Welcome back to the 15/25 Studio. When we met there over a year ago, we presented a plan on how we wanna reach a sustainable return on equity of at least 15% in 2025. And that was the plan, how we will grow income, control cost, maintaining a good asset quality, and not hold more capital than necessary. Today, we will present you an update on that plan. And with me, I have Kerstin Winlöf, who is the head of Group Products and Advice, and Anders Karlsson, our CFO. So what we will do is talk about the business priorities, how we deliver on that, and then we'll talk about the financial results. So, a warm welcome. Last year was tough.
Russia's aggression in Ukraine continued, there is an ongoing conflict in the Middle East, and the climate change crisis has worsened. The macroeconomic development has been characterized by the measures to tackle inflation with the tightening of monetary policy. In times like these, we need sustainable and thus profitable banks. By being profitable, we contribute to financial stability, and by being profitable, we can support our customers, distribute dividends to our owners, and continue to develop the bank. So a little while ago, we just presented a strong result for the full year of 2023, with a return on equity of 18.3% and a cost-to-income ratio of 0.33. Does that mean that the case is closed two years ahead of schedule?
No, because what we set was a target of a sustainable return on equity of at least 15% in times of high interest rates and in times of low interest rates, in times of low economic growth and in times of high economic growth. And delivering a consistent return on equity of at least 15% with a cost-to-income ratio of 0.40 is difficult. But with Swedbank's business model and strategy, we can do it because of our strengths. We have more than 7.5 million customers across our four home markets, which means scale and support profitability. And that scale is further enhanced by our partnership with the savings banks, adding 2 million private customers and numerous corporates to our customer base, as well as operating leverage in form of shared IT costs.
We are a low-risk bank with a solid credit quality and conservative liquidity and capital position, and we have a high capital generation capacity, contributing to strong and stable returns over time. In Swedbank 15/25, we formulated four business priorities. First, to leverage on our proven business model and pricing strategy. Second, to grow our share of wallet for existing customers. Third, to grow our business in prioritized segments. And finally, to continue to invest, to improve our availability and operational excellence. Now, what I'm gonna do is I'm going to go through the first three, and then, Kerstin, you can follow up on the fourth. During 2023, we leveraged on our proven business model and pricing strategy and grew NII by 54%. We have acted decisively in the repricing of mortgages in Sweden and protected our back book when new market volumes have been low.
In the Baltic countries, volume growth has been higher than in Sweden, with a total lending growth of 8% in local currency during 2023. Our Green Mortgage offering for sustainable housing has been a success, contributing to around one-third of new volumes in Estonia and Latvia since the launch in March 2023. We have maintained our market-leading position for mortgages, savings, and mutual funds in Estonia, Latvia, Lithuania, and Sweden. Having more than 7.5 million customers means that we have an opportunity to grow our share of wallet. To do that, we need to be more proactive, and especially in the digital channels. By providing automated offers and advice based on our customers' life event, we can empower them to save more or to sign up for a suitable insurance policy, strengthening their financial health.
In 2023, we managed to increase the number of sales from these automated offers by 25% in Sweden, driven by savings, insurance, and service concepts, just to name a few. Scaling our advisory capabilities and increasing proactivity are important drivers of both volumes and fee incomes. In the Baltic countries, we continue to be the most loved brand for the 5th year in a row. And during 2023, we increased the number of customers with long-term savings by around 40,000. This is in line with the aim to double the total number by 2030. Our efforts to grow within e-commerce and insurance in the Baltics are also progressing well. For example, for the first time ever, we're the number one P&C insurer in Estonia. The third business priority is about growing our business in prioritized segments.
At Investor Day, we talked about the youth, the homeowners, and the affluent customers. We also said that we aim to grow in the small and mid-sized corporate segments in Sweden and to improve our market share for corporate lending in Latvia and Lithuania. To grow business in these prioritized segments, we need to spend more time with our customers, and in 2025, we aim to conduct 300,000 assisted advisory meetings. Last year, we made good progress as our advisors conducted around 265,000 meetings. The youth segment is especially satisfied with our digital services, but surveys show that they do worry about their financial situation. By educating them on how to improve their financial health, we contribute to society and support the bank's future business.
