Nordea Bank Abp

Good morning and welcome to Norda's first quarter 2025 results presentation. I'm Ilka Attoala, Head of Investor Relations. As usual, we'll start with the presentation by CEO Frank Van Jensen, followed by a Q&A session with Frank and CFO Ian Smith. Please remember to dial in to the teleconference to ask questions. With that, Frank, the stage is yours.

Good morning. Today we have published our results for the first quarter of 2025. Despite the significant uncertainty that impacted the first quarter and has further escalated in the recent weeks, Nordea performed well, delivering growth in business volumes and continued high profitability. Return on equity was 15.7%, consistent with our financial target, Z320. The first quarter was a bit more difficult than the first quarter that we had seen three years ago. Our results for the quarter reinforce the fact that Nordea is strong, resilient and predictable. And that feels all the more important in the present environment. The uncertainty and volatility are affecting all parts of the world, including the Nordic countries. However, I wanted to remind you that there are few countries better equipped than our home markets to navigate the shifts we are seeing today. Our region has long stood out for its fiscal strength, highly competitive business environment, globally successful businesses and strong entrepreneurship, shaped by centuries of trade and commerce. Public finances are in good shape and we also benefit from significant social safety nets and structurally lower unemployment rates. Nordic households have healthy financial positions and our region's large enterprises are generally well positioned, prudently funded and adequately capitalized. The strength of Nordic businesses lie in their agility and focus on superb product and service quality, innovation and a no-nonsense execution. This approach, deeply rooted in the Nordic DNA, has not only helped them outperform global peers over the past two decades, but also enabled them to establish successful partnerships and scale their growth internationally. While trade barriers are of course unhelpful, our view is that the Nordic economies face lower risks from US tariffs than many other regions. Total goods exports as a percentage of GDP is much lower for the Nordics compared with the European average. Furthermore, the proportion of these goods exported to the US is limited. We also sense that European and Nordic governments are responding to the tariffs in a balanced and appropriate way. In the present environment, many of our customers have understandably chosen to retain financial flexibility with households focusing on savings and corporate strengthening their balance sheets. Still, we continue to see lower inflation and interest rates which should support higher lending and investment activity when confidence returns. Nordea itself is very well placed to support our customers through this uncertain and volatile cycle. In a very practical sense, we do that by listening to their needs, providing advice, and our wide range of products, services and solutions. At the same time, we do that by using our significant strengths as a region's leading financial institution. We have a very well diversified business model that serves the group well in both favorable and challenging economic conditions. Our income is meanwhile spread across our four Nordic markets, reducing our exposure to any single economy. We are the only truly pan-Nordic bank and we manage our loan portfolio prudently, balancing it across various sectors and maintain sound credit policies. With Nordea, you don't only get exposure to the Nordic countries, but you get exposure to the best parts of the Nordics. As such, we are entering this new and evolving environment in a position of strength with a sound approach to risk management, a strong franchise, and in excellent financial shape. Our first quarter results demonstrate our continued good performance. Looking at some of the highlights for Q1, total income was down 4% -on-year, driven by lower interest rates compared with Q4, income grew by 1%. Net interest income continued to show resilience, decreasing by 6% -on-year and by 1% -on-quarter. With the impact of policy rates reductions mitigated by our deposit hedge and supported by deposit and lending growth and disciplined pricing. Net fee and commission income grew by 4% -on-year. This was driven by higher net income from savings, payments, and cards, and brokerage and advisory, while net insurance results and net fair value results were both solid. Operating profit was down 9% from a year ago, though up 10% -on-quarter at 1.6 billion euros. Return on equity was 15.7%, reflecting resilience and continuous high performance. Mortgage lending volumes increased by 6%, while retail deposits were up 7%, supported by our recent acquisition of Danske Bank's Norwegian personal customer and private banking business. Corporate lending was stable -on-year, and corporate deposits grew by 11%. Asset of the management grew by 9% -on-year to 425 billion euros. Cost increased by 5%, of which 4% this point was driven by our strategic investments. Costs are stabilizing in line with our expectations. Our cost to income ratio with our mortgages resolution fees was 44.6%, well within our target range of 44 to 46%. Our credit and asset quality remain strong. After a 20 million euro lease from the management adjustment buffer, net loan losses and similar net result amounted to 13 million euros, or one basis point. This is well below Nordea's long-term expectation. We continue to generate capital at our good rates. We ended the period with our CT1 ratio of 15.7%, which is two percentage points above the current regulatory requirements. Our guidance for 2025 is unchanged. We remain on track