Earnings Transcript for SWDBY - Q4 Fiscal Year 2023

Annie Ho: Good morning, and welcome to Swedbank's Fourth Quarter and Year-End 2023 Results Presentation. My name is Annie Ho from Investor Relations, and with me in the room is our CEO, Jens Henriksson; our CFO, Anders Karlsson; and our CRO, Rolf Marquardt. Let's begin with our usual presentation and then follow it up by Q&A. Jens?

Jens Henriksson: Thank you. Thank you, Annie, and good morning, everyone. Swedbank stands strong in turbulent times. We are now leaving 2023 behind us, a year that has been characterized by concerns about both external and internal security, climate change and a weak economic development. It is a time of continued war in Europe and a terrible conflict in the Middle East. The global economy though finished 2023 stronger than forecasted. Decisive actions by central banks have prevailed and we saw both inflation and GDP decline in all our home markets. The Swedish economy was characterized by weak domestic demand. The first half of 2024 will be tough for both households and businesses before things start to improve in autumn. Looking ahead, I am optimistic, not the least because of strong public finances giving fiscal space in all our home markets. Swedbank delivered a very strong result of SEK 34 billion for 2023. Net interest income grew by 54% for the full year, even though margins on mortgages were under pressure. Commission income was up by 7% due to rising assets under management and increased income in cards and payments. Special bank taxes and higher profit has raised our tax cost significantly. For 2023, we are paying more than SEK 13 billion in tax. During the year, we have continued to invest in the bank while maintaining strict cost control. Expenses rose as planned. And our full year cost-to-income ratio ended at the low 0.33. This gives a return on equity of 18.3% and an earnings per share of SEK 30.27. The high profitability gives us the opportunity to increase investment this year and the next, with SEK 1 billion each per year. A sustainable bank is a profitable bank. Half of the profit is being used to strengthen the bank, thus, creating customer value. The other half is being distributed in accordance with the bank's dividend policy to our owners, savings banks, insurance companies, pension funds, private owners and foundations that in turn give back to society. Last week, I was honored that together with the principal participate when the Swedbank owner foundation in Skane donated money to Malmo University. Our dividend contribute to society. And therefore, I am proud that our Board proposes the Annual General Meeting a dividend of SEK 15.15 per share. Swedbank has a conservative and thorough lending process which contributes to solid credit quality. Credit impairments are stable, both for the full year and the quarter. Our property-related exposure is in line with the bank's strategy and risk appetite. Customers are active and asking for the bank's advice and they continue to take measures in response to market conditions. We have a strong capital generation capacity and capital position, with a buffer of 3.9 percentage points above the regulatory requirements. Our liquidity position is strong. Our digital availability in 2023 was stable at high levels. Our investments in new technology and new ways of working have produced results. Cyber threats remain a reality and the need for an effective total defense is on the agenda. We are well prepared and the public and private sectors are working close together. The bank has stepped up its fight against criminality. And I'm pleased with the successful collaboration within the Swedish Anti-Money Laundering Intelligence Taskforce, where Swedbank held the chairmanship during the year. The mortgage business in Sweden made progress in line with our strategy. We have added new volumes despite a weak market. We've reduced fixed mortgages in December, while maintaining our attractive full service offering. In Estonia, Latvia and Lithuania, the mortgage portfolio continued to grow in tight competition. We kept our market-leading positions in all our 4 home markets. The increased cost of living has reduced savings in Sweden. In the Baltic countries, it has increased on the back of high real salaries. We follow the market and offer our customers competitive interest rates in all our home markets. Corporate customer activity in Northern Sweden was good, while Swedish corporate customers in general were pessimistic about the economy. Lending decreased due to weak economic development and our continued focus on profitable business in line with our plan 15/25. In the Baltic countries, the sentiment was more stable. We gained market share in tough competition. Swedbank shall have the best full service offering and high availability in all channels is a prerequisite for making our customers' financial life easier. Our new customer centre in Umea is up and running with 50 new advisers who provide service and advice and they meet customers remotely. And our new communication platform is rolled out through the group, making our customers' financial life easier. And this is an investment that has shortened waiting times during the quarter. In Sweden, mortgage applications can now be completed digitally using BankID and mortgage customers in tenant-owned apartments can receive an evaluation of their apartment through an effective digital tool, better for the customer and better for Swedbank. Climate change is the biggest challenge of our time. As a bank, our main impact comes through our customers. And together with them, we are taking important steps in the green transition. Right now, this morning, we published Swedbank's transition plan for the climate, where we described how we will reach our credit portfolio targets. By 2027, our ambition is to at least triple the sustainable loan volumes. In addition, we shall increase the share of ESG bonds out of the total, where we act as an adviser to at least 40%. Over time, fossil fuels will be phased out. Already today, our sustainable offering with 0 margin green loans in Estonia and Latvia is a success. And during 2023, lending based on the offering amounted to EUR 370 million. For many private customers, sustainable personal finances are in focus. With inspiration from training apps, we have rolled out the concept of financial health in Latvia and Lithuania. And based on their personal data, customers can easily check the results and the performance of their savings, investments and pensions. We assist and coach with advice on what they can do to improve their financial health. And the rollout of the new advisory platform during the year will enable all our customers to strengthen their financial health. Swedbank is there for our customers in both good and bad times. We are a stable and proactive partner and we help our customers with guidance, advice and financing. And with that, I give the floor to Anders Karlsson, who will deep dive into the financial results. Anders?

