Hello, and welcome to the call. My name is Annie Ho, Head of Investor Relations here at Swedbank. In the room with me today is our CEO, Jens Henriksson.
Mm-hmm
... our CFO, Anders Karlsson, and our CRO, Rolf Marquardt. As per usual, we will start with the presentation, and for the Q&A section, if I may ask callers to pose a maximum of two questions each in order to facilitate the call to end at 9:30 A.M. With that, I'll hand over to Jens to begin the presentation. Please.
Thank you, Annie, and a warm welcome everybody to the presentation of Swedbank's result for the first quarter of 2022. We have a devastating aggressive war in Ukraine and Europe. It has an impact on our customers, and it has an impact on us. In these turbulent times, Swedbank stands strong. We are there for our customers, and we do business. In our daily work, we contribute to free, open, and democratic societies, and we continue to focus on the long term and to be sustainable to provide stability and growth in our four home markets, Estonia, Latvia, Lithuania, and Sweden. Four major topics affects us all, geopolitics, climate change, the pandemic, and inflation, and they are all interconnected. During the weekend, IMF said that the global economic prospects have worsened significantly since January.
Despite the pandemic and the war, growth is still positive in our home markets. The transformation of the energy market due to both geopolitics and climate change brings both threats and opportunity. The pandemic is still there, but focus has changed since February 24th, and inflation is rising in the shadow of the war. Several central banks have responded by raising rates, and that will be positive for the bank since we currently are subject to negative central bank rates for excess liquidity. At the same time, businesses and households will have to live with higher financing costs and lower purchasing power. Thanks to high household savings, there is large buffers. The result in the quarter was SEK 4.6 billion, in line with the fourth quarter excluding the bank tax. That means the profit of SEK 4.10 per share.
NII was up a tad, mainly due to higher volumes. Mortgages increased by SEK 10 million, and corporate lending grew by a strong SEK 32 billion, whereof the large bulk came in towards the end of the quarter. Net provisions decreased due to seasonally lower card commissions, less activity in the capital markets, and lower equity prices. Net gains and losses declined due to the turbulence in the financial markets, and other income increased due to the result in the insurance company and Entercard. Costs was seasonally lower and came in according to plan. The cost cap for 2022 remains at SEK 20.5 billion, excluding the cost related to US investigations. Return on equity was, as usual in the first quarter, way down by the capital held for upcoming dividends and was 11.4%.
Our target of a 15% return on equity remains unchanged, and before the end of the year, we will present our plan on how we can reach the target. Swedbank is a profitable bank with a strong capacity to generate capital. It gives us the strength to support our customers in turbulent times, just as we did during the pandemic. Swedbank's capital and liquidity position is strong. We have a buffer relative to the Swedish FSA's capital requirement of 4.6 percentage point. Credit quality remains good, and for the quarter, provisions amounted to SEK 158 million. Model effects due to weaker macroeconomic development explains it, and we have still a buffer of SEK 1.7 billion to handle indirect effect of both the geopolitical situation and the pandemic. As you all know, dividend to shareholders is important to us in Swedbank.
During the quarter, a dividend of SEK 11.25 was decided and later paid out. We are proud of that. Swedbank stands strong. We have control of our risks. We are managing sanctions, cyber risks, and AML with high attention. Our focus and my focus in recent years on governance and control has strengthened our capacity to handle the challenges of today. Four U.S. authorities and one Estonian authority are still investigating us, and we have no information on when they could be finished or the size of any possible fines. Our diligent work with a stable and resilient IT system is paying off, and availability increased during the quarter. For quite some time, the Baltic markets have reoriented their economies away from Russia and towards the European Union. The invasion of Crimea accelerated this.
Their export of goods of national origin to Russia accounts for 3%-4% of their export. Lithuania imports its natural gas through a LNG terminal. In Estonia and Latvia, the transformation away from Russian gas is ongoing, and we participate with financing. Inflation is high in all countries, but there are strong indications that it will slow down next year both due to base effects and reduced demand. The business in Estonia, Latvia, and Lithuania is resilient and important to us in Swedbank. It stands for 20% of our income, and we remain the market leader in all three countries. We are the biggest in mortgages, we're number one for corporates in Estonia, and we are competing for the same position in Latvia and Lithuania. Swedbank does not have any operations in Russia, Belarus or Ukraine.
