Good morning, everyone, and thanks for participating. We have a little change in the setup today. Göran Bronner is unfortunately home sick with very high fever, so Gregori is going to play the role of CFO during this call and run you through the numbers. Also with me is Anders Karlsson, our CRO. If we look at the quarter, I would say that once again, a quarter with stable results. And what I'm very pleased about is that the adjustment, especially in Swedish banking, to new customer behavior, that work is going well and has a good momentum. If we look at the global economy, it's definitely an economy out of sync. Europe is slowly improving, but low inflation pressure is still there, and falling raw material prices sets the tone.
In the U.S., we have both seen an improving economy, and Fed, as you know, hiked the rates for the first time since 2006. While China's economy is breaking or slowing down, which, of course, affects the global trade negatively. However, the economies in our four home markets do well in a global comparison. The challenges in Sweden relates to lack of housing starts, bearing in mind the strong urbanization trend and the new trend on immigration. In the Baltics, wage inflation is an issue to keep an eye on, as is the geopolitical situation in their neighborhoods. The sudden drop of oil price in Q4 has led to an increased risk in that sector. We have, as we discussed in Q3, seen a stagnation of the house price inflation in Sweden, and that's positive.
The implementation of strong amortization culture in Sweden is progressing well in Swedbank. 95% of all new loans with an LTV north of 70% is amortizing, and the corresponding number for LTVs between 50% and 70% is 82%, which is up from 64% in last quarter and 53%, 52% in half year numbers. So a quick adaptation, and that affects our market share in the quarter slightly negatively. The front book market share is hovering around 14-15% compared to the normal 20%. And that is very much due to that not every bank in Sweden is adopting the new amortization rules as we speak. Overall credit quality remains strong. However, the low oil price will, if it continues to trade at this level, cause credit quality challenges in the sector.
If we look at our different business area, I would like to start with Swedish banking. Here we see a huge effort of transforming the operation to meet new client behaviors. Half of the branch offices have been refurbished and updated, and this effort will be completed during 2016. The next generation of our internet bank will be launched during Q2. The telephone bank has increased their capacity to serve both corporate and private clients, and the mobile bank continues to add feature. Furthermore, we will, during the year, ensure that all channels have the same feel and look for our clients. Swish continues to show its relevance, and now we're introducing that to e-commerce, and I hope for that to be as successful as in the other sort of channels that we have presented Swish.
We are defending our market position overall on mortgages as we are on corporate lending, and we see market share growth in corporate deposits, so that's very positive. When it comes to savings in mutual fund, Robur is still the largest provider in the market space. During 2015, we have had net outflows relating mainly to that the elder part of our client base is now starting to shift from saving to consuming as they get into pension age. We have also seen outflows from financial institutions. We have, during the year, done quite a massive effort to update our fund range, to change prices in order to be competitive going forward. Moving over to Baltic banking, I would say a very strong year overall, strong Q4, probably the best ever.
This in an environment which is very difficult, and we see continuous deleveraging in society. The key to this performance is a well-executed multi-channel strategy and a strong capability to sell through the digital channels. Credit quality remains solid despite the geopolitical situation, and we expect that we get regulatory, more regulatory clearance around the acquisition of the Danske Bank's private customer portfolio in Latvia and Lithuania during the quarter. LCI, sluggish trading environment through the autumn, but improving in December. A reasonably good pipeline of primary market deals into 2016. Also very pleased to note that we ended the year as market leader on bond issuance in SEK. We're number three in Norway. We continue to make good progress on euro-denominated bonds. Turning back to the bank, the capital situation is very strong, Core Tier 1 at 24.1%.
As credit demand has been as anticipated, we can go ahead with the fourth consecutive year of dividending out 75% of the profits. That equals 10.70 SEK per share. If we look at sort of credit growth going into 2016, probably slightly weaker than 2015, a notch weaker. But overall, going into 2016, I feel very confident about our financial resilience. We continue focusing on cost as we guided for. We should aim for around SEK 16 billion in cost by the year end. I feel that the transformation that we are doing in Sweden has a good momentum. Finally, I really want to thank all the coworkers for a stellar 2015. With that, I hand over to Gregori, who will take you through the numbers, and then we will head over to risk.
... Thank you, Michael, and good morning, everyone. I will take a few moments first to talk about the three business segments, and then summarize the quarter at the group level. If we first turn to Swedish Banking, the income was strong across all income lines, despite an even lower interest rate environment. If we start with NII, looking at the deposit margins being again under pressure in the quarter, while we have higher mortgage margins supporting NII. Backbook margins expanded with 4-5 basis points, while new lending mortgage margins were up with 1-2 basis points. But turning to volumes, mortgage loan volume growth continued to support income. On an annualized basis, it was around 5% growth.
On the deposit side, we saw, as part of our savings advice to our customers, we were able to attract volumes in the quarter, primarily in the corporate space, which has also contributed positively in the quarter. Net commission income was supported by PPMs, meaning pension flows and performance fees, towards the end of the year. Asset quality was solid in the quarter, with one specific engagement causing an increase in impairments. Anders will talk a bit more about that, in a few minutes. Looking ahead, we expect mortgage volumes to continue growing at about the same rate. We see moderate corporate loan growth.