Anders Karlsson: Thank you, Jens. Let's round off a great year by going through this quarter's result. Profitability at Swedbank was strong despite the large one-off in the form of an extra dividend from our Estonian subsidiary, triggering a tax expense. We reported a return on equity of 16.9% and an earnings per share of SEK 7.38. Looking into the details, beginning with lending and deposits. In the quarter, we saw large FX effects negatively impacting our lending and deposit volumes with SEK 13 billion and SEK 16 billion, respectively. The underlying total loan portfolio decreased by SEK 13 billion. Total private lending in Sweden was stable. Swedbank's own channels continued to perform through increased mortgage lending flows. However, other trends remained the same, with limited new mortgage market volumes, net negative flows from the savings banks and elevated levels of extra amortizations. Total corporate lending in Sweden decreased by SEK 16 billion due to a combination of factors, including corporates repaying revolving credit facilities ahead of year-end and continued focus on increasing our profitability and risk management. In Baltic Banking, both private and corporate lending increased by SEK 2 billion each. Underlying customer deposits decreased by SEK 31 billion. Private deposit increased in Baltic Banking by SEK 10 billion, while Swedish Banking saw a decrease of SEK 8 billion. Corporate deposits in Sweden decreased by SEK 41 billion, entirely driven by movements in short-term money in base rate linked transaction accounts. Underlying corporate deposits were stable. And corporate deposits in Baltic Banking increased by SEK 11 billion, mainly due to the annual flow of government funds to state companies. Turning to the revenue lines, beginning with net interest income, which increased by SEK 428 million quarter-on-quarter, mainly driven by the rolling effects from the gradual repricing of lending during the quarter, while the deposit side repriced immediately as communicated last quarter. Positive adjustments of SEK 106 million due to the receipt of the final deposit guarantee fee decision and SEK 84 million from a methodology change in C&I origination fees were partially offset by FX effect of SEK 61 million. As Jens said, NII increased by 54% over 2023. In terms of outlook, our macro research team predict that there are a few more months under the current rate environment before rates start to gradually be reduced towards a new normalized level. Going forward, we will continue with our proven pricing strategy and actively work with our administratively priced core products on both sides of the balance sheet. While there will be headwinds such as higher funding costs, of which deposit volumes and margin development is an important part, there are also some potential tailwinds. Deposit migrations to term accounts seem to be flattening out in Sweden and deposit volumes in the Baltics continue to be stable. Wholesale funding costs will gradually decline, albeit with larger outstanding funding volumes. We, as a business, have been working very hard to increase customer interactions. This momentum will work to our advantage when rates come down and the prospect of lending demand returns, both for private mortgages and corporates. Over to net commission income, which decreased by SEK 108 million. Card commissions were seasonally lower, while the asset management result was impacted by slightly lower average stock market performance as well as the Swedish krona strengthening in the quarter. Securities and corporate finance benefited from annual market maker fees of SEK 40 million. Turning to net gains and losses, which was strong. Fixed income and FX sales and trading performed well on the back of high client activity, and treasury benefited from positive revaluations from funding-related swaps as well as lower interest rates and credit spreads in the liquidity portfolio. There were some negative devaluation effects in C&I. Other income increased by SEK 48 million. Net insurance increased by SEK 210 million, driven by positive revaluation effects in Baltic Banking, which more than offset seasonally higher claims. And the card posted a negative result primarily due to higher impairments, while income from other associates and the savings banks were stable. Total expenses came to SEK 6.4 billion in the quarter, representing our typical seasonality pattern. Throughout 2023, we have been working with the same strict cost discipline as in 2021 and 2022 during which we kept costs right in line with guidance. This will continue. And with that in mind, we recognize that we have increased profitability to a level where we have room to temporarily adjust our investment agenda. We have, therefore, decided to invest more into business-enhancing projects and to speed up essential development in order to strengthen the bank. Such activities will include enhancements of the bank's data capabilities, speeding up the implementation of the omnichannel communication platform, IT resilience improvements, modernizing payments and card issuing infrastructures, and last but not least, fraud prevention. These temporary investments amounts to roughly SEK 1 billion extra per annum for 2 years. Furthermore, cost headwinds relating to salaries, IT maintenance and newly renegotiated contracts will continue in a similar magnitude to 2023, as we have talked about before. But parts of it will be managed through increased efficiencies. And hence, we expect a net headwind of SEK 1 billion on our underlying costs. So for 2024, expenses starting from the 2023 level, excluding the fines, we project that 2024 costs will increase with roughly SEK 2 billion, of which SEK 1 billion is of temporary nature. Now, over to you, Rolf, to talk about asset quality and credit impairments.