to deliver a return on equity of above 15% for the full year. With that summary, let's now take a closer look at the results starting with the income lines. Our net interest income showed continued resilience, amounting to 1.8 billion euros for the quarter. This represented a -on-year decrease, which as expected was a result of lower deposit margins in the current rate environment. Still, our largest income line held up well, the higher business volumes and disciplined pricing supported this. We also recorded a positive deposit hedge contribution of 50 million euros and 121 million euros compared to the Q4 2024 and Q1 2024 respectively. This is the aim of our deposit hedging strategy to provide support through our NII as rates decline, and it is having the intended effect, making us significantly more resilient and less volatile than our Nordic peers. Our net interest margin for the quarter was .70% compared with .83% a year ago. Mortgage lending and deposit volumes were up, although they remained muted. With further signs of a gradual recovery, mortgage lending grew by 6%, mainly due to the Norwegian acquisition. Excluding the acquisition, mortgage lending was stable -on-year, corporate lending was also stable. Many customers are in a -and-see mode and looking to maintain financial flexibility, which consequently meant that deposit growth was strong. Retail deposits were up 7% and corporate deposits were up 11%. Net fee and commissioning income grew by 4% -on-year. The increase was driven by higher savings income as customers continued to sign up for our savings and investment products. Card and payments activity was also higher during the quarter, as was brokerage and advisory fee income, which increased due to higher debt, capital markets activity, particularly in business banking. Growth was, however, limited by overall slow markets activity during the quarter. Savings fee income was supported by higher assets under management up 9% -on-year to €425 billion. Net flows were strongly positive at €6.6 billion. In Nordic Netherlands, net flows were €2.7 billion following continued good performance in private banking and our life and pension business. After successive quarters with negative flows in our international channels, momentum shifted at the end of the last year, and in Q1 we had positive net flows of €3.9 billion driven by several large new mandates. Importantly, within our international channels, we also saw wholesale distribution, net flows showing signs of stabilization, particularly towards the end of the quarter. Net value result was down 1% on year, but up 44% -on-quarter. Cost of demand for our risk management products remained high, particularly in foreign exchange and interest rate products. Market making was strong, driven by high activity across desks and positive revaluations of positions from spread tightening. Pressure was stable, while author was negative, impacted by valuation adjustments, which were driven by market volatility. Costs are stabilizing in line with our plan, and we're up 5% -on-year. The increase was driven by our strategic investments, 4 percentage points to be exact, including running costs for the recent Norwegian acquisition. Salary increases and higher business activity accounted for a small part of the increase. We are continuing to make investments in areas such as technology, data and AI, digital services and cybersecurity, and they are also running costs for the recent Norwegian acquisition. These investments will support income and profit growth and help us to build a stronger and even more resilient financial services group. They are also key to unlocking the benefit of our unique Nordic scale, enabling us to further improve customer experience, drive business growth and increase efficiency. As guided, our investment levels have leveled off after peaking during the second half of last year. For the full year 2025, we continue to anticipate modest cost growth of about 2 to 2.5%, assuming constant FX rates. In the first quarter, our cost to income ratio with amortized resolution fees was 44.6%, within our target range of 44 to 46%. Nordic households and businesses are maintaining stable financial positions, and that is apparent in our strong credit quality and low credit losses. Individual provisions were low, and we reached a further 20 million euros from our management judgment buffer. It's good to have additional reserves in the current environment, but we have been very clear that provisions will be used or released, and we do not expect them to be here in a couple of years. Q1, net loan losses and similar net results remain well below the long-term average at 13 million euros or one basis point. Our management judgment buffer now stands at 397 million euros in local currencies compared with 414 million in Q4. Our capital position continues to be strong, among the strongest in Europe. During Q1, our strong capital generation offset the impact of the share buyback deduction and regulatory updates, including Basel IV. The CET1 ratio stood at 15.7%. At the end of the quarter, two percentage points above our capital requirement. Turning to our business areas, in personal banking, we generated solid business volumes supported by higher customer activity. In Q1, customers increased their savings activity, especially in investment funds, pensions and recurring savings. Deposit volumes were up 6% year on year in local currencies. mortgage lending grew by 6%, including our acquisition of Danske Banks, personal banking business in Norway. Excluding the acquisition, mortgage lending was stable. Our new customers in Norway are settling in well, and we are actively developing these new relations through our digital channels and advisors. In recent quarters, the Nordic housing market has been slowly