In terms of margins, new lending mortgage margins expansion is approaching the end of the repricing cycle on the back of the increased capital requirements as we have seen over the last couple of years, while back book will continue repricing them. On the corporate side, corporate margins were under pressure in the quarter. While looking ahead, we expect on the back of upcoming regulatory, the capital regulatory requirements, this pressure to recover somewhat. But of course, that will depend on competition, and, and how pricing the market looks going forward. If we look to turn to Baltic banking, we continue to have a very, or show a very solid performance again in this quarter.
We had, on the volume side, a flat development on the lending side, in euro terms, while it was a decline in Swedish krona terms. If you look at margins, it was a slightly mixed picture with lower deposit margins, while we saw higher margins on the new mortgage lending, and the corporate loan margins were a bit under pressure, primarily because of better asset quality, continuing in this quarter. We had a one-off in NII in Lithuania, a lower deposit guarantee fee, due to a change of the fee level, but also the base that the calculation is being made of. Asset quality continued to be very solid. Looking ahead, we expect volumes to stay stable, at stable levels, and the margin development to continue the way I just described.
If we look at the large corporate institutions, which showed a good outcome in light of a volatile market. We had deposit and lending margins being under pressure, while a positive contribution came from deposit volumes. The trading activity was higher in FX and equity, but somewhat lower for the season. In the corporate finance space, we had a low activity for the season, but we're building up a nice pipeline when we look ahead with deals that have been postponed due to market conditions. On the lending, if you look ahead, on the lending growth side, we expect a continued modest loan growth in 2016.
Repeating what I said on the Swedish banking, that the corporate margins should start recovering during 2016 in light of the upcoming regulatory requirements, although this will depend on competition, which is tough, and that we still have a low demand. Summarizing now, the quarter at the group level, NII was stable and held up quite nicely despite lower market rates. Mortgage and deposit volume growth supported NII in the quarter, while the development in margins was mixed. In NII, specifically, we had some traffic between treasury and the business segments this quarter, on the back of attracting more deposits. So there was a reallocation of between SEK 75 million and SEK 100 million from treasury to the different business segments in this quarter.
Most of that reallocation went to Swedish banking, of course, as the deposit base is larger. Expenses in the quarter were seasonally higher, but we are still in line with our ambition to reach total expenses of SEK 16 billion in 2016. Summarizing the asset quality, I would say for the full year, we showed another solid quarter. Looking ahead, as Michael touched upon in terms of volume growth, expectations are to be somewhat lower than the 4%-5% growth that we've saw during 2015. And if I spend just one minute looking at treasury result, we would like you to continue looking at the result combined with NII and NGL.
In 2015, we saw NII and NGL combined falling somewhat more than was expected in the beginning of the year. That was due to market rates and credit spread movements during the year. This means that when we look into 2016, the combined results for treasury should be around the same level as in 2015. But with a change in the mix, between NII and NGL, meaning that NII should continue falling, while net gains and losses should start improving. If we turn to capital, we finished the year with a common equity on our capital ratio, of 24.1%, which we are very happy with.
The ratio was increased in the quarter, both as a result of increased common equity on our capital base and the reduction in risk exposure amounts. We first look at the risk exposure amounts. It decreased with around SEK 15 billion. There was mainly four factors leading to this decline. The first one is relating to credit exposures, with lower corporate credit exposure, specifically over year-end, in retail and manufacturing. There were loan commitments that matured before year-end, and some financial institution lending also that went away over year-end. We had increased collateral values. It contributed positively as well, with a little bit more than SEK 3 billion.
Towards the year-end, we had reduced our interest rate positions, which combined with the market rate and the movement in the market, reduced market risk with almost SEK 4 billion. Positive FX effects in the quarter with around SEK 2 billion reduction in REA was also contributing positively. Summarizing then, and putting the ratio into the context of the requirements, we see that we have a bit more than 400 basis points of buffer to the minimum requirements that we see that we currently have. However, despite, I would say, with the continued regulatory uncertainty, when we look ahead, we still have no visibility of any excess capital. We expect and hope that there will be more clarity on the regulatory uncertainties during the course of 2016.
Just want to finish off with showing you a slide on our funding activities throughout 2015. You remember that we started the year with a very active pre-funding activities that we actually continued in Q3 and Q4, issuing in total almost SEK 253 billion. We have also expanded our maturity profile slightly during the year with a little bit more senior funding. This has put us in a very comfortable and nice position from a liquidity and funding perspective, reaching an NSFR ratio of 107% at the year-end. With that, I hand over to Anders.
