overall. Yes, the new models, the IRB models and their impact on capitalization. That's your question, right?
Yes.
Yes. So I can take that. I mean it's really too early to give any firm guidance here. We're still in the process with the Swedish But the general comment is that, no, it's not something that we feel overly concerned about, but it's too early to give any firmer guidance What that will
mean. Okay. Thank you.
Our next Question comes from the line of Antonio Reale from Morgan Stanley. Please go ahead.
Hi, good morning, everyone. It's Antonio from Morgan Stanley. Thanks for taking the questions. I've got 2. So the first one is a clarification really on your cost target and IT investments for 2021.
I remember you were targeting a SEK 1,500,000,000 cost savings for 2021. And you're saying that you expect it to be fully offset by higher IT investment for the same amount. Now it seems like you're Taking all of the IT expenses and even more than the €1,000,000,000 initially targeted upfront in 2021. Can you confirm if that's correct or what the difference is? And related to the cost, how much of this amount, the residual amount Would you expect to be net cost savings going forward?
That's my first question.
I don't know if I understood the last part of it, but let's start with it. First of all, obviously, the cost initiative of 2019 was SEK 1,500,000,000 savings, all else equal. So it's hard to guide around what cancels each other out. We have salary increases and we have an extra SEK 1,000,000,000 of IT spending. What we can say right now is that We are moving on plan of the 2019 program.
We have SEK 560,000,000 is hitting our cost Base right now, and we're moving according to plan down to SEK 20,000,000,000 in the end of 2022. It's hard to go into details on the various components, which ones increase and which ones decrease.
I think if I may add it's Lars here again. If I may add there, I mean, what we want to guide you about Is that again the SEK 20,000,000,000 target, we're very committed to that. But its trajectory throughout The 2021 2022 is not going to be line year. So on the additional SEK 1,000,000,000 of IT spend, of which some, Let's say SEK 700,000,000 will end up in the P and L. For 2021, that is likely to eat up, So to speak, the impact of the real cost reduction.
But from 2022, we expect That the cost reduction will be bigger than the additional IT spend. Was that No,
I appreciate.
No, I appreciate the color. I think it's important though for the market to be able to sort of track and monitor also sort of the development. So hence the question. Okay. My second question was on the NII, please, with a focus on Sweden and the UK, which I think was soft in the quarter.
So my question is really how competitive dynamics on low spreads changed recently? You commented to some extent at least with Sweden. I would like to hear also on the U. K. What you're seeing.
How do you expect loan spread dynamics to affect loan demand? I think you seem to be derisking somewhat your corporate book in the UK as well. If you could elaborate your comments and provide more color on the outlook will be very useful. Thanks.
Yes, sure. First of all, let's start with Sweden then on the NII development. I mean, obviously, 2020 has been an extremely volatile year. And as we've been talking a lot with you about, we saw increased funding levels due to building the liquidity Reserves in the second and third quarter. That's out of the book.
And as we're guiding now in the Q4, we actually see fairly stable loan margin. So we don't see decreased margins at currently. Obviously, we do believe that the competition will be fierce going forward as well. So We will see probably tough margins from time to time, but we don't see a trend of them falling right now. And we obviously are very interested in focusing even further on the mortgage market.
So That's quite good. When it comes to the UK and perhaps I should add as well Norway to that one, we have 2 things Worth highlighting. First of all, obviously, this is a quarter with obviously or a year with quite good swings in FX. But taking FX out of account, you see obviously that the margins in UK and Norway has dropped. That's Due obviously quite a lot on the deposit side and the rate change from Bank of England and the Norway's Bank down to more or less 0.
So and that has hit our margins for sure during last year. When you scale out in time a bit, that tends To rather drive volumes in lending growth. So if that happens this time, it's too early To tell, but we're fairly constructive around it. And normally, if these markets move in the same fashion as the other ones have done, It usually becomes constructive from NII development.