starting to recover after a few subdued years. That continued in Q1, with demand for loan promises again increasing year on year. With household budget pressures easing, supported by lower inflation and salary increases, and house prices up, the financial conditions for increasing transactions are in place. What's still missing from this equation is confidence. And when that returns, we believe solid growth will be back on the agenda. Customers' use of our digital channels remain high, with mobile users and lock-ins both growing by 7% and 8%, respectively, year on year. Total income remains resilient, decreasing by only 2% due to lower policy rates. The decrease was partly offset by higher income from savings, payments and cuts. Return on adequate equity was 17%, down slightly from a year earlier. The cost of income ratio was 51%. In business banking, we performed well, delivering growth in both deposits and lending volumes, even if the overall environment remained slow. Deposits increased by 6% year on year in local currencies, driven by all countries. Lending volumes were up 1%, with the increase driven by Sweden and Finland. During the quarter, we continued to facilitate bond financing for an increasing number of customers. In Sweden, we have been seeing the fruits of our strategic initiative we launched five years ago to strengthen customer experience, grow our business and gain market share. The success of our efforts is also reflected in the latest annual survey by Prospero, the recognized industry benchmark for customer satisfaction. We ranked first in Sweden for both small and mid-sized corporates, receiving the highest scores in all 10 categories in both segments. Social income for Q1 was down 4% year on year, driven by lower net interest income. This was partly offset by higher net fee and commission income and higher net result from items at fair value. Return on allocated equity with a more sized resolution fees was 16%, while the cost to income ratio was 43%. In large corporates institutions, customer activity was high in some areas, though weaker in others, such as equity capital markets. The lower rates also negatively impacted our net interest income. Given the high uncertainty and volatility, we experienced high customer demand for our risk management and hedging solutions. Customers also prioritized building strong liquidity positions in the quarter, partly due to upcoming dividend payments. This was visible in a 17% year on year increase in deposit volumes. However, demand for bank lending remained slow in the muted overall market and our lending volumes decreased by 1% year on year. Instead, customers continued to favor bond markets for raising money in the lower interest rate environment. Debt capital markets activity was high among both our corporate and institutional customers. The strong start to the year was supported by our leading positions for Nordic corporate bonds and Nordic bonds overall, in a year to date. Conditions were more challenging in the equity capital markets and merchants and acquisitions, where the high uncertainty affected deal making. Nordic activity in this segment was about half what it was a year ago, leading to lower fees. Total income was also down 3% due to lower rates, while return on allocated equity was 18%, compared with 19% a year ago. The cost to income ratio was 38%. In asset and wealth management, we increased income supported by continued good momentum in our private banking business, where we welcomed new customers and grew in all our home markets. We secured Nordic net flows of 2.7 billion euros, despite seasonal tax and dividend payments in the quarter. Sweden and Norway were the main contributors. The increase reflected effective business execution and a higher level of confidence among clients in the early part of the year. In our international challenge, we had strong positive flows for the second quarter in a row. Total net flows amounted to 3.9 billion euros and were driven by the institutional segment. Here, we have built some good momentum and on-boarded several large mandates supported by our strong track record in sustainable investment strategies. Towards the end of the quarter, we were encouraged to see improved flows in the higher margin wholesale distribution channel, as it under management increased by 9% -on-year to 425 billion euros. Our life insurance and pension business started the year well with net flows of 1.1 billion euros. Gross weight and premiums amounted to 3.7 billion euros compared with 3.1 billion a year ago. Total income was up 1% driven by higher net fee and commission income. Return on allocated equity was 37% compared with 38% a year ago. The cost to income ratio was 42% compared with 40%. In summary, this was a solid quarter for Nordea. We remain on track to deliver a return on equity of above 15% for the full year. However, we should acknowledge the very high uncertainty when it comes to the global economic outlook and interest rates. In the short term, there is no doubt this will bring increased volatility and dampened growth. Our focus is, in this environment, will be the same as always, staying close to our customers. And we will do so with the confidence of a financial service group that is both in strong shape and operating in a region uniquely positioned to adapt to global changes. As this is the final year of our current strategy period, we look forward to presenting our strategy for 2026 and beyond at our Capital Markets Day in London on 5th November. There, we will share the concrete steps we are taking to build on our successful recipe with continued focus on our four home markets. This will enable us to outgrow the market, continue delivering market-leading return on equity and achieve superior earnings per share growth. Thank you.