Thank you, Birger. During 2015, the development of the asset quality was favorable. The increase in lending volume generally comprised low-risk customers with good collateral, further strengthening the asset quality. Unsecured loans declined during 2015, and throughout the year, the level of credit losses remained low, although provisions for two individual customers had an impact during Q4. One of these affected Swedish banking, while the other affected LC&I. All in all, the credit impairments ended at 4 basis points in 2015, to be compared with 3 basis points in 2014. As earlier communicated, we have implemented new guidelines for private mortgages in terms of amortization requirements, limits on debt to income, and a more conservative affordability calculation.
In addition, as we also have communicated, we in the property management sector, sharpened the requirements on sustainable cash flows, in a situation with stressed interest rate levels. Due to the uncertain oil price development, I would like to spend some time on our oil price sensitive portfolio in Norway. As you might remember, in conjunction with Q4 2014 report, we communicated an outcome of the stress test that we performed on oil prices being at $40 per barrel for two consecutive years. We then said that at that price level, we would see a negative impact on credit quality starting in 2015, but credit losses in the sector will most likely not materialize until 2016 or 2017.
Due to a continued supply surplus and uncertainty regarding the future demand for oil, the price has been under pressure throughout the year. We have consequently been in close contact with our customers throughout the year, and in line with expectations, they have so far succeeded in handling the situation well. As a result, the bank was not affected by any credit losses in the sector during 2015, and we managed to reduce our exposures in the oil-sensitive offshore portfolio by almost 10% to $2.2 billion, equivalent to roughly SEK 18 billion. The derivatives exposure amount to $300 million.
With a further decline at the end of the year in the oil price, the uncertainty has obviously increased, and we conclude that disposals, stacking, and re-negotiated contracts on new builds will be necessary to regulate the supply in the market. With the deteriorated cash flow generating capacity as well as asset value declines in the sector, we expect negative right-rating migrations going forward, impacting portfolio provisions and risk exposure amount. It also means that the need for equity injections into the sector becomes vital to avoid insolvencies and credit losses, should the oil price remain around the current levels. Most of the financing agreements are syndications or club financing, which is common practice in this capital-intensive industry. In addition to that, it's also common for these companies to obtain a relatively large part of their financing on the loan market.
We have therefore concentrated our resources and competencies to further secure a close dialogue with our customers and relevant banks. Having said this, I would like to remind you that the oil price sensitive offshore portfolio constitutes only 1.3% of our total lending, and I still expect that Swedbank's asset quality will continue to perform strongly. However, given the uncertainties in the external environment and the low visibility in the oil price development, it is not reasonable to expect credit losses on recent years' very, very low levels, and hence, we expect somewhat higher credit losses for 2016. Thank you.
Thanks, Anders. Then, we open up for Q & A's.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press the zero one on your telephone keypad. If you wish to withdraw that question, do so by pressing the zero two to cancel. There will be a brief pause while questions are being registered. Our first question comes from the line of Pawel Dziedzic from Danske Bank. Please go ahead, your line is now open.
Yes. Hi, Pawel here from Danske. Just a question, I guess, on the dividend. You're keeping the 75% payout this year, and you say that there is still capital uncertainty for next year due to regulations. But if regulations don't come in kind of as harsh as you believe them to come in, I mean, you have a 420 basis points buffer and lending growth is decelerating. So, I mean, how will you address this extra capital buffer during 2016 or 2017 if regulations are actually less severe than what you think?
I think the most important thing is to get clarity, and before we start speculating, how are we gonna ensure the efficient use of excess capital? But I think we have proven in the past that there are ample set of tools to work with the case if you have excess capital. So, let's focus on firming in on capital regulation, and then we'll open up the next chapter about the possibility of handling excess.
Okay. And one question on, on NII, margins. You're saying that kind of front book or the, the expansion for mortgages repricing is coming to an end. Does that include, if the countercyclical buffer is increased further, or is that as things are today?
Well, that remains to be seen. But, I mean, repricing of capital requirements is very important in this new banking environment, and I think everyone rationally sees that in the market as we continue to get pressure on ancillary business and margins on ancillary business. So, I assume that there is capability to do repricing for further capital increases.
And just lastly, looking on loan losses, I mean, consensus is at SEK 1.1 billion for next year, so quite significantly up from 2015. Is that kind of what... I know that you won't guide that specifically, but you're saying loan losses to increase somewhat for the next year. Is consensus around right, or are they kind of still too defensive given the low oil price?
I mean, we don't want to guide. I think Anders was very clear in his message. It's low visibility. We want to be prudent and be transparent, talk about the challenges we see in the market. We are very proactive, but 3-4 basis points, if the oil price remains, it's a very low number, and that's why I think consensus should come up a bit. But, I mean, we don't want to guide.
All right. Fair enough. Thanks.
Thank you. Our next question comes from the line of Peter Kessiakoff from Carnegie. Please go ahead, your line is now open.
Thank you, and good morning. I would like to come back to your capital position, and you're stating that your current capital requirement is 19.9.
... Could you just refresh me what's included in there? Is the, I guess, that the coming countercyclical buffer hikes in Sweden and Norway to 1.5 is in that, but is it also some kind of crude estimate for stricter corporate modeling in the Swedish risk exposures?
