Thank you, and good morning, and much welcome to this result presentation. If we look at the external factors in this quarter, we see that they are sending dual messages. On one hand, we see increased risk appetite in the financial markets due to the interventions of ECB. On the other hand, the debt crisis is starting to bite in the real economy here in Sweden. In an international perspective, Sweden still looks relatively strong with a robust banking sector. Our view is that credit demand will continue to be subdued, and that we have to plan for an environment with low interest rates for a foreseeable future. The new capital rules for the banking sector drives repricing of loans. At the same time, it causes increased competition on deposits. Our work with risk and credit quality, in combination with our focus on profitability, has resulted in improved funding costs.
Another effect of this is that it opens up for more corporates going to the bond market for financing. As you know, in the U.S., 3/4 of the credit supply for corporates comes from the bond market, while in Europe, the same number is only 30%. We do have a strong distribution capacity and can therefore benefit from this trend. Traditionally, our strong areas have been issuance of bonds in the FIG area and for municipalities. But during 2012, we have made good inroads on corporate bonds, high-yield bonds, and furthermore, as we speak, we're building up a team to be able to compete on the Euro bond side. Thanks to our good profitability, our focus can now turn even more towards improving customer relationships and investments to improve the customer offering.
We're right now in the process of recruiting more than 100 advisors in the Affluent and the SME segment in the Swedish retail operation. We're also investing more in the telephone, mobile, and internet bank. In the mobile bank, we just passed 1 million clients. We're also launching a new app for tablets, which will not only provide our clients with access to traditional banking services, but also an improved service with securities-related needs. We will, of course, continue our focus on cost and capital efficiency. We have through, though, achieved a good improvement and are today operating with a cost-income ratio of 0.47 and a return on equity of 13.7% after nine months. In the quarter, our cost income was 0.44. When it comes to our capitalization, we aim to have a secure distance to the demands by the regulators.
Already today, we meet not only the new minimum level of 12%, which is due to be implemented 2015, but we do also have a risk tolerance buffer for a much more stressed economic scenario. As the outlook for credit demand is weak in all our four home markets, which for the foreseeable future, our earnings capacity is still strong. We will see that capital, capital become an issue which will be more relevant to address. As you know, too much capital will be inefficient for all stakeholders, i.e., shareholders, customers, staff. With that, I would like to hand over to Göran.
Thank you, Michael. If I try to give some more flavor on the figures down, starting with our retail division, I think it's fair to say that it's been a very stable quarter. Volume-wise, we have increased volumes in the mortgage side with SEK 3 billion and on the corporate side with SEK 4.5 billion during the quarter. We have seen shrinking deposit margins due to the fact that interest rates has gone down. That's been a headwind for us, but we have continued to reprice our lending both the corporate book, but also the fixed proportion of the mortgage book.
In the commission income line, we have a good underlying activity with regards to payments and cards, which is seasonal to some degree, but also, I think the underlying growth in the market is quite good as we have a transition from cash into card utilization overall in the economy. We have seen, though, continue to see quite weak commission income relating to asset management fees and equity brokerage-related fees in the equity space. There also, I think we have, we can see that the sort of risk reduction that has taken place among the retail investors over the past year has meant a mix shift of higher degree, sort of a fixed income instruments rather than equity-related. That is affecting it slightly negative.
Turning into large corporates and institutions, I think, it's a little bit mixed picture, but overall, the majority is improving. I think it's helped, of course, by the improved risk appetite that we have seen in the financial market. That has meant that activity on foreign exchange, fixed income, and, debt capital markets origination has been high during the quarter, even though it's normally a seasonally weak, quarter from an activity point of view. So that's good. With regards to corporate finance and advisory business and also equity-related income, that has continued to be weak, even though risk appetite has gone up. It hasn't really materialized into any higher degree of transactions. We continue to see...... a good development of the underlying lending portfolio.
Volume-wise, it increased to SEK 3 billion during the quarter, and NII continued to develop good, as which we are very happy with. Lastly, just a quick glance at our Baltic Banking division. Here we have been affected by two things. One is, of course, the strengthening of the Swedish krona that makes the translation effect of the full P&L statement look more negative than its underlying is from a return basis. So that is - that are, of course, affecting all lines and dragging down the net profit in nominal terms. But also there is an underlying trend or pressure on the deposit margins, of course, in the Baltic business area as well, that is affecting our NII negatively during the quarter.