Our direct exposure to Russia is now below SEK 10 million, and we've practically stopped doing transactions with Russia. As war and sanctions redraw the map of oil and gas markets, the argument to quickly reduce our dependencies on fossil fuels are only getting stronger. To us, this means growing business opportunities. Sustainability is the strategy of the bank, not because we are environmentalist, but because it has proved to be profitable for 200 years. In the annual report, we have provided an initial calculation of Swedbank's financed emissions. That is the climate impact from our customers with the focus on the real estate sector, a sector where we have a strong position and participate in financing the transformation. We see that our diligent origination standards contribute to a strong credit quality.
Our real estate clients have low loan-to-value ratios, healthy cash flows, and a focus to improve their energy efficiency. The mortgage market in Sweden continues to grow. We are the market leader with a back book market share of 23% and in the top in new lending. During recent months, our front book market share has been around 17%. We continue to work hard and provide our customers fast service and feedback as well as competitive pricing. Customers that digitally apply for an increase of the mortgage can now track their loan applications and receive updates digitally. We remain proactive with customers, and we have the market's best overall offer. We are a bank that focuses on advice for financial health. We can be reached through the app whenever and wherever our customers want.
We have launched new tools so that our advisors can work more efficiently with savings and pensions. The number of digital advisory session is going up. App visits to our digital guidance for better financial health increased in the quarter by 20%. When a personal meeting is part of that advice, we see customer satisfaction and sales volumes rise. During the quarter, a new concept was launched at our branches to guide customers to the right channels for day-to-day banking. This frees up time for personal advice. When inflation rises and interest rates follow suit, Swedbank is there for our customers and help them to plan financially in uncertain times. The demand from our corporate customers has been high, and we are providing advice on their financing mix. We are in close dialogue with our agricultural customers.
We have developed solutions for those struggling with liquidity. During a dark quarter, Swedbank has been there and supported our customers. In Estonia, Latvia, and Lithuania, Swedbank is the most loved brand. In Sweden, we are not as strong, but we are the quickest climber, and we're named by YouGov Sweden as a star brand. We are closing in on our customer satisfaction targets. That is positive, but challenges remain. Customer satisfaction in Sweden is below our target, and work is being done. We're improving response time in the customer center. We're supporting customers who use the app so they can bank simply and conveniently. We're listening to our customers to deliver on our own customer promise and to provide ultimate value to our shareholders. Who better to give us the number to show us just that? Our CFO, Anders Karlsson. The floor is yours, Anders.
Thank you, Jens. Now let's go into the details of the quarterly result, beginning with lending and deposits. The total loan portfolio increased by SEK 42 billion this quarter, excluding a positive FX impact of SEK 4 billion. Corporate lending performed well, having contributed SEK 32 billion to this increase. LC&I originated SEK 30 billion of this, mainly in the end of the quarter. Half of the increase was traditional bank financing and half were event-driven transactions and short-term lending, which are expected to be repaid over the course of this year. Swedish mortgages grew by SEK 8 billion, and we continue to capture market-leading front book market shares. Baltic Banking lending volumes grew by SEK 2 billion, supported by continuously robust new lending in private mortgages. YoY, corporate lending increased by 8% and private lending by 6%.
Customer deposit inflows continued this quarter, increasing by SEK 18 billion, excluding a positive FX effect of SEK 5 billion. This was mainly driven by a SEK 25 billion increase in deposits in Large Corporates & Institutions, of which SEK 10 billion is of a temporary nature. Deposits in Baltic Banking decreased by SEK 12 billion, corresponding to seasonal patterns. YoY, private deposits, which tend to be more sticky, increased by 10%. Overall lending outpaced deposits this quarter.
Now looking at the revenue lines, starting off with net interest income, which increased slightly. The underlying NII increased by SEK 30 million as higher average lending volumes offset slightly lower lending margins. NII from private mortgages in Swedish Banking was flat as higher average volumes mitigated decreased margins. Deposit margins were neutral on a group level. An FX benefit of SEK 52 million partially offset a negative day count effect of SEK 70 million.