Rolf Marquardt: Thank you, Anders. Credit quality remained stable. Our customers show resilience. And the credit impairment ratio in the quarter was 8 basis points. But we also see some impacts from the economic downturn and high interest rates. In Sweden, past due loans increased somewhat but are still at low levels. The 60-days past due level for Swedish mortgages increased by 1 basis point to 11 basis points during the quarter. A slight increase was also observed for Swedish corporates. In Baltic Banking, past due loans and other risk indicators were stable. In the fourth quarter, credit impairments ended at SEK 363 million. The updated macro forecast increased provisions by SEK 174 million. Rating and stage migrations added SEK 584 million. This is mainly explained by a few exposures in manufacturing and information and communication. Amortizations and repayments, on the other hand, was SEK 523 million, mostly related to a handful of exposures in property management and manufacturing. Credit migrations were partly offset by a release of SEK 140 million from the post model adjustment. The remaining post model adjustment is now SEK 1.3 billion. Individual assessments were SEK 414 million, almost completely explained by a few single cases. The Swedish property management sector has continued to adapt to changing conditions and has, considering the circumstances, had a stable development during the quarter. The bond market has lately also shown signs of easing up with recent issuance. Using the reported Q3 financials of the 20 largest customers, the debt service tolerance ratio, that is the breakeven interest rate, increased to 8%. The average interest coverage ratios declined to 2.6%. And we note that the decrease is now leveling off. When stressing these exposures with an interest rate of 7%, on the debt that is maturing over the next 12 months, the average interest coverage ratio goes down to 2. None of the 20 largest companies are below 1. So against this background, we are comfortable with our credit quality. So back to you, Anders.

