Ladies and gentlemen, welcome to the Swedbank second quarter report 2018. Today, I'm pleased to present Gregori Karamouzis. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Speaker, please begin.
Thank you. Good morning, everyone, and thanks for joining us on this conference call presenting Swedbank's Q2 financial results. With me in the room, I have our Chief Financial Officer, Anders Karlsson, our Chief Risk Officer, Helo Meigas. Following their brief introductory remarks, you will get a chance to ask questions. Anders, please.
Thank you, Gregori. Good morning, everyone, and thank you for joining us on this call in the middle of the summer, presenting our Q2 results. We have generated yet another strong result this quarter, supported by strong loan volume growth, higher commission income, and the number one-offs that we communicated ahead of today's interim report publication. Return on equity lands at a strong 19.2%. Excluding the one-offs, we achieve a return well in line with our long-term target of 15%. I will walk you through the key P&L lines and sum it all up before I say a few words about capitalization, and Helo will then go through asset quality before we open up for questions. Net interest income is stable quarter-over-quarter. Diversified lending growth of in total SEK 35 billion, both for corporates and private individuals, contributes positively.
We are particularly satisfied that we grew our Swedish mortgage book in line with our back book market shares, while maintaining client prices largely stable. Corporate lending was strong, especially in large corporates and institutions. Over a longer horizon, margins in both mortgages and deposits have been stable. In this quarter, margins are mixed, as lending margins declined slightly while deposit margins improved. In the private segment in Sweden, we saw the same technical impact as in previous quarters. The market rates increased, and mortgage margins declined somewhat as customer rates remained stable. At the same time, customer deposit rates did not change, and as a consequence, deposit margins improved. Corporate margins had, this quarter, a slightly negative impact on NII. This is due to the parts of the book have floored or administratively set customer rates, leading to somewhat lower margins as market rates moved up.
As announced in the press release from July the third, we received the final level of the resolution fund fee this quarter. The fee for the full year of 2018 will be around SEK 450 million, higher than last year. The risk-adjusted fee level implies an increase of SEK 128 million for the remaining part of the year, leading to a negative quarter and quarter impact of SEK 64 million. The resolution fund fee will next year be reduced to 9 basis points, which will reverse this year's increase. An extra day in the quarter had a positive impact. As I'm sure you have seen, the Swedish krona has weakened against all major currencies during the past couple of quarters, and so again this quarter. This is net positive for our result, strengthening income but increasing expenses.
Group Treasury's net interest income is weaker this quarter as the short-term US dollar funding market conditions were less favorable compared to Q4 and Q1. Our second most important income source, net commission income, was strong in quarter two. Card payments are typically stronger this quarter, and the exceptionally good weather supported income more than usually. In our asset management business, mutual fund inflows continue to be solid in all our home markets, with around SEK 7 billion of net inflows in the quarter. Both Sweden and the Baltics attract more savings at the same time as we see positive sales in all customer segments. Equity and mixed asset funds saw the largest inflows. Assets under management grew in total by SEK 54 billion in the quarter, mainly due to positive asset value development. Income from lending and guarantees increased due to higher customer activity.
Turning to trading and other income, overall, the political uncertainty during the past few months led to somewhat lower customer activity, although FX and interest rate hedging activity continued at good levels. The net gains and losses result in Group Treasury improved quarter-over-quarter due to lower negative FX swap valuation effects than we saw in the previous quarter. Looking at Group Treasury income in more detail for the full year of 2018, we expect the covered bond buyback activity to have a smaller impact in the overall NII and NGL result. A s a consequence, we foresee a lower NII and higher NGL compared to last year. I would like to remind you that the covered bond buyback activity is income neutral over time.
As communicated last quarter, we expect the combined NII and NGL incoming group treasury to be a couple of hundred million lower in 2018 compared to 2017, assuming that market rates, basis swaps, et cetera, are stable. Our other income was this quarter boosted by a couple of one-offs.
The sale of UC resulted in a tax-free capital gain of SEK 677 million, and a positive arbitration outcome relating to Visa added SEK 85 million of tax-free income. In addition, share price developments also relating to Visa increased income by SEK 50 million. The core parts of this income line performed well in the quarter. The revenue streams that we book under this income line are part of our core operations and have, throughout the years, demonstrated steady growth.