We are the leader in mortgages, but we can also see that many of our customers have their mortgage somewhere else. During a time of low market activity, we have spent time on limiting churn and attracting new customers, resulting in higher inflows from and lower outflows to other banks. Then we have the affluents. All over Sweden, there are people who have created their own wealth or inherited money and want a banking offer suitable to them. Those are or should be our customers. For that reason, we are, the first of February, creating a new business area in Sweden called Premium and Private Banking. One of the most important strategic changes is the creation of one corporate business in Sweden. It is a major step for Swedbank as our corporate capabilities are now concentrated in one business area.
During a time of lower demand, we have focused on risk and profitability management. But as loan demand picks up in Sweden, we will focus on establishing a leading position for small and medium-sized companies, where we want to be the main bank, while we continue to optimize our large corporate business. In Latvia and Lithuania, we have an ambition to increase our market shares for corporate lending to 25%-30% by 2030. This is developing according to plan, while we continue to apply strict origination standards. Now, I've just talked about how we'll continue to leverage in our proven business model and pricing strategy, how we'll grow our share of wallet, and how we will grow in our prioritized segments. Now, Kerstin, it's your time for the fourth business priority, and that is to improve availability and operational excellence.
Yes.
Kerstin.
Thank you so much. Jens, you just described Swedbank's progress in three out of four priorities. The fourth priority is about enabling growth through investments in improved availability and operational excellence, and those investments are a new omnichannel c ommunication platform, end-to-end processes, as well as a new omnichannel advisory platform. So let me now share the progress of those and our plans ahead. During 2023, the first phase of the omni-channel communication platform was successfully launched in all our four home markets. And out of more than 2 million conversation that Swedbank has each quarter, we are now able to carry out more than 90% of those in the new platform. This was the first step in connecting our contact branches, together with the branches, into one common platform.
This year, more capabilities and media types will be connected to form a seamless customer experience across all our channels. It will allow customers to switch between remote meetings, such as telephone, video, live chat, or messaging, or choose self-service through our virtual assistant... and by 2025, the aim is that customers will be automatically routed to the right channel, depending on their service errand. The overall goal is to shorten our lead times, improve our stability, as well as to optimize our internal capacity planning. And at the same time, we create opportunities to do more business with customers that are in contact with us. When it comes to the end-to-end processes, we are also delivering according to plan. This area of investments relates primarily to standardizing our credit origination process.
For example, in 2023, we implemented a new valuation tool for tenant-owned apartments, making this step of the process more efficient for our customers as well as for our employees. This year, we are introducing the same tool for property management. In addition, we have enhanced our online self-service loan application for new as well as for existing private customers. In March, a totally new credit origination flow will be introduced, which will allow us to meet our customers in a quicker way. Often, during the first contact, customers will be able to have a decision. This new process and flow improves and automates several steps of the credit process, freeing up time for our advisors to support them even more. Going forward, we are speeding up the digitalization of credit documentation, which will enable customers to sign their mortgage documents digitally.
By 2025, we expect the end-to-end processes to increase our availability and shorten the lead times within the credit origination. Lastly, when it comes to our new advisory platform, which is planned to be fully launched in Sweden later this year, we have already started to use the capabilities and the results, those looks promising. Based on the 20% of the advisory sessions that are currently being conducted on the platform, we see that advisors save up until, on average, 18 minutes per interaction, and this, this has also translated into increased customer satisfaction. On a monthly basis, 80,000-100,000 customers seek advice and guidance in our platform, primarily in our app. With the new platform, we strive to convert this activity into advisory interactions, getting us closer to our goal of 1 million in 2025.
Scaling our guidance and advisory capability also means that people get access to the financial health concept. This concept empower our customers to improve their financial health, ensuring that they can plan for their life as retirees, that they are properly insured, and that they can save for different purposes. So to sum up, we are happy and pleased with the results we see so far. And besides improving our availability and our operational excellence, we are confident that we deliver long-term value for our customers through guidance and advice, enabling the growth we heard Jens mention about.