Maybe just to add there specifically on Sweden. I mean overall, what We can see in the quarter is a very low volume impact on the sequential NII development. I mean, Pre pandemic quarters, we typically saw for the group some SEK 80,000,000 to SEK 100,000,000 additional NII From volumes, and we clearly don't see that this quarter. And of course, that is also related to Sweden, and it is related to the corporate business in that sense. So And then as Karl mentioned earlier, the SEK 70,000,000 additional sort of double SEK 81 funding costs that we carry right now, of course, part of that is also impacting the Swedish NII.
Thank you.
Our next question comes from the line of Robin Rame from Kepler Cheuvreux. Please go ahead.
Yes. Hi, good morning. So are we could we expect Any further allocation for Otegronen for 2020 later this year when we look back 2020 and can compare to the benchmark, sort of what we saw in the spring of 2019, but the inverse of that. And then secondly, could you just remind us if there is any changes to the Resolution Fund and Deposit Fee fund fees in 2020 versus 2020 sorry, in 2021 versus 2020? Thanks.
Thank you, Robin. No, you shouldn't expect any more Oktogonen being reserved for 2020. As Karina was saying and we've been telling as well, we have hit our ROE targets most likely, But we during most of the year, obviously, we haven't been on track and Been showing for a while that cost trends in the right direction. And we are certain of that one right now, but you shouldn't expect us to Change any view on the Q1 to Q3. And apart from that one, Resolution Fund fees are now down on 5 basis Points.
And we don't see any change there going forward into 2021.
Okay. Thank you very much.
Our next question comes from the line of Jens Hallian from Carnegie. Please go ahead.
Thank you. And first question on loan loss provisions, how we should think about them sort of into 2021, Given the portfolio provisions you took already in Q1 last year and also I think the some of the charts you showed, If things question is, if things turn out as you now expect, is there any reason why they should be elevated and not normal in 2021?
Thank you, Jens. Well, of course, out of the SEK 781,000,000 in loan loss Provisions, 576 of them are a COVID overlay. But having said that, I mean, credit losses are Fairly low. So yes, sooner or later, we won't have a COVID overlay. What the outcome of that one will be, Will be quite a lot dependent on the idiosyncratic risk and the other developments.
So but yes, technically, a large part of the SEK 7 €81,000,000 for 2020 is actually a COVID overlay.
Okay. Thank you. And then yes, second question on fees. Is there anything in Asset Management that is sort of not recurring? It is, of course,
a very strong Q4.
I just want to make sure we have the right baseline going into 2021.
Yes. I don't think you should expect us To take 46% of market share inflows every each and every year. Because and part of that one is, I mean the sustainable energy fund took SEK 21,000,000,000 in net fund flows in 2020. That's obviously exceptional, And it's partly it's retail money from the Avanza Nordenk likes and it's also institutional money. But so I think you rather should look at the 24% market share for being rather the structural trend and the feasible.
But And we like positive flows. And obviously, we do believe we're quite we are quite well positioned. Some of you might have seen, but probably not, the release of the SDG solution funds, which Details quite a lot how the fund company works in choosing companies which both produces good financial wealth but also A sustainable future. So otherwise, go in and look at that one, SDG solution funds.
And Jens, perhaps In your question also, if I read you right, are there any performance fees that makes the line lumpy? And the answer is no. There are no performance fees in the line. So Very clean from that perspective.
Perfect. Thank you very much.
Our next question comes from the line of Finn Williams at Credit Suisse. Please go ahead.
Hi there. Thank you. So two questions from me. Firstly, On revenues, if possible. Last quarter, you mentioned that a large part of the estimated SEK 1,000,000,000 in revenue headwinds from the restructuring was Already visible in the results.
So can you maybe give us an update on this, please, and whether or not that number has changed? And secondly, my second question is on the sorry,
Yes. Thank you for that question. Yes. I mean, the we believe half a SEK Of revenue drop is in the books at the moment, if that was your question.
I think, yes.