We are now ready for questions.

The next question comes from Andreas Hackensen from SEB. Please go ahead.

Thank you. And morning, everyone. Two questions on net interest income. If we start with the country drivers in retail banking and personal banking, Sweden is down 8%. Could you tell us, is that mainly due to the net interest? Yes, we have pretty much discussed timing effects on the funding side. And then on the flip side, the Danish NRI is holding up very nicely, even though your volumes are slightly down. Could you tell us a little bit on what's driving the different NRIs in these countries,

please? Morning, Andreas. It's Ian here. You're right. Essentially, in Sweden, it's the dissipation of that sort of advanced funding benefit as rates come down. But otherwise, pretty solid in Sweden and with a bit of support from the hedge. And it was a combination of those advanced funding benefits, I guess, and the hedge that made Q4 so strong. So the 8% down is a bit more pronounced. And then in Denmark, we're doing really well on deposits. And so there's a good contribution from deposit volumes in there, as well as some DEFT pricing management. So those are the two main contributors.

Thanks. And then, Ian, you were very helpful at the time of the Q4 result. You said that you were comfortable with the consensus NRI for the year, which I think was just over 7.1 billion at the time. And it's still around just over 7.1 billion. I think I can't remember exactly where market rates were for ECB, but it was probably a fair bit north of 2%. And today, it's just over 1.5%. So could you tell us, if we're moving towards the market rates, how should we be looking at the net interest income?

We've seen rates moving around considerably over the last few weeks, as you can imagine. Broadly speaking, I think on average, around about two-ish is still, I think, a decent central assumption. So we've had a good, strong NRI print-in Q1, and very straightforward, actually. No unusual items in there or anything like that. I wouldn't get too exuberant about extrapolating that, but I think we're pretty solid. I'm not seeing any need to change expectations at the moment, but we have to just watch where this is going. If we get another cut, it's likely to be sort of later in the year, not too much of an impact on 2025. And let's just see how it goes. I think there are still some other things pushing rates in the opposite direction as well. It's a very complex environment, as you know.

OK, thank you. The next question comes from Gulnarar Sikulova from Morgan Stanley. Please go ahead. Hi, good morning, and thank you for taking

my questions. So my first question is on the great tensions and the tariffs and the impact on your business. Given that you have a pan-Nordic footprint and a strong corporate exposure, which of your core markets, Finland, Sweden, Norway or Denmark, do you see as the most sensitive to raising tariffs and the global trade tensions? And how do you anticipate these factors might influence the lending volumes and the client activity in those regions for the remainder of this year? Are you seeing the noticeable change in the client behaviour so far? And what are the early signals about the economic confidence heading into the second half of the year?

So, morning, Gulnarar, and thanks for the question. I guess in terms of relativity, as we said in our presentation, I think we're in relatively good home markets from a tariff risk perspective, if you compare them to, say, the average European country or elsewhere. So I think, relatively speaking, we expect the Nordic economies to be, I think, a little more resilient than perhaps others in this. That being said, trade wars and tariffs and things do cause some challenges. And if we think about our four home markets, I guess on a relative basis, you'd say Finland and Sweden, given their slightly greater focus on goods exports, are probably more challenged than Denmark and Norway. But I think, overall, when we talk to our customers, they're clearly assessing the information, thinking about how they should respond to it. But I'm seeing plenty of quiet confidence out there so far. And I think that it's early days, so really difficult to predict what the precise impact will be. But if we think about our region, which is home to some of the best companies in the world, they've been pretty good at finding markets, about adapting supply chains and other things. And so I think we approach this from a position of relative strength.

Thank you. And the second question on the capital at turn. Given you have a strong capital position, how are you thinking about the potential for interim dividend this year? Would it be something under consideration for you, or would you prefer to retain the flexibility until the year end? Thank you.

So we think about the sort of timing and how to manage dividends on a regular basis. And the authority on dividends comes from our AGM. And so, certainly for this year, we have no plans on interim dividends. But it's something that we keep under constant review. And it's something that we're getting asked about more and more by shareholders. And we'll obviously listen to shareholders' opinions. It wasn't too long ago when we talked to shareholders about this, they were fairly indifferent. But I think there's some enthusiasm emerging. So we keep it under review.

Thank you very much.

The next question comes from Magnus Andersson from ABGSC. Please go ahead.

