Earnings Transcript for SVNLY - Q4 Fiscal Year 2023

Operator: Welcome. For those of you who want to follow the presentation simultaneously translated into English, please choose English in the top right menu. [Foreign Language]

Unidentified Company Representative: Presentation of Handelsbanken's result for the full year and for Q4 2023. We put behind us a tumultuous year with escalating geopolitical instability, raising interest rates, and also runway inflation and the business cycle in decline. I find that the year for Handelsbanken 2023 can be described as stable. ROE was up to close to 16%, driven of an underlying growth of 37%, income outperformed expenses and contributed to our C/I ratio. As expected, our customers show good resilience in spite of an environment with higher interest rates and the credit quality remains to be strong with credit losses amounting to only 0.01%. The capital position of the bank is very solid with a CET1 ratio of 18.8 percentage points, which is 1 percentage point above the target ratio of the bank under normal circumstances, that is 1.3 percentage points above regulatory requirements. The robust financial position makes it possible for the Board to propose a total dividend of SEK 13 per share, 50% of that, SEK 6.5 per share, is an extraordinary dividend. Over the year 2023, we've offered our customer -- strengthened our customer offering in physical digital channels we have in our local branches, expanded our competencies, capacities, and mandate. And at the same time, we're improving our app and the web. The customer satisfaction we see in the ratings that we have, and it has gone up even further according to independent external service. Not the least, the bank's robust business model, credit quality, and financial position is reflected in the ranking as being one of the most stable banks according to leading rating agencies. So the bank has a position of strength. Looking at results for the full year 2023, we can find that ROE was up to just under 16%. Total income was up with 24%, mainly due to the high interest rate situation, which has led to return on equity and liquidity reserves going up as the Swedish Riksbank increased its interest rates in spite of lower margins for mortgages. Expenses underlying 8%, and that is explained with development capacity is increasing and, well, since end of 2022, it's been stable. We've also increased our resources within AML and cyber risk. And of course, 2023 has been a year with a generally high inflation and increased costs in all our home markets. C/I ratio was down to 37.2%, credit losses low, SEK 141 million, and that corresponds to a credit loss ratio of 0.01. All in all, we had operating profit up with 37% to some SEK 36 billion, which is the highest ever for the bank. Continuing with the Q4 2023, the profit was down somewhat compared to Q3. This is due to seasonal higher costs, ROE 15.2%, NII 2%, adjusted for FX, net fee commission income stayed more or less the same. Total income adjusted for FX was down with 1%. And compared to the previous quarter, we have to remember that NFT was unusually strong. Expenses were up 7% due to seasonal variations and the C/I ratio was up to 38%. For the third quarter, consecutively, we had a credit loss ratio of 0%. All in all, the operating profit was down somewhat. And then if we look at our NII for the quarter, we see that it was up 2%, I've already mentioned that, adjusted for FX. Volumes has stayed relatively neutral, which is natural, but we see a crunch in monetary policy and a slowdown in the business cycle. We've also seen that the amortization rate for private and corporate customers remain at a historically seen relatively high levels. So our customers act in a rational manner, they amortize as much as they can. Another pattern that we have seen for some time now. And in the quarter, we had the final settlement for the fee deposit guarantee that contributed with SEK 97 million. The adjusted NII is explained by the margins recovering compared to the previous quarter, but it is clear that they leveled out over the fall. Net fee commission income, apart from the pandemic period, it has been growing steadily, savings related business is 2/3 of the net fee commission income, and we see the same trend that we had before 1-1/2 years. In spite of volatile stock exchanges, we have a stable net inflow from our customers who want to save the money with us. If we look at the savings business in Sweden, we have a long positive trend that we've had since 2010, if I remember correctly, and it stays strong. Our market share of mutual funds in Sweden is about 12%. But since 2010, as I've said, we have had a market share of around 25% of the net inflow that we've seen in the market for savings in funds. The savings business is and will remain a very important growth engine for the bank. And we see that this is something that builds a stable value over time. It's good for our customers. In addition to good performance in our funds, another success factor has been that our customers appreciate that we have a sustainability focus. Today 95% of the fund volume that we offer is categorized in the 2 highest categories in the SFDR and the disclosure requirements that we have in Articles 8 and 9. Another important explanation for the success of the bank is that we have a strong way of reaching our customers with digital services, but also local strong branches in our home markets and savings advisory services, a natural part of the customer meeting. And particularly for a private banking customer, a good relationship with the bank is decisive. Of course, all private banking customers do not necessarily live in our major cities, where we traditionally have had these services. Many of these existing and potential customers, they are in other parts of the country. And that is why we, in the last 2 years, have strengthened our local personal offerings so that customers can now meet, for example, a private banker, adviser, locally, local branches where they live or work. And this might seem elementary, but it is a way of working that stands out in the market today, and we see that it drives the inflow, customer satisfaction, and business for the bank. When it comes to expenses, they were up by barely 7% and follow the normal seasonal pattern, where we usually see a rise in costs in Q4 as a consequence of the development of profitability in the bank. Compared to our competitors during the quarter, we allocated SEK 83 million to Oktogonen. And this effect was basically entirely balanced by positive FX effects of SEK 85 million. The staff costs adjusted for currency and Oktogonen contributed by 2% to the total increase in costs and other costs were up as a usual consequence of higher activity compared to the preceding quarter that included the summer months. If we look at net credit losses, they are almost non-existent. At the same time, the management add-on remained unchanged over the quarter and amounted to just over SEK 600 million. Handelsbanken has historically, especially in periods of economic decline, reported significantly lower net credit losses than the rest of the banking industry. That is not a coincidence. It is a result of the structure of our lending portfolio and a consistent strict approach to risk. Also, the business model with a strong local presence with a decentralized operating mode means that the bank can identify situation at an early stage and take action when necessary. And we are very confident in the quality of our lending portfolio. We can describe the bank as having 5 parts. We have our 4 at home markets, and then we have the central functions that have as their ultimate