Regarding the ECB liquidity facility, we booked the third part of the income this quarter, while the first two parts were booked last quarter. The fourth and final installment will be booked in Q2, reminding you that the fourth quarter also included a negative one-off effect in the leasing business. For a number of quarters, we have had a muted development in our NII despite strong lending growth. One key driver is that the large inflow of deposits has outpaced lending growth. In a negative rate environment, and over the last two years, deposits have grown by SEK 271 billion, while lending has grown by SEK 93 billion. In addition, we have seen pressure on mortgage margins in Sweden from high competition and mix shifts in an environment with a negatively sloping list price curve during most of last year.
However, this composition of our balance sheet in terms of lending and deposits puts us in a beneficial position in an environment with increasing rates. When it comes to NII sensitivity to interest rate movements, we will benefit from higher rates over time. The magnitude of the positive NII impact is highly dependent on the pass-through to administratively priced lending and deposits, where deposits in general are less rate sensitive. Let me illustrate potential outcomes by giving you two examples of what could happen if we had a parallel shift of 50 basis points along the term structures in all our four home markets. The first example gives + SEK 500 million on an annual basis and assumes that we have zero pass-through to administratively priced lending and deposits.
Thus, the effect comes from the fact that we have more IBOR-priced assets than liabilities and that the residual is financed with equity. The second example gives approximately +SEK 3 billion. In this case, we assume full pass-through to administratively priced lending and deposits, except for transaction accounts. Before I move on to NCI, just a quick word about the new line in the P&L, which we present after credit impairments. We have moved the resolution fund fee from NII to this line, where the new bank tax will also be reported. Consequently, we have restated historical NII in our disclosure. Over to net commission income, which has indeed been impacted by global events this quarter. Card commissions were seasonally lower.
Income from asset management decreased by SEK 176 million from a high level last quarter due to market development, day count effects of -SEK 40 million, and performance fees of SEK 34 million from last quarter. Corporate advisory fees declined compared to a very strong last quarter as deals were postponed on the back of geopolitical uncertainties. NCI YoY has developed well, having increased by 7%, while assets under management increased by 6% on the back of an overall improvement in consumption levels and market conditions compared to a time when we were in the midst of the pandemic. Turning to net gains and losses, fixed income trading improved compared to last quarter even though market conditions have been difficult as customer activity in general was good. The result from group treasury was lower.
Derivative valuations related to the bank's funding activities were impacted negatively by significantly increasing market rates in the quarter. The liquidity portfolio and group treasury and the bond inventory in LC&I were impacted negatively by widening credit spreads. Other income increased by SEK 80 million from a combination of higher income in net insurance and Entercard, as well as the provision release in net insurance. A few words on expenses before I hand over to Rolf. Expenses were lower QoQ and according to plan, due mainly to seasonality of staff, IT, and marketing costs. AML investigation costs for the quarter was SEK 55 million. While the FX development has been positive for EPS, benefiting our income lines and overall profit, it has impacted expenses negatively by SEK 60 million this quarter.
Nevertheless, our SEK 20.5 billion cost cap and estimate of SEK 500 m illion for AML investigation costs for 2022 still stand. Any excess FX volatility over the year would not cause us to deviate from our business and investment strategy. I will now hand over to Rolf to talk about asset quality and credit impairments.
Thank you, Anders. In the first quarter, we have seen continued growth in all home markets, but the recovery from COVID has been subdued by geopolitical crisis and the related economic impact. In this situation, our credit quality remains strong. During the quarter, different credit risk indicators like past due loans for different sectors and geographies, credit migrations, watchlist exposures, and impairments continued to be stable and at the same level as in previous quarters. The total credit impairments ended at SEK 158 million, with impairments in Swedish Banking and Large Corporates & Institutions of SEK 162 million, and recoveries of SEK 11 million in Baltic Banking. Going into the details, updated macroeconomic forecast increased provisions by SEK 250 million. As you can see here, the expert portfolio adjustment was reduced by SEK 107 million. Behind this, we have two counteracting factors.
Even though some customer segments are still impacted by COVID, the recovery has continued, reducing the need for an expert portfolio adjustment. We have the war in Ukraine, and the related impact on energy prices, commodities prices, supply chain disturbances, Russian trade, et cetera. These changes are expected to affect credit quality in some segments. The impact though, has not yet fully filtered through, in our customers' income statements and, rating migrations. We have therefore assessed that an expert portfolio adjustment is needed. This has been allocated to some of the sectors previously impacted by COVID, like transportation, retail, the hospitality sector, and manufacturing, but also to agriculture and construction. In total, the expert portfolio adjustment has been reduced, from SEK 1.8 billion to SEK 1.7 billion in the first quarter. Individual assessments ended at SEK 28 million.