They relate primarily to our insurance business, the credit card joint venture, Entercard, and other associates such as our ownership in savings banks. In this quarter, we especially saw higher net insurance income due to higher volumes and lower claims. Now turning to volume growth.
The stabilization of housing prices countrywide in Sweden has led to that the market has found its new level on transaction prices in most geographical locations. We expect continued solid mortgage volume growth on the back of the strong economic fundamentals, demand, and natural turnover in the market. The now established new amortization requirement has, as expected, have a relatively insignificant impact, with around 5% of our new lending in the quarter being affected.
On the corporate side in Sweden, we have had a very high activity across sectors in this quarter, driven primarily by property acquisitions in the real estate sector, but also bridge financing across sectors. The demand for larger volumes are, however, still found in the property management sectors, such as residential properties and industrial and warehousing.
As many of the transactions in the quarter were event-driven or of short-term nature, we don't expect similar growth rates for the remaining part of the year. Lending in the Baltic countries continues to be solid, equally in the private as in the corporate sectors across all three countries. Estonia and Lithuania demonstrate the highest growth, while Latvia still grows somewhat slower. The SEK-euro rate movements impacted loan volumes positively in the quarter.
Deposit volume growth was strong in the quarter, growing by SEK 31 billion in the business, driven primarily by tax refunds in Sweden and continued growth in the Baltics. The solid macroeconomic conditions in our four home markets are continuing to support our commission business. Income is steadily growing in tandem with growing economic activity, and the economic outlook in our four home markets remains strong and broad-based.
However, the increased protectionism globally dampens the growth prospects. Expenses are in line with our guidance for the full year to be below SEK 17 billion. While the year's first quarter was to a large extent dedicated to the IT and business development reorganization, the IT development pace is in the second quarter picking up according to plan. FX movements are weighing negatively on the expenses line this quarter, but as mentioned earlier, positive for income and net profit.
Furthermore, in order to improve the data quality regarding risk management and reporting of risk, financial, and regulatory data, Swedbank has been developing a new data warehouse as well as a risk system. Swedbank has decided that, among other things, parts of this development program should instead build on Baltic-based solutions already established within the group.
As a result, impairments totaling SEK 280 million will be recognized in the quarter. As the Swedish parliament this quarter decided to lower the corporate tax rate from 22% to 20.6% in two steps by 2021, we revalued our deferred tax assets and liabilities, leading to one-off effects in the tax expense line and other comprehensive income of around SEK 100 million. The first step of the new corporate tax rate of 21.4% will be applied to next year's profit.
We therefore expect our effective tax rate from next year to be in the range of 20%-22%. Asset quality continued to be solid. Turning to capital. Capitalization remains strong, with the CET1 capital ratio of 23.6%, implying a buffer to the Swedish FSA's minimum requirements of around 190 basis points. The net profit, excluding dividends, impacted the CET1 capital base positively, while slightly higher inflation expectations and lower long-term interest rates impacted the pension valuation negatively.
The strong loan growth in the quarter increased risk exposure amount. Out of the total increase of SEK 23.7 billion, corporate lending and FX impacted the most. But as mentioned earlier, we don't expect similar growth in the corporate loan book for the remaining part of the year. Helo will now walk you through the developments in asset quality.
Thank you, Anders. I shall give now a short overview of credit in Q2. Again, it is a strong quarter with stable asset quality. As Anders told earlier, we recorded volume growth in all our home markets with total lending up by SEK 35 billion, of which SEK 6 billion was FX effect. The main growth driver was mortgage lending, while growth in corporate lending was also strong.
Our lending to housing development in Sweden, which I have been talking about last quarter, is stable. Exposure as of end of June in this sector is, in Sweden, was at SEK 18 billion. Now moving to credit impairments. There was a positive net impact in Q2 in the amount of SEK 135 million. Credit impairments increased in Swedish banking, whereas credit impairments decreased in large corporates and institutions and Baltic banking.