responsibility to provide support and -- to our business and ensure compliance. If we start by looking at the U.K., they now represent 17% of the group operating profit. And the C/I ratio is just below 48% and return on allocated capital is 21%. The U.K. is the country where we have the highest level of customer satisfaction and an offering that really stands out on the local market. Local decision-making and accessibility to advise experts is very rare in the U.K. now. And recently, we've seen a strong recovery in our profits, but at the same time, we see a decline both in private and corporate lending. The degree of amortization continues to be high and the demand for new loans on the market remains low in general. The strong credit rating of the bank, however, continues to contribute to good inflows of corporate deposits that were up by 3% over the year. Going forward, our focus is to continue to upgrade our offering -- in our digital offering and to continue to always enhance local competence in our offices around the U.K. Today, we hold a very small market share, and we have great potential to grow significantly over time. But we never scramble to get volume, we don't have short-term incentives like bonus. We don't stress to create volume. We work with a long-term approach and focus on creating strong good relationships with local customers, and that's how we maintain our strong credit quality growth and profitability over time. If we now look at Norway, Norway represents just over 7% of the operating profit in the group. The C/I ratio is 44%, and return on allocated capital is just over 9%. In recent years, we have significantly invested in IT and business development to enhance our digital offering to extend our very much appreciated advisory services in our offices. We have a strong credit portfolio in Norway, and customer satisfaction is high, and we've made significant progress when -- and it comes to enhancing our offering, but we've had to up our staffing, especially within AML and IT development in recent years, which has had an impact on the C/I ratio and the return on allocated capital. The next step is now to increase our focus on enhancing profitability in Norway. And therefore, we have undertaken an overview where we will, on a regular basis, see where there is potential to increase profitability. When we look at the Netherlands, that represents 3% of the group operating profit. And the C/I ratio is 47% and return on allocated capital is 17%. In the Netherlands, our operations are somewhat niche where we focus on mortgages and financing of real estate. When we look to the future, the plan is to continue to operate a relatively simple, focused, and profitable operation. In Sweden, Sweden today represents 3/4 of the group operating profit. The C/I ratio is 28%, and the return on allocated capital is 18% for the full year 2023. Over the year, we have continued to enhance our customer offering by increasing resources, competence, and decision-making power in our advisory services across our 206 offices in Sweden. At the same time, our savings business is growing, as I mentioned before, but we have somewhat declining volumes on the market overall, both in lending and deposits, both in corporate and households. Of course, this has an impact. In the Swedish organization, we can see that we can improve efficiency in the business support aspects. And this is addressed by having a new organization for those central parts of our operation, which will be put into place in coming months. Last week, I received a telephone call from our manager in Gothenburg, who had decided to do something as strange as opening a new banking office. And I thought that sounded amazing. And the new office will be in Hovas in Gothenburg. And if you know where that is, you just get a new car, you take your bicycle, and you go 10 kilometers to the south on 158 Road. And then on the south, you can see New Hovas. This decision was, of course, based on great demand from the customers, and therefore, great business potential for the bank to place our adviser in that local setting. Sometimes people think that digitalization has made local banking obsolete. I'm convinced that the opposite is true. There is absolutely no issue with a customer wanting to do their banking business on their own and the app and using all the digital channels available to them. But at times, you want personal advice from a human being, a local specialist, an expert, perhaps you want to discuss your first mortgage or get expert advice on savings, banking, pensions, risk management, or corporate transactions. I think that the local and digital offering that they complement each other very well. And our enhanced offer to enhance local offices and digital offering is now an even greater competitive edge than before, and we can see that reflected in the high level of customer satisfaction. In 150 years, we've always adapted to customers' demand and wishes when it comes to where and how we meet and interact. And it's an obviously important thing to the bank to this day. And that is why we've opened this new branch in Hovas. Finally, when it comes to central aspects of the bank in -- after the strategic shift in last years, where the bank has left countries and markets where we don't see enough potential for profitability and growth, it's now natural to increase our focus on making central parts of the bank more efficient and to consolidate them. Our tradition is based on a simple organization without unnecessary structures and inefficiency and decentralized responsibility to avoid inefficiency and unnecessary costs. We really have to be mindful of our costs like any other business. We've now launched an overview to identify and take action against costs in our central functions, and therefore, we will enhance our competitive edge. As a consequence of the strong financial position and generation of capital, the Board now proposes to the AGM an ordinary dividend of SEK 6.5 per share and an extra dividend of SEK 6.5 per share, so in total SEK 13 per share. Significant geopolitical tension and macroeconomic uncertainty is a fact to ensure that the market trusts us as an attractive and stable counterpart with the full capacity to meet potential increase in credit demand. The assessment is that in the current situation, it is motivated to have a CET1 ratio that is higher than the bank's normal target range with 1.3 percentage points above regulatory requirement. The CET1 ratio, after deducting the proposed dividend, amounted to 18.8%, which corresponded to 4 percentage points above the FSA minimum requirement. To adopt the bank's capital level to the usual target range of the bank, our intention is to accept anticipated dividends to align the CET1 ratio at 4.0 percentage points above the regulatory requirement. Finally, the bank stands strong and that is crucial to build and cultivate customer relations and drive growth over time and to build stable shareholder value over time. It appears that in the year 2023, we'll again reach our goal to have higher profitability compared to the average to comparable market, at home markets. And we handle expenses with discipline, and we will increase our focus on this in coming years. The customers show their appreciations for us. And last but not least, our credit quality is good as it should be in spite of upheaval in the world around us. And that means that we continue with the long-term stable trend we've seen for many years with an average value creating per year of almost 15% for our shareholders. So thank you very much for listening to me, and now we will take a short break before we go to the Q&A. Thank you for now.

