Ladies and gentlemen, welcome to the Swedbank third quarter report 2016. Today, I'm pleased to present Gregori Karamouzis, Head of Investor Relations. 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. Gregori Karamouzis, please begin.
Thank you. Good morning, everyone, and thank you for dialing into Swedbank's presentation of the Q3 results. With me in the room, I have our CEO, Birgitte Bonnesen, our CFO, Anders Karlsson, and our Chief Risk Officer, Helo Meigas. They will, in a moment, run you through the highlights of the quarter and thereafter open up for questions. Birgitte?
Thank you very much, and thank you for joining us. I am, of course, extremely happy to report another very strong quarter with an ROE of 15.8. The activity in Swedbank, both internally and externally, has been very high despite the summer period. We worked intensively in the executive management team to narrow down our strategic priorities and to make them more concrete. As you may remember from the last quarter, when we published Q2, we talked about the fact that we have now a wanted position document, a position that we all share, and that is what has been narrowed down in this quarter. As a result of this, we have decided to accelerate certain initiatives within savings, lending, and digital banking. Our ambition is to increase the pace in becoming the modern bank we want to be.
Our customers will be able to carry out all their daily banking business through our digital channels and to get access to top-notch advice whenever they need it. During the next 12-15 months, we will focus on developing our capabilities in managing customer data. We will accelerate the digitalization of the lending process, and we will also add more resources to the important savings area. I am absolutely convinced that the timing is right, both from a business perspective, but also because we now have the financial strength to execute on these initiatives. In a few minutes, Anders will go through some key considerations around this, too. If we look at the customer and market trends during the quarter, we saw increased uncertainty and higher volatility in the wake of Brexit.
However, we also saw a relatively quick return to the positive sentiment as the European economy, in general, improving and stabilizing. Our four home markets have also shown a relatively high activity. Financially, we deliver another strong result, despite the unusually somewhat slower summer period. Lending volumes continue to grow, primarily in Swedish mortgages, but we also saw another quarter with low volume growth in the Baltics, the fourth out of the last five. This confirms the slowly improving consumer confidence in the countries. The situation in the Swedish housing market hasn't fundamentally changed since the introduction of the mandatory amortization requirements. House prices are increasing again, although at a somewhat slower pace, after a few months of standstill. The mortgage volume growth rate is more or less the same. The amortization rates have increased slightly, but we're in an upward-pointing trend already before the requirements.
As you know, we introduced these already a year ago. It's also too early to draw any long-term conclusions regarding future mortgage loan volume and house price development. But I argue that it is a fact that these types of measures won't deal with the underlying issue in the housing market, which is a shortage of housing. More housing construction and infrastructure investments are needed to support the Swedish economy long term. The volume growth, combined with margin expansion, strengthened net interest income in the quarter. We have a very good momentum in this income line, as we expected. The positive stock market development supported our net commission income, and while we saw higher hedging activity amongst our corporate customers, and that increased the trading income. Asset quality continues to be solid in Sweden and in the Baltics, as the small provisions and positive recoveries show.
Helo will come back and talk more about this. Restructurings are ongoing in the oil-related portfolio, and we have made some additional provisions, smaller than the previous quarter, though. This portfolio represents less than 1.5% of our total loan book, but it is a near-term, a key focus area for our risk department. We aim to have concluded all client reviews by the beginning of next year. As you also have seen, the capitalization strengthened further in the quarter. This puts us in a comfortable position with ample buffer to the minimum requirement. Low risk, strong capitalization, and stable profitability that we demonstrate for another quarter, that gives me great confidence to move ahead with the initiatives that I mentioned before. So with this, I will hand over to Anders to take you through the figures.
Thank you, Birgitte.
I will start off by walking you through the financials in our three business areas before summing it all up at group level. Lastly, I will talk about the key factors impacting our capital position in the quarter. Swedish banking delivers another quarter with strong result. NII is strengthened by further back book mortgage margin expansion and volume growth, both in the private and the corporate loans. Deposit volumes continue to grow as household savings increased, but margins are under pressure as a result of falling market rates. The benign stock market development improved asset management income as asset under management increased in the quarter. Income from cards was seasonally stronger and was further supported by a one-off income of SEK 50 million related to Mastercard.