There was no significant net increase in individually assessed provisions. A small increase of SEK 84 million in credit impairments in Swedish banking is related to a few negative rating migrations in the SME portfolio. Then a positive effect on the total level in Q2 comes from the improved ratings and changes in portfolio composition in two business areas, Baltic banking and large corporates and institutions.
In LC&I, the reversal of SEK 126 million is primarily the result of one smaller recovery and modest rating improvements in certain parts of oil-related business in Norway. In Baltic banking, we had impact both from improved ratings and adjustments from portfolio composition, which resulted in net positive income of SEK 87 million for the quarter. With this, I hand back to Anders.
Thank you, Helo. To conclude, the quarter's high customer activity supported a very strong profitability, excluding the large one-offs, and we achieved a return on equity well in line with our long-term target. Thank you.
Thanks, Anders. Thanks, Helo. Operator, we are happy to take any questions that we have from the lines.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero-one on your telephone keypad, and you'll enter a queue. After you're announced, please ask your question. Our first question comes from the line of Magnus Andersson from ABG. Please go ahead. Your line is now open.
Yes, good morning. A few questions related to NII. First of all, on the household mortgage segment, we are seeing now clearly in Sweden among the four large cap banks that two of them are suffering in terms of volumes and also pricing while the other two experience flat still a flat lending rate development and the volume growth roughly in line with the market. What's your reflection on that? Do you feel any pressure or see any pressure coming into lending rates so that it's just a question of a lag here, or do you think that it would remain stable? That's the first one.
Okay, thank you, Magnus. I think I iterate what I have been saying before, that our long-term ambition is to grow in line with our back book market share. We will not do it on the back of risk or price. W hat we are doing is that we are keeping our prices stable versus the customers. J ust to remind you, I think it is important to remember and understand that we are all over Sweden, in all geographical areas, and not only towards tenant owner associations, on the opposite, actually, much more towards single-family homes. W e will continue to try to keep that strategy.
Okay, thank you. S econdly, just on corporate lending margins, you mentioned that you had some negative impact in this quarter from administrative asset rates. Two questions on that. What kind of volumes are we talking about? S econdly, what would it take for you to reprice those volumes?
Thank you, Magnus. I think it was two things. One is the administratively set rates, and then it's also part of the corporate portfolio is floored, as we've been talking about. Roughly speaking, around, I would argue around SEK 80 billion is administratively set rates. W e have a fair amount of around, let's say, SEK 100 billion of floored loans. There are different dynamics.
Yeah.
I mean, technically, the administratively set rates can be changed in the same manner as we can change it on the mortgages or anything else. So it's entirely up to us to do that, but we haven't done that in the quarter.
Okay. Would you await the short-term rate development? Is that what you're waiting for, to see whether it stabilizes on a higher level or?
Yes.
Okay. Thank you. And then I have a more detailed question just on the business areas. I see on the Swedish Banking that you have moved some volume from Swedish Banking into the large corporates, not much. It's SEK 2 billion, but what's the NII impact between the business areas from that?
You're very observant, Magnus, and you're correct, and it's around SEK 25 million in NII.
Okay, SEK 25 million. Thank you. And then finally, just on headcount, you took a restructuring charge in Q4. And when I look now at, as of the thirtieth of June, I don't see much or any movements in the headcount, really. What should we expect here going forward?
You're right again, Magnus. Just to give you a feeling for the process, it's one of the largest organizational changes that we have done in Swedbank for the last 10 years. So the first three, four months was very much about actually doing the reorganization and putting new management in place in all, basically all levels. Then at the same time, we needed to keep the development pace up. So the work with competence shift is really taking off as we speak. So it is a bit more backloaded than we anticipated. But realistically speaking, you should see signs of this coming in Q3 and Q4 rather than Q1 and Q2.
Okay. Thank you very much.
The next question comes from the line of Andreas Håkansson from Exane. Please go ahead. Your line is now open.
Thank you. Good morning, everyone. When Magnus asked on, on the mortgage margin question, and I read that as you think that margins are relatively stable from here, can I then just ask on, on volumes? We've seen that the market has been slowing from 7.2, I think, to 6.8. When you reported your Q1 numbers, you said that you, you saw a slowdown in activity levels in March. Now, you've been talking about a recovery. Could you tell us what's your expectations of, of mortgage volume growth going forward from here? Thanks.