Migrations increased provisions by SEK 45 million, and other factors reduced provisions by SEK 58 million. Now, a few words on Swedbank's and the three Baltic countries' exposure to Russia. In our operations in the three Baltic countries, we have customers with some ties to Russia and to a certain degree Belarus and Ukraine. Over time, the magnitude of this has been gradually reduced and when looking at the macro level, you can see that there has been a major change during the last decade. Exports to Russia has decreased and now accounts for 5%-10% of total exports. If you look at the export of goods produced in the Baltic countries of national origin, the figure is instead around 3%-4%. The pattern is the same regarding imports, which to large degree consists of energy and commodities.
This also explains why our exposure to Russia, Belarus, and Ukraine is limited. Our direct exposure to counterparties from these countries is less than SEK 10 million. We have looked at our indirect exposure via our corporate customers that have business connections to Russia, Belarus, and Ukraine. Our indirect exposure is less than SEK 8 billion to customers that have exports to or imports from these countries that exceed 20% of their income or cost. The majority of these customers have strong credit quality. We are monitoring more closely a small number of customers with an elevated risk that have a total exposure of SEK 1.5 billion, where we so far have seen no need for Stage 3 provisions. With that, I'd like to conclude where I started, our credit quality remains strong. Back to you, Anders.
Thank you, Rolf. Turning to capital. Our capital position remains strong with the CET1 capital ratio of 18.3%. The capital target range of 100-300 basis points still stands. The capital buffer ended at around 460 basis points above the minimum regulatory requirements, and the risk exposure amount increased by SEK 16.7 billion - SEK 724 billion in the quarter. Regarding the expected future capital requirements, there are no further updates to what I mentioned in my speech last quarter. We are still awaiting approvals for our updated IRB models from our regulators. With that, I hand over to you, Jens, to conclude.
Thank you, Anders. Let me now summarize a turbulent quarter. We have during the last years focused on governance and control with strength and stability and resilience in our IT systems. We strengthen our work on AML and terrorist financing. We have reduced our business with Russia to next to nothing. At the same time, we have slowly but steadily regained trust. We contribute to the transformation and have strengthened our sustainability profile. Our credit quality is good, our capital position is strong, and we are profitable. Despite the weak and volatile development in the capital markets, Swedbank is delivering profit at the same level as last quarter. We are a bank that continues to do business, and we empower the many people and businesses to create a better future.
Looking ahead, it is with special joy we see that our campaign, Talk About Money With Kids, has gained great impact and appreciation in Sweden. During the quarter, we've also educated close to 20,000 youngsters in Ung ekonomi. Financial literacy among the young is critical to a financially sound and sustainable society. Thinking about it isn't that difficult. We stand by young people, refugees, pensioners, entrepreneurs, unicorns, farmers, and shareholders in Sweden, in Estonia, in Latvia, and in Lithuania. Our customers' future, that is our focus. With that, I hand it back to you, Annie.
Thank you very much, everybody. Operator, could we please open the lines for questions?
We will now begin the question and answer session. Callers are asked to limit the number of questions to two per person at a time. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. Our first question comes from the line of Magnus Andersson with ABG. Please go ahead.
Yes, good morning. My first question is on NII and rate sensitivity. Anders, I guess when you gave us those two scenarios, I guess that your second scenario is what we see on page 76 there in the fact book, i.e., a positive net annual effect of SEK 3.1 billion for 50 basis points higher rates. I was wondering if you could split that into the Swedish effect, i.e., the Riksbank going from 0 to 50 and the Euribor going from -50 to 0. And in relation to that, if you could tell us how much of your lending in the Baltics that is floored at 0. That's number one. The second one is on costs.
Just to get the feeling here, I see that your headcount continues up quarter- on- quarter. If you could give us some flavor there on the outlook for the rest of the year. Secondly, on IT within costs, I note that you capitalized slightly less this quarter than you have done previously. Whether we should still expect total capitalized investments to increase by around SEK 120 million per annum, as you said, after Q4 or whether there will be a change from here. Thanks.