Expenses were slightly higher in the quarter due to increased compensations to the savings banks and higher variable staff costs as Swedbank's share price increased. Asset quality continued to be strong. Turning to Baltic Banking, we are seeing an increased customer activity in all three Baltic countries. It is primarily demonstrated in loan volume growth, which is well distributed across the countries and segments. NII was also supported by the full income effect of the acquired retail portfolio from Danske in Latvia and Lithuania, and by FX effects. Margins were flat in the quarter. Expenses were slightly up, mainly due to FX effects, and asset quality continued to be solid. Over to LCNI. Large corporates and institutions showed a stable set of results. Margins were flat. Net commission income was, as expected, lower, mainly due to lower corporate finance activity in the quarter.
On the other hand, the hedging activities increased primarily within FX and interest rates, which impacted NII positively. The credit impairments came from provisions in the oil-related segment. Summarizing the quarter on the group level, we delivered another strong set of results. Loan volumes and lending margins expansion supported NII and mitigated the negative pressure from deposit margins. We expect the back book repricing of the mortgage book to continue. Higher income from asset management and cards led to slightly improved net commission income in the quarter. The continuation of the mortgage margin expansion in our Swedish business, supporting NII, also led to higher than anticipated compensations to the savings banks. This, in combination with the slightly higher pension costs and FX effects, will take total expenses for the full year of 2016 to around SEK 16.4 billion. Turning to expenses for next year.
Market-leading cost efficiency is, as you know, one of the key financial goals to Swedbank. We have, throughout the years, delivered and brought ourselves into the position we want to be in. We have created a cost culture in the bank that I am very proud of. I believe that staying focused on cost will be decisive for any bank's success going forward. We have several efficiency initiatives, such as nearshoring and procurement, that have and will allow us to manage underlying cost pressure. These efforts will continue and are today part of our cost culture. We continue to invest in our business, but have identified areas where we want to accelerate our investments further. With the good momentum and income, we have decided to move ahead with them already next year.
This acceleration, in combination with the continued increase in the compensation to the savings banks, will lead to a total expense target of around SEK 16.7 billion for the full year of 2017. The increases compared to 2016 will mainly be in three areas. It's developing our customer data management capabilities in the group, it's about digitalization in the lending area, and it's about strengthening pension sales and other direct sales within the savings area. All these initiatives are supported by and aligned with our profitability ambitions. Our return on equity target of 15% remains. Lastly, turning to capital. Strong income, combined with lower risk exposure amount, brought our CET1 capital ratio to 23.8% in the quarter. The CET1 capital base was adversely impacted by the IAS 19 effect as the discount rate was lowered again this quarter.
Risk exposure amount decreased, mainly due to positive rating migrations and increased collateral values. We also, excuse me, saw a positive contribution stemming from the acquired Sparbanken Öresund mortgage loan portfolio, as the collateral is now taken into account when assigning the risk weights. In addition, positive CVA effects from the derivatives portfolio, as well as migrations of a few clients into performing status, decreased risk exposure amount further. The increased capital requirements relating to corporate exposures that the Swedish FSA implemented in the past quarter brought our CET1 capital ratio requirements to 21.6%. We include the countercyclical buffer increase to 2% in this number, and we use the current risk exposure amount level as a base. We feel comfortable with our buffer to the minimum requirements of around 200 basis points and have, as earlier communicated, no excess capital.
Let me now hand over to Helo to walk you through the asset quality.
Thank you, Anders. I shall give now a short overview of credit quality in Q3. As was the case in the last quarter, we continue to have a good and balanced portfolio growth in all business areas and strong underlying asset quality. Total credit impairments in Q3 were SEK 201 million. Swedish banking showed a small credit impairment of SEK 41 million on a few small client engagements, while Baltic banking shows recoveries of SEK 29 million. The provisioning of one client exposure in our oil portfolio in Norway in the amount of SEK 205 million is what accounts for the majority of credit impairments in Q3. As in previous quarter, this is the result of credit impairments we have taken in cases where we make an assessment that the final restructuring has been weak.
Overall, the work with restructuring is going according to plan, and we only have a few cases left. As Birgitte mentioned, we expect to be finalized with this phase of restructurings by year-end, with probably one case left for 2017. If I then sum it up as what it means for the total year, for the first nine months of the year, we have done credit impairments in the amount of SEK 774 million, of which SEK 853 million is in LC&I's oil-related portfolio. This takes us to the year-to-date credit impairment ratio of 7 basis points.