Thank you, Andreas. Yes, we did exactly that because March and the first half of April was weaker, probably on the back of very strong January and February. But it picked up again in the latter part of April and was coming back to sort of a normalized level in May and June. I can't give you a number. I think that there is a natural turnover which drives growth. There is what we call dynamics within our own portfolio, which is that people are borrowing more on the back of their houses or apartments, which is also driving growth. And then you have new lending. We foresee that it will be continued solid, but the exact number is very difficult to give you.
Oh, that's fair enough. Then just on the RWA growth, you said that on the corporate side, there was some bridge financing and so on, going on. So, then you said that the volume growth will not continue. Could it also be that some parts of the corporate volumes, i.e., the RWAs, could be falling out in the third quarter? And then did we see the full NII impact from those volumes, or did the RWA growth and volume growth happen more towards the end of the quarter? Thanks.
Thank you, Andreas. I think there are two things to remember with the composition. If you look at the composition, I would say that around SEK 6 billion of the growth in large corporates is bridge financing, which will most likely mature in Q3. And some of that is also less collateralized than we usually lend when we do longer tenors, so implying that it's likely higher risk weights on those. And your second question was when you can't see the NII impact so much in the quarter. You're right, because a fair amount of the volume came in late in the quarter.
Last question on the same topic. You normally talk about the 15% RO hurdle when you do lending. Those corporate volumes, could we assume that you'd put them on at that type of profitability as well?
We have a hurdle applying to everything that we do, in terms of business with corporates.
Excellent. So then it's fine you do it, of course. Thank you.
You're welcome.
The next question comes from the line of Peter Kjell from SEB. Please go ahead. Your line is now open.
Yes. Hi, thank you. Just two or one follow-up question. First of all, on both Magnus and Andreas' questions relating to the large corporate lending. And when we look at LC&I, even if we then adjust for the moved volumes, then lending volumes grew quite a lot. And as you mentioned, SEK 6 billion was some kind of bridge financing. Could you give perhaps a comment on how much NII impact those SEK 6 billion gave in the quarter? And what kind of assumption we should make there into Q3 in terms of how much drops off? That's my first question.
Yes, thank you. Unfortunately, I cannot give you detailed information about the SEK 6 billion NII impact in the quarter.
Okay, fair enough. So then on costs, I mean, when we look at the cost level for first half of this year, we get to just below SEK 17 billion, so SEK 16.9 billion, roughly, annualized. And I hear what you're saying on that we should see some headcount reductions during the end of this year. But given the FX movements that have been a significant headwind on cost and a tailwind on the income, of course, is there any risks to the cost target, given how close you are to the cost cap already now?
The answer to that is no.
Okay, very clear. Then I guess the last one, in terms of treasury, just the impact that you're commenting on relating to NII and net gains and losses, is there anything besides the less covered bond buybacks within treasury net gains and losses that makes it go from having been negatively for a long while to now being positive in the quarter? Is there anything special in there?
There is one additional effect, which is that there is less volatility from the fair value option. But other than that, what we have seen is that the interest from investors for us to buy back has gone down significantly during the year. So we are behind what we were planning, and we will see how it evolves for the remaining part of the year.
Okay. But would you, I guess, assume that that number moves, the net gains and losses on treasury moves back to negative territory, from Q3 and onwards, and Q2 was somewhat of an outlier?
I think it is extremely difficult to guide on that. It depends on the market environment, the conditions, and how the investors into our bonds will react to that. So I can't guide you on that, Peter.
Okay, fair enough. That's it for me. Thank you.
The next question comes from the line of Bruce Hamilton from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning. Just a follow-up question on the growth in RWAs versus the loan growth. So, I mean, I guess in the quarter, your RWAs grown 6%, loans 2%, and I get that some of that's due to bridge finance, and some of that's due to mix. But as you look forward, in terms of the pipeline of demand, the fact that maybe there's a bit more demand from corporates and Baltic than previous, how do you see RWA growth trending versus loan growth? Should we assume RWAs probably do grow a bit more strongly than lending volumes from here, or would you expect it more, you know, in, you know, pretty similar levels?