Anders Karlsson: Thank you, Rolf. Turning to capital. Our capital position continues to be strong with a CET1 capital ratio of 19% and the buffer to the requirements of around 390 basis points. Our capital requirements increased by 12 basis points, mainly due to an increase of the countercyclical buffer from 1% to 1.5% in Estonia and 0% to 1% in Lithuania. Risk exposure amount ended at SEK 847 billion. The rollout of the large corporate speedy model caused reratings of customers, adding SEK 17 billion of credit risk. As a natural consequence of this and due to lending volume changes, the Article 3 add-on decreased by SEK 18 billion. Operational risk increased by SEK 16 billion due to a higher average historical total income, impacting the annual recalculation. The capital target range of 100 to 300 basis points remains. And with that, I hand over to you, Jens, to conclude.

Jens Henriksson: Thank you, Anders. We now leave 2023 behind us, a year that has been characterized by concerns regarding both external and internal security, climate change and a weak economic development. In these turbulent times, Swedbank stands strong. We've been there for our customers due to our resilient profitability. We have maintained strict cost control, a strong capital liquidity position, solid credit quality and a return on equity of 18.3% during 2023. And this makes it possible for Swedbank's Board to propose a dividend of SEK 15.15, a dividend that does good in society through savings banks, insurance companies, pension funds, individual investors and non-profit foundations, which in turn give back to the local community. Our societal engagement also means being there for young people and spreading knowledge. During 2023, we have together with the savings banks educated 128,000 young people through the Young Economy initiative in Sweden. In Estonia, Latvia and Lithuania, we have reached more than 280,000 young people, parents and teachers that have attended educational sessions on household economy. A sustainable bank is a profitable bank. And during 2024, I look forward to keep on delivering on our strategic direction of Swedbank 15/25, because our customers' focus is our focus. And with that, I give the floor back to you, Annie.

Annie Ho: Thank you very much. Let's open the Q&A session then. And before I hand over to the operator, may I just remind you to try to stick to 2 questions per turn. Operator, please.

Operator: [Operator Instructions] The first question comes from the line of Andreas Hakansson with SEB.

Andreas Hakansson: So 2 questions then. If we start with the NII outlook, if we take the Q4 NII and annualize it, we end up at SEK 53.3 billion. And then -- well, we'll see where we're going to be with rates, but it seems like rates are going to be cut maybe for the first time in the middle of Q2. So given that starting point, could you tell us a little bit how you think the NII is going to develop over the year? I mean we're looking at consensus around SEK 49 billion, which is then a big decline. What's your feeling on the sensitivity? Let's start with that question.

Jens Henriksson: I will not guide you on the numbers as you probably are aware of. But you know the dynamics of our balance sheet. If I look at it from a short-term perspective, moving into Q1 this year, there are a couple of tailwinds, primarily you will see the full effects of the rolling of the repricing in Q4. On the other hand, you have headwinds in terms of funding also rolling in with the same effect. Looking ahead of that, assuming rates will start to fall, the way I think about it is that we have a balance sheet in the Baltics which is very powerful when rates are moving up quickly. And in Sweden, we have a balance sheet with large volumes of administratively set rates on both sides of the balance sheet, which is powerful in a climate when rates are coming down. And that is why I'm saying that we will actively work with the administratively set prices for -- on both sides of the balance sheet. But I will not give you an NII outlook and guide you on the numbers, Andreas.

Andreas Hakansson: No, that's fine. It's just the thinking is interesting and helpful. Then on costs. I mean I have to ask you. I mean, FTEs rose quite sharply in the second half of the year. Consultancy costs went through the roof in the fourth quarter. And then you now give us this extra SEK 1 billion for 2 years. I mean it's not so many years ago we used to talk about costs in SEK 16 billion, SEK 17 billion per annum, and now we're up to SEK 25 billion. Is it all -- or how much do you think of the cost increase we're going to see in the next 2 years, and so -- what I think a good cost that could actually start to generate revenues for you? And how much is it just catching up, making sure the bank is running?