Referring back to the guidance we gave in the last quarter about the credit impairments, which was 10-15 basis points to the total credit portfolio, as we see today, it is more likely that we end the year 2016 with the credit losses at the lower end of this, of this guidance. I think I end it there.
Great, and then I hand back over to the operator, to take any questions, you might have.
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 are announced, please ask your question, and please hold until we have the first question. Our first question comes from the line of Peter Wallin from Handelsbanken. Please go ahead. Your line is open.
Thank you, and good morning. I would like to first start off with a question regarding mortgage margins, which are obviously improving quite substantially in the quarter. I mean, if we look forward from here, do you think it's realistic to think that mortgage margins can continue to improve further compared to, like, the front book 10 basis points we see in this quarter?
Yes. Thank you, Peter. I think it is. The difference between front and back book is around 10-15 basis points, so when the fixed rates come in, I can see that there are room for improvements in terms of that.
Okay, great. Thank you. And then turning to corporate margins. Now, obviously, all the Swedish banks have their higher capital requirements on that kind of lending. What are you seeing in the market right now? Have you seen any, like, new lending agreements being signed where these kind of capital requirements are priced into the deal, or is it more still on a kind of negotiation level?
Birgitte here. On corporate margins, we haven't really seen it kick in fully yet. There are discussions. We also see that there are corporates that come to us that have had discussions with other banks. So, I think that we see that the business as a whole is preparing itself, but we haven't really seen it in the actual deals that we've made.
But your general impression is that this, so like, the general ambition among most of the banks or all of the banks is to so, like, roll this capital hiking capital requirements forward?
It's definitely our ambition.
And then if I can just come to a capital-related question, and so, like, the kind of buffer you have right now. Do you think that it will be possible to—for the board to come up with a capital target in conjunction with the Q4 results? And how dependent is that on how the final Basel IV proposal will look?
Yeah, I think it's a good question. I, I, I do think we have to take, wait and see for, for especially for the Basel IV before we, revert back to you on that one.
Okay. Okay, great. Thank you.
Our next question comes from the line of Omar Keenan from Deutsche Bank. Please go ahead. Your line is open.
Good morning. Thank you very much for taking the questions. I've got two questions. Firstly, on net interest income. We understand that the mortgage margin showed a good improvement, but I was wondering if you could help just give a bit more color on the specific strength of the results. There seems to have been some extra kicker this quarter that I wasn't expecting. We had something around liabilities and negative swap rates. Could you just give us a little bit more color around that? And then my second question was on Swedish bank taxes and resolution fees. Could you give a little bit of guidance on how much you expect the resolution fee to be a headwind from the first of January?
Would you expect the net of the resolution fee, and the better margin and volume trend to all net out positively? And lastly, on the payroll tax, which we're expecting a decision on the first of November, how should we think about that being handled within the cost target? I understand that the SEK 16.7 billion is a 2017 target, and any impact from the payroll tax will be a 2018 event. Thank you.
Okay. Let me start off with the NII. It's if you look at Swedish banking, it's driven by, as I said, margin expansion, and it's also driven by volume. If you look at the Baltic banking, it's driven by volume and especially the fact that the acquired portfolio that came in at the end of the previous quarter has now a full effect. But on top of that, you have a positive FX effect of around SEK 30 million explaining that. When it comes to the resolution fee, what we have said is that, as we always do, we take costs into consideration in our internal steering, where we are requiring a certain return on the capital and the. So I that will be priced in as far as I am concerned.
When it comes to the payroll tax, I think it's not gonna be decided in November, but there will be a proposal in November. It's extremely difficult to say much about that at this point. The only conclusion we can draw, and we do that together with the other banks, is that it will have a negative impact on the employee situation in the Swedish bank financial system. So I have to revert back to that, but in the 16.7, that is not taken into account.
Okay, great. Thanks. So I guess just going back to the NII, there was no kind of additional help from kind of weird movements in liability costs, this quarter? And also, what the impact of the resolution fee is for the first of January.