Yes, thank you and good morning. Just on cost efficiency, given the current uncertainty, I mean, obviously Q1 was really solid, but this turmoil we are in right now had hardly even started when the quarter ended. So I was just wondering if... I agree with you, Ian, that the rate outlook is highly uncertain and there are forces in both directions. So obviously, difficult to have a view. But if you would assume that equity markets stay around where they are, which would have a negative impact on your assets under management, and activity generally slows down, which impacts also other fee-related income items, what levers would you have on the cost side, if any, to offset that to stay within your 44% to 46% cost-income ratio target? Or is it... I mean, yeah, please elaborate on that. Or is it the fact that the 2% to .5% stands for the year almost regardless of what happens? That's the first one. And the second one, just more detailed on asset quality now, the mechanics, I guess your economists will come out... I don't know when your economists come out, but typically they all come out in May with this economic outlook. Reports where they most likely will lower their GDP growth expectations, there will be all kinds of negative stuff in that report, most likely. Will that force you to do anything to your management overlays, or do you have enough? It's still quite substantial, at least relative to your peers.

Thank you. So, thanks, Magnus. Maybe I start, and I know Frank may want to express some views on this. So, your first question. I think you're right to identify that one of the things that drives a bit more uncertainty is activity levels. And therefore, it's the levels of corporate finance activity, debt raising, those kinds of things, but then overall consumer sentiment. And then in relation to the largest line in our NCI is savings. And of course, we've seen a significant shock to equity markets over the last couple of weeks. Always worth bearing in mind when thinking about how to roll that forward. Our mix is about 57% equities, as of the end of Q1 in assets under management. And within that, there's obviously a fairly strong bias towards the rest of the world. So, again, the indices to look at there are probably about 80% MSCI world and 20% OMX Nordic. So, it's helpful to think about the composition of NCI in particular when thinking about maybe how the rest of the year unfolds. On costs. So, we reiterate our guidance today on a 2% to .5% increase over 2024 for the full year. And that's excluding foreign exchange effects. And I think we've talked about also in a bit more detail that that's fairly sort of steady quarter on quarter. I think we won't see such a strong pick up in Q4 this year. So, reasonably evenly spread. And of course, what you'll see then is that the year over year cost growth on those quarters tails off through the year because of our ramp up in 2024. Now, when the world gets a little bit more uncertain, of course we're looking at things that we might do differently. We do, if the need arises, have the opportunity or the ability to reduce discretionary expenditure and other things. I think right now we're sticking to our guidance. But scrutinizing every single aspect of the cost base and seeing where we can do better. I guess Frank, you want to...

No, I agree. So, we have tools needed if we need to use them. But I would say that I think it's very important. Nobody knows exactly how this will play out. So, of course, stay alert. Work hard with implementing your strategy and be firm as always. And then let's see how it will play out. I think the worst we could do was to act sort of like a rock and then start to short-term optimize with the cost of sort of like the future strength. That doesn't work, right? So, I think we have what we need, Ian. And we are quite calm about this. But that's probably also because we have tools if needed. But we will try to have a long light on to basically do the best for our shareholders.

And then just one follow-up, Magnus. In terms of just thinking about the different contributors to P&L over the year, one of the things we saw in Q1 was customers really active in terms of, as you can understand, with what was happening in global markets. Really active with hedging activity, whether it be FX, interest rate, whatever that might be. So, we saw a really strong print in net fair value on the customer side. Really, really good outcome. I think we'll still see that hold up quite well. For the year, I still think that, I mean, when we have this uncertainty, customers are going to be very much focused on risk management. Key thing, though, I guess, is that we usually sort of peak in Q1. It's around about a... You know, we generally record about a billion each year on net fair value. And I expect that to hold up reasonably well this year.

Thank you. And on asset quality, the management overlays, macro scenario?

So, as you can see in the report, a very low overall loan loss charge for this quarter at one basis point. And a number of different components in there. First of all, individual provisions were lower than, you know, sort of normal run rate, if you will. We saw some improvements in the outlook for households, driven by interest rates and house price improvements that encouraged us to release a little more of our management judgment. And at the same time, just recognising something, you know, that the external environment might get a little bit worse, we weighted our collective provision modelling scenarios towards the adverse case. So, that meant a small increase in collective provisions. So, I think on that basis, I agree with you. I suspect that economic outlooks will be more bearish when published in the next two months. I think we're well positioned, very well provisioned, and a strongly performing portfolio. And then we have the management judgment overlay on top of that. I can't see circumstances at the moment where we would need any more. But we've consistently said that with that overlay, we will deploy it if needed or release it. And no change to our intentions there.