Jens Henriksson: Well, could I start off with that, and I give the floor then to Anders. If you look on the number of people we've increased - first, I remind you that we do not have caps on this, but we do work with the costs. But if you look at the number that we've hired, 60% of the increase during the year is customer-facing people. And you see the last quarter we're talking 90% that are customer-facing people. So what we are doing is that we're delivering according with 15/25, namely increasing availability and making sure that we're there for our customers. Anders, do you want to follow up?

Anders Karlsson: Yes. First of all, these initiatives or investments that we are talking about speeding up are already running, and many of them are beneficial for the bank when the economy turns. I gave you some examples in my speech. But coming back to this, the omnichannel communication platform will be essential for us to increase availability, which is key. We are developing end-to-end processes that will make it faster for the customers and more efficient for us. We are investing into resilience, which is modernizing the platforms, going to cloud instead of running it on-prem. So the whole idea behind this temporary investments is to speed up not something new started and they are geared to preparing the bank. And I can promise you that there are clear plans for running off the costs on these temporary investments. And then on the FTE -- and then just reminding you what I said in Q3, we had an underlying headwind in '23 of around SEK 1.5 billion. And you can imagine that that continues into 2024. At the same time, we are guiding you on a net increase in underlying costs of SEK 1 billion. So there are constantly efficiency takeouts that we are progressing on.

Andreas Hakansson: Good. Just quickly on -- following up on costs. How much of next -- or this year's cost would you say is related to AML work?

Jens Henriksson: Well, I would say that's very hard to say, because now AML work is something that the 17,000 people in Swedbank all works with. And what we are seeing is, of course, we are in that -- we are on that level now where we can work much more of automization. And that's a trend that will continue. And we'll continue to make sure that we are good on this.

Anders Karlsson: And Andreas...

Andreas Hakansson: I just mean if you would settle with the DOJ tomorrow, will it be some bearable cost that would come out?

Jens Henriksson: Andreas, what I talked about now are the 2 sort of AML costs. One costs are the costs related to sort of the full work in the bank. And I can promise you there are not 17,000 people engaged in sort of being -- looked into by the U.S. authorities. But we have there. And we're talking about roughly SEK 300 million a year running for the cost of these -- sorts of the U.S. investigations.

Anders Karlsson: And Andreas, just to clarify on the consultancy spend. You're perfectly correct. There is a seasonal pattern, as you know, since it's going down in Q3. But this year, it's higher than usual. The prime underlying reason for that is that we are really speeding up the tempo when it comes to the IRB project and also kicking off a large data transformation project. That is the prime reason why you see the increase. And to remind you, if you want costs to be temporary, you will continue with using external resources rather than hiring more people into the bank.

Operator: The next question comes from the line of Nicolas McBeath with DNB.

Nicolas McBeath: So first question, if you got anything to say about the progress, timing and potential conclusions from the U.S. AML investigation?

Jens Henriksson: Well, as you all know, we are in discussion with 3 U.S. authorities. It's the Department of Justice, Securities and Exchange Commission and the Department of Financial Services in New York. And I don't -- most of you probably remember that when I was the new CEO, I told you that I talked with colleagues that had been in similar circumstances. And they told me that the process like this usually takes 3 to 5 years. And I've now been CEO for a little bit more than 4 years. So in that sense, we are getting closer. But it is a time line that is fully decided by the U.S. authorities. And once again, I do not know whether we will get any fines. And if we do get fines, I cannot estimate the potential size of those. And we have been as transparent as possible during this process. And when something material happens, we will continue to adhere to that principle.

Nicolas McBeath: Okay. So does that suggest you have hopes for to reach a settlement in 2024?

Jens Henriksson: I'm not saying anything about hopes. I'm just saying that this is a process that we are not deciding on. It's the U.S. authorities that are looking at us. And we follow along. And I thought I was very clear in the answer.

Nicolas McBeath: Okay. And then second question please on -- if you could provide any outlook for bank taxes and resolution fees in 2024 and 2025?