We have though continued to see growth in euro terms of the lending book also in the third quarter, which we started to see in the second quarter, and given sort of the general economic environment, I think that is a positive effect to see that the Baltic regions do have their crisis behind them. Summarizing this in a picture for the full group, it's a very good quarter. We have managed then to increase our revenues. We have been able to sort of mitigate the shrinking deposit margins with continued repricing on the corporate side and on the mortgage side, but also been helped by the improved treasury NII, when we've seen falling interest rates in Sweden.
We have also had better activity in trading capital markets, as I said, that improves net gains and losses slightly, together with valuation effect in treasury on the liquidity portfolio. So all in income is up a little bit more than SEK 150 million. The more important thing, though, I think, is actually that we continue to reduce our cost base, and we do actually have a very efficient quarter now behind us, where we have a cost-income ratio of 0.44, and we are almost delivering the full year cost target of SEK 1 billion in direct cost savings already of the three quarters, which is very good to see, of course.
Summarizing these aspects, I think we are extremely happy with the return on equity at 14.1%, mostly driven by cost efficiency. Of course, return on tangible equity and the Core Tier 1, which are the relevant measure for us going forward, is even higher, so the profitability is very good at this stage. Looking at costs more in detail, I think I mentioned we were almost at SEK 950 million of the SEK 1 billion. I think it's fair to say it comes from no specific area. It's a very general cost decline in all departments in the bank, actually. So it's been... Everyone has been focusing on cost in the past 12 months, and it has paid off.
Of course, we are helped by the sort of general, deflationary environment that we perceive us to be in, so there are less natural cost pressure that you normally see, which is good. Going forward, I think this is good news for us, since it's one of our key strategic ambitions to be very cost efficient in order to be really competitive on that angle. And having achieved this position, it gives us good possibility to both be continue to improve our cost efficiency going forward, but also to cater for the investment needs that we really want to do in our offering towards the client base, especially in the digital channels. Looking at funding a bit, I think it's been a very good quarter.
Swedish banks, and Swedbank in particular, has continued to have fantastic access in the funding market. We are now pre-funding sort of 2013, starting with that. And we have issued lower volumes during the quarter, as we have planned to do, as we have reached the desired position to a very high degree. We continue to work with to broaden our investor base in different international jurisdictions. So we did a senior transaction in dollars for the first time under 144 documentation. And the strategy is continue to to work with our funding base and and work towards a lowering of our funding costs.
That's also strategic ambition with us, and we can't see any reason why the sort of DNA in Swedbank on the asset side and the capital structure should really enable us to reach an extremely good position in terms of funding costs. Lastly, before I let the word to Håkan, the capital position. With the profitability we have and also with sort of the subdued credit demand picture and the reduction of risk-weighted assets in the quarter, we are at 17.3 in full Basel II. We will get an effect of Basel III, estimated to be 1.2, and we will most likely have an impact of the new accounting rules for the pension liability affecting us with 0.7.
Then we will further expect, as you all know, to see changes in the mortgage risk weights. On the other hand, we do have internal measures, among other things, we are in the process of implementing IRB Advanced. If I put all of this together, I think it's fair to say that we are, at the present moment, fully loaded with all regulatory anticipated changes coming. We are currently at the 14.5 Core Tier 1 ratio at the moment. That should be compared with the new regulatory landscape communicated by the regulators around 12 in two and a bit years' time. So we have an extremely good position in terms of capital. With that, I hand over to Håkan.
Thank you, Göran. Third quarter has developed similar to previous quarter this year when it comes to asset quality. Sweden continued to show very good asset quality, and we still see very small movements in our books, but there are signs of a weakening environment. We see an increase of bankruptcies in SMEs, and in large corp, we see an increase of covenant breaches. But thanks to early and proactive approach, these are taken care of together with the clients. The Baltic operation continued to show write-backs, though at a lower pace this quarter, mainly due to lower restructuring activity. In Ukraine, where we have seen increased impairments this year, mainly from exiting the retail portfolio, we have added an additional SEK 100 million of collective provision this quarter.