Hi, it's Gregori here. No, it's actually what happens in the quarter compared to 19.6 from previous quarter is that since risk exposure amount goes down, we have the risk weight floor mortgage going up with 0.3 percentage units. So it's in the requirements, it's still the same basis as last quarter, meaning countercyclical buffer of 1.5%.
Okay, thank you. And also, if would it be possible to give some kind of color on the, like, provisioning and seen in Swedish banking and large corporates in terms of sector for this quarter?
You can find that in the fact book. It's primarily within manufacturing.
Okay. And then, a final question, would be for, if you believe that, like, the credit demand for the corporate sector will remain sustained, do you see sort of which risks, the positive and the negatives ones, do you see them sort of like the most considerable one? The positives being that further capital requirements could help, so like push margins up, or rather that the lack of demand will increase the competitive pressure.
Well, that's a very difficult question. I mean, we are guiding for slightly lower credit growth, 2016 over 2015. I think, like in any market, you need to be close to your customer to win the deals. You need to understand the structures necessary to become competitive. I do feel that we are making good headway on corporate lending. Out in the Swedish banking unit, we see good progress on mid-corporate clients and SMEs. We are under our sort of normal market shares in the SME sector, so there is definitely a capability for us to take market share there.
On mortgage lending, I think everyone will sort of have to adapt to the new amortization requirements, and that should have a positive effect on front book market share for us, who have already implemented the new rules, towards our customers.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Magnus Andersson from ABG. Please go ahead. Your line is now open.
Yes, good morning. First, a question on costs. You keep your guidance for 2016 of a level of towards SEK 16 billion. Can you give any light on what you expect for 2017? Is it still a flattish development you're targeting, or is there something else in the pipeline?
I mean, we have not yet guided for 2017. We're still working with 2016, and we have a dire agenda of investments and transformation ahead of us. As we see the year materialize, we'll get back if we feel that further guidance on cost is necessary.
Okay, and, yeah.
Cost is always important in this type of industry, especially with these interest rates and the massive digitalization trend that we see. So being cost efficient is going to be a competitive question.
Mm-hmm. Okay. And then, secondly, just on capital, I was wondering if you have anything more to say, any update on the expected financial impact from the Visa deal, where you earlier talked about SEK 1.5 billion-SEK 2.5 billion. And, and secondly, in addition to that, just if you can confirm that we should expect 75% of the net one-offs from the Visa and Hemnet deal to be, come back as dividends in 2016.
Yeah, both potential proceeds from Visa and Hemnet should be included in the base next year. On Visa, we have updated the range that we talked about a lot during the quarter. We have described the range in euro terms, and the range is EUR 140 million-EUR 180 million, is the expected income, one-off income will come from the sale of Visa. And the reason why we have adjusted the range is that we have received some more information from Visa Europe as to the allocation keys. But there's still a lot of uncertainty, and we can therefore not be more precise with the range and the level.
Okay. And finally, just you write in your retail section in the report about your increased efforts on consumer credits in Sweden that you gained SEK 1 billion in new loans there. Can you just say something about what kind of efforts or targets you have there? I guess your portfolio is, if I'm right, SEK 18 billion-SEK 19 billion or so.
Yeah, we see a slight increase in market share from low levels. But the positive is that we have... I mean, the back book amortized quite quickly, so in order to grow, you need to be strong on sales. We have intensified sales efforts. We're still investing in further capabilities on the digital arena to really make a larger impact in that market. So right now we're using old tools; it's more traditional ways to communicate with customers, and we should be pleased if we can continue to slightly improve market share during this year. And once we have installed the more digitalized services, we should go for a much larger ambition.
Okay, but, but what, what is it that you've done differently in 2015? You said that you've, you've, increased your efforts. What is it that you're doing now that you didn't do before?
We are more active in seeking out clients that are clients with us, but we know have consumer credits in other organizations or other financial institutions.
Okay, thank you.
Thank you. Our next question comes from the line of Masih Yazdi from SEB. Please go ahead, your line is now open.
Hi, good morning. Just a follow-up question there on Gregori's comment on NII and NGL in treasury. Could you give any more guidance on sort of the mix there? You said it's gonna be fairly flat in 2016 over 2015, but then NII will come down, and NGL will be less negative than in 2015. Could you give any more sort of detail on how you think those lines will develop separately going forward?
We, as you know, Masih, we don't give exact guidance on the levels. But you, what you can look at, however, is the fall in NII in treasury during 2015 is a good proxy, I would say, for what you would expect for next year. Then the equivalent will be coming back on NGL. But that's roughly - that depends on so many things during the year. The important thing is the combined NII, NGL level. I think there is a lot of strategy between those two lines, as you know, that depend on market movements and carbon buyback activities and positions that we actively take in treasury. So we just mislead you if we talked about a specific level.