If I may step in here, I think you we have talked about 2 different revenue drops. We talked about SEK 500,000,000 from 2019 initiative and then another SEK 500,000,000 from what we presented last year, right? And what we said earlier about the initial SEK 500,000,000 was that a fairly large part of that was in the books already, and we show it now clearly on the NII year on year impact of around SEK 95,000,000 from the international close down and also Some lower guarantee fees. But I think what we also said in Q3 around the initial SEK 500,000,000 was that Most likely, the final outcome is not going to be as big as the SEK 500,000,000 Then when it comes to the additional SEK 500,000,000 that we talked about In Q3, that is pretty much related to the payments business where we talked about Potential scenario, so that one in Q3. So yes, we have seen quite a bit of the initial SEK 500,000,000 in the books in terms of revenue drop, but it's also fair to assume it's not going to be a full SEK 500,000,000 from that one.
Thanks for that clarification.
Our next question
Great. Thank you. Sorry, yes, if I could just squeeze in one more. Secondly, on the UK. Given the capital requirements, it looks like the marginal return might be a bit of a drag on group Return on equity.
So I mean, I appreciate that specific dates for the IRB model approval might not be possible. But could you maybe give us a time line on when you Intent to apply for these models. And alternatively, if this is a longer 4, 5 year process, do you expect the UK growth prospects To be lower over this period.
Yes. Thanks for that question. We don't expect it to be a 4 or 5 year, But rather a 3 ish year progress of applying for the IRB method. And but that's We will not see a growth harm in that sense anyway during these years. I think what you're seeing is that we've been having quite restrictive growth for some time now when we try to PLC ourselves, and That's the difference of it.
But we will steer we would try to steer the business in UK as being cost efficient over long term. So it will definitely hurt our ROE until we get the IRB permission, But we will not change the way we behave in our business during that time.
Okay. Very good. Thanks very much.
Our next question comes from the line of Andreas Horkersson from Danske Bank. Please go ahead.
Yes, thanks and hi everyone. First, in your presentation pack on Slide 23 on costs, Could you tell us that the 21,600,000 for 2020 that you kind of show that it should be a similar level in 2021, Is that before Oktogonen allocation?
Yes. It is before Oktogonen allocation. We're not saying it's going to be the same in 2021. We're just saying that don't expect a linear development. But it is exclusive of No, sure.
So if I then assume
We haven't included it
before. So I assume EUR 850,000,000 full allocation in 2021. I take the EUR 21,600,000,000 plus EUR 850,000,000 that's the How I should understand it?
Yes.
Then you continue to talk about EUR 20,000,000,000 for 2023, But if you're now improving your cost base and then the profitability to the bank, Given that you already reached your Oktogonen targets, should we believe that you're all going to have a full allocation by 20 23. And why do you then guide without it?
Because it's a profit dividing scheme rather. So What we guide here is cost without Doctor. Goranen. And that's for you to be able To compare the 2 different lines. So it is without Oktogonen.
And yes, of course, If we move down to SEK 20,000,000,000 and improve our cost efficiency and have a better ROE than our peers, yes, Then we're in a good situation of accruing Oktogonen as well. But that's the reason why we haven't included it.
And also we don't want to use Oktogonen As a lever to pull in order to reach a certain cost level. I think that's another reason.
Yes. Fine. And then related to cost as well, The EUR 1,000,000,000 that you talked about in IT costs, am I right to understand that, that's IT costs spread out over your Countries, including the UK. And could you tell us I mean, we spoke about it in the old days, but I can't quite remember. How does it really look with your different IT systems Country by country.
Because the EUR 1,000,000,000 is not that much, so that must just be on the front end. Are you doing anything on the back Again, to try to get those systems to be united?
Yes. And that's a really good question of you. So And you're correct. Obviously, first of all, we have SEK 1,000,000 of extra IT spend during the 2 years. And we run roughly with SEK 2 point 5 SEK 1,000,000,000 of Aiters spend yearly apart from this SEK 1,000,000,000.