Jens Henriksson: Well, let me say a few words on bank taxes. And I'm going to be a little bit more extended, because this is -- it's a very sort of a topic of the day. So let me go through our 4 home markets. First, Estonia. There has been talk about bank taxes, but the government has decided not to impose further taxes due to the negative effects for the Estonian economy. But as you can see in our results, this quarter, we decided on an extra dividend from the Estonian subsidiary of EUR 250 million. That triggers a tax of net EUR 50 million. And since there is a general tax reform coming in 2025 in Estonia, it incentivize a front-loading of dividend payout for the bank, while it also strengthened public finances in Estonia during this year. Now moving further south to Latvia. The government has imposed a temporary bank tax for 2024 of 2% on mortgages. And we expect a net increase of our taxes of around EUR 30 million. Now further south. In Lithuania, there is and has been for a while a specific bank tax of 5%. On top of this, they rushed through a hefty investor tax on NII that applies for both '23 and '24. And the increased net tax for us is around EUR 100 million per year. You've seen that in 2023, and that will happen in 2024 as well. In Lithuania, the Banking Association has filed a complaint to the European Commission. And in Latvia, that is still under discussions. And I share the opinion of the ECB that bank taxes reduces the incentives to finance the real economy and is thus negative for both Latvia and Lithuania, both in the short and long term. In Sweden, we had the bank tax that was further increased last year, and there are proposals by different opposition parties on how to increase the tax even more. But the government is against it. And the minister of Financial Affairs has said that he instead expects the banks to use part of their profits to invest in the fight against crime and securing the payment system. And by coincidence, that is just what you heard Anders talking about. Let me finally remind you, and maybe I don't need to remind you, but I'll do it still that banks are an important part of our society. What we do is that we channel our customers' hard-earned deposits to lending, thus, empowering people in business to create a sustainable future. And to do that, we need to be profitable. And as I repeatedly have said, a sustainable bank is a profitable bank. As a bank, we are a proud taxpayer that contributes to the financing of welfare and security in our home markets. What we do not like are sector-specific taxes, discriminatory rules and retroactive measures. What we do like is equal treatment, a rule-based system, an investment climate that fosters growth, financial stability and green financing. Sorry for taking that long time, but it was an important subject.

Operator: The next question comes from the line of Magnus Andersson with ABG.

Magnus Andersson: First, a follow-up there on costs. I guess your message is that, I mean, you will take SEK 1 billion extra in '24, '25. And then, in '26, costs should fall by SEK 1 billion. But we've seen, as Anders alluded to, the cost base having been ramped up quite significantly since 2018, sometimes with so-called temporary measures that haven't proved to be that temporary. So how sure can we be about costs really coming down in 2026, i.e., that some projects are not becoming delayed, et cetera. Have you put in a kind of security buffer in your budgeting in terms of timing? And also related to that, will you split out the extra investments in your reporting going forward so that we can follow the underlying cost base? That's my first question.

Anders Karlsson: Thank you, Magnus. It was a long question with many questions in it. As I said, the temporary investments have a clear runoff plan, to start off with. It's about speeding up things that we are already doing within the bank. So there are not new things added to the investment agenda. That's sort of the first answer to your question. Secondly, I don't have a clear view on how the headwind looks for us in 2026. So I think it is too early to talk about that. But the intention is clear that the SEK 1...

Magnus Andersson: You broke up there, Anders. We didn't -- at least I didn't hear your second answer here. You broke up completely.

Anders Karlsson: Okay. Do you hear me now?

Magnus Andersson: Yes, I hear you now.

Anders Karlsson: Okay. So you heard the first part, which is that it is no new projects. It's more about speeding up the ones we are running. Secondly, on your '26 question, there are runoff plans. These billions are supposed to disappear. The question of exactly how the cost base will look in 2026 with underlying costs is a bit too early to talk about. But the intention behind these things that I talked about now is that it should be temporary. Do -- will you be able to follow them thoroughly through the quarter? Not really since they are already up and running and it's about speeding up. What we will do is inform you about the progress when we do important -- take the important steps. That's for sure. And then, Magnus, I'm not sure if you had another one that I didn't catch. So if...