OK, super. Thank you very much.

The next question comes from Martin Ekstedt from Handelsbanken. Please go ahead.

Good morning and thanks for taking my questions. So, back to NII, please. If I may, Swedish personal banking lending volumes, they were up 6% quarter on quarter, which is well above where the market is growing. But at the same time, your net interest margin in that business was down 50 bips quarter on quarter. So, statistics for you, and that seems to indicate that one of your competitors in Sweden is advancing in early 2025 in that segment. So, has the competition on Swedish retail heated up further in the face of perhaps slower corporate lending growth? Or am I getting too much into this? Please let us know what you see in that market. And then secondly, my second question. In terms of perhaps available levers for cost reduction, could you give us an update on your progress in reducing the number of IT applications in Odea? I believe the numbers were from 3,700 to 1,500 or something like that. Thank you.

Hi, Martin. So, I guess let me deal with your applications thing first. Just get that one out of the way. You know, we continue to focus on simplification of the application landscape. I don't have statistics or metrics for you to update, I'm afraid. But I will... You know, when we talk about the things that we're going to focus on to really drive the benefits of our scale across the business, and that's going to be one of the themes that we return to in our capital markets day, you can be sure that simplification of the technology landscape will be part of that. Great, thank you. Yeah, OK. So, your question on Sweden. First of all, on competition. There's no change in the sort of level of competition, the heat of competition in Sweden, and also no change in that Odea is winning. You know, we're still capturing a good deal of front book market share, and so performing very strongly. So, I think what you're seeing in the numbers there is going to be a combination of... Excuse me, yeah. Yeah, a combination of effects. So, the strengthening of the Swedish krona means that you get a sort of headline difference. And I'll get Ilkert to walk you through some of the details of that. We're not seeing any weakening in our business in Sweden. Not in any way. So,

the broad business, Martin, the personal banking and the business banking are progressing as good as they have done previously, super strong, and no changes, and neither any changes in our ambition level. We probably have a little bit lower lending development, or worse, not worse, but the lending development within LC&I has been muted, and that has partly been because of the bond market, but partly also for some single customers that we have sort of exited. But no change besides that.

Okay, very clear. Thank you.

The next question comes from Namita Samtani from Barclays. Please go ahead.

Good morning, and thanks for taking my questions. Just firstly, I'm just looking at consensus, which has a flat dividend -on-year in 2025. Do you still believe you can achieve a progressive growing dividend, i.e. a growing dividend in 2025, versus the 94 cents achieved in 2024? And secondly, just on net interest income, the Treasury impact was positive again this quarter. Can you explain what's driving this, and do you expect this to reverse any time soon, or does this continue as long as the yield curve steepens? Thanks very much.

So, look, Namita, we think that continuing to grow dividend per share each year is the right thing to strive for. So that remains our ambition. But we make our decisions about levels of dividend, payout, etc. much later in the year. So I think you can rest assured our ambition remains to increase DPS each year. But that'll be a function of where we are in terms of share count and payout ratios and other things that we'll come back to later in the year. And then on Treasury, yeah, look, I think there is some good work going on in Treasury in terms of just managing funding costs and other things that helps to contribute to NII. I'm not seeing one-offs in there, so I think if you take a step back, maybe not so much on where the different components of NII lie. I think overall, take away that Q1 was a pretty clean, straightforward quarter in terms of NII without unusual or non-repeatable items.

That's helpful. Thanks very much.

The next question comes from Shrey Srivastava from Citi. Please go ahead.

Hi, and thanks for taking my question. My first is on the sort of 8% decline in NII and personal banking suite. And just clarifying upon an earlier point you made, I think you said there was a front loading of the funding benefit, but you also had the deposit hedge kicking in, and hence the decline was that much more exaggerated. But just thinking about this, if you exclude the deposit hedge, my thought would be that the decline would be greater than the 8% since you presumably also saw a benefit this quarter. So if you could just clarify on that first, if that's alright. Thanks.

Yeah, I think you had the twin benefits in Q4 of, first of all, the front loaded funding benefits, as funding costs come down before asset prices, and then the deposit hedge. And so you see the absence of that front loading in Q1 that accentuates the reduction. So there's really nothing else in that.