And yes, we are right now, we are pursuing a core bank Changed in Finland. And obviously, these things will happen over time. And so we will have these kind of issues And development going forward. But that's not for the SEK 1,000,000,000 to be used for. And as you say, yes, the majority of the SEK 1,000,000,000 is fairly interface heavy or being very front office like and development in the meeting place The apps and the digital perspectives.
But it's also part of the components of the way we work and integrate with each other and how we build Efficiency in the way we work. So it will definitely hit more countries than Sweden. The majority of it will be fairly Swedish, But it will not be on core bank system level.
Okay. That's it. Thank you.
Our next question comes from the line of Nick Daly from Exane BNP Paribas. Please go ahead.
Good morning, everyone. Two questions, please. The first one coming back to this question about corporate borrowing. If I can just Look at a couple of pictures on Slide 32. If I want to be optimistic, I suppose we could say that some of the kind of panic borrowing in the beginning of the Pandemic has been unwound.
So it maybe is not a bad starting point for growth. If I want to be pessimistic, I suppose I would say There's been a 20% growth in deposits and perhaps companies will use that cash to unwind debt Somewhere after the as we approach normality. So I wondered whether you had a view or a feel from what you're seeing in the branches in terms of Tilting you one way or the other on that question. And then the second question sorry, just going back to dividends. I know you're limited in what you want Say here, but one of your peers kept the unpaid part of the 2019 dividend still deducted from capital And you've decided to add it back.
So my question would be for the investors that are listening into this call that might still feel hard done by for not receiving that part 2019 dividend. Do you still think of that bit as unpaid, unfinished business? Or in your own mind, is it now all back in the capital stack From here on out, it's just a sort of mathematical question of your buffer to requirements. Thank you.
Well, let's start with the corporate loan demand then. Yes, obviously, I think this is a fair reflection of yours. I think that The way we see the corporate side is that they are fairly well they are in a good situation as well. And obviously, we've seen A bit more muted loan demand there. We've obviously we do think that There are definitely a case of them paying back guarantees and everything.
But we do see a bit muted loan demand there going forward So we will have to wait and see what that turns out to. Obviously, we do in the ambition of changing the branch network, We have the ambition of strengthening our offering to the corporate side. So we do believe that we can we're in a good situation To take the demand which is out there. But so far, yes, muted and it is high uncertainty around that development going forward. When it comes to the dividend, obviously, yes, our guidance is that we will in normal times work with plus 1 to 3 over the Swedish FSA demand.
So and I think that's the best guidance we can give you on how we will treat the dividends going forward. But obviously, it's a Board decision.
Okay. Thank you.
Our next question comes from the line of Richard Stran from Nordea. Please go ahead.
Hi. Two questions on your U. K. Operations. So starting off with the reorganization that is Currently in the making there.
If you could say anything about the what you expect in terms of the impact on the number of FTEs and Cost total cost effects there? And anything about the timing of that, if we start there?
Thank you, Richard. Well, what we I mean, obviously, reorganization of UK is included in the goal of taking us to SEK 20,000,000,000 What we can say is obviously that they will go down from 5 regional banks to 1 regional bank, And they will overview the number of branches and on what places they might close down or so. We won't give any guidance on the FTEs and cost side of that one solely, but it is included in the SEK 20,000,000,000 obviously.
Okay. And then secondly, on did I understand it correctly? When I look at the loan growth, it Continues to be negative in the UK, also in local currency in both for household and corporates. Is that Should we expect that to continue until the models are after this has been approved? Or how should we see that in the coming years?
No. That's not what we want to tell you. We rather want to say actually that when you look at UK and in local currency, They've actually had the loan growth during 2019 as well. Then we obviously had quite a big currency effect around that one. We our message to you is that IRB models will not affect the loan growth.