Omar, if I may come in on the resolution fee, we expect it to double. So we, the, the level has been around SEK 650 million or so during 2016, and that should double as the full fee will be applied as of 1st January, 2017. And then on your first question, that was if there'd been any one-off seen NII, right? Was that the question?
Yeah. I mean, was there any additional help from liability cost this quarter? As I said, I kind of understand the positive trends in mortgage margin, but-
Not any of those weird things you were referring to, no.
All right. Thank you very much. Okay, that's clear.
Our next question comes from the line of Magnus Andersson from ABG. Please go ahead. Your line is open.
Yes, good morning. Like the rest of us, I'm trying to get my head around the NII in Swedish banking. Of course, that's up 6% quarter-on-quarter, while your average lending is up by 1%, and it's twice as much as in the previous quarter. So just continuing on Omar's question there. If I look at page 64 in the fact book, I see that your net stable funding ratio is down from the 108, 107% to 104 in this quarter. And you were talking about after Q2, that you had a target level of 103%-105%, rather than the 108, and that it would do roughly, I know it was a very rough calculation, but around SEK 100 million per percentage point, you lowered it.
So my question is obviously, if there is some impact from your reduced available stable funding in NII in Swedish banking. Just trying to understand the sustainability of this level, and also linked to that, is there any fund transfer pricing movements between the business areas we should be aware of?
Thank you, Magnus, for all these questions. If you look at the NII, it's primarily driven by bank rolling in on, on higher levels. When it comes to the, a- and then you have an extra day in the quarter, and then you had some FX effects, as I mentioned in the Baltics. If you look at the NSFR, I wish that would have been an explanatory factor. The reason that it drops in this quarter is technical. There are two things happening at the same time. The first thing that happens is that the assets are increasing in the quarter, which requires more long-term funding. At the same time, there are two mature, two outstanding issuance that moves into, first, one into the one-year window, which then decreases the value of it.
And secondly, one going into the six-month window, which is also making it basically worthless from an NSFR perspective. So, long t- you have to take the, that, rough calculation. It, it is correct. It will gradually come in. It depends on what type of funding source we are talking about. In the example you referred to, was seen around secured. So,
Yeah.
It is not an explanatory factor for the quarter, but it's coming in gradually as things change.
Okay, so no, no specific funding cost impact in this quarter, then?
Not from the NSFR change. And then, lastly, on the FTP, there is no abnormal changes.
Okay. Then just on costs, Birgitte, you mentioned that you take these investments now, and it sounded like it, one reason is because the results are very good. So my question is, would you have taken these investments if the income side wouldn't have been as buoyant as it is, currently? And secondly, on costs, just how do you think about... Now, this is a 2017 guidance, costs will obviously be up, all else equal, year on year. How do you think about 2018, then? Is it, is this flat costs you've been working with, is that history, or is that how you think after 2017 still?
Finally, if you could share some details with us about the agreement you have with the independent savings banks, how it looks? Thanks.
Okay. I think, Magnus, that the most important thing, or the reason why we decided to accelerate, yes, it is a very good quarter, but it's also the fact that we have a plan. We have sort of a wanted position that we have developed together in the executive management, and that we have rolled out to the entire organization. And that has now been articulated into very concrete activities that we can actually measure. And I think this is the most important reason why we now choose to accelerate the investment.
Yeah.
Okay.
If you look at 2018 and 2019, I think it is a little bit too early to talk about that. My best guess at this point is I can't see any large deltas going forward into those two years, but it's too early to say, really. As far as the agreement with the savings banks comes, as in, it's a commercial agreement. When there is a margin expansion, our NII increases, so does the cost or the compensation to the savings banks.
Finally, just on loan losses, since you still guide for 10, you don't change your guidance really for 2017. Is this primarily the one larger exposure we all know about you are waiting for an outcome of?
Yes, you are very correct. We don't want to give a new guidance at this point in time because we haven't finalized the restructurings. And, yeah, we have one large, larger exposure that we are working on, which will have an impact on the outcome.
You don't really know the timing about that, right?
Well, how the process looks now, we hope to have some more visibility by the year end, but it's very unlikely that we will have a sealed deal by the year end. So we'll see. If we feel more comfortable, we might give you a little bit more color with the Q4 results. If not, then we'll have to wait for the signatures on the paper.