Okay, understood. Just another one then on capital. I think you are the only Nordic bank that hasn't given any guidance on what you're targeting or what you think your management buffer should be. What are your thoughts on that currently? And, I mean, you've had a very sort of positive improvement of your Common Equity Tier 1 ratio, but also sort of has been high volatility. Should we see that high volatility in your ratio on your capital there as something that should sort of lead towards a higher management buffer than what your peers have? Or how should we think about your buffer in general?
I think what we have tried to do is to ensure that we have the flexibility to act in any given instance, and therefore we refrained to come out last year with specifics on buffers. I think we have been proven to take the right course here. We have still more than anyone else, and you're not questioning our capital buffers. You're more hovering into the excess side of that equation. And once we have firm knowledge, we will also set down the foot on that one. So I think as a CEO, I'm very happy to have the flexibility I do have. It's a pleasant problem. And then on volatility, Gregori?
Yeah. I think there, Masih, the short answer is it depend on market market movements. As you have seen during the year, the IAS 19 effect is now no longer impacting CET1 capital base, as we have more pension assets than we have liabilities. So the volatility from that factor, as long as we have that relation, has gone away. And then on RWA, it really depends on interest rates and FX development during the year.
Is that a good answer?
As always. Thank you.
Thanks, Masih.
Thank you. Our next question comes from the line of Rickard Henze from Nordea. Please go ahead, your line is now open.
Yeah, good morning, guys. I just had a few detailed questions. If we start off with the NII development, it, I can see in your details that the stability fund fee was SEK 50 million lower in Q4, and the resolution... Oh, sorry, deposit guarantee scheme, SEK 50 million. I think the deposit cost fell in Latvia. Can you confirm that the stability fund fee was SEK 50 million lower in the Swedish banking? And why did it decline quarter-over-quarter?
I can confirm that, Rickard. It's a normal reconciliation that you do at the end of the year when you look at the total balances throughout the year. And since we have been accumulating the stability fund fee throughout the year, at the end of the year, we looked at the base, and it was lower, and therefore there is a one-off kickback, if you want, back to the businesses, as part of that reconciliation.
Okay, so that should have been spread over the first three quarters, so to speak, over the years or so?
Correct. Correct.
And then you had a question on Lithuania, so Gregori.
Yeah, and, and that's correct. There is a one-off there of SEK 47 million because of the change of basis and also the fee level in the Lithuanian guarantee scheme. But that means also going forward, that the deposit guarantee scheme fees will be lower.
Okay. Thank you. The other numbers I can't really get together in a rational way is the asset management commission. Firstly, the volumes were up 4% quarter-over-quarter, despite the net inflow being, you know, 0.6% of assets under management. And also the margin seems very strong in the quarter, despite performance fees being in line with expectations. Can you, is there anything where I'm missing here? Have you increased your prices or is it a very positive mix change or can you shed some light upon that?
Yeah, there are three factors impacting. One is that we actually have net inflows in the quarter as part of the pension flow that we saw both in Sweden and in the Baltics. Then we've had, despite the stock market being quite volatile, on average, it was positive, so the performance has also been slightly positive in the quarter. And then lastly, the performance fees. I looked it up more specifically before the call, and we had slightly higher performance fees in the quarter if we also take into consideration the Baltics and Norway. So typically it's around SEK 50 million coming in in December. This quarter, it was closer to SEK 80 million.
All right. Thank you very much.
Thank you. Our next question comes from the line of Andreas Håkansson from Exane. Please go ahead. Your line is now open.
Yes. Hi, and thank you, and good morning. Just a few follow-up from what you have been speaking about. On NII, if I look in Sweden, there were some movements between treasury and, and so on, but then you also have the lower interest rates in the quarter. Can you tell us how big was that negative impact, just to see what a clean growth number would have been in the quarter? Then the second question, it's quite interesting that you have such a high quarter one ratio, and you say that you have no excess capital. Then you have one of your competitors in Denmark started a big buyback program with a much lower quarter one ratio.
So I wonder, when you say that you don't have excess capital, is that all you wanted to be conservative, or, or have you also got some sort of messages from the FSA that you should wait and see what's happening? Thanks.
If I take the latter question, then Gregori will answer your first question. I think we want to be prudent. There is no new message from anyone. It's just us wanting to be prudent.
Okay, thanks.
On the NII question, Andreas, I'll just come back to my earlier comment, really, that there was around SEK 75 million-SEK 100 million of traffic reallocation from treasury to the business, and most of that is referred to Swedish banking. So you could take a proxy based on deposits, maybe just to use a number, and that you should then when you look ahead. Of course, assuming that that won't be, you know, a regularity going ahead, that we have this reallocation. But it depends on deposit volumes, it would depend on spreads and market rates.
Yeah, I understood that move between treasury and retail. I'm just saying, how big was the negative impact from the lower short rates in the quarter?
We haven't provided a magnitude of that in the past. It's very difficult to give an exact answer.
Okay, thanks.
Thank you. Our next question comes from the line of Heine Luz from Goldman Sachs. Please go ahead, your line is now open.