OK, thank you very much. And the second question I have is on this 36 million other benefit you can see in the presentation in the quarter on Quarterbridge. If you could provide any colour on what exactly that is, and if there's any way you can model that going forward.

Thanks. There's no major contributor to that. So it's a combination of different things. Again, I wouldn't focus too much on these different elements. Look at what you're seeing in terms of the overall performance on NII in the quarter. But again, there are no unusual prominent items in our Q1 net interest income.

Understood. Thank you.

The next question comes from Patrick Nilsson from Goldman Sachs. Please go ahead.

Hi, good morning and thanks for taking my question. I just had a question on risk-weighted assets. So I remember you providing a very helpful slide last year in the second quarter on the moving parts on the risk exposure amounts. And many of those sort of headwinds are now behind us, while you also noted that there will be some benefits beyond 2025. So I was just wondering if there is any change there, or if we could expect these benefits beyond 2025 to lead to sort of your risk exposure amounts growing at a slower pace compared to maybe your lending volumes, or if there are any other moving parts that we should consider when thinking about the development going forward beyond 2025.

Thank you. So, hi, Patrick. Good morning. So I guess, first of all, the development in Q1 was mostly FX-driven. So we saw around a four billion increase in REA, most of which came from FX, which we hedge. And so it's pretty much neutral on the CET1 ratio. So what you see in then the rest of REA development is all of the different moving parts that you see in a quarter, portfolio development, things we do to trim and manage and things like that. So nothing unusual. And then the benefits that we talk about coming after 2025, they come from taking action on some of the different regulatory add-ons that we got when implementing our new retail models. And so they're about making model improvements and other things. We're on track to deliver those. We said that we could expect over the course of the next couple of years, around four to six billion in REA benefits coming from those actions. And they remain... Certainly in terms of our piece, they remain on track. So we're doing what we need to do. We will have to submit those to the ECB for approval. But in terms of our own progress, it's very much on track on this.

OK, that's very clear. Thank you very much.

Thank you. The next question comes from Ricardo Rovere from Media Banker. Please go ahead.

Thanks. Good morning, everybody. Thanks for taking my couple of questions, if I may. The first one relates to the risk cost. If I remember correctly, in your capital market, they have always stated that through the cycle, risk cost is about 10 basis points. But over the past few years, you have been running well below these levels. So I'm wondering, what would you need to see the risk cost going back through the cycle in the 10 basis points area? Would you need a recession? Would you need stagnation or prolonged stagnation from tariffs? Or do you believe that 10 basis points is hard to be ever hit considering you still have some other ways to be used? And the second question I have somehow related to this is... I might be wrong, but my feeling, my perception is that you are a little bit downplaying the risk related to tariffs. And I was... which is a bit surprising to me because Nordics are open economies, heavily reliant on exports and so on. So I was wondering why... what makes you so confident that this, okay, may be not great and not helpful at all, but you can easily weather it. So I was just wondering why you're downplaying this risk a bit. That's my feeling.

All right, Ricardo, thank you. It's Frank speaking. So let me take the first one on the risk cost level. So you're right that we are and have been significantly below the 10 basis points. And it might be that it's the opposite. But also you'll also have to remember that the latest three years period has actually first, of course, brought us into a period with increased inflation, increased rates, and now the last sort of like couple of... or last year, a bit more than that reduction in rates and so on. And when we entered sort of like that period, it was basically in a position of strength from households and corporates. So it's not unusual that during such a period we'll run with quite low risk costs. And that is what you have seen. Then, Nordics are just super, super strong. And I think very often people tend to forget that diversification is an advantage when it comes to credit risks. And a credit portfolio is something that you build up over many, many, many years. And ours is just very strong. So it is and will continue to be a relatively to our peers low risk portfolio. Then the question, of course, is what happens now? And if you look at the picture now and start with, will the credit risk, will they be smaller or will they be higher than where we are right now? And I think it's difficult not to conclude that they're not coming down. If they are going anywhere, they will go up because of the uncertainty. We don't think that it will explode in any way. We think we are well covered, as Ian said, and we are well prepared to navigate through this. We cannot see right now a scenario where they will go very much or whether they go above the 10 basis points, but will they be higher than one? Yeah, that will be likely. But right now, there's no evidence that supports that. There's nothing in our portfolios that looks systematic or structural problematic. So that's where we are. And then we'll take it from there. Ian, anything to add here?