The market is very uncertain, and there is a risk for further weakening of the economy after the election end of October. In quarter two, we guided for the second half of 2012 to be similar or slightly better than first half year. Third quarter has developed according to expectations, and we don't expect the weakening trends we've seen in quarter three to have any material impact in Q4. So to conclude, we currently see no reason to change our quarter two guidance. Moving to impaired loans. Impaired loans continues to decrease in the quarter, but they are still at high levels due to the remaining crisis portfolio in Russia, Ukraine, and in the Baltic countries.
In the Baltic countries, more than 80% of the impaired loans are coming from the crisis portfolio, and we are now enhancing our efforts to decrease the part of impaired loans that stems from the crisis portfolio.
Thank you, Håkan, and with that, we open up for Q&As.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from Mr. Peter Grabe from Handelsbanken. Please go ahead.
Thank you. Yes, two questions. Firstly, back to the credit losses and Ukraine. It's now the third quarter in a row that we're seeing quite massive loan losses. How big are the exit costs really gonna be? I mean, what should we expect going forward, is my first question. And the second question relates to costs. We're now seeing a very positive trend for a few quarters. Should we see it as you've reaped the low-hanging fruit, and that's gonna be tougher from now on, or should we see it that like you are on a trend the current trend going forward that the cost should continue to trend down in the same pace?
To start on Ukraine, yes, there has been quite massive credit losses this year, mainly, as I mentioned, stemming from exiting the retail portfolio. It's very difficult to say, the market is quite weak, and finding sort of good possibilities to exit the market is difficult. So, we guided that we're in Q2, that we may see further asset quality decreasing, and this is what we see in this quarter. I don't think we're gonna see the same level that we have seen the last quarters going forward, but it's still very difficult to say, so we have a great uncertainty in that part.
Okay, thanks. On the cost side?
On the cost side, I don't think you can sort of take the trend on cost and say, this is gonna prevail for years to come, because then the bank will disappear. So, of course, at some point in time, it will level off. I think it's fair to say that we will beat our cost target, and having said that, when we look upon 2013, we don't look that 2013 should entail higher cost than 2012. So cost is a very important parameter for us going forward. But the good work on cost gives us, of course, a ability now to sort of look upon how we can see to it that we become even more relevant with the clients.
So, I think we will come back. We are in the middle of a sort of the business planning period for next year, and in conjunction with next quarter's results, I think we will perhaps give you more flavor to what 2013 can mean on the cost side.
On that note, Peter, I think this bank has always perceived that it will be difficult to be best in class when it comes to cost income, because we are the bank for the many. And I think this quarter shows that we can be best in class, thanks to the fact that we are the bank for the many.
I think also, if I just can add the thing on the Ukraine there, I mean, now we have net exposure of the provision is SEK 2 billion left of exposure in Ukraine. So it's a very limited portfolio. It has gone in the past three and a half years, it's gone from SEK 22 billion to SEK 2 billion.
Okay, thanks a lot.
Our next question comes from Mr. Pawel Wyszynski from Nordea. Please go ahead.
Yes, hello. So two questions from my side. The first one, you stated in the report that there is surplus capital that you could repay to the bank's shareholders. When do you think that we can expect this? And do you need to see any further clarity in terms of regulation before this could happen? And just secondly, if you could give us some more flavor on the macro development in Sweden. We're seeing an increased number of layoffs and an increase in corporate bankruptcies, as you say. How should we view this in credit quality in Sweden going forward, and which sector should one be worried about?
Well, on the capital issue, I think what is very important is to have a safe distance to any regulatory requirements, and also have a buffer that withstands strong, downturns in the economy. And I think we have a tick off in both those corners, and that makes us come to the conclusion that if we continue to build capital in the way we have done in the past, that it will be an issue to be addressed. And we'll revert to you in due time, as we come to Q4 with the conclusions of that situation. But, at present, we have a dividend policy of 50%, and that stands until we have taken a new decision. On the macro, we I would say overall, our asset quality has proven to be very strong.