I would. Thank you. I would expect it to grow in tandem, so more in line between the two.
Okay, that's all. Thank you.
The next question comes from the line of Kim Sherwood from Deutsche Bank. Please go ahead. Your line is open. Kim, your line is open.
Hello, can you hear me now? Just, I might have missed it, but I think you made some comments about commercial real estate. Could you just reiterate what your outlook there, how do you see the Swedish commercial real estate market? And then just one more, I think you mentioned the very good weather that has been good for the commission income. Is this having an impact on the agricultural sector? And is this something, I mean, we should think about? And then how do you think about that? Does it impact you? Thanks.
Thank you. I actually said property management, but that's marketing words. What we have seen in the quarter and where we see a continued demand, where the large property managers are showing interest again, is primarily within the residential area, but also within industrial and warehousing, primarily within logistics, but also within dairy, whatever that's called in English. So it's that type of acquisitions that you have seen in the quarter, and I assume that it will continue, but it's very difficult for me to say. And as far as the weather and the impact on the agricultural portfolio, I hand over to Helo.
Thank you. We have a agriculture exposure, which is SEK 68 billion, out of which about 40% is related to forestry and then also private housing. So the total of the agriculture, which has an impact from the current weather conditions, are lack of rain, is a bit over SEK 20 billion. And there we have a very diversified portfolio, but of course, there are parts of our clients who are suffering from the extreme drought we have in Sweden. We are having close dialogues with all of them. We are ready to discuss, and we have also told them we are ready to discuss any liquidity help what they need, but we don't see currently that it will have any significant impact on credit impairment.
Okay, thanks. That, that's very clear. Thank you.
The next question comes from the line of Sofie Peterzens from JP Morgan. Please go ahead, your line is now open.
Yeah, hi, here is Sophie from JP Morgan. So, I know you had some recoveries in the large corporate and institutions division. However, excluding these recoveries that you had from the oil sector, did you take additional provisions in Sweden? Because if I look at the macro or GDP forecast for Sweden, they've actually come down a little bit for 2019 and 2020. And how should we think about kind of going forward, especially on the corporate side? And my second question would be on the Swedish mortgages when moving from Pillar Two to Pillar One. One of your competitors mentioned yesterday that it's going to have a core equity Pillar One impact by end of the year when this change takes place. How should we think about the impact for Swedbank?
Will it have an impact on your core equity Pillar One? Thank you.
If we start with the credit impairments in Sweden, as I mentioned at my introductory small speech, yes, we had some rating migrations in the Swedish banking business area related to the SME business, and maybe something small also on the LC&I side. But overall, we are talking small numbers, and that's why I wouldn't look into it as anything as a reflection of a trend. So credit quality stays stable in Sweden.
On the Pillar Two to Pillar One move, you're perfectly right, and it will have a substantial effect on the ratios, both on our CET1 ratio, but also on the minimum requirements. Our best estimate as we speak is that the common equity Pillar One ratio will fall to 16%, and the minimum requirements will fall to 14.8% roughly, which gives us a buffer of 120 basis points. It's important to remember two things, having said that. One is that the size of the buffer in absolute terms is more or less unchanged. And secondly, while you move from Pillar Two to Pillar One, the volatility that we have been talking about coming from FX and other parts will also come down a bit. But you're right, it will be an impact.
That's very clear. Thank you.
The next question comes from the line of Adrian Cighi from RBC. Please go ahead, your line is now open.
Hi there, this is Adrian Cighi from RBC. Thank you for taking my questions. Two follow-ups on NII, please. You've increased the estimate for interest rate sensitivity again this quarter to SEK 6.2 billion, but we've seen that the corporate floor dynamic is sort of holding some of it back when Stibor moves up, clearly indicating it's not a linear impact. Could you give us an estimate from a small increment increase, like 25 basis points or 50 basis points? And then maybe one that's impacting the outlook on mortgage rates. We've seen the FSA comment on the consumer protection features of new mortgage providers a few weeks back. How do you see these new measures or requirements impacting the level of competition, or at least the outlook of competition for the future in mortgages?