No, nothing on the risk cost. So shall I take the other one? Yeah. Ricardo, what we'd like people to take from this discussion is that we're confident that the Nordic economies and the businesses in our region will weather this storm. That isn't to say that it isn't going to be choppy, that there's uncertainty. I think that the... We think that the direct impact of tariffs ought to be manageable. Of course, we don't actually know where they'll turn out yet, because the rates can change and other things. I think we're probably more focused on the indirect impacts, the slowing of growth. What uncertainty did in the first quarter of this year was we saw... And you can see when it sort of kicked in, really, February and March, companies sitting on their hands instead of deciding to execute on M&A. You talk to M&A lawyers across the Nordic region. There's an awful lot going on, but not yet a lot of execution. So there's still quite a bit of pent-up activity there. And we'll just need to see our way through this uncertainty. So I think we don't underestimate at all those indirect impacts. But directly, with tariffs and the sort of... How our strong economies and strong companies will deal with those and find alternative markets, those sorts of responses, as I say, we're confident that the Nordics will weather this storm.

I think that it's very important to remember here. And of course, it's very often... Not sort of the starting point when you are in a large country, but important to understand that it's not logical that the Nordic countries, being small countries, should have some of the greatest companies in the world, just to mention some. Conor, Kolo Plast, Carlsberg, Novo, Volvo Trucks, and so on. I can mention many. And why they have grown and scaled their business very nicely is because they cannot scale within their own country. We are too small, right? So the way we have to scale is to find our way outside the Nordics, or out abroad. And to do that, you'd have to be agile, you have to be curious, you have to be pragmatic, you have to deliver a unique product, or a superior product and service quality. Because you cannot just bulldoze, you cannot just buy and use your scale, your size, and you will have to deliver something that is just best. And then you have to be very, very focused on the execution. And that is exactly how the Nordic companies, the large ones, are working. So when you look at the starting point, they are used to finding their ways, and we are convinced that they will continue to find their ways. And then when you look at the export goods as a percentage of GDP, the fact is just that the average of the Nordics is lower than the average of Europe. So we start in a position that is definitely not a... that is pointing to us not having a bigger issue than anybody else, and likely, as I tried to explain here in Ian as well, we are likely in a stronger position. And then it is up to what happens with the economies and what are the tail effects of this. And yeah, let's see. Let's see.

Thanks. Thanks, Franco, for your openness. Just a quick follow-up, if I may. When you... You stated that now your models incorporate 100% scenario related to tariffs. Now, when you recalibrate your models under this scenario, do your internal models foresee an asset quality deterioration from tariffs to have any impact after maybe 12, 18, 24 months, or after that you're going to see something? Or are they calibrated in a way that after only three months or maybe six months you're going to see something?

Just because

this is new to everybody, there was something seen not only at the end of 2018 but the last three months, not much. So I was just wondering what you had in mind. Did you need to see a lot of time before seeing an impact, or could it be quick?

So, Ricardo, let me be very precise. So we model, for the purposes of our collective provisions, three scenarios with different economic parameters. And then when determining where we set our collective provisions, we weight those scenarios. And in Q4, that weighting was 20% upside, 60% central case, 20% adverse. What we have done this time is taken those outputs and weighted 100% to the adverse. It isn't a tariff scenario. I think it's impossible to deliver that at the moment because of, first of all, the uncertainty, and second of all, still just trying to work out what it all means. So we thought it was the right thing to do was to just weight towards the adverse. And that gives a little bit of an increase in collective provisions. When we see the new economic forecasts from the various sources coming out in the next quarter, we may have to update our parameters. Let's see how that goes. But I think we've taken a prudent position now. In terms of your question, which I think is a really good one, in terms of how quickly might you expect there to be some genuine impacts, economic parameters and model provisions front run these impacts. So you might see banks having to increase collective provisions as a result of those worsening economics. But I can imagine that anything then feeding through into real provisions is going to be later than 2025. That's the broad expectation, I think, at the moment. But we've done a pretty comprehensive analysis of our large corporates that are in sectors that are exposed to potential tariffs. And the results of that work are, first of all, those corporates are generally pretty highly rated. And so the impact of additional risk and things is relatively low. But we'll have to see how that develops.

Okay. Thanks a lot, Sain. Yeah, thanks a lot.

All right, we have reached the end of the call now. So thank you so much for great questions. And I'm looking forward to speak to you again. And as always, feel free anytime to call us and we'll do our best to answer your questions. Thank you so much.