Oh, okay. Thank you.
Our next question comes from the line of Willis Palermo from Goldman Sachs. Go ahead, your line is open.
Hi, good morning. Thanks for taking my question. I just wanted to come back on the NII side as well, of the revenues. And I was wondering if you could help me to understand how you articulate the higher investments or higher compensation of savings banks, and how it will impact positively the revenue, going forward. And also related to the cost side, I was hoping to get a bit more clarity on how the investment will be breakdown between digitalization and increase in compensation and savings as well. And also, if you could expand a little bit on what initiatives IT initiatives will come through, and how this will impact either cost and revenues in the later years?
Then the second question I had is on the fee side, which had a very strong development as well. And, I can see the flows in the asset management are coming back in the positive territories and also that you had new appointments in Robur. And I was wondering if there were some new initiatives taking place there as well, and how we should or what we should expect going forward in terms of flows and asset management development?
Thank you. There were numbers of questions. Let's see if we can remember them all, otherwise you'll have to repeat them to us. If we start off with the NII, as I said, it's driven by back book coming in for repricing. It's driven by volumes. As far as the compensation to the savings banks comes, it is a lot of volumes that they have put with us that comes in for repricing, which means that on NII is increasing, at the same time, the compensation to the savings banks are increasing. The best estimate for next year, that is that the compensations to the savings banks will increase with another SEK 100 million, roughly. So that's, hopefully the answer to your first question.
Okay, to talk about the initiatives, if I go through just briefly the three areas, one was digital banking, and you can break that down into three areas. One is on customer satisfaction. Customer satisfaction, the initiatives that we've chosen to accelerate, apart from the usual activity plan that we have, is the ability for our customers to speak to us via the mobile phone. It's also we're speeding up the methods of identification. In Sweden, we have a shared mobile bank ID, and we want our customers to be able to use that in every contact they have to the bank, with the bank as a method of identification.
The other one is on digital sales, and here we're speeding up the CRM platform, the platform that also sort of where we have campaign management, and we have proactive interaction with the specified offers for different client groups. And then we are speeding up a concept for contactless payments. It's a wallet that we are now rolling out the first delivery in the Baltics, and we also want to be able to do that in Sweden. The third one in digital banking is about being a financial aggregator. I think that many talk about this, maybe I don't have to say so much about it, but it's about being prepared. And here, it's two things.
One is actually IT investment, but it's also about taking in new competence into the bank, new kinds of people with different competencies and different backgrounds that are more in this area. On savings, yes, you've noticed that we actually seem to move into positive territory on the, the fund sales. It's about, here, it's about performance reporting, robo-advice we are speeding up, but it's also about actually taking in more people that can be, helping out in the physical meetings with our customers. And it's specifically on pension, sale of pensions, where we have a market share that is actually too low for the, for the number of customers that we have, and we plan to, to take that, you know, to, to take more market share there. In lending, it's about consumer loans and mortgages.
The mortgage, the automation of the processes in there for efficiency, and then it's cash management. We need to close the gap there. So these are the three areas. About you asked also about the cost. What we'll see is that, the difficult question is, so when do we see effects of this? When do we see the effects on the revenue side? Yeah, you know, I think we see effects when we see customers change their behavior. The thing is, we need to be ready. We need to be there when customers start to change their behavior big time, like doing all their mortgages in the mobile phone or in the internet bank, we need to be ready. So it's sort of a moving target when we'll see this come out. I hope that answers your question.
My multiple question. Yes, that's very, very clear. Thank you very much. I just had a quick follow-up, maybe on the pension side. What kind of market share do you currently have, and what do you hope to, to achieve?
We have around 10%, and I think we should have. We have about a quarter of the Swedish population as clients of ours, and I think that we should be far higher than we are on pensions.
Mm. All right. Thank you very much.
Our next question comes from the line of Peter Kessiakoff from SEB. Go ahead, your line is open.
Yes. Hi, just a few questions from my side. First of all, on the cost initiatives and, as you comment, you want to focus more on digitalization, but also customer satisfaction. Just in terms of the cost, or sorry, the customer satisfaction that we've seen trending lower for most of the banks, what are the actual initiatives that you will be doing in that area? And if you look at the cost increases that we'll see now for 2017, how much of that relates to improving the customer satisfaction, if that's possible to quantify?