I got one very brief question, sort of on asset quality. Like, you basically sort of flagged that you had sort of losses in Swedish manufacturing. Like, just generally sort of looking at Sweden as a sort of very open economy with a lot of sort of manufacturing, corporates, with the sort of slowdown seen in Asia, do you think sort of having sort of the occasional sort of loan losses in that area is something we should sort of get more used to? Or do you feel like those ones where we know loan losses on large corporates are always one-off by nature, but do you just feel like, okay, that's a specific case, or would you generally sort of feel like we reached a point where we might see a bit more loan losses, particularly sort of in exporting companies?
No, I think overall credit quality remains solid. And you need to bear in mind that our loss ratio is four basis points over the year, so, and three last year. So I can't see any signal effect in this quarter due to the losses that we have recorded.
The question is more coming from the point, given it's so low, more like it seems like the, the only direction would be sort of, it's sort of going up. So-
That is something we have said on these calls for the last five years. So, of course, there are factors that we don't control that might happen tomorrow, and then it will go up north. But credit quality, as we see it right now, is solid. And, I mean, we have, since 2009, worked with the stress test as our steering model, allocated capital and everything out to the business to cope with a more stressed environment. And, we are very proactively analyzing sectors that might be affected if this and that happens. So we want to be proactive, we want to be close to clients and understand the robustness of their business models. And so far, I think we have done a good job, and we have prevented things to materialize.
And that's why our relative credit loss level has been at the level it has been. So I'm very proud with the organization's ability to work through different sectors in difficult times. But nothing specifically making me feel that we have a deteriorating credit quality, apart from the language we just had on oil sector.
Okay, thank you much.
Thank you. Our next question comes from the line of Peter Kessiakoff from Carnegie. Please go ahead. Your line is now open.
... Yes, hi, Peter Kessiakoff here from Carnegie. A couple of questions from my side. First of all, relating to costs, as you've mentioned before, you will invest more into IT, and you mentioned that you have a quite high pace of development during 2016 with many launches. Just noting that the IT costs rose in Q4 to the highest level that we've seen in a couple of years. Could you give some more details on that? Should we expect it to continue increasing? It was up 4% year-on-year in Q4, and whether that would increase into 2017 as well, or if 2016 is where we reach a peak? I guess I'll start with that question.
I mean, thanks to the good efforts on cost in the organization, we could start certain investments slightly earlier than planned, and that's some of the effect that you see in the Q4. So, we just were able to do something positively and start projects earlier than anticipated.
Do you expect that the IT investment level to continue increasing throughout 2016, or is this the level that you want to be at?
No, we have said that our IT development costs will come up. How much was it now again, Gregori, help me there.
Around SEK 300 million.
Around SEK 200 million-SEK 300 million compared to last year. So that's part of the plan to increase capability to develop on IT.
Okay. Then just going on to your REA that declined, well, saw declining market risks, and you mentioned that it relates to fewer interest rate positions. Does that relate to the trends that we're seeing in treasury now and the positions that you've had in the past? And it's the REA towards market risk has halved since Q1, roughly, and should we expect that to continue into Q1 as well as NII and treasury declines further?
Yeah. Hi, Peter. They, they're actually not correlated. So the one relating to REA is not specific treasury. And the treasury positions we've talked about in the past are positions that we've been able to take when we've had a falling interest rate environment and a yield curve that's been that's not been flat, basically. And that possibility is diminishing as rates are at the levels where they are today.
Okay. And then just one last question relating to NSFR, which was at 107%, which is up from previous quarters. Is that a temporary rise that we saw now, and it should decline again in Q1, or is that level where you expect it to be going forward as well?
It's not temporary. It's, however, during the end of this year, being positively impacted by increased deposits, as we have seen an increased deposits and a bit more senior funding. We're not specifically steering towards a specific level yet, as the regulation is still a few years ahead of us. But we will be close to, you know, around that level, I would say, going forward as well. It's a bit high in the quarter, but it's nothing that is of temporary nature.
And with the inflow deposits, does that mean that you feel comfortable issuing less wholesale funding during 2016?
I think if I answer on deposits, I think that you will probably see more deposit inflows to banks as people become more risk-aware. That's something we've definitely seen in the Baltics, and we're starting to see it in Sweden as well. So deposits, everything else equal, will be, will be a much more preferable form of savings for households, I believe. And wholesale funding, would you like to answer on that?
Yeah, I mean, it's always when we do the funding plan for the full year, we make, you know, we look at deposit development, we look at loan volume development, and then we look at how much maturities we have, and that boils down then to how much wholesale funding we need to do. And that we change on a monthly basis, depending on flows and levels that we see. The funding plan for 2016 is still a bit higher than what we have maturities in the year. We have maturities of SEK 110 billion, and we're aiming to issue around SEK 80 billion of long-term funding. That might be adjusted depending on the other parameters that I mentioned.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Omar Keenan from Deutsche Bank. Please go ahead. Your line is now open.
Good morning. Thank you very much for taking the questions. I just had a question on corporate risk weights. One of your peers talked towards a 20 BPS potential impact from corporate risk weight harmonization from the Swedish FSA. I was just wondering whether you thought about whether similar impacts or what the sensitivity could be for Swedbank, and what kind of measures you think will be in place. Do you think it'll be a harmonized floor or more model fixes? And I just have a follow-up question on margins. Thanks.