Thank you, Magnus. The answer to your first question is yes, it's in the fact book on page 76. I can't off the top of my head split it between Sweden and Baltics, but as you know, in the Baltics, most of the lending, the majority of the lending and deposits are floored. The effect that you will see from a 50 basis point hike in ECB is more of a cost avoidance when it comes to excess liquidity. We can dig into the details and come back to you, Magnus. On the FTE development, yes, we are recruiting. We are continuously needing to recruit competence in primarily IT and data.
It will continue at the same time Magnus, the attrition rate, if you remember when we talked about that during the pandemic, it was down to 4%. The attrition rate now is up to 12%. It is becoming increasingly difficult to fill up with FTEs as far as I'm concerned. When it comes to the capitalization, yes, as you know, we have usually a fairly intensive development in Q4, that is coming down a bit in the beginning of the year, but the forecast I gave you last quarter is still relevant.
On the whole, is the NII sensitivity, do you know if it would be net negative going from -50 up to 0 or will it come back?
It will be.
On that whole split.
What I meant is if you look at the balance sheet in euro.
Yeah.
We have much more deposits.
Yeah.
than we have lending.
Yeah.
Assume that we place the excess liquidity at -50. If ECB is increasing rates, we will place the excess liquidity at less than -50.
Okay. Thank you.
The next question comes from the line of Mats Liss with Kepler Cheuvreux. Please go ahead.
Yes, good morning, and thank you. Perhaps continuing on this NII sensitivity, and thank you a lot for the scenarios. Anders, perhaps a little bit philosophical, but if we assume here we have a different situation than historical rate hikes, because we have tons of excess liquidity in the systems, also deposits, and you have a lot of newcomers in the mortgage market that are not deposit funded and perhaps will suffer more. What do you see here going forward? Do you think it will be easier than in previous rate hike cycles to push pricing on to customers? Or have you heard anything when you're out talking to clients and when you have all your tentacles out? Just curious.
Well, I think that if you look at what banks including us have been doing since November, which has been quite aggressively hiking prices in mortgages in particular, usually that is a heated debate in the whole society. It has not been the case. We have no intention of changing our pricing strategy on mortgages on the back of your second sort of philosophical question. To your point about excess liquidity, which I assume implies that what you're asking is whether the competition on savings and deposits will be less with so massive amounts of money in the system. I think that it's too-
Yeah.
It's too early to talk. I mean, you will see a gradual tapering, but that will take time. You will also see what Jens alluded to, the fact that people are getting less purchasing power. It becomes more expensive to live. There are a lot of dynamics out there that has not been seen yet. I think it is too early to say. What is clear though is that we have been subsidizing deposits for a number of years for our customers. Now we have bank tax, resolution fees. We have the deposit guarantee fees coming our way. We will be very hesitant to aggressively price on the deposit side. That's for sure.
Okay. Thank you. Combining, I guess, into two questions into one since I only have one left. Looking at corporate loan growth and the ROE plan, and you say that you have roughly 50% of corporate loan growth is traditional funding and half is transaction-driven. How do you see this going forward? Do you think it will still be? I mean, are you focusing to tilt more towards long-term funding, rather than transaction-driven? Is this included in your future ROE plan that will be disclosed later this year?
Well, as you know, we're not gonna guide on individual lines. What we've been saying is that we've seen an increased demand for corporate lending, and we're up 32%. When it comes to the plan, you have to wait a while. We've said that we will come back with our plan before the end of the year, and that stands.
Okay. Thank you.
The next question comes from the line of Andreas Håkansson with Danske Bank. Please go ahead.
Good morning, everyone. So I'm afraid I have to go back to the NII sensitivity. I think that's what matters today. We've gone through the details, but Jens, let me ask you like this. I mean, you had an 11.5% return on equity in the quarter, in a fairly normal quarter. To get to 15, if I add SEK 6 billion, which is rate sensitivity to over 100 basis points, you get almost a 15. Don't you feel pressure that you really need to improve the margins on the back of the rate hikes in order to deliver on your profitability target? Or do you really see any other ways of getting out to the current quite low profitability?
Well, thank you. You're right that return on equity in the quarter landed at 11.4%. That is below our target. Let me also remind you that it was an unprecedented quarter with pandemic and war, which affected both NGL and NCI. On top of this, you have the new bank tax and accrued dividends waiting to be paid out. We think we can reach the 15%, and we will present our plan before the end of the year. I've talked about the levers to meet the 15% target. Cost control, we met our cost target last year, and we will do it this year as well. Impairments, Rolf showed you clearly we have a strong credit portfolio. Capital, we have no wish to keep more capital than we need, and revenues.