Everything we do focuses on increasing customer satisfaction. You're completely right, it came out that, in the measurement that was done of the Swedish banks, that it's actually lower, and I think that's a big concern. It's something that we're really focused on. It's also like, it's not that we are, it's not that we are focusing, I would say, more on digitalization. What we're doing is if we have a digitalization plan, we're just, accelerating some of it, moving it towards us. This is what we're doing.
Okay. And then on the investments in terms of product you mentioned within the savings area and lending and financial aggregator and so on. But looking at the overall platform, at least the one that you have in Sweden, my impression is that the cost increases that you're taking now is more relating to developing new products rather than perhaps modernizing your backbone or your core bank. Is that the way we should see it? And how are you looking at the mix of costs between these two different areas?
You know what? We have been running an update of our backbone in the past two years, and we have plans going forward. As you know, we are not a big bank bank. We take it in increments, and this is the way that we're working with the backbone. So I would say that we're just following. We're not accelerating anything as such on the modernization of the backbone, because we're quite, we're very pleased with the way that this is developing at the moment.
Okay. Then just in terms of the cost increases, I think we've, well, we've discussed before in terms of how much you think that you will capitalize of IT investments and so on. Do you have any expectations of increasing the capitalized IT investments going forward in line with your overall increase in cost guidance as well? Do you have any numbers there, maybe?
Yes, Pete. No, as you know, the strategy we have is to take as much as possible up front, but then we have to follow the accounting rules.
Mm-hmm. Mm-hmm.
Okay. Then just one last question. In terms of, PSD2, I think, in the Q2 report was, I think the first quarter that you mentioned that PSD2 could be a, potential risk, and especially on the payments area, which you, you're writing about, this time again. Could you just, talk a bit about what kind of risk you're seeing in that area and, and what your own initiatives are to, to mitigate these, these risks? I know you're large within the card acquiring area, for instance, with, Swedbank and so on.
What I mean on the PSD2 is that the PSD2, the part of it that is already enforced and what is coming, will change the way that we work with payments, and it will change the way that we work with data. And as we are so big, I think this is a really important area for us to focus on. We have plans in all different areas. We also have an overall commerce plan, and this is what we're working on. And, what I'll say is that, what we're doing is that we are not so naive that we think that we can do everything ourselves anymore. So we are looking to the outside, we are looking to sourcing, we are looking to different kinds of solutions that is to...
The purpose is to secure the position that we have today going forward.
Okay. Thank you very much.
Our next question comes from the line of Matti Ahokas from Danske Bank. Go ahead, your line is open.
Yes, good morning. Two questions, please. Firstly, on the oil-related exposures, it obviously seems that you had one large individual loss. But could you actually say that, do you believe that the oil-related business has actually improved underlying, or is this just a function of you cleaning the portfolio overall? And the second question is regarding the savings bank compensation for next year. Is it based on the current margin outlook, or does it assume that the margins on the mortgages would also increase in 2017? Thanks.
Starting with your question regarding the oil-related portfolio. First of all, it is not a loss. It is a credit impairment, which we do as a provisioning for potential future losses, so this is not a realized loss. Secondly, what we see is the sector in general, yes, there has been an improvement in the cost base, so for the exploration and production part of it. But really for the rest of it, i.e., for the offshore services part, the remaining important factor is the investment. And investments in the sector have been going down by 25% for the last two quarters, and we expect-
... a further decrease also next year. So we are still quite pessimistic or cautious about the sector overall, and, and it's not really cleaning up the portfolio, it's about stabilizing the situation, by doing the restructurings which are needed, and then we need to see how the market develops going forward.
Coming to your question on the savings banks, it's we assume that the back book rolls in on current margin. If that would expand further, compensations will go up, but so with NII. So it's a pleasurable problem in that sense.
Very clear. Thanks.
Our next question comes from the line of Daniel Donstsov from JP Morgan. Please go ahead, your line is open.
Hi, good morning. I only have one question left, just on the composition of fee income. If I look at page 13 on your fact book, card commissions were particularly strong this quarter, just over SEK 780 million. Now, even if I adjust for the SEK 50 million one-off that you have, that's still quite a high number compared to the run rate of previous years, which previous quarters, sorry, which was closer to SEK 650 million, I believe. Was there anything else unusual this quarter, or is this also a sustainable run rate going forward? Thank you.