Thank you, Kerstin. So you now listen to me and Kerstin talk about the business priorities, but in the end, it's all about delivering financial results, of course. So Anders, the floor is yours.
Thank you, Jens. I will start with quoting myself. On the Investor Day, a little over a year ago, I said, "Being the CFO, this is the day of the year." And that quote deserves to be repeated. Being the CFO, this year is the day of the year. The result has been fantastic and better than we initially thought. Let me say a few words on the macroeconomic assumptions that we based our 15/ 25 plan on. For example, we expected the Riksbank's policy rate and ECB's deposit facility rate to peak during 2023 at 3% and 2.5%, respectively. Instead, they both reached 4%. During this period, Swedbank has captured the benefits of rising rates by leveraging our balance sheet structure and by being disciplined on pricing, which is in line with our first business priority.
As a result, we have improved NII, and consequently, return on equity beyond what was envisaged in the 15/25 plan. With that backdrop, let me now go through the key metrics and see how we have performed since our baseline year, 2021. During 2022 and 2023, we have grown total income by on average 24% per year, mainly driven by net interest income. Expenses, excluding fines, have increased by on average 6% per year. This has resulted in an exceptional annual average operational jaws of around 18 percentage points between 2021 and 2023. The cost-income ratio amounted to 0.33 in 2023, clearly outperforming the plan. In addition to strong income growth, we have maintained our strict cost control during a period of high inflation.
The credit impairment ratio amounted to 9 basis points in 2023, compared to our long-term historical average of 7 basis points. Our capital position is strong, with a CET1 buffer of around 390 basis points above the Swedish FSA's requirements. In 2025, we aim to reach a buffer around 200 basis points, and based on this level, we assess that we will generate roughly 300 basis points in excess capital over the course of the plan. All in all, we have delivered a return on equity of 18.3% in 2023. Since the start of the plan, we have grown income, controlled cost, and maintained solid credit quality. Based on this strong progress, we are in a favorable position to continue to deliver consistent returns. We are committed to distributing excess capital to our shareholders.
The timing and quantum of extraordinary capital distributions, as well as the reassessment of our dividend policy, will be subject to the conclusion of the ongoing U.S. investigations. With that, I hand over to you, Jens, to conclude.
Thank you, Anders. So we have now presented the progress of our business plan, Swedbank 15/25. To summarize, last year was about the transition to higher rates. In this environment, we have supported our customers, continued to enhance our offering, and demonstrated the strength of our business model. We have made strategic changes to the way we are organized in Sweden with a customer focus. We have attracted new long-term saving customers in the Baltics and grown both private and corporate lending. And we have continued to invest to improve availability and operational excellence. And today, we published our climate transition plan, explaining how we will support our customers in the green transition. Going forward, we will focus on growing the business by supporting households and companies in our four home markets.
We will continue to invest to drive business growth, and we stay committed to delivering sustainable long-term value to our shareholders because the sustainable bank is a profitable bank. In a year's time, I will invite you to a new investor day, where we and other representatives from the business areas will look a few years ahead and present how we will continue to deliver a sustainable return on equity of at least 15%. Now, it's time to kick off the Q&A. Annie Ho, our Head of Investor Relations, you will guide us throughout the session.
Yes, thank you. Looks like we have quite a few questions already, but before we begin, can I just remind everybody to switch on your cameras and your microphone when it is your turn to speak? All right. The first question comes from Rickard Strand from Nordea. Please go ahead.
Hi, everyone, and thanks, thanks for the presentation. A question to Anders on the rate sensitivity. In the previous call this morning, you mentioned that the theoretical rate sensitivity for Swedbank and also that it's similar when rates increase and decline. But you've also talked in the past about it's getting harder to forward rates to customers, the higher rates get. So, I was wondering if you see the same dynamics here now that rates are about to roll over, that the rate sensitivity might actually be a little bit less in the beginning for the first rate cuts?