When it comes to revenues, I talk about four things. Mortgages, we are the leading mortgage bank in all our four home markets. Advice, we have a large customer base and are working with many new things. Last quarter, I talked about FNZ. Third, sustainability. It's in our genes and has been there for 200 years. Big opportunities there. Fourth, maybe this is not the right quarter to talk about it, but Estonia, Latvia, and Lithuania, three countries that will grow more than Sweden, and we are the leading bank there. Will it be difficult to reach it? Yes. Can we do it? Yes. Remember that the last three years, we worked hard with governance, internal controls, AML, stability, resilience, credit quality. Sounds a bit boring, but it sure feels good to have your house in order in times like this.
Finally, if rates go up, as Anders talked about, we'll see an improved NII.
Okay. Yeah, I just hope you keep the discipline on the NII because on all the other points you mentioned, I think it's quite hard to see what's actually gonna be improving. This is SEK 6 billion that's sitting there and basically you decide how you want to price it. Let's come back in the forward to see what you say. Thanks.
Well, I can just say to follow up on that, we are disciplined. We follow the market on every day. As you know, we have the clear pricing strategy. We will not be the cheapest nor the most expensive. I'm really confident that we have the best full service offering in our home markets.
Thanks.
The next question comes from the line of Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning, everyone. It's Antonio from Morgan Stanley. Two questions for me, please. The first one on the outlook for volumes, and secondly on costs. So what we talked about, rate sensitivity, how do you see the outlook for higher rates affect demand for loans, especially, I guess, in the corporate and mortgage space? I mean, when I look at Sweden more than other regions, we've seen corporates disintermediate the bank channel and issue on the market directly. To what extent could we see some of these come back? And similarly in the mortgage market, we've seen challengers benefit essentially from the same funding costs as the market leaders. Do you think that could change the competitive dynamics there? That's my first question. And the second question is on costs.
Costs were on track with your full year guidance. You've reiterated it this quarter. I guess when we look at cost inflation, it's running significantly higher than any of us expected, both in the Nordics and, well, even more so in the Baltics. You seem to have built quite some buffers in the AML-related costs, which have been running below budget for at least the last five years. The last five quarters, sorry. How should we think about the moving parts there, and with respect to your cost base going forward? Thank you.
Thank you. You have to help me if I missed your combination of questions into one. If I start with the outlook for demands for loans, I think what you clearly saw in this quarter were two things. One is that you had a fairly large disturbance in the capital markets in conjunction with the war breakout, and some of the corporates therefore buffered up liquidity. You also saw that some of our clients that were on the verge of issuing bonds in the capital markets postponed that. That is something I would expect continue as long as the uncertainty continues, even though the capital markets have opened up a bit, but at much higher prices.
You have, which we haven't seen yet, but what you could expect is that you could see an improved demand for loans within the corporate sector when it comes to work, you sort of building storage capacity, making sure that you do not have disturbances in your production or manufacturing, but it's a little bit too early to say. What you need to remember is that the largest issuers, when it comes to bonds in the corporate markets are the commercial real estate business. There are two sort of counteracting dynamics here. Banks have, as you know, in Sweden, risk weight floors on commercial real estate, so they have increased the capital consumption for banks at the same time as you have seen central banks pushing down the spreads by buying those bonds.
That will ultimately change, but exactly when we will meet that inflection point is difficult for me to say. You had a question on the mortgage market, which was a bit slower in this quarter compared to the last two quarters. I think that is seasonally the way it usually looks. I think it is a bit difficult to have any forecast on the development on the mortgage market for the remaining part of the year. On one hand, you see that it becomes more expensive and consequently I would assume that it will sort of gradually slow down. On the other hand, there is a subdued demand for housing, especially if you take in the refugee situation from Ukraine. I think it is a mixed picture.
When it comes to cost and inflationary pressure, we have said that 20.5% stands for this year. We will come back to you with 2023 when it's time for that. As far as the AML investigation costs comes. That's the best estimate we can give you. We have been wrong. First time we were wrong, we've said SEK 5 billion. It became SEK 1.8 billion. We didn't want to do that mistake again. It has been a little bit lower than the SEK 500 million for a couple of years. It's extremely difficult to say. It depends on how the investigations are developing.