Peter Grabe: Welcome back, everyone, to the Q&A session. Present at this call are Michael Green, CEO; Carl Cederschiold, CFO; and myself, Peter Grabe, Head of Investor Relations. Before commencing the session, we would express our usual reminder that we appreciate if you limit your questions to one at a time per person. This in order for all participants to get the opportunity to ask questions. Of course, you are welcome to step back in the queue for follow-ups. With those words, we hand back to the operator as we're ready to take on the first question.

Operator: [Operator Instructions] And your first question comes from the line of Magnus Andersson from ABG SC.

Magnus Andersson: And thanks, first of all, for the increased clarity on capital and the target there for the end of '24. I was just wondering, I mean, you keep 100 basis points extra management buffer above your target interval due to an uncertain environment. If I look at your own economist's forecasts for 2025, they expect around 2% GDP growth. In such an environment, should we then expect you to go down to your ordinary interval in 2025? And related to that, if the environment would improve, start to improve significantly in the second half, I mean, your interval now is 200 to 400. Could you be a bit more -- could you be adopting your level towards the end of this year already depending on how things evolve in the second half?

Carl Cederschiöld: Thanks, Magnus, for the question. Well, I think the bank has obviously proven for many, many decades that we like to run a very conservative and long-term approach. So we think it's definitely reasonable to run with plus 1 at this time. We will review this decision yearly. But for us, it is really, really important to put us in a position where we are the most stable bank, where we can be viewed from rating agencies, from media, from clients, from all of the society to be the most stable bank. So yearly we will review it. It's hard for us to make a comment on what kind of numbers we need to see to drop it back to the normal. But the normal range is still 1 to 3.

Magnus Andersson: And in terms of risk-weighted asset trajectory then, could you help us a bit with the building blocks there in terms of volume migration Basel IV? And we discussed the IRB model implementation in the U.K. in the past, that could develop.

Carl Cederschiöld: Yes. Thanks for that question as well. Well, first of all, obviously, volumes, you're as good as we are at projecting them. So -- but obviously, we have seen slow growth lately. But we'll see what happens if rates drops back to lower levels once again. Going into the more technical details. Yes, we've seen quite a large negative migration on volumes to Stage 2. That has meant that most likely we'll have recalibration of the model implying lower RWAs, all else equal. As we've guided on before, we don't see any major headwinds going into Bal IV, and we don't have any change in that one. When it comes to the IRB of U.K., yes, as we've been guiding on, we're working on that one, and the best estimate is that we might have some difference in 2026. So we can't foresee in a major headwind in RWA going into this year.