Thank you, Rickard. It seems like it was a question directly towards you, so...
Yes. Thank you, Rickard.
... We gave you the numbers, as you know, with the simplified underlying assumption. And then, what exactly is gonna happen with the pass-through, when rates are coming down is very much up to the competitive environment. What I said in our Q4 presentation is that we will actively work with the administratively set rates on both the assets and liability side, particularly in Sweden.
Okay, then a quick second question here on the you talked about your ambition here to increase your footprint in the Swedish mid-sized corporate segment. Given the impaired macro outlook, has that changed your progress here, or is it becoming more or less favorable compared to your original plan, given the change in macro outlook?
Well, you put it directly like it is Rickard. So what we've seen is that we have not grown as much as we expected in this market. The reason is that we are taking a firm stance on sort of what's ongoing with the economy, and maybe that's not the time to increase. I mean, the overall target for us is to reach the 15% return equity. But as I said, I am very optimistic about the economy looking forward. Sweden has sound public finances, we have great companies, and we have strong and profitable banks, good education among the people. And that means that I expect things to brighten up quite a lot during summer or summer and autumn, and there we have good opportunities.
The good thing we're doing now is we are putting all together in what we call one corporate business, meaning that we have a powerhouse of good advisors, knowledge, expertise in that can be phased out and used in different parts of the country. Because we are a bank that's all around Sweden, so we see potential there. But you're right, this year, we have not reached the sort of market share that we initially thought we could do, but due to the macroeconomics.
Yep. Thank you.
Thank you.
The next question comes from Johan Ekblom from UBS. Please go ahead.
Thank you very much. Just maybe to continue a little bit on the net interest income and the kind of active pricing mechanism in Sweden. When we think about deposits, Sweden has one of the more generous deposit remunerations in Europe today. How do you think about that? I mean, we're in a situation where deposits are flat to declining in Sweden. Is there anything different today in terms of the competitive dynamics compared to what we've seen historically? Or do you think you can reduce the effective deposit beta as rates fall?
Well, if I start with that, so the key point is, you're absolutely right. We have a very competitive offering when it comes to sort of deposit rates. If you have on your transaction accounts, where you get your money, we pay up on 3.0% from 1 SEK up till all the way up, and it's the most competitive among the large banks. When it comes to e-savings, we have 2.1%, and if you come to us and lock it in for three months, we have 3.80%. So what will happen when rates starts to fall is the first thing to keep in mind is that, we will not go back to negative interest rates. I don't think that will happen, and I think the central banks have sort of learned a lot from that.
And that means that our structural or the normal, the nominal interest rate for longer will be high. Not as high as now, but it will be high. And that means that we have a structural increase of our NII, which Anders talked about. Then in that movement from higher interest rates to lower interest rates, we will act in the same way as we've acted during the uptick. We will act strategically and really follow the market.
Perfect. And, and then maybe a second follow-up just on asset quality. I think I saw in your plan you assumed something like 7-8 basis points in 2025. But I guess we've all been surprised by how benign the credit cycle has been to date. But I guess there are some signs of a weaker consumer. You know, you mentioned that Entercard turned a loss in the fourth quarter on the back of higher impairments. We saw a niche consumer lender report sharply increasing Q4 provisions. And, you know, your mortgage book has, I think, the biggest increase in Stage 3 that I've seen, admittedly, still at a very, very low level. But is there a risk that there is a big time lag and, you know, actually we'll see...
Even though the economy might be doing better in 2025, we see a worse credit quality development, in particular on the consumer side?
Well, first, you're right that it is a tough economic environment, both for household and companies. And if you look on credit losses, we've been consistent the last 2 years around 8-9 basis points. Then, what we did was made an assumption for 2025, not the forecast and not the guidance, but looking at the average. And when we look on the specifically the mortgages, sometimes I think a lot of people who follow Swedish banks and other banks do not understand how our system works. Because we talked about the credit losses we made in mortgages. During the last 40-45 years, we've made credit losses in this area of SEK 2 billion, meaning SEK 50 million a year.