Very clear. Thank you.
The next question comes from the line of Rickard Strand with Nordea. Please go ahead.
Hi, good morning. Two follow-ups on the cost side. If we start with the FTE development, could you say anything about the current growth there, a follow-up on the question you got before? What do you expect that to be by year end? Would you have stopped growing YoY or would you still see some continued growth by then, in your forecast currently?
Okay. For the year, we have a limited, or our ambition is to have a limited growth in FTEs, much smaller than you have seen in previous years. When it comes to this quarter, I don't have that on the top of my head, but it was like 65 or something.
I think it's currently growing at slightly below 2% YoY pace. You would expect that to be closer to 0% than by year-end or?
As I said, we have an ambition to grow a little bit, but not as much as we have seen in the past.
Okay. Sort of, given the inflationary pressure we see and besides the using a reduced number of FTEs as one lever to reduce costs, are there any other sort of main areas you would like to highlight in terms of sort of offsetting the inflation and keeping your costs flat for this year?
Well, I can answer on that. The key point is that we have a cost target. We believe that I'm sort of really much in the view that having cost control is a strategic target.
Okay, thank you.
The next question comes from the line of Riccardo Rovere with Mediobanca. Please go ahead.
Thanks. Good morning, everybody, and thanks for taking my question. Two, maybe one for Jens. The robust loan growth that we are seeing today, I imagine Swedbank is not losing market share anymore. While that was a bit the case over the past few quarters since a while ago, should we assume now that Swedbank is gonna grow in Sweden, I'm referring to Sweden, at least in line with the industry? The second question probably for Rolf. It's not clear to me when you mentioned the high-risk Russian exposure of SEK 1.5 billion, it's not clear to me whether you expect part of this or this to migrate to Stage 3. If that is the case, should we assume normal Stage 3 coverage ratios?
Again, I'm not sure I got it correctly. Still related to that, what do you think is gonna happen to the COVID overlay that you charged over the past quarters? Will those be relocated, released, and then reconstructed based on Ukraine-Russian tensions? Thanks.
Well, thank you for two good questions. I'll let Rolf take the second one. As you know, a year ago, I was pretty tough that we did not live up to the standards I wanted to see in the bank when it came to the mortgage market. Since that, we have been the market leader in Sweden every single month, June onwards. The reason for that, hard work. Proactive measures, increased availability and strengthened cooperation with Fastighetsbyrån and sticking to our price policy not to be the most expensive nor the cheapest. We are still the market leader, although at lower levels. In February, we had a market share of 16.6% compared to a back book of 22.7%.
If you look on our own channels, some of it we get from the savings banks. In our own channels, market share was 14.3% compared to a back book of 18.3%. In March, we expect our market share to be roughly the same as February, reminding you that some banks only report the last month of each quarter. The competition is tough, but I'm confident. We have the best full service offering, a 200-year legacy, and we're active in the whole of Sweden. Rolf.
Hi, Riccardo. Regarding your first question about Stage 3 provisions. What I said was that among the customers that have an elevated risk as a consequence of trade with Russia or dependence on Russia, we have so far made no provisions in Stage 3 for those. You can, of course, not totally exclude that going forward, but this is the best assessment based on what we know today. Then a few words on the expert portfolio adjustments we have made, both related to COVID and also the crisis in Ukraine. First of all, keep in mind that 550 out of that is related to oil and offshore.
That you sort of have to put aside. What we have done in this quarter is to release a very large part of the reserves related to COVID. That's because we have seen, we see reduced need for that. We see some customer segments that are still impacted, but less of a need. When it comes to the Ukraine situation, we have adjusted or updated our macro forecasts, and that has led to the SEK 250 million increase in reserves. That captures the underlying potential impact from the macro change.
We have assessed that there might also be an additional impact which actually could feed into credit migrations in the future as a consequence of what has happened. That's the background to that overlay.
All right. Okay. That's clear. Thank you very much.
The next question comes from the line of Johan Ekblom with UBS. Please go ahead.
Thank you. Can we just maybe come back to the net interest income for a second? If I understand you correctly, you say that the large kind of step up in corporate volumes was towards the end of the quarter. Can we assume that there is very little NII benefit from that? And I guess given the mix that you alluded to, that should be pretty attractive margins. And then I guess the two follow-ups on NII is you saw a drop in deposits in the Baltics. Is that similarly towards the end of the quarter and drawdowns relating to increased uncertainty? Because I'm guessing that should also have a positive impact. And then finally, if you can just comment on the relative large negative move quarter-on-quarter in the treasury results.