Thank you very much.
Thank you. Yeah, you're right. We give you the number for 100 basis point move, and as you rightly point out, it's nonlinear. So, to simplify things, for the part of the corporate portfolio that is floored, there will be no positive impact for the first 50, or in this quarter, a little bit less, of movements in Stibor. And that is also why you see that the number is changing, because we are getting closer to zero. I don't have any number for you on the 25 or the 50 basis points. But you're right, it's nonlinear.
On your second question, around the consumer protection and the small newcomers coming into the market, I think it is very good that the Swedish FSA are looking into the market as a whole. As you know, the move from Pillar Two to Pillar One for mortgages is the reason for that is that they want to keep a level playing field in the Swedish mortgage market. And I think it is fair to keep a level playing field in the Swedish mortgage market as far as the smaller player comes as well. As far as pricing dynamics on the mortgage portfolio, what we have said for quite some time now is that we have held our prices stable. We have maintained a healthy growth. We have not taken small movements in Stibor into consideration.
The big question is when the repo rate will be changed by the Riksbank, but I don't know when that's gonna happen.
That's fair. Thank you very much.
The next question comes from the line of Riccardo Rovere from Mediobanca. Please go ahead, your line is now open.
Good morning. Good morning to everybody. A couple of questions, if I may. The first one is on the capital gain from the sale of shares in UC. Is it gonna be part of any profit that you, I think you will distribute it to shareholders at some point when it's gonna come the moment to take this decision. This is the first question. The second question I have, would it be possible to add a little bit more color on what is driving the reversals in large corporate and in the Baltics too? The reversal seems to be completely in large corporate, completely driven by Norway.
We have been seeing significant pickup in loan loss provisions in, let's say, over the course of the end of 2016, and then first half of 2017 till the, maybe till the end of 2017. Then the quarter, the fourth quarter, the amount of provisions related to Norway collapsed, and then you have reversals now, pretty significant. So what is driving that? How can it be possible that your model, I would imagine your internal models are so, I don't know, probably reactive to the outlook, to the macro outlook there, and maybe to the oil price. Is that the case?
Thank you, Riccardo. To answer your first question, yes, the capital gain from UC will be paid out. Then I hand over to Helo.
On the reversals, yes, as you say, in the large corporates, the reversals came primarily from the Norwegian part of our business, and there were two aspects to it. One was we, as a result of our active restructuring, we actually had a restructuring gain from one of the small exposures, which was oil-related. And secondly, we did have some positive rating migrations from the parts of the portfolio, which was impacted from the stronger oil price. However, I wouldn't guide you on a quarter-on-quarter reversal from this portfolio, because although the sentiment is better, there are parts of the business which are not which are still under stress, everything related to rigs and the supply services, where the overcapacity is still big.
So there is an ongoing restructuring in Norway, which the outcome of it is still to be seen. And then as to the Baltics, a couple of events were there, where we had some release of provisions due to significantly improved rating on one larger client. And then we did also have positive rating migrations in the Baltics in general, and some of the reversals from the write-offs earlier. So, but again, nothing to guide you as a continuous trend going forward.
Okay. No, no, no, I'm not asking for a guidance. Just, I'm trying to understand how important is the oil price when it comes to, when it comes to, for us to understand how your internal models work. On the Baltics, when you say positive rating migrations, are you talking about the, let's say, the cash flows generated locally, or you referring mostly to, let's say, more valuable collaterals or anything like that?
Under the IFRS 9, what you do, you actually look at the stage transfer. So, you calculate the credit impairments based on the lifetime value. So, if you have companies who have improved their credit ratings, it has even nothing to do with the underlying cash flows. You would see an impact on the credit impairment line.
Okay. So basically, there are less, let's say, less migrations, I would imagine, from stage one to stage two and eventually stage three. This is what you're saying?
Yeah, or it could also be that the companies are moving from stage two to stage one.
Yeah, yeah, of course.
You get the release.
Got it. Okay, thanks.
The next question comes from the line of Jacob Kruse from Autonomous . Please go ahead. The line is now open.