Yes, we see more bankruptcies, especially in the micro and SSE segment, but most of our lending there is with good securities. We feel that we are well protected for that issue. We see covenant breaches in certain other areas of the corporate book, but shareholders are stepping up to the plate, and we are able to deal with the issues at an early stage. But the overall trend is deteriorating. That is true, and the real economy is feeling the debt crisis in the rest of Europe. As we are a small and open economy, we need to be very prudent, and we need to be very proactive. And I feel that we have spent the last three years with that sentiment, and we'll continue to work hard and close to our customers.
All right. Thanks.
Our next question comes from Mr. Omar Keenan from Nomura. Please go ahead.
Good morning. Thanks very much for taking the question. Just another one on capital. I guess the message seems increasingly positive on capital return this quarter. I was just wondering, you saw better Core Tier 1 in the quarter, but how much of the guided risk-weighted asset improvement of about SEK 40 billion-SEK 50 billion was achieved in Q3? Or do you think this still represents the total future upside to capital? And then secondly, just another question on costs. Thinking that you've nearly got SEK 1 billion of the cost savings already by the end of this quarter, do you think perhaps SEK 1.2 billion is a reasonable new target for the end of the year? Thanks.
Just to comment on the RWA. Half of the decrease of SEK 10 billion is relating to foreign exchange, and it hasn't really improved the capital position. Since we have such a high capital in the Baltic countries, we are actually losing Core Tier 1 due to the strengthening of the Swedish krona with 0.2 or 0.3. I am not certain there. If the Swedish krona would have been stable, we would have actually had an even better capital position. The remaining SEK 5 million in PD migration that we've seen, it's part of it is relating to that we did a model change in the previous quarter, that we continue to re-rate some of our corporates that make changes.
Other parts are relating to more true rating migration, you could say, and among other things, in the Baltic operation, and also some updated property valuations overall in the system, in the Baltic, that improves the LGDs. So, that's sort of the details. With regards to the guidance, I think we are, even though we have a quarter behind us now, we are stating that we continue to see SEK 40 billion- SEK 50 billion of RWA reductions going forward. On cost, I think I don't think we can take out SEK 1 billion more in cost next year. I don't think it would be desirable for anyone, nor clients, shareholders, or employees. What we want-
Sorry, excuse me. I think you—Sorry, you, misunderstood my question. I said, and given that SEK 1 billion had already been accumulated to the end of the third quarter, do you think the full year for 2012 could reach SEK 1.2 billion versus your original target of SEK 1 billion, or is that-
...for you over achieving? Thanks.
I'm not really one to guide on a specific number for the year since, but I think it's fair to assume that we will overshoot our target.
That's great. Okay, thanks very much.
Our next question comes from Masih Yazdi from Credit Suisse. Please go ahead.
Yes, morning. I have two questions for you. Firstly, on the funding side, the run rate this year, I guess, is about 45% of your long-term funding being senior unsecured. Is this kind of share of long-term funding we can expect to be senior unsecured also going forward next couple of years? Secondly, on the deferred tax liability being released in Q4, about SEK 370 million. Given that you're saying that you feel that you're overcapitalized, can we assume that the whole part of this will be paid out to shareholders?
As I said, on the capital issue, we'll revert back in Q4. What we are giving is our view on credit demand, which we think will be lackluster going forward, and we have a good earnings capacity. That combination makes the capital issue more pronounced, and we'll revert back with, more conclusions on that, in Q4.
On the funding side, I mean, the way we calibrate the mix between covered and senior is that we, in the cover pool, want to have a good safety margin to any fluctuations in house prices. That we measure by saying that at any given point in time, we should be able to withstand 20% house price drops overnight without coming at a too low OC to keep our AAA rating. And after that, we calibrate essentially to see how much senior we need, our liquidity reserve needs, et cetera, et cetera. So if you do that math for the coming year or so, I would say that the proportion of senior will rather be in the 30% range than what we've had so far this year.
So the first six months of senior issuance is not the sort of the new benchmark standard going forward. It will become slightly less going forward.
Yeah.
As, the drivers for it is the OC and the liquidity position.
Okay, thanks.
Our next question comes from Mr. Johan Ekblom from Bank of America. Please go ahead.