Operator: And your next question comes from the line of Nicolas McBeath from DNB.

Nicolas McBeath: So a question to Michael on strategy. So given your long history with Handelsbanken, it would be interesting to hear your view on what of the traditional distinguishing features of the Handelsbanken model you think are worth preserving also today and what is not really relevant or optimal in this more digitized banking industry? So I'm thinking of old ideas of Jan Wallander [indiscernible] business plan, having profit centers at the branch office level and a slow moving and cautious approach to IP announcement.

Michael Green: Right. So thank you for the question. So if you look back on how we've built a profitable bank and with a very strong balance sheet, it all starts with the ability and the skill to choose the right customers. And we've done that with a strong focus on our branches and our way of performing business on a local level. So my view is that to be able to deliver satisfied customers and understand which customers we will bank with, it starts in a branch, and that's how we also steer the bank. But obviously -- and that's a given. We also -- in addition to that, we obviously have to have strong digital solutions for our customers, and we do have that. So I'm more into the -- to strengthen our decentralized local banking approach. And I think in general terms, right now, when we see such a difficult times for many of -- in many countries in Sweden as well. We see a strong need from our customers to really meet with the living person to speak with him or her about issues that they might have. So to comfort and also give the right solutions to customers in this environment, which is quite difficult, actually. We've noticed that the demand for person-to-person discussions in terms of savings and also how to manage their mortgage situation or their housing issues. And for corporates, also to discuss with us locally with our broad competence in our branches and also with the specialists giving the good advice for their business going forward. So strong decentralized decision taking locally, strong customer focus, long-term relationships and their ability and the right to choose the customer that suits us best where we can be really interested to do business from a customer perspective. And that's normally corporates with strong balance sheets and a good P&L -- with a good strong P&L. And on the private side, people who have a larger economic, environmental around them than a normal regular person. That's normally how it works with us, so more of that -- sorry, I might add also, we also need to -- we need to be cautious about our cost. All companies need to manage costs very prudent. And we need to strengthen ourselves a bit there to be more prudent and very careful about the cost we need for -- to -- and really focus on the things that make sense for customers going forward.

Operator: And the next question comes from the line of Andreas Hakansson from SEB.

Andreas Hakansson: So a question to Mr. Green again. On the cost side, you said that you need to look at central costs. Could you tell us a little bit, is it -- I mean, we have seen quite a bit of IT projects over the last couple of years. We've seen some business lines growing, that's more central units. And then we've seen staff numbers picking up in the total group. But can you tell us a little bit what type of area is it that you are going after? And if it's just central staff, how big is that number today? What's the potential actually on only that staff? Or is it some bigger cuts that are needed to bring costs down?

Michael Green: Right. So thank you for the question, Andreas. And first of all, we've been through a couple of years now where we've focused the bank. We have exited a number of international business. And we've also remade, if you put it that way, the Swedish and the U.K. business where we went from regions to counties and districts. And we've done that to strengthen our local offering, as I just mentioned before, and we will continue to do that. But we have not really come into our head office department. So I think it's very natural for us now and rational to take it to that area as well. So what we've done and communicated this morning that I will still, as the CEO of the bank, still be operational responsible for the Swedish business. And by doing that, we will enable the group central departments and the Swedish central departments to merge and to make sure that they will take away -- take out work that's been done in both areas and also focus on what needs to be delivered from a central department. And that's going to be done in 5 of our central departments. On top of that, you're focusing a little bit on the IT side. We've now also given the mandate to the head of IT to really look into and work with the -- how much output the bank needs to go forward. And as you mentioned, we've been increasing our investment in IT over the last couple of years. I will not be surprised if we will slow down that a little bit due to the fact that we need to make sure that all the development we do is customer focused as much as we can and also is done in an efficient way and also on the demand of the business. So we'll see what's going to happen there. So that's going to be one of the tasks for him to go -- going forward.

Andreas Hakansson: And do you think that later on this year, maybe time of Q1, Q2, that you will come out with somewhat of a more formal plan, restructuring plan? Or is it just going to be quarter-by-quarter, we see small improvements?

Michael Green: So when I grew up in the bank, and we had a cost situation, which were in a slightly different way than it is right now. We were very good at actually working on day-to-day with our cost side, being very cautious. I would be -- I would not foresee that I will come back with a number in cost and -- or in headcount. That's going to be something we work on from a day-to-day business, but I will ensure you that we will have a stronger focus on that side going forward this year, but it's not going to be any numbers as far as I see it.

Operator: And your next question comes from the line of, one moment, please, Sofie Peterzens from JPMorgan.