Hi, Jacob from Autonomous. I just wanted to ask two things on the NII. So you talked a bit about how the volumes you put on the risk weights came late in the quarter and therefore, I guess we would expect NII to grow more next, or to kinda catch up next quarter. Then at the same time, you're saying there were some temporary commitments, bridge financing going on in Q2 that I guess helped NII relative to risk-weighted asset growth. You know, in combination, are you saying you're under-earning relative to capital consumed in Q2, or the other way around, over-earning relative to capital in Q2, when it comes to NII?
And then my second question was just when you talk about your rate sensitivity, the SEK 6.1 billion, is that how much of that is SEK rates? And secondly, what is the timeline you're looking at? Is that over a 12-month period, or, you know, how much could we expect in the first, say, one quarter or six months following a Riksbank rate hike? Thank you.
Thank you. To start off with the latter one, it is an instant move of 100 basis points. So, in that sense, it gives you flavor, but it's a fairly unrealistic change, to be honest, but that is the way it has been constructed. On your first part, I really, you confused me with either/or, so I think Gregori picked up on it.
Yeah. Hi, Jacob. I would answer that on the margin, REA increased more than what we earned, basically. So you would see the reverse on the margin in the next quarter.
Okay, perfect. Thank you.
The next question comes from the line of Nick Davey from Redburn. Please go ahead. Your line is now open.
Yes, good morning, everyone. Just two follow-up questions really, please. The first one on capital. Could you just talk about the capital buffer or management buffer of 190 basis points? I guess that all else equal will come down in future quarters as the countercyclical buffer goes up. But just in general terms, do you think, given this level of capital volatility that we're seeing, 100 basis points moving quarter on quarter, that that kind of a capital buffer, let's say, circa 150 basis points, is enough? And then the second question, just back to the treasury NII. Obviously, you've had a half now of volatility in the US dollar funding markets. Your guidance on treasury revenues down a couple of hundred million SEK seems unchanged.
I just want to get, if possible, a bit more comfort, I suppose, that if we go into a world of continued dollar funding volatility, that there's no risk to the NII guidance. It's just sometimes difficult to track what's still in the treasury NII. So is all the dollar arbitrage out of treasury NII now, please? Thanks.
Oh, yeah. The first one on, you have seen that the Swedish FSA has indicated that they will hike the countercyclical buffer with another 50 basis point next year. It hasn't been decided yet, but they send out a signal. We haven't been really specific on the buffer requirements, and we continue. We are comfortable with the position we have. We manage our capital and our risk exposure amount dynamically. When the Pillar Two to Pillar One move is done, the volatility will come down. So I'm from a capital and a buffer perspective comfortable with it.
And on your second question, as far as group treasury and NII guidance comes, I do appreciate that it's difficult for you to follow one specific line since there has been and will be traffic between NII and NGL in treasury, that I alluded to, from, for example, buybacks. But to your question about the U.S. Fed, no, that is not out of the books. But I can't give you a fair guidance on respective role. What I'm saying is that the traffic will be less between NGL and NII in 2018 versus 2017, and I'm also guiding you on the level of the treasury result. That's what I can give to you.
Understood. Okay, thank you.
The next question comes from the line of Pavel Iljushenko from Goldman Sachs. Please go ahead. Your line is now open.
Hi, good morning. I have one follow-up question. Could you perhaps clarify what drove the decrease in the buffer for risk, mortgage risk weight floor that fell 30 basis point this quarter? I'm wondering if in any way it is associated with mortgage growth that perhaps comes at the higher risk rates, and if the mortgage growth continues, as you say it would, over the next quarters, should we see more of that effect coming in? Thank you.
Oh, it's Gregori here. It's just a pure mathematical effect. As the total risk exposure amount goes up, that particular requirement is calculated over REA. So as expressed in percentage terms, it becomes lower.
Okay. So there is no change in risk rates on which you're lending that is stable?
No, no, it's pure mathematics.
Okay. Thank you very much.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. As there are no further questions, I hand back to the speakers.
Thank you, and thanks, everyone, for participating so actively. We wish you a good summer. We will see some of you on the road later today and in London tomorrow, and on Friday, together with our CEO, Birgitte. Thanks, and have a good summer. Bye-bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.