Magnus Andersson: I can just -- that's clear. I just had another follow-up there on costs. On the SEK 1 billion, it sounded like it's a lot of -- it's primarily IT related. So my question is, SEK 1 billion, is that the net number, i.e., are the gross investments larger and are you capitalizing a part of it? So the gross investments are larger than SEK 1 billion, which means that you would get amortization later on.

Anders Karlsson: It's a very limited part that will be capitalized. So it's net SEK 1 billion.

Magnus Andersson: Okay. And the lines impacted, IT expenses, I guess other purchase services primarily, while it shouldn't be that much of income. Is that correctly -- or of headcount increase. Is that correctly understood?

Anders Karlsson: There shouldn't be much of a headcount increase related to this, and that's correct.

Operator: The next question comes from the line of Sofie Peterzens with JPMorgan.

Sofie Peterzens : Yes. Here is Sofie from JPMorgan. So just going back to the net interest income kind of outlook. If I look at your Baltic net interest income, it used to account for 20% of your group net interest income. Now, it's around 36%. It has increased almost 3.5x over the past 2 years. So basically, I mean, when I look back at your presentation that you gave in December 2022, what you're saying is that on the asset side everything basically adjusts with the base rate, but on the liability side most of the liabilities are really transaction deposits. So we should not really expect -- or, well, I guess deposit beta will be a very low. So kind of with lower rates is it fair to assume that rates will kind of go -- or NII will go down similar to the way it went up. So if rates go to 2%, is it fair to assume that it will just go down by like, I don't know, a similar amount as it went up? So that will be my first question.

Anders Karlsson: Yes, you're correct in the Baltic Banking balance sheet that the asset side will to a large extent automatically reprice when rates are falling off. You're also correct that it's a limited part of the liability side where we are paying any interest. It's around 35% of the deposit base where we can do something. When it comes to the Baltics, it's much more about volumes, commission income. It's a low penetration, as you know, both on the asset or lending side and on the savings side. So that's correct. And that is why I talked about our balance sheet on group level. Baltic Banking is a very powerful balance sheet when rates are moving up quickly, while the Swedish part of the balance sheet is quite powerful in a potential negative when rates are coming down due to the fact that we have so large volumes of administratively set rates on both the asset and liability side. And to answer your last question, it's a symmetric sensitivity for rates coming up or going down. And as we speak, a minus 50 basis point shift would impact the group with minus SEK 3 billion and the Baltics with SEK 1.3 billion with the normally underlying assumptions that we have in that calculation.

Sofie Peterzens : So basically, what you're saying is that if rates go down by 200 basis points, which is the base case, on a group level we should expect net interest income to come down by SEK 12 billion. And for the Baltics that would imply a SEK 5 billion plus decline. So overall, SEK 12 billion, out of which SEK 7 billion is in Sweden and I guess SEK 5 billion in the Baltics.

Anders Karlsson: That's in theory with the simplified assumptions that we have in the calculation. What will happen in reality is for you to play around with.

Sofie Peterzens : Okay. And then just my second question would be like how should we then think about the 2025 costs? Should we assume that the 2020 -- the SEK 1 billion kind of underlying cost inflation that you're seeing next year will be again in 2025? Or can you lever that SEK 1 billion of underlying cost inflation? And maybe also related to the cost and just coming back to the financial crime prevention, there had been a lot of quite very impressive articles over the past 3 months in Sweden about banks that are facilitating kind of criminal activity and being the target of a lot of criminals in Sweden. How should we -- kind of how much of that SEK 1 billion do you really spend on financial crime prevention? So what proportion of that SEK 1 billion is on financial crime prevention? And 2025 cost guideline?

Anders Karlsson: I will not guide you on the 2025 cost. It's far too early for that. As I said in my speech, we will continue with our strict cost control. So that's the answer to your question.