We will steer the bank in the optimal way long term there. And the bit muted loan growth has rather been around Us PLC ing ourselves and the administrative parts of that one. And in that sense, we are Closer to the end of that one. And so we see fairly constructive actually on loan growth in UK going forward.
Okay. Thanks.
Thank you.
Our next question comes from the line of Johan Igloo from UBS. Please go ahead.
Thank you. I think most things have been covered, but maybe just to come back to the issue around AT1. So If I look at your current AT1 position, it's about 1.6% of risk weighted assets. So you mentioned that you'll get some benefit From the AT1 that you called in March, should we expect you to replace that? Or should we expect you to run with A very low level of AT1s and I guess fill up the difference with CET1.
So hi, Johan. It's Lars here. Well, we did, You can say prefund, the one we call now last of September with a new one. And then how we sort of structure the capital base from here, I guess we'll have to come back to. But I mean, basically, you can now you can assume pretty much similar kind of Capital structure as we have had up until now.
So we obviously cannot speak in advance whether we Plan to each and renew these instruments going forward. So you can assume pretty similar capital structure. But clearly, right now, we have the negative impact from carrying additional 81, so to speak.
But it's also fair that it will be an the 81% that you will have after March is it's not optimized capital structure. You have too little late one, right?
I mean, we again, we won't give any sort of firm issuance plans, But you can assume a fairly steady mix from here.
Okay. Thank you.
Our next question comes from the line of Nannitha Samtani from Barclays. Please go ahead. Good morning. I've got two questions, please. The first question, the offset for moving the UK to the standardized model In terms of the lower requirement from the Swedish FSA, has that been included in the 13.8% minimum requirement?
Or are we still waiting for that? And secondly, just going back to the market share of net inflows in Swedish mutual funds and Appreciate 2020 has been an unusual year for you. But even in previous years, the market share versus the other incumbent banks has been significantly higher. So what do you believe your competitive advantage is? Is it just the types of funds you offer?
Thanks.
Thank you, Namita. Well, first of all, on the UK part, We don't know about that one if there are going to be any future positive Movements in that one. So that's too early to tell and we won't guide on that one. When it comes to the fund flows, I think it's fair to say, obviously, being a bank like ours, obviously, it's a huge positive thing with the distribution. That's the first and foremost The explanation around the success having had.
And then obviously, yes, it's about performance in the funds, and we have been in a good situation there as well. And then I should say that let me give you a 32nd on the SDG solution front. What we did a few years ago, we have developed a model where we can highlight each the turnover from each and every company If they attach to some of the 17 goals of the sustainable development goals. So Our asset managers do actually have a map for them both to track obviously the financial development of all companies, but also If they are structurally well placed to perform well When the world moves more sustainable. So and that's what just one example of the way we work.
And obviously, having these ones in all the funds, That's had quite a big impact when it comes to the institutional funds because they obviously or institutional demand because they obviously put quite heavy emphasis on being far ahead in the sustainable thinking. Thank you.
Thanks very much. Our next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead.
Good morning to Eduardo Davy and thanks for taking my question. The first one is
on credit
loss So let's say 2021. Now do you think that the level that we have seen in 2020 is Somehow really supported by the various measures put in place by the various governments in the various countries. And Is it reasonable to expect that once those measures will be lifted, this might eventually have Any impact on your credit losses eventually? Or do you think that what we have seen in 2020 It's not particularly affected by any of the measures put in place in the various countries is Smirka's question. The second one is on the cost side.
Just to me to put a little bit of clarity, The EUR 20,000,000,000 in 2023, the descent that you stated is not going to be linear, if I have understood it correctly. You should you expect it to get closer to the EUR 20,000,000,000 toward the end of 2022 And then get to EUR 20,000,000,000 in 2023. Did I get it right? And this obviously without taking into account Oktokonen, which is a bit can you also elaborate? How do you see Oktokonen in 2021?