Hi, Omar. We don't have any additional information from the FSA over the past few months, and therefore, we have not... You know, we're not in a position to make any estimate of potential additional requirement. So I'm not really sure what our competitor is basing the 20 basis points on. We will, of course, come back to this when we have more information.
Okay. Thank you. And then my second question is just your comments on corporate repricing. How confident are you that margins can be repriced? I mean, it was done very successfully with mortgages, but you had quite a bit of volume growth and not very much international competition.
... you know, given the margin pressure we've seen, how confident are you we can get that playbook again?
I think, if you look at the quality of Swedish corporates, they are very solid, and they can withstand that. That's my view, and I also think that the banking market has to be rational and reprice capital, because the underlying reason for that is to create more robustness. So, I'm pretty confident around those issues.
Just another comment on that. The international competition is, above all, linked to the largest corporates, multinationals, where Swedbank is not historically been very, you know, strong in that segment.
Great. Thank you. And just a last question. I understand that the front book expansion on Swedish mortgages has now ended. How much upside do you see to the back book margin coming through over the next couple of quarters?
We still have higher front book margins than back book margins. Last quarter, we commented that it was between 5 and 10 basis points. That has come. It's maybe a little bit narrower, but I would say between 5 and 8 basis points or something like that.
Perfect. Thank you very much.
Thank you. Our next question comes from the line of Anton Kryachok from UBS. Please go ahead. Your line is now open.
Thank you, and, good morning. Just two questions, please. Firstly, to come back to the theme of, excess capital. I think it is fair to say that regulatory uncertainty has persisted, all over the years, that, you've been, managing Swedbank, and at the same time, we, we saw, a gradual increase in, capital distribution. So I'm just trying to understand, what exactly do you need to see in terms of regulatory clarity, before you can become more assertive, on this front again? Is it just the Swedish regulatory debate that needs to be settled, i.e., corporate risk weights and things like that, or are you waiting more clarity on the global regulatory discussions, such as, Basel proposal on, credit risk weight and amortization?
That's the first question, please, and then the second question on your oil exposure. Have you actually seen any increase in NPLs? And if so, how much have you provided for those NPLs? Thank you.
Thanks for those two questions. The first one, I mean, my reading on the regulatory landscape is that we have been receiving new news constantly the last couple of years, so it's very difficult to say when clarity will be there. But I do believe that every one of us will have a very clear view when things are more halting, and we have regulatory clarity. Bear in mind, the crisis happened in 2008, 2009, and we're at 2016 and still experiencing new regulation and new surprises. So I think one needs to be prudent here, and I think the most important thing for me is that my customers know that I have a capital to support them in good and bad times. I don't want to tamper with that perception.
I feel strong. I do believe we have a positive momentum towards the client base, and I don't want to tamper with that perception at all. Once we have clarity, I think we have proven in the past that we are rational users of capital, and we will find ways to work with that capital base. Gregori, should you try to answer on the oil exposure?
Yeah. The short answer is no. What I said is that what I foresee coming up in the environment that our clients are working in is a rating migration, which essentially means that you will have an impact on portfolio performance going forward. But the short answer to your question is no.
Thank you. That's very clear.
Thank you. Our next question comes from the line of Jan Wolter from Credit Suisse. Please go ahead. Your line is now open.
Morning, Jan Wolter, Credit Suisse. Thanks for taking the questions. A couple on lending growth. What kind of growth levels do you expect now for 2016? And perhaps if you look a bit further out to 2017, and especially if you do expect corporate lending to continue to come down. That's the first question. On mortgage growth, running now at 8% or so in the Swedish market, would you expect that the amortization requirement will drive that down in any way, if you look at the market as such? Third question is on interchange fees. Do you think that you'll see any impact in 2016, from that cap being implemented in December? Thank you.
Hi, Jan. Thanks for your questions. Sorry, we in credit growth, for 2015, we talked about 4%-5% credit growth. For 2016, we're talking about 3%-4%. It's too early to make any assumptions about 2017. When it comes to amortization, I would say that it will probably not have huge effects on things initially, because it's new credits. And we have had amortization requirements on LTVs over 70% in the past. So that is something that has been there for a while. But of course, the stagnating house price inflation will, of course, affect volume growth. And that is not due to amortization requirements. Primarily, it does have an effect, I do believe, but more a minor one.
The bigger one is that house price inflation over the last years has been so significant that fewer and fewer people can afford the present pricing levels, and that is actually driving down the house price inflation more than anything else. So look at the demographic, look at our house price index, and look what macroeconomists say about people in the urban areas and their cash flow. That is the driver going forward. And I do believe that cash flow has reached sort of its capacity. So you will get a two-tier market where the really good spots will continue to price upwards because there are quite a few people that can afford paying whatever they need to pay in order to get access to apartments.