That's GBP 4 million a year, and this has been sort of the Swedish banking crisis in sort of the 1990s. It's very good in that sense. We have a good credit origination standards, and we are confident in our credit quality. And the good thing, if something would happen, and I'm gonna talk a lot about that today, and that is that we are a profitable bank, and we can withstand sort of a worsening. But I am optimistic and our credit quality is good.
Thank you.
We have a question from Magnus Andersson. Please go ahead.
Yes, good morning. Just to follow up on the financials in the plan. Anders, at the presentation a year ago, you were quite firm about the cost income ratio being at 40%. That was the supporting target, and we had a discussion whether it could be below, and you said you stuck to 40%. Now, obviously, we have a completely different income level. Is it still 40 we should look at, which given consensus income in 2025 would imply a cost base of some SEK 27.3 billion, or do you think you can be below 40 now?
Thank you, Magnus. I think, let me be crystal clear on the 40% cost income. That is a supporting KPI that we think long term is where you have to be if you want to have a return on equity of at least 15%. We are not steering on cost income, and we will not steer on cost income. Sometimes we will be below, as we have been, for the past year, and sometimes we will be slightly higher. So you should see this as an ambition in order to enable the overarching goal of at least 15% return on equity.
Okay.
That's also, we talked about that. That is what I would say is sort of how you look at a good retail bank in Europe. Sort of what are the best, and the best, delivering consistent return equity of 15% with the cost income ratio of 0.40.
Okay, thank you. I f I just may follow up then also on capital. I mean, you stick to your, your capital target of being 200 basis points above the minimum requirement from the Swedish FSA. My question is, have you, have you got any pushback at all on that, either from authorities, rating institutions, et cetera? Because, I mean, we are seeing your competitors, Swedish competitors, being at around 450, almost the same level as you are, going forward without having a looming U.S. fine hanging over them. So is it, is it realistic or is there something else here we should be, be aware of potentially?
No, we haven't heard that.
There's no pushback at all on the 200 from anywhere?
No, I haven't heard that.
Neither have I.
Okay, thank you. Finally, just under this portfolio, lending portfolio with administratively set rates, is it still around SEK 60 billion?
You, oh, you mean the one which is not mortgage? Yes, it's been shrinking on the consumer finance during 2023, but that, that's a good approximation, I would think.
Yeah. Okay. Thank you very much.
Thank you. The next question comes from Andreas Håkansson. Please go ahead.
Yeah, hi. Just following up on Magnus's question, actually, on capital. I mean, I see in consensus numbers that people are looking at a 19.9% CET1 ratio for 2025, and you really should be at 17.1%. And let's say that you settle with the DOJ tomorrow, but what's your means of distributing, you think? Are you looking at buybacks? Is it extra dividends? And how quickly do you think you can do it? Is it within one year, or do you have to do it over several years?
So first, we have not talked about that. What we've said is that when the uncertainties disappear, and it's also a bit linked to sort of the IRB overhaul and the special extra 100 basis points we have on private mortgages, then we will have a discussion with our owners. How can we distribute dividend capital? But we also have to remember sort of how our owners look like, and they are owners who like dividends. A lot of foundations, ordinary people who've saved some money, and when the dividend comes out, can do something that they otherwise cannot afford. So in that sense, we are a dividend bank. We think that's simple, and that's how we work. Do we rule out other things? No, we don't. But remember us as a dividend bank.
Yeah. And one problem, I guess, with being a dividend bank is that the politicians in Sweden seem to believe that dividends from banks is something negative, even though it's quite supportive for the economy, of course.
I've talked-
How are we dealing with that discussion with them? Yeah.
No, I've been very clear today talking about, and sometimes people perceive, owners, and I think it was my chairman who said as, you think about as, the man with the hat and, and, you know, the old-fashioned view. But our owners are savings banks, insurance companies, Swedish pension funds, private investors, funds, AP funds, and foundations. And the foundations, I mean, I meet them frequently, and the numbers, remember that, Anders? I think around SEK 500 million-SEK 600 million, even more, that will be distributed to them now according to the proposal of SEK 15.15, if the AGM so decides. Those are money that come back to society. The savings bank come into their balance sheet, and they do good. So you hear how excited I am.