Sofie Peterzens: Hello, this is Sofie from JPMorgan. So just staying on your -- on the cost comment. So I guess, we're not going to see any cost targets or any big cost plans being announced. But how should we think about kind of restructuring costs, intangible costs? And kind also there has been quite a lot of press articles around cybersecurity growth. How are you addressing these? And should we kind of expect any one-off cost items to come in the coming quarters? And also just a follow-up on the 4% capital buffer. Does the 4% capital buffer have anything to do with your credit rating? I noticed that one of your -- or one of the rating agencies has kind of a negative outlook for you. So is there any correlation between that corporate buffer and your credit ratings?

Carl Cederschiöld: Thanks, Sofie, for the question. Well, as Michael said, I mean, we're really going to work a lot with the cost culture and bring it back, but we will try to do that gradually. So you shouldn't foresee any number coming out, restructuring package, et cetera, time will tell. And yes, of course, cybersecurity and all of this, the total FCP area is an area, obviously, where banks will invest quite a bit. So of course, we will keep working on that one, but that will be included in the rest as well. Now, the 4%, you shouldn't view that as any view on the negative credit watch at all. It's just to run the bank very long-term conservative. I mean we obviously have a history of not needing to -- we've been -- our balance sheet -- we've been able to support our balance sheet fully internally. And that's really what we want to do. So we want to place ourselves in a position where we -- when things normalize, then will go down towards the normal target range. But until then, we think it's feasible to run with 1 percentage points above it.

Sofie Peterzens: But the credit rating agencies or at least one of them, as far as I understand, is quite unhappy with your very low Stage 3 coverage which, again, fell and now it's only 16%. We should not view this low Stage 3 coverage in conjunction with the 4% buffer?

Carl Cederschiöld: I don't -- that's not my view as you're posting it. Our view is that we have a very good discussion with the credit agencies. Yes, of course, they were putting us on a negative watch when the overall macro climate within the world and within the real estate sector were troublesome. Our discussions with all of the rating agencies has been extremely constructive. So you shouldn't put any correlation to any Stage 3 reserves in that.

Operator: And your next question comes from the line of Namita Samtani from Barclays.

Namita Samtani: Firstly, when you map out Handelsbanken's business in Sweden, Norway, U.K., and the Netherlands and by business product, where do you see the growth potential for the business in the next year or 2? I guess I'm asking this because I wonder if you're going to do a proper strategic review of the businesses and not just pick the cost. And secondly, just to Michael, are you going to have time to be both the CEO and to look after the Swedish division?

Michael Green: Thank you. I'll start with the last question, and I -- as you probably are aware of, many of you, we've -- if you look back in the history of the bank, this -- it's -- most of the time, the CEO has also been head of the Swedish business. So that's nothing new for us. It's just kind of a normal way of taking care of the business. And but of course, I'm not a superhero, I need to have help, and I do have that. So we will arrange for and structure people around me so they can help me in the day-to-day business area. But I would also like to say that almost all of the business is taking care locally and around the -- in the country. It's not -- we don't work where -- sorry. The way we work is not that everything has to come up to the CEO for decision. That's not the way we do it. So people are very skilled in decision-making since many, many years, and they do it in a very good way locally. So I would presume that the day-to-day questions of business, from my perspective, is going to be very, very few because they're so very well trained and very skilled and they know their customers so well out in the -- in our branches. So that's not going to be an issue. Now back to the first question. I almost lost that. It was --

Carl Cederschiöld: Growth perspective.

Michael Green: Growth perspective. First of all, I think banking, in general, will grow based on the expansion of the real economy and it's very macro -- and the macro is very important when we grow. So what we -- but we can also, of course, do our -- the best we can in terms of getting more customers on board and work with all the products and the solutions that we offer them all around in our home markets. And as you can see on the slide, we -- the market share in the U.K. are fairly low right now. So we do have a potential there to grow. That's my opinion, also in the Netherlands. And in Norway, we have announced, as I said, we need to work through the -- the business structure in Norway, so they will come out in a more -- with higher return on equity than they perform right now. So it depends a little bit on what you mean by growing. We can -- we will always grow with profitability. So we're not volume chasers. So we need to really make sure that we go further with the right customers, with the right solutions, and we do it in a cost-efficient way of the year.

Operator: And the next question comes from the line of Rickard Henze from Nordea.

Rickard Henze: Following on, on the cost there. You mentioned, Michael, that you're currently doing a review of your Norwegian business. Maybe a small follow-up there. If you could just mention if it's primarily related to also support functions or if it has a broader scope in that review?

Michael Green: Sorry, I didn't get the last sentence. Come again.

Rickard Henze: If it's the Norwegian review, if it's primarily related to the support functions or if it has a broader scope to that?