Thank you. I think, a lot of questions actually have been answered, but maybe we can come back to your, your net interest income. And I guess, what we saw in the treasury business this quarter, it looks like, there was quite a big pickup there. And I just want to see if this is a sustainable level, because it's a bit surprised that, you didn't see more, or the, the, the pressure on deposit margins wasn't more evident. And then maybe relate to that, if you can just say, what was the actual impact from the lower STIBOR rates in the quarter?
The lower STIBOR rates, I think it's SEK 80 million- SEK 90 million , I think it is. But let me double-check that number before I, we can revert more precise on that one. I'm going to hand over to you, Jonas, I think, on the treasury NII, but the main beneficiary there is, of course, that we make more NII on the lowering of the short-term interest rates in essence, and it will be sort of continue to be that sort of tempo will be prevalent for some time to come, but not indefinitely.
No, I think that pretty much sums it up. I think if you, if you look at the duration of the interest rate risk we have in the treasury, currently it's around two years. So that would mean that a quarter of the positive contribution a year will fall off. Then you will always have some volatility of the NII and treasury from quarter to quarter. But the underlying duration is about two years of the interest rate risk we have.
Excellent. Thank you very much.
Thanks, Johan.
Our next question comes from Mr. Nick Davey from UBS. Please go ahead.
Yes, good morning, everyone. A couple of follow-up questions then, please. Back on the interest rate sensitivity, first of all, I see from page 74 of your fact book, you seem to have then an increasing sensitivity to short-term interest rates, SEK 2.9 billion, I think, from September. So could you maybe just comment a little bit? I guess it's tied in with Jonas's point in treasury, but maybe also just make a few observations about near-term margin trends given STIBOR in Q4. Do you really think this corporate repricing will be enough to defend margins in the ongoing interest rate environment? And then second, if I can come back on this over-collateralization point, it seems that encumbrance is becoming an increasing theme for the regulators to focus on.
I know you give us some pretty good disclosure in the fact, but maybe you could just flesh that out a little bit with your views. Does this view you take on over-collateralization levels to house price shocks, is that really your guiding principle? Or is there any other view which you have against this regulatory scrutiny? Thanks.
If I start with the last one, then, I think for the time being, that is correct. I think on the encumbrance issue, there is a lot of attention and thought being devoted to that issue, but it's very inconclusive at this stage. Rating agencies, regulators are thinking about it, and so are investors. Sweden, you can't really compare different countries with each other because they have a really different DNAs in terms of how their banking systems look. So you can't really compare the banking system in Canada or Australia with Sweden. So they are really difficult to do cross-border regulation on the issue, I think.
Also, there are, of course, very strong differences between banks, where you have banks who have a larger proportion of corporate lending that requires a larger proportion on the senior side. I think Swedbank is quite well placed in this aspect because we have good of the best sort of funding sources. We have a lot of good collaterals to use, and we have a large deposit base to work with, and we can tilt our funding in any way we want in the end in terms. The important thing for us is that we continue to get a good investor demand for our name and credit, and that we have in the quarter really experienced. So we don't get any pushback on encumbrance whatsoever.
On the contrary, this has been the quarter when we've seen the most demand, really, and queries about privatization for senior unsecured funding. So I think, it is, for the time being, a question where we just wait and see where investors will price, where will they price the LGD, really, on senior unsecured. And the investor, they need more information with regards to regulation, and they also need to know what the resolution regime will look like and what the bail-in debt will look like before they can do that to any degree. But from our point of view, I think we are in a very good position, and we continue to steer the business, as Jonas said, on what we deem to be really the survival horizon, which is in effect over-collateralization side and also the liquidity side of things.
In the next quarter, we intend to disclose our stressed survival horizon for the market stressed liquidity scenario. We have already now given you a stressed capital scenario for the ICAAP, and next time we will give you different curves for our liquidity position with stressed scenarios. So we will come back, but that is really how we view this situation now. And then perhaps just lastly, saying that the investor seems to put an awful lot of more emphasis at this point in time, at least, on the PD rather than the LGD. So for Sweden to uphold the PD and for systems to uphold the PD is really the main issue, and therefore, I think we should put emphasis on asset quality and origination standards. That's really important.
Now I've talked so much, so I've forgotten the first question.
NII sensitivity.