Thank you, Riccardo, for these questions. Well, first of all, the credit losses. Obviously, in 2020, they are Exceptionally, they are low in Handelsbanken standards as well. So 3 basis points for a full year is obviously very low. And so and if that has something to do with the stimulus the government has given.
Well, obviously, that's a general trend. But having said that, and our message Keeping that a lot of the explanation behind our figures is based on the balance sheet construction. And we obviously like having collateral on the back of our lending. So our client base, we do believe Actually, a fairly little sensitive to the pandemic. Having said that, obviously, our credit losses Do end up in the end where they come.
Normally, they come from idiosyncratic reasons. And that could happen this year, that could happen next year or in the future. So it's very, very hard to guide around the development of credit losses going forward. But what you can be sure of is that we won't change our credit policies. So in the end, the past performance, we believe, are to a large extent based on that fact, And we will use that going forward as well.
Then when it comes to cost, you were absolutely correct in your interpretation.
Right. And on Oktogonen
Sorry, I forgot that question. Sorry. Oktogonen, yes. I mean, if we are having a return on equity levels above our peers and we see cost development Moving in the right direction. I think we're in a good position to accrue Oktogonen, but that's a Board decision and an overall decision for them to take.
But that's the way we view it.
Sorry for abuse, 30 seconds of your time. In the past year, SoctoConan was about €800,000,000 €900,000,000 per year when you were going to hold it, something like that. This can we assume that this should be a kind of the maximum that you might eventually Provision, if things go into the right direction.
Yes. I mean the maximum amount is SEK 850,000,000. And if we are above 2 percentage points above our peers, then we can get the maximum amount. So the maximum amount is SEK 850,000,000. If we move the bank in the right direction and do it really successfully, Yes.
And yes, then we have a good situation of accruing that number yearly.
All right. Okay. All right. All right. Thank you.
Our next question comes from the line of Jacob Kruse from Autonomous. Please go ahead. Your line is open. Jacob, your phone is on mute. Can you please unmute it?
Thank
you.
Just for my good response, I will go to the next questioner, Martin Leitge from Goldman Sachs. Please go ahead. Your line is open.
Yes. Good morning from my side.
Just a follow-up On earlier comments you made with regards to the Swedish mortgage market that you would be interested to focusing on that market. What does that mean in terms for your flow share ambition? Should the flow share then mean essentially you would like to have a similar flow share to back book share? Or do you see scope to even potentially increase that further? And related to that, how should we think about revenue and I Evolution into 2021.
One of your peers commented that they expect that NII and revenues to remain broadly flat.
Is that greater
ambition on mortgages and obviously what you said on Asset Management? Could that mean that You should potentially see an increasing revenue line here in 2021. And if I may, a second one briefly on dividend accrual for 2021. The 40% seems a little bit more cautious compared to some of your domestic peers. And I was just wondering what in the form is that?
Is that anticipation Of high uncertainty, maybe with regards to regulatory changes or what's driving the lower payout ratio? Thank you.
Thank you, Martin, for these questions. Let me try to address them then. Well, yes, you are correct. We have an ambition To move up higher in market share of mortgages, we do think that should be feasible with the client segment we're targeting. And in that sense, if we move back to the market to the back book or even higher, then that should be really positive.
And we are spending quite a lot of time and efforts To make that happen. When it comes to growth side going forward, we are In fact, constructive of income growth, we do believe that obviously asset management, a lot could happen to the market, Having said that, but still we do believe that structurally we're well placed in that situation for having income growth. Then when it comes to mortgages, as you say, if the market performs constructive and we keep on taking market Ches being the biggest bank, then I do believe that, that will add to top line over time. Then we do put a lot of emphasis, obviously, in strengthening Our offering to the corporate side in the way we redevelop our branches and strengthening the capability there. And we are obviously the largest Swedish corporate bank today, and we do have the ambition there to strengthen our position even further.