Michael Green: Okay. I get it. No. I think -- when you grow the bank over the years, it's so important that we do it with the profitability that comes along with it. So we need to make sure that we have a balance sheet that's in balance. And you know that we grow -- profitability comes mostly from the savings side and the mutual fund side. So we -- I think I'm not going to go into in details what they need to do in Norway. But in general, and especially in Norway, we need to find out a way that we balance the product needs that we deliver, so we can grow with profitability. And that's a work that's going to be needed to be done in the next couple of months.

Rickard Henze: And then a follow-up on more nitty-gritty question on Slide 5 in the presentation on the marginal funding and contribution on NII of SEK 245 million Q-on-Q, if you could possibly add some flavor to the subcomponents here in terms of lending margin development versus deposit margins in the quarter?

Carl Cederschiöld: Yes. We never disclose a split between lending margins and deposit margins and it's simply because they are interconnected. So they're both moving parts. So we don't guide on that detailed level, unfortunately.

Rickard Henze: Okay. But is it possible to say anything about the sort of larger moving parts broadly speaking?

Carl Cederschiöld: Yes, we can -- yes, we can definitely say some parts around it. I mean we've -- as of -- in the end of the year, obviously, we've seen slow growth. So the volume contribution has been fairly slow. Then when it comes to the marginal development, we still see that NII hasn't topped. It is reasonable, yes, to expect it to top at these rate levels. Time will tell. We have -- I moved a bit around the volumes and margins now, but we've seen obviously that the deposit volumes moves fairly much in line with the lower demand for loans. So that's all good. And yes, I mean, as we've been saying before, if rates start moving down, we think there will be movements around the lending margins and deposit cost. But that time will tell. So that's more or less it.

Operator: And the next question comes from the line of Johan Ekblom from UBS.

Johan Ekblom: Just trying to come back to the cost side. And I guess going back to Andreas' question trying to gauge, I guess, at least what the addressable cost base is in central functions. When I look at the results, is it fair to take the internally purchased and sold services as a broad figure for the size of the cost base that's being addressed? Just to kind of try and get a sense for what the magnitude could be here? And then maybe relating to costs and your comments on income growing faster than cost, which was, I guess, a key trigger that you predecessor flagged for lack of Oktogonen contributions in the past. If we ignore the rate benefits that you had, are you happy with the kind of relationship between the growth in the top line and costs, because it looks to me like you're still seeing costs grow faster?

Carl Cederschiöld: Thanks, Johan. Let me start at least. As Michael said, we will work gradually with the cost base. But to put it in relation, so you got a ballpark number of what kind of ratios not talking about the cost savings, but how large proportion of the organization, this will affect. We have 12,000 staff in the bank. It roughly affects 4,100 of them, which is 1/3, then roughly, and it do affect 55% of the cost base. So that's the base we're working with at least. And but then again, we will gradually do the analysis, and we'll see what the conclusion will be.

Michael Green: So just coming back on the question, if I'm happy. So I'll -- you don't know me yet, but I'm not happy. I'm never really happy, but I -- sometimes I am, sorry. But the -- it's not my job to be happy. And I see underlying, you could tell, and you've heard banks reporting in Sweden prior to us that margins -- customer margins on the mortgage side, for example, is rapidly turning down during 2023. So -- and that's -- and at the same time, we've been facing cost inflation that really is from a country perspective, not unheard of, but it was a long time since we had those numbers to cope with. So of course, as always, being cautious with our cost being cautious to what we deliver and we should just do the things we need to do to make business go forward. And we need to really business focus all of the bank, not just the branches and the countries. All the banks need to be business focused in a bit more way than I think we are right now. And being a business focus, meaning that you explore and you questioner own deliverances in what we really need to make sure that customers are happy that we can increase our business. And that's what's going to happen right now. We focus on business for the whole bank, and we will -- and give the branches even -- yes, the ability to really choose their customers and their counterparties and be strongly making their decisions with broad competence and specialists out in the -- in all of our 2000, and soon 7 branches in Sweden and all over the -- in our home markets.

Operator: And the next question comes from the line of Riccardo Rovere from Mediobanca.

Riccardo Rovere: Just a couple of clarification, if I may. First of all, when you say in the outlook for anticipated dividends the key for the 400 basis buffer. Is that an interim dividend? Should I read it as an interim tied at some point? Probably I'm getting wrong, but I just want to hear it from you. The second point I wanted to ask you, I never -- I don't see the word buyback mentioned anywhere. I might be wrong, but I haven't seen it. So I imagine that all your capital distributions is seem to be cash and still related somehow to that. The 400 basis points instead of the 300 at the top of the range. Has that anything to do with CRE exposures?