Yeah, the increased NII sensitivity, I think, was relating. It is a matter of fact, when interest rates get lower, we actually come into, you know, for example, if you would see 100 basis points move down on STIBOR and the repo rate, there are a number of accounts that today only have 40% or 40 basis points margin or left, sort of, to reprice, and therefore it becomes just impossible to take out the full effect on the client accounts. Therefore, the sensitivity goes up as we approach zero on interest rates. And that's a risk picture, of course.
That's very, very clear. If I could just ask a quick follow-up question and try my luck. This quarter, you then had very good success at offsetting this interest rate impact with the repricing effects and, and from the higher net interest income in treasury. Given the increased rate sensitivity from these levels, do you think it's fair to say that margins will be declining from here?
No, I'm not going to guess where the short-term interest rates are gonna go. I can just say that we continue to work with the repricing issue, and we continue to think that there is work to be done there and improvements to come through in next quarter and in 2013 there as well. I think I stop there, and then, because it will become more a second guess of short-term interest rates than anything.
Okay, very clear. Thank you.
Thanks, Nick.
Our next question comes from Mr. Geoff Dawes from Soc Gen. Please go ahead.
Yeah. Hi, good morning, everyone. Geoff Dawes here from Soc Gen. First of all, coming back to net interest income, and without trying to let you guess short-term interest rate moves, we're already down about 30-40 basis points on the third quarter average. So could you perhaps give us a little bit of an indication as to how that plays out, and whether that sensitivity will increase as a result when we see the fourth quarter numbers? Second question, and very much related to the first one on net interest income. If I look at the fact book, you don't give a clear bridge, obviously, between second quarter and third quarter net interest income, but you do break down the interest income and interest expense.
That seems to be down about SEK 250 million on a quarter-on-quarter basis, and the remainder is made up of derivatives net interest income. Can you just give us a little bit of color as to why that was such a big offsetting feature this quarter? And then finally, just one very quick question. It seems in an earlier call, you mentioned 13.5%-14% Core Tier 1 being something of a longer-term target for you in terms of Core Tier 1. Could you just give us a bit more clarity or detail on that comment on this call? Because it seems slightly more specific than we've heard in the past. Thank you.
If the first question, I think it's fair to assume that short-term interest rates, STIBOR declined more towards the end of the quarter, so there will be a sort of an effect going into the fourth quarter that will be headwind for us as short-term interest rates, sort of, the average short-term interest rates will be tougher, sort of, going forward. So I think that's a fair observation. Just, with regards to sort of NII, I leave that to you, Jonas, if you.
I think the derivative component in the NII is just the way we hedge on the liability side primarily, or interest rate risk. I mean, we have quite a few hundred billion SEK worth of derivatives to hedge our cash instruments. As interest rates go down, you will see the NII being generated more from those.
Right. Clear.
The last question was capital, yeah?
Yeah, we haven't changed our guidance there based on what we are seeing right now. 13.5% - 14.5% space.
Okay, that's all very clear. Thank you.
Our next question comes from Mr. Jacob Kruse from Autonomous. Please go ahead.
Hi, it's Jacob from Autonomous. Just a couple of quick ones on capital. Firstly, the risk-weighted asset increase on mortgages. How comfortable are you that that 15% number that you're using is ballparked right for what the FSA will eventually come out with? And secondly, just looking at... When you say you're basically at the capital level you're targeting, and you're saying you will hardly see much volume growth going forward. So, is the way to think about this, that most of the cash generation x some growth will be distributed over the next three years, although the timing may be uncertain? Thank you.
I can start with that.
We start with the mortgage.
Yeah, the mortgage risk, which I mean, we have to pick one number. We don't know. Nobody knows whether it's gonna be 15 or something different. We felt that 15 has been sort of a good number talked about by the most of the people. So we have that as a reference point, really, in our calculation. If you think it's gonna be 20, you can just see our sensitiveness. It won't affect the numbers to any sort of significant degree.
On the capital issue, I'm just gonna revert to the same answers I've given a few times. Good try, but you won't get us to move on that one.
You had another question on volumes, didn't you?
Yeah, subdued credit demand.
Yeah. No, that, that's great. Thank you very much.
Okay, thanks.