Thank you. Let me see now. The first one was on the corporate loans in the quarter. Yes, the bulk of it was at the end of the quarter. Some of it is short term, some of it is longer term. The margins were not sort of out of the ordinary. That was the. Some of it will probably mature in the next quarter, and some of it remain and gradually decrease over the year. When it comes to the Baltic, it is actually a seasonal pattern that we have seen, not during the COVID, but before that.
That is very much related to a number of one-offs, in particular in Lithuania in the fourth quarter, where we have had a huge inflow of deposits in the Baltics. You tend to get a bit of an outflow in the first quarter. It's not related to any uncertainty on the back of the war. I actually forgot your last question. Oh, NGL Treasury.
This is what-
Yeah.
So-
Uh.
Yeah.
But-
No. What? So in the NII, there is a treasury effect of SEK 150 million or so.
Yeah, yeah. You need to since treasury is in between, they are pricing the money for deposits and for loans. And you have seen a certain increase in deposit margins in the business areas, and you see a corresponding decrease in treasury. You need to put them together to understand the dynamics in NII.
The fact that the NGL is even more negative this quarter, does that mean that we'll see a negative impact in NII next quarter from the transfer pricing again?
I don't think that these are related. What happened in the NGL in treasury when it comes to the derivatives valuation is primarily related to the short-term funding operation that treasury is conducting in order to minimize the negative effect on NII from negative rates. In this particular case, the US dollar short-term funding, which is then swapped into Swedish krona, the swap, if you look at the three-month US dollar rate, it increased by 100 basis points in the quarter. I would say that if I stop the clock now and we do not do any more deals in treasury and market rates are unchanged, this will turn to zero at the end of the maturity.
Perfect. Thank you.
The next question comes from the line of Sofie Peterzens with J.P. Morgan . Please go ahead.
Yeah, I think they got my name wrong, but it's Sofie Peterzens from J.P. Morgan. My first question would be on the resolution fund fee. How do you think about that going forward? Do you expect that to kind of drop off from 2024 going onwards or how should we think about the resolution fund fee? My second question is, it has been very helpful all the Russian exposure direct and indirect exposure you have. But also, do you have any Russian deposits in the Baltic countries that? And if you do have, how are these treated? Do you treat them the same way as the Swiss banks, i.e., any Russians can't access their deposits or savings with Swedbank? Thank you.
Regarding the deposits in rubles, Sofie, we have nearly nothing left of ruble deposits in the Baltic countries from our customers.
I meant if a Russian person has like a deposit in euros with Swedbank in, let's say, Latvia, would that Russian person still have access to the money?
To the extent that they are customers and residents in the Baltic countries, that could be the case. We have no customers in Russia because we don't do business in Russia.
Don't you have some non-resident customers there?
We could have Russian people that live in the Baltic countries and that are residents in the Baltic countries that could be customers.
Okay. Yeah, that's clear.
Sofie, on the resolution-
I-
Fund fee, it will most likely continue for a while. I don't know. I haven't heard any change as far as that's concerned.
Okay. Thank you. That's helpful. Thanks.
The next question comes from the line of Jens Hallén with Carnegie. Please go ahead.
Perfect. Thank you. Two questions for me as well. First is we have to follow up on Rob's answer to the management overlay. I mean, you talked about the SEK 550 to oil and offshore. Can you say how much you've sort of allocated to the Baltics out of that SEK 1.7 billion?
That is approximately SEK 400 million, slightly below.
Okay. Perfect. Thank you. The second question is coming back to the rate sensitivity. As we talked about the first 50 basis points, and then the second 50 or the third 50, how does that then change the story? Presumably it's more positive in euro terms with the second 50. But how does it work? Is it? Do you assume it's linear or what? How would those numbers change if you go from 50 to 100?
Mm-hmm. It's not perfectly linear. As you rightly point out, when you reach zero in the euro area, you will have a sort of a steeper development on that one. But again, the more, the higher you assume that the rates comes, the more you need to elaborate around the pass-through on the different items.
Thank you, Anders. You rounded up perfectly because now we have to leave. Thank you all for calling in, and looking forward to see you, hopefully in real life. Bye