Carl Cederschiöld: Should I start? I don't know if I heard your first question correctly. But I think you were asking around can we see an interim dividend? Yes -- look. And yes, what we said is that we will review this plus 4% yearly. So we don't close any doors, but most likely, the next review then is up a year from now. Then the -- yes, you are correct. You haven't seen anything about share buybacks as of saying that we will do it. As you know, yes, we will ask for a permission to perform share buybacks from the AGM still, and that's in the report. But no, the total distribution of -- to shareholders today is going to be -- is proposed to be with dividends. Then we will -- going forward, we will look at what's best at that time. The extra percentage points does not have anything to do with CRE, no. It rather has -- I mean we want to run the bank long term and run it conservatively. And we always want to be in the best position to support the real economy and our clients.

Operator: And the next question comes from the line of Markus Sandgren from Kepler Cheuvreux.

Markus Sandgren: I guess we've already touched a bit about this -- the questions I have already, but if I can put them anyway. So in terms of return on equity, you aim to be above the average of your peers. And we've talked a bit about costs and talked about return levels in Norway. But do you see the -- I mean, the main lever to get there, is that to increase the share of capital-light product offering, i.e., net commission income? Or is it capital? Or is it cost? So that's my first question. And then secondly, about capital again then. I mean, if you consider your credit loss provisions to be where they should and you expect low regulatory headwinds and not much of GDP growth in the year to come. What is really the 100 bps on top of your high end of the interval 4, please?

Michael Green: So if I may start with the first question. So to run a bank, as Handelsbanken and aiming for and delivering higher rent return on equity than our peers. It's not -- it's doing everything that you mentioned. We obviously -- we work in markets which are very -- what do you say -- that's transferable. Sorry, you know what the price is. The price is given in a way in most of our products. And we need to be there. So price is given. It's a transparent and open market with high competitiveness. So that's where we need to be. And to be able to perform on our corporate goal, obviously, we need to be more efficient than our competitors. And we also need to have higher customer satisfaction to really make sure that we continue to do good business with the right customers going forward. And on top of that, obviously, we need to be capital efficient, and we need to have a balance sheet that really is prudent, and we are risk averse. So we need to make sure that we're always going to be the right and a very, very strong counterpart for both our customers and for the society as well. So it's all of those things that you mentioned, be cautious and very efficient with our cost side, work hard on delivering happy satisfied customers and focus most on the capital-light product, as you mentioned. That's what they do all around at the branches, helping our customers with their savings and pensions and things like that and, of course, have a balance sheet in a very strong shape.

Markus Sandgren: And then the second one on the capital side, please.

Carl Cederschiöld: Well, I will keep reiterating the answer. I mean, you know us, we run the bank long term, we want to run it risk conservative. We will not, at each time, try to optimize the capital structure. We don't see any stress in that one. So being in a situation to support the society and the real economy and our clients, that's really important for us. So we don't have a stress moving down. But once things normalize, we will move down into the normal target range.

Operator: [Operator Instructions] And your next question comes from the line of Andreas Hakansson from SEB.

Andreas Hakansson: Just on asset quality. I mean, you reported for the full year around SEK 140 million in loan losses. And as someone alluded to, you have a low coverage ratio on your Stage 3, which indicates to me that you're quite comfortable with the situation. And when I then look at consensus estimates for 2024, the street is looking for over SEK 2 billion of loan losses for 2024. Could you tell us when you look at that number, what scenario will you need to see to go that high?

Carl Cederschiöld: I mean, looking historically, obviously, we're extremely pleased with our asset quality. We're extremely pleased with the way we've been working on it for many, many years now, improving our client base, work with more securitized lending, et cetera. So we've been doing quite a lot to actually structurally improve the asset quality in our view. Having said that, then obviously the credit losses we do end up with, they tend to be idiosyncratic. So they tend to be very hard to predict. So I think your question, by essence, is then hard to answer. So we can just see that obviously, the analysts, you struggle with putting -- with predicting a very low credit loss. And so I don't have any answer to what needs to happen, but most likely idiosyncratic problem once again.

Operator: And your next question comes from the line of Andrew Coombs from Citi.

Andrew Coombs: I might ask a couple, if that's okay, and I missed out in the first round. The first question would be coming back to asset quality. I appreciate there are a number of moving parts here you're looking at the impact of the better quality of new loans compared to exits. You've got the updated macro assumptions. But just taking a step back, if you look over the last 2 years, you've seen some of the biggest increase in Stage 3 migration compared to any other European bank. Your Stage 3 coverage ratio has dropped from 24% to 16%. Your Stage 2 coverage ratio has dropped. How long -- and I appreciate it's a function of IFRS 9 and various other things, but how much longer can you continue to see a decline in those coverage ratios? And where do you think they could bottom? So I guess that's the first question. And my second question is just on the corporate deposit base. I appreciate there's always seasonality around Q4. But what do you expect for corporate deposit flows and [ UA ] market share going into 2024? And any implications that has for pricing dynamics?