Our next question comes from Miss Sofie Peterzens from JP Morgan. Please go ahead.
Yeah, hi, here is Sofie Peterzens from JP Morgan. Just a couple of quick questions. First one, on capital, you talked about the 14.5% Equity Tier 1 ratio. And if you have the Basel II at 17.3, then you deduct the Basel III 1.2, you deduct IAS 19 0.7, you get to 15.4, I think. And if you take out the SEK 72 billion of mortgage risk rates, you get to roughly 13.4. So does this mean that the IRB, or what you could get from advanced IRB, is roughly 1%, helped your equity tier one ratio? That was my first question. And then could you talk a little bit about your Baltic loan loss provisions? They were down 90% quarter-over-quarter.
Should we expect that the Baltic recoveries are more or less over? Thank you.
I think, I think we are assuming, in order to reach around 14.5%, fully loaded, I think we are assuming SEK 40 billion of risk-weighted assets reduction there. That's sort of the math of it. And then you have 15% mortgage risk weights.
Okay, thanks.
On the recovery in the Baltic countries, as I mentioned, this is more of a seasonal effect. We still think we are well provided, and we still see rather an improvement in the economy in the three Baltic countries. At least short term, we are not changing the guidance that we may see further recoveries in the Baltic countries.
Do you think that you will see recoveries in 2013 as well from the Baltics?
We're not guiding on 2013. That's too far away. So rather on the quarter four, and then we will come back on 2013, when we report on quarter four.
Okay. Thank you.
I remind you that if you'd like to ask a question to the speakers, please press zero one on your telephone keypad. Our next question comes from Ms. Claire Kane from RBC. Please go ahead.
Hi, good morning, everyone. Just a couple of quick follow-ups. I noticed in your liquidity reserves, there's quite a large uplift in your cash balances at central banks. And I just wondered if you could talk to us on timing of that, since your interbank deposits haven't really moved. It seems to be funded by other deposits and your debt issues. So just wondering if this might be a kind of negative headwind into Q4. And then my second question really is on your market share, and really if there's any update on what you're seeing following Q2. You spoke about your position, you're starting to see some market share gains for the first time, and if you're, you're still seeing competitors pull back. Thank you.
If I start on the cash balances with central banks, the main driver for that is actually that we increased our short-term programs, like in the quarter, volume-wise. And, as you know, we have a policy to keep our short-term liquidity entirely matched. So that's why you see us placing more with central banks. Market share has been no major movements during the quarter on the mortgage side and a slight uptick in corporate lending in Sweden.
Thank you.
The next question comes from Mr. Magnus Andersson from ABG Sundal Collier. Please go ahead.
Yes. Hi, good morning. I have two questions. First of all, just a short follow-up on this 40-50 billion that you expect in RWA decrease from implementing IRB Advanced and model changes. I was just thinking, since you have not filed yet with the Swedish FSA, how you can be so optimistic on the time frame? You said that you expect an approval earliest second half, 2013, and previously you've been talking about 2014, sorry. It seems to be taking a lot longer for your Nordic peers, if you can give us a feeling for what indications you have there. And secondly, just on the 15% ROE target, if you could give us some flavor of how you're thinking there. Obviously, it...
Everything else equal has been pushed forward in time because of the low short-term interest rates. But my question is, how, how do you look at that? Is it more that you will then have to mitigate these low short-term interest rates with taking down the costs more than you previously assumed to still reach it within a reasonable time frame? Or, or is it just put further out in the future? Thanks.
If I start with the IRB Advanced application, we are running projects to apply for the IRB Advanced before this year. And, you're totally correct that, we of course can't estimate what time it will take for FSA to approve that. So that is why we're saying at earliest, the second half of the quarter, well, of 2013. Whether we will be able to get the approval within one year or whether it will take more, of course, is a matter of discussion with the FSA, and we have started that already. I wouldn't say that we are neither pessimistic or optimistic on that, but the best guess we have is that we will get it at the earliest second half of 2013.
On the 15%, I'm gonna give you a boring answer. Yes, we're gonna work diligently to reach it.
Okay. Thank you.
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I would like to thank everyone for active questions. Look forward to meeting you soon. Bye-bye.