But the broader market has a capacity ceiling that it has gradually been reached. That's how I read the market.
And then on the, on the interchange fees. Sorry, do you have any follow-up question on that?
No, that was very clear. Many thanks.
On the interchange fees, it's net neutral for Swedbank across the group. As you know, the fees or the cap came into effect in December this last year, 2015, and we have a mixed impact. In Sweden, it's net positive, and in the Baltics, net negative, slightly, which combined for the group is net neutral. And as you know, it impacts both the issuing and the acquiring side of the cards business. That's why we have a net impact, because which is neutral, because we are also large in the acquiring side of the business. But that remains, I think, competition and development going forward will, of course, dictate how this develops.
Many thanks for that. Very clear.
Thank you. Sorry, please go ahead. Okay.
I was just thanking you all for these questions. So please, next question.
Thank you. The next question comes from Adrian Cighi from RBC. Please go ahead. Your line is now open.
Good morning. Thank you for taking my questions. Two follow-up questions, please. One on NII and one on the oil exposures. On the front book, mortgage pricing, Swedbank is the only bank of the four largest banks that has not increased its list price in the three-month mortgage product from for this quarter. Does this reflect a strategy to defend market share, or is there maybe a focus on longer-term products? Any color here would be very helpful. And the second question on the oil exposures. Thank you very much for the detail provided already. But just to confirm the SEK 18.3 billion oil sector, does this include both the committed and uncommitted exposures? And is it possible to give us the current coverage levels for this level of exposures? Thank you.
On the mortgage prices, Adrian, we follow the market. It's a competitive market, and we adjust price when we think it's appropriate. We follow, of course, both the market rate development, but also how competition changes prices. You know, over the last three months, we have stated the current average price that you see that we have published. Of course, that will, you know, change potentially, depending on how competition and market rates move from here.
Okay.
On your question on the offshore oil-related exposure, it's the net, so there are no commitments in that number.
Thank you.
Thank you. Our next question comes from the line of, Adonis Catic from DNB Markets. Please go ahead. Your line is now open.
Yes, thank you. Michael, I just had a follow-up question, regarding your guidance on asset quality, because, you said that one should expect higher loan losses in 2016. Were you referring to the, loan losses that you saw in 2015, i.e. the four basis points, or were you talking about that consensus would need to increase their loan loss expectations for 2016? And then my, second question relates to this, single impairment in the manufacturing sector, which you saw both in the Swedish banking and also LC&I. Do you see any connection between these two, other than that they are both in the manufacturing sector? Thank you.
No, there is no connection between the two losses in the quarter. So it's two separate things. No trend in any sector or geography or such. And my guidance was based on that four basis points in any scenario is a very low credit loss level. So that was what I was speaking about.
Okay, thank you. That was very clear.
Thank you. Our next question comes from the line of Yafei Tian from Citi. Please go ahead. Your line is now open.
Hi, morning. I have two questions. The first is around your RWA or REA exposures, particularly around operational risk. Do you have an estimate of what is the implementation of the new standardized framework going to have, going to impact your operational RWA inflation? And then secondly, I was quite pleased to see that your leverage ratio improved 50 basis points QoQ. Do you—can you give more colors around what's driving the reduction in the leverage exposure that is contributing to the increase in leverage ratio? Thank you. On RIA, we haven't guided and don't have an exact number what that might be, but what we are sure of is that it will be higher, the requirements coming from a standardized approach.
On the leverage ratio, it's just we have a smaller balance sheet at the end of the year. Primarily, as you can see that in the short-term debt outstanding and the equivalent in deposits with central banks, that is primarily reducing the exposures.
Okay, thank you.
Thank you. We have a follow-up question from Pawel Dziedzic from Danske Bank. Please go ahead. Your line is now open.
Yes, hi, just two follow-ups. One, the first one is on tax. Could you give us an update for kind of the long-term tax rate now that the tax has been lowered in Norway?
We have a short explanation in the report this quarter, with the first reduction impacting slightly, lowering the tax rate. But there is still, we cannot guide specifically going forward, and I still think there is uncertainty if you look at 2017 and 2018, is exactly how the decline of the corporate tax rate will be implemented in Norway. So I think we will need to wait for more clarity from the tax authorities in Norway before we can comment on that.
Okay. Last question. Funding, could you just say where you expect the funding cost to go during 2016 compared to now?
Impossible to say, of course. I mean, we during 2015, we took a view in the beginning of the year that the situation was very good in the funding markets, and therefore, we did a little bit more funding during the first half, which proved to be right, because the spreads widened a bit towards the end of the year. It's difficult to say. It's a volatile market out there, and we try to time our transactions so that we can obtain the best possible funding price. But it's difficult to say when you look at the full year.
Treasury has a wide mandate to operate in this environment. I think that has helped timing different transactions through the last years, and hopefully that will continue to prevail.
Okay, thanks.
Thank you. There appear to be no further questions. I return the conference to you.
Well, once again, thanks for being so active, everyone, and thanks for following us, and we'll be there if you have further questions.