Sofie Peterzens : And you can't give any levels on the financial crime prevention, how much of the SEK 1 billion? Is it majority, minority, more than 50, less than 50? Like just so that we have an idea.

Anders Karlsson: No, I cannot specify that for you. It's a lot of initiatives. And again, this is to speed up already running projects.

Sofie Peterzens : But are these already running processes and projects that are related to money laundering and financial crime prevention to a large extent? Or is it just a small part? I guess, the idea -- my question is really to get a better understanding if those SEK 1 billion are just related to financial crime or if it's more investment in the business. Like if the financial crime are a very small part or is it a significant part? So, it's based on the press over the past month or 2 months. I mean, there is weekly stories about how gangsters are taking advantage of the Swedish banks. And I guess it's quite worrying. And also how much pressure are you getting from the regulator to address this issue?

Jens Henriksson: Well, Sofie, it's Jens here. I agree it's a major problem for society as such and we need to do our part to help prevent this, because these are money that in the end goes to criminal gangs. A part of it is -- and we're not going to specify it, because what we are doing is that we are front-loading and doing more. And Anders in his introduction talked about data management, about pushing through the sort of all new communication platform. We talk about the payments and we talk about crime. So I'm not going to go there and specify. I can just say it's a hot topic on all Swedes' minds and it's not only youngsters. I get stories by pensioners who said that they've lost confidence in society. We need to be tough here. And this is an important area when I meet the pensions' organization. And the ministry of Financial Market has, as I said, pushed through these kind of efforts.

Operator: The last question for today comes from the line of Namita Samtani with Barclays.

Namita Samtani: I've got 2 questions, please. Firstly, now that rates are stable in Sweden, are you seeing any signs of any mortgage price competition in Sweden? And secondly, Anders, just going back to your comments on net interest income. Your comments imply to me Swedbank is aiming for lending growth. But I see limited growth at the system level both in Swedish mortgages and corporate lending. So could you explain how Swedbank could achieve loan growth?

Jens Henriksson: Well, let me sort of say a few words on private mortgages. And first, the obvious thing that we are the market leader in all our 4 home markets and you also see continuous growth in the Baltics. In Sweden, the market is at a standstill. During 2023, the full Swedish mortgage market -- I'm not only talking about Swedbank, I'm talking the full market grew by around SEK 15 billion. That's less than 10th of what it grew in by 2022. The positive thing is that for Swedbank, where we have automatized more, we have shorter waiting times. Those people that you see sort of in the FD side are now answering phones, being there for their customers. And we have attractive offerings. This means that we have an upward pointing trajectory. And in the quarter, Swedish private mortgages sold through our own channels increased by SEK 2.7 billion. But what we see is an outflow from the savings banks because their business model in many ways is the same as ours, a lot of deposits, and they have funds to -- have money enough to fund them by themselves. On margins, you're right, it is a tough competition. And this quarter we see that our margins on mortgages are down in Sweden once again with 1 basis point. And if you looked on the Swedish FSA, 2 years ago, they talked about that the margins were 143 I think it was. And now, it's down to around 40 basis points. So in that sense, it's a dramatic drop. We also have to remind you that our net interest margin that comes from both sides once again is up this quarter from 167 to 168. And this is leverage in our proven business model and pricing strategy. And as I said now for more than a year, in this market, we focus on our customers and not volumes. And I see, Annie, that you're trying to round off when I got the floor. Is that okay with you or...

Annie Ho: Yes, absolutely.

Jens Henriksson: Because there's a good way to round off this because -- thank you all for attending. And thank you all for, as always, asking good and difficult questions, makes us better. And thank you for being owners. We are extremely proud of the confidence you're showing us. And getting back to sort of the mortgages, this is an area where we can talk more about. And I'm looking forward to in -- what is it? -- 19 minutes from now, a quarter past 10, we will meet you again and where we will present our progress update on Swedbank 15/25. And I really hope that we meet there again. And those -- during those 90 minutes time for coffee and some visits. Take care.