Then I do think that we should see sooner or later when the vaccine takes When the FX is flowing through, then I do think that we should see a catch up situation, especially from the Not Sweden in our the other home markets because they've been obviously more hit than Sweden. So we are fairly constructive actually On the income growth, not saying not being overdramatic, but still. Sorry, dividend approval as well. Yes, you are correct. We obviously accrue 40% and that's a bit lower than some of our peers.
We do believe that is a good situation in order to support growth. But in the end, obviously, if growth doesn't happen, Then we run more or less the same machine as they do. And obviously, we do believe that we will be one of the most efficient banks In Sweden. So it's a good situation to support clients' demand. If demand doesn't happen and our CET1 ratio moves even further up above the target range.
Then we will be in a good situation to take decisions around that one when it happens. But yes, we will accrue 40%.
Very clear. Thank you very much.
Our next question comes from the line of Magnus Andersson from ABG. Please go ahead.
Yes, Faas. Hi. Just to follow ups on costs. On Slide 23, when I look at your cost structure, I assume it means that you expect to divest Ekster and the card acquiring business Sometimes during 2022. That's a reasonable assumption.
Secondly, just on your headcount Trajectory into 2021, we saw that your average headcount is down year on year in Q4, although it's primarily due to non Core markets. So I was just wondering given your pension offering, etcetera, in Sweden, how many that has accepted and when that is So when we are going to see that in the numbers, etcetera.
Thank you.
We have contradictory 2020
Thank you, Magnus. Well, first of all, we can't comment on the timing of Ekster in the payment business, but we are obviously Working with that situation. Then when it comes to the FTE development, yes, we have had a pension scheme out And it's above 400 people who has accepted that one. They will obviously gradually move out. And then We will go into the restructuring or we are in the process of the restructuring on the Swedish branch network as well.
So most likely, FTEs will move down, but we won't guide on the progress of it quarterly by quarterly. So That is very important steps in taking us down to SEK 20,000,000,000, and we are moving on track.
And I can also add, Magnus, that also from the 2019 initiative, there are still headcount reductions to be expected because as we said, we've been somewhat delayed in some of the primarily Asian markets. So that will We're not down there yet.
Yes. So most likely, there should be a gradual headcount reduction over the coming quarters throughout 2021?
It will be a gradual drop in headcount out until late 2022.
Okay. Thank you.
Our next question comes from the line of Sophie Pietersen from JPMorgan. Please go ahead.
Yes. Hi. Nir is Sophie from JPMorgan. I had a question about your credit losses. If I look In your interim report on note 6 on credit losses, you again have very high actual credit For the period, almost €550,000,000 Last quarter, it was €950,000,000 Also, if I look at the provisions you have against Stage 3 loans in Swedish quota terms, they declined around 35% over the past 6 months.
How should I think about these actual credit losses that you're booking? What are they against what kind of Exposures are these and should we expect in coming quarters these actual credit losses also do start to trend down? So that would be my first question. My second question would be on the newspaper or My second question would be on the newsletter article around Handelbach in introducing an The Oversight Committee for the U. K.
Operation, what's the rationale for having the Board directly Overlooking what's happening in the UK, you said that you're concerned about asset quality. If you could just give a little bit more details around the decision to have the Board directly looking at your U. K. Operation. And then my last question is on M and A.
You have plenty of excess capital. There is Question marks about future payouts. How do you think about M and A, especially in the U. K, where you also have some quite big Yes, banking operations potentially for stays. Is this something you could potentially consider?
Thank you.
Thank you, Sophie, for these questions. Well, let me start and then I think Lars can dive in as well. The gross numbers you see in the around the credit losses are heavily dependent on 1 of the idiosyncratic credit losses we made one of the earlier years here. So they're still affected around that one. And you shouldn't View that as a forward looking guidance at all on what it will look going forward.
So if that's correct.
That is
exactly clear. Exactly. Yes, that's right.