Carl Cederschiöld: Well, thanks for the questions. Well, first, on asset quality, I think it's important then to once again go back to the more or less rule book and look, why do we -- why is the volume move to Stage 2. That's obviously if we see a decrease or an increase actually in the probability of default by 2.5x, then we need to move the volume. So let's say then that you know our starting position. We lend to some real estate companies in a really good shape. They have low loan to values and they have good ICR levels. But when rates are moving up, in some cases, 3x, 4x perhaps, of course, that will hit the cash flow outlook. And in essence, then it's definitely reasonable and seasonable. And what we want to see is that the ratings are adjusted due to, obviously, the cost of carrying the loan is higher. So that requires that we move the loan to Stage 2. Having said that, then if we have collateral in place at a very good proportion and low LTV levels, that's the reason you see decreasing Stage 2 all reserves dropping. So I think it's -- I don't have any answer to your question how low could they drop. But the way you should read it is that they shouldn't be seen as a signal that we see problem loans there. It's just a consequence of increasing rates quickly, and then the cash flow outlook becomes more challenging. But if we have collateral in place, we -- that's the reason behind it. And then the corporate deposits, I mean, we always see corporate deposits moving down over year-end. And I think you can go back and look at the outlook previous years to have a good guidance to see what the outcome should be. So there's nothing this year, which makes our challenge if there is something structural in that development, we just see that as a one-off cleaning up the balance sheet over year-end.

Operator: And your next question comes from the line of Riccardo Rovere from Mediobanca.

Riccardo Rovere: On capital, again, this year, you're going to take, you have 400 basis buffers. And then if the situation, from what I understand, if the situation kind of normalizes, you're going to get back to the traditional 100 to 300. So your internal target is going to shift go down. That means that the payout ratio should go above 100% because you will steer down to come on the common equity Tier 1. Now is that possible or maybe is that acceptable in Sweden where the payout ratio goes 100% or above 100%?

Carl Cederschiöld: Well, thanks, Ricardo, for the question. I think first of all, putting it in perspective, I mean, we're a bank who's been running for 150 years. We built a business model where we really want to be self-sufficient and self-dependent. And we've never taken support from government nor from equity owners. So -- and we put really pride in that one. So you should really think that the plus 4%, that is a very prudent way of managing our business model. Having said that, if we now guide us -- and I should allude as well, we are actually direct and indirect taxes and fees. We're actually supporting the society with a larger share than we're supporting our shareholders with. So we think we're really a society beneficial bank. Having said that, then, yes, I mean, theoretically, if P&L is moving, if P&L keep rolling in at really steady levels, and we see risk-weighted assets dropping. Yes, theoretically, you could see a dividend share, which is very, very high. On the contrary, if we start growing quite a lot, if we start seeing volume growth and if you start seeing structural RWA headwinds, it will adjust lower than the dividend share. So it is up to you more or less to make a prediction now of the outcome of the underlying movements. And then we will try staying at plus 4% over the year.

Operator: And your final question comes from the line of Jacob Kruse from Autonomous.

Jacob Kruse: Jacob from Autonomous. Just a quick follow-up on the NII question. Could you just comment a little bit about how you see the moving parts as rates come down, if we go to more of a 2% rate level over the next 2 years, just in terms of your thinking on lending margins, deposits and if there are any other positions on your balance sheet that would impact the move that?

Michael Green: Now, as we mentioned before, we don't guide on a basis of splitting out deposit margins and lending margins and we'll refrain from doing that. So when rates potentially might drop, I think as always and just like rates were increasing, we refrain on providing guidance for the same reason that there are so many moving factors behind an overall NII margin. And at the end of the day, it's, of course, competition that decides both on the lending side as well as on the deposit side, and they are indirectly connected to each other that ultimately decides on where the overall margin goes. And since we don't know how competition will behave as rates, if rates come down as price into the market, we refrain from providing any detailed guesses on how that will develop.

Carl Cederschiöld: What we can say is, obviously, that we have seen the movement from transaction account over to savings accounts declining. So that seems to have stabilized. And yes, obviously, if we go back long-term looking at the rate levels we've seen, I mean, we actually have quite feasible margin levels overall. Time will tell what the competitive landscape will look like. And as Michael said, our branch managers and people out at the branches, they will adapt to this level, and then we'll see what the outcome will be.

Operator: I will now hand the call back for closing.

Peter Grabe: So thank you for taking your time and joining our Q&A session. I hope you will find -- you found our answers good and useful for all of you and looking forward to meeting you going forward. Thank you so much for today. Goodbye.