Yeah, but Jens, I totally agree with you.
Good.
The problem is.
I'm sort of taking the wrong order.
... do politicians agree with you? Do you have a conversation with the politicians at the moment about this topic, and do you have a feeling that they start to see your view, or will you continue with this populistic view that you need to be tough on banks?
Well, I'm not gonna sort of make a judgment on their call. I would say, we have to remember, it's a tough time out there. A lot of Swedes are feeling it tough. And then it's my job to explain that if we're profitable bank, we do not create problem for financial stability. If we're profitable bank, we can pay taxes. We've paid last year SEK 13 billion in taxes that goes in. We're profitable, we can take a hit if something worse would happen on the credit loss side, and we can also be there, lending out, lending out in the north about the green transition. So, and when you look on Sweden, one of the things that the rating firms underlines on the strength of Sweden is sound public finances, well-capitalized and profitable banks.
I've been in countries where banks are not profitable. I've worked in the aftermath of the banking crisis in Sweden in 1994 and forwards. I worked at the IMF, saw the global financial crisis upfront, worked with Latvia and worked with Iceland. That is when people get angry at banks.
Thanks.
All right, we have a question from Sofie Peterzens. Please go ahead, Sofie.
Yeah, hi, here is Sofie from JP Morgan. So, in the strategic update that you gave, a bit over a year ago, you said that the Basel IV and IRB impacts were around 130 basis points. So how should we think about the kind of impact now, given that the overhaul is broadly behind us? So if you could just go in on this, and maybe also on the Riksbank, they had the financial stability report, where they're very encouraging banks to hold the Common Equity Tier 1 ratio above the kind of... at the higher end of the target, kind of 300 basis points implying. How should we think about the potential impact for Swedbank from this comment?
Well, first, before I give the floor to Anders, who can deep dive in, the key point is that we are in that kind of climate now. It is a tough climate, and then what we're talking and looking ahead on 2025, that's when we phrased our 200 basis points. But Anders?
Yeah, if the central bank, I wouldn't expect them to say anything but that, Sophie. So that's sort of what it is. In a period of low economic growth and high inflation and people having it tough, it would be very strange if they said anything else. As far as the 130 basis points comes, that was based on our best estimate, as you remember, and we also did an Article 3 add-on voluntarily. We are not through the approval process with the regulators, so that is our best estimate, and that still stands. And as far as Basel IV comes, it's a limited effect. So I don't have a-
... in recent years. How should we think about the run rate years? How should we think about the run rate in Treasury going forward?
I think you should look at Treasury combined with the business areas. Otherwise, it's gonna be a skewed picture for you. So most of that is, as you know, movements in FTP and therefore transfers between business areas and Treasury and the other way around. So include Treasury together with the business areas, and then the volatility is less.
Okay. Thank you.
Thank you.
Thank you.
We have time for one last question, which comes from Riccardo Rovere. Please go ahead.
Thanks, thanks for taking my question. Just a quick follow-up again on capital-
Please
... if I may. It's not clear to me when I look at slide 20, what part of the reduction between 390 and 200 basis is related to higher RWA or higher capital requirement? What part of that is it?
Anders?
Oops, that's a good question. I don't have that on the top of my head, but we can come back to you on that one specifically.
All right. All right. Okay.
That was a short one. We have time for one more, if there is one more.
Actually, no.
There are no more questions. Okay, thank you all, and, what a fantastic palace you have behind you, Riccardo. So thank you all for, listening and asking difficult questions, as always. Today, we've presented our progress of our business plan, Swedbank 15/25, outlining how we are growing income, controlling costs, while maintaining a strong asset quality, and ensuring that we do not hold more capital than necessary. By doing that, we will be able to deliver a sustainable return on equity of at least 15% of, 15% in 2025 and onwards because a sustainable bank is a profitable bank, and I look forward to see you again. Take care. Bye.