And then when it comes to the UK committee, obviously, running a PLC and a So, Yuri, right now, in a non EU environment with all different regulators differences which comes with it, It's a bit of a different business than we've done before. We think that's a really good reason to build a committee and try to Take that question really, really seriously. So that's the underlying decision around constructing the UK committee. Then when it comes to M and A and excessive capital, you shouldn't expect us to change our behavior. It's a good situation to be in having a lot of capital.
It's to be used for growth. It's to be used for shareholders in the end. And If we see some reasons for M and A activity, well, we would have seen it in a normal So we won't change our behavior.
And Sophie, maybe I can just come back on your first question on Stage 3, yes. I mean, when we look at the overall development this year of sort of new exposures popping up in Stage 3, that has been Extremely small, just to make that very clear.
Thanks.
Okay. Thank you. I mean, but how should I think about the So kind of provisions you now have for Stage 3. I mean, if I look at the Stage 3 for Actual credit losses, we have had it SEK 1,500,000,000 in the past two quarters. And put the provisions you have for Stage 3 Just above SEK 2,000,000,000 So I mean, if you have another 3 quarters, like the past 2 quarters, you don't have any Stage 3 provisions left.
I recognize that these are ad hocs. But I mean, for example, in the UK, the outlook is pretty grim. You The lockdown, you have the 3rd lockdown, it's going to be until sort of March, April at least, The summer, a lot of companies are closing, real estate prices are coming down. It just seems odd to have only 3 basis points In the U. K, your credit losses and also when you look at the kind of provisions you have for Stage 3, they look very low.
Well, Lars, you can add to this one later. But I think it's a case of I think many tries to understand Handelsbanken in a general way of and obviously, Stage 3 It's a specific reservation around problem loans, which we see. And it is definitely our best guess that these are accurate at the situation. So we don't see any reason why they should structurally trend upwards. And obviously, yes, we are affected by COVID and U.
K. Is in a much more lockdown situation. But we believe that this is the best guidance we can give on the book as of now.
Yes. No, I've got nothing to add to that really.
Okay. Thank you.
Our final question comes from the line of Chris Hartley from Redburn. Please go ahead.
Hi, everyone, and thanks for squeezing me at the end here. Just a quick follow-up on the Oktogonen point. So The amount you accrued this quarter was actually a quarter of your maximum amount, wasn't it? So do we read that as a maximum allocation for Q4 2020 or is that a 25% allocation for the whole of 2020? The implication of that being, If we're at a stage now where we're meeting our ROE target and costs are going in the right direction, could we start to expect To see maximum allocations in each of the quarters going forward?
Or is the journey to a maximum allocation a little bit longer than that? Thanks.
And a really good question of you, Chris, because this needs to be a bit more transparent, I think. The way we view it is that Obviously, we had a journey where we haven't been satisfied with the cost development. We've hit that position right now. We do believe we're in a good situation on Obviously, if this continues, we will go back in measuring our ROE comparisons to our peers. So in that sense, You can view our provisioning right now as 100% of the maximum of Q4.
And in that sense, if we still keep on moving cost in the right direction and we are having superior ROE, then we have a possibility of accruing 100% on a yearly
Okay. Yes, that's really clear. Yes, good job on doing that. Thanks.
If I'm Just may take a final minute here because I got an e mail from one of you who was a bit unclear on the cost Target and when the SEK 20,000,000,000 cost level will be achieved. And so I mean what we have said all the time is that By the end of 2022, we will have moved down to an annualized cost base of SEK 20 SEK 20,000,000,000 meaning that we enter into 2023 with a SEK 20,000,000,000 cost base. That is not the same as saying that we will have for 2, a total cost of SEK 20,000,000,000 because it is a gradual decline of cost base. So effectively, Don't expect SEK 20,000,000,000 as the full year number 2022 cost. I hope we've been clear on that all the time, but Maybe just to reemphasize that.
Carina, do you want to say something? No. Well, then I think it's we just want to thank you all For sharing the time with us and taking the time to ask all these questions. And please get back to us with extra time and questions If you feel a need for it. So thanks for your time and effort.