Nothing else. It's the seasonal effect. Other than the 50 you see, it's nothing else.
Okay, purely seasonal. Got it. Okay, thank you.
Our next question comes from the line of Jan Wolter from Credit Suisse. Please go ahead. Your line is open.
Yes, good morning, Walter, Credit Suisse. Thanks for taking the question. So just going back very briefly to the NII discussion you had today, could you indicate what the deposit margin impact was in the quarter? It was a headwind, I assume. Should have been around SEK 100 million Q-on-Q. And then how much was the effect from Danske Bank portfolio coming in, into Baltics there? So that's my first question. And the second one is if you still expect the treasury NII to come down from the SEK 400 million per quarter level, and then to what level, if we assume unchanged rates from here? Thank you.
Hey, Jan. Let me try to capture all your questions. The Danske Bank retail portfolio amounted to SEK 4.4 billion. And as I said, margins in the Baltics were flat. When it comes to treasury, we typically look at that in—you know that we look at NGL, NII, NII, in combination. We said that we will end up around the same level as 2015, and that is our best estimate currently, and we will come back in Q4, guiding further for next year on that specific issue. But then you had another question that I missed, I think.
Yeah, I was wondering around the deposit margin impact in the quarter, how much was that? Just, just assuming it, it is a clear headwind to the NII.
Okay. It's definitely under pressures. You know, we don't give you exact guidance on that, but there is, you have an interest rate sensitivity table in the fact book that gives you some, some sense for that.
Okay. Just clarification around Danske portfolio was EUR 4.4 billion, but how, what was the impact on the NII Q on Q from that portfolio coming in?
I don't have the exact number, but if you look at the Baltic banking, the volume effect on NII was SEK 60 million.
Thanks. And then just a question on the capital side. When do you expect models to be done to capture the new higher corporate risk weight levels? And do you expect any change in the 70 basis points Pillar Two add-on then when the models are approved? I mean, if the total goes down, it's clear that some of it will be RWA inflation, and some of it will remain as a Pillar Two add-on. But I mean, if your model changes, also could imply that the total add-on falls. Thank you.
As to the models, which would integrate the new requirements from the SSSA, we are ready to submit the updated models to the regulator. It's basically very much on its way. When it will actually be approved by the regulator, we have no control over it. But on a net basis, it will have no impact on the capital requirements, because how it has worked now is that we have been asked to keep capital for the changes through Pillar Two, so it will just move from Pillar Two to Pillar One.
Thank you. Very clear.
Our next question comes from the line of Anton Berchuk from UBS. Please go ahead, your line is open.
...Oh, good morning. Thank you for taking my questions. Just one question, please, from my side on net interest income outlook for 2017. If I just annualize the Q3 run rate of NII, we would be looking at SEK 24.2 billion of NII, roughly. And then going into next year, as far as I can see, there are three key moving parts. One is the increase in the resolution fund piece, which you've just guided to be around SEK 600 million. And then there is a repricing on the mortgage side, which I think you've alluded to 10 basis points. That's what you assume in your core guidance, at least. And finally, there is volume growth.
We can take our own view on that, but at the system level, we're looking at 5%-6% maybe. Is there anything in that NAI page for next year that I'm missing? Thank you.
Not really. It's, it's volumes and it's margins, that are driving it. So, I don't think you missed anything.
Thank you. That's very helpful.
Our next question comes from the line of Yafei Tian from Citi. Please go ahead. Your line is open.
Thank you very much, for taking the question. I have one question on the cost side. I was wondering, to what extent are you able to keep the 2018 cost around SEK 16.7 billion if there is a change to the payroll tax in Sweden, given all the efficiency measures you could undertake? And then the secondly is around the net interest income. I see there is improvement in the group center in the treasury over the past two quarters or so. So I was just wondering if you could give us an updated guidance on 2017 treasury net interest income and, and, or other moving parts going forward in light of the new funding cost structure, et cetera. Thank you.
Okay, let me start off with treasury first, and we will come back to that in the next quarter. As far as the payroll tax comes, I think it is a bit too early to really speculate in exactly what it means and how it will affect us, other than it will be definitely negative. We usually, as you know, tend to reprice our products and services if costs go up. But I think we need to come back on that when we know more about these things. It's a bit too early to say.
Okay. Is it possible to estimate what is the magnitude of increase, the growth level without any offsetting effect? That, the SEK 200 million-SEK 300 million or SEK 400 million-SEK 450 million, SEK 500 million?
Sorry, are you talking about the payroll tax or?
Yes, the payroll tax.
I think it is extremely difficult to-
Mm.
to make an assessment of that. The Swedish Bankers' Association have done a study on that, and, and the magnitude is much larger than what you just said.
Okay. Thank you.
Our next question comes from the line of Johan Ekblom from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Thank you. I think all of my questions have been answered. Thanks.
The next person in the queue is the line of Andreas Håkansson from XN. Please go ahead. Your line is open.
Yes, hi, thanks. Just a quick follow-up. When we talked about the different drivers of NII for next year, could I just also ask you if STIBOR, which has been a drag all of this year, if STIBOR would start to move up, let's say, 25 basis points, could you tell us what's the impact on NII at the moment from that?
Thank you, Andreas. I think I have to refer you to the interest rate sensitivity table in the fact book for that.
So, STIBOR, that's almost SEK 1 billion, then. 25 basis points STIBOR, so it's the same impact as the central bank rate.
Mm, yeah, more or less.
Yeah, more or less. Okay, thanks.
Our next question comes from the line of Jacob Kruse from Autonomous. Please go ahead. Your line is open.
Hi, thank you. Just, two quick questions. Firstly, your initiative to gain market share in consumer finance in Sweden that you talked about earlier this year, has that stalled, or are you still waiting to launch it, in terms of your systems, et cetera, to drive that growth? And secondly, just on the, PSD2 and payment, are you looking to negotiate with, Danske Bank on MobileP ay with Swish? And could you say anything about how much of your, card revenues comes from acquiring, and how much comes from interchange? Thank you.
Okay, if I start off with the consumer loan. Actually, it has been a digitalized solution for more than a quarter. But the actual truth is that it's been manual behind the front, and what we're doing now is that we are making it entirely a automated thing all the way through. Your second question was about Swish and Danske. Not that I'm aware of.
... And your third was about acquiring and issuing. I'm looking at Gregori here.
Yes, we don't split that-
I don't think we split, no.
Specifically,
The term.
Jacob. Did you, yeah.
Would it be fair to say most of it is now acquiring?
No, my-
No, not really. I think it's... I cannot give you any more details that we haven't disclosed it. So it's, as you know, we are, we have, you know, 50% market shares in the new markets, in particular in Sweden, in the, in the card acquiring business, but we're also, quite large in, in the debit and, and-
Yes
-credit cards in the Baltics and through our joint venture as well, the EnterCard. So it's a good mix-
Yeah
I would say, in that book.
Okay. Thank you very much.
Our next line [inaudible], go ahead. Your line is open.
Hi, morning, all, and thanks for the presentation. I just have one quick one. Do you guys have any update from the Swedish Resolution Authority on MREL requirement? And in relation to that, can I get some color on sub debt issues planned for rest of 2016 and possibly 2017? Thank you.
As to the MREL, we have no updates from the resolution authority. I think, as it looks now, they seem to be back to the drawing board.
Okay.
What? Did you have another question? I just, or was that your question?
Yeah, I mean, I was hoping to get some color on your sub debt issues planned for 2017. Will that be somewhat similar to what you have done in 2016?
It's Gregori here. When we issued our AT1 instrument, the latest one, we covered our needs up until into 2017. So we don't have any imminent plans to issue an AT1 and Tier 2 capital, but we are always looking at the markets. There might be opportunities to optimize the capital structure further, but no imminent plans or needs.
Okay, fair enough. Thank you.
As there are no further questions registered, I'll return the conference back to you g uys.
Thank you very much for all your questions. I think in summary, I would just say that, we delivered another strong set of results, and the economic activity is relatively high. We see pricing, repricing momentum in lending continuing. And this, as I also mentioned before, and we've talked about, this is what allows us to accelerate a number of key initiatives while we keep the cost efficiency and an ROE target of 15% as our key priorities. Thank you so much for participating.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.