Svenska Handelsbanken AB (publ)

Good morning, everyone, and welcome to this presentation of the Handelsbanken results for the first quarter 2022. I am here together with the CFO of the bank, Carl Sederfield. And we're going to talk you through the result for Q1. Let me start by saying that these are very turbulent times that we experience around us with war in our neighborhood, with unimaginable humanitarian suffering, inflation, interest rate increases, and also just behind us, the lockdowns due to COVID. But the bank stays stable. We have made the choices and we see those in our earnings. We are doing well. We have good co-workers, good customers, and that gives us a very stable beginning of the year. Activities continue to be very high. And we grow where we want to grow. And we continue to see the developments that we saw previous years as well. As I said, we grow where we want to go. We see lending volumes gaining momentum. And we continue to grow also when it comes to our asset management. We continue to reduce the cost. The CI ratio is moving in the right direction, which is pleasing. And we continue with a stable growth with good credit quality, credit loss ratio. quarter as well was basically at zero the capital situation is good growth in our business is generating capital but also creates opportunities and flexibility flexibility looking ahead and something that is very pleasing is that we have the best start in several years in our uk operations things have turned we see volumes and activities gaining momentum in a very positive way And last but not least, we also see that our customers are very pleased in these times with greater turmoil. We also see that the local presence and the local interaction we have with our customers is making a difference, not least in times like these. If we look at the results for Q1 compared to last quarter 2021, We also see that the CI ratio is down 49.7% and credit losses, as I've said, is at zero and ROE end up at 13.4% and CET1 ratio at 18.7%. What is also gratifying is that NII is continuing to develop in a positive way, 4% up, comparing quarters. And, of course, we have seen stock exchanges going down, and that has an impact on fee and commission and savings-related fee and commission. That is down somewhat. If we look at our costs and the expenses, we continue to reduce expenses underlying They are now being reduced with 3% comparing the two quarters. In spite of us having a lot of development going on in the bank in this quarter as well, we see that we're charged with the new risk tax. It's about 1.3 billion on an annual basis and 329 million in the quarter. The operations that are being discontinued in Denmark and Finland, we see that the underlying result is up 7%. And if we look at the quarter, year on year, we see that underlying income is up 5%. And this is very gratifying to see that NII is up significantly with 8%. driven by a very good growth in lending margins, volumes, business related. This is driving developments. Fee and commission income is up around 9%. And here as well, it is the engine that we have in our savings, our asset management. But we see nice developments also when it comes to other fee and commission. Expenses are up 3%, and I would say that that is exclusively due to the fact that we increase our development costs. That is what we are investing in. CI ratio down to 45.9, and the underlying result there is unchanged. And if we were to adjust for risk, task, resolution fee, et cetera, then we see that earnings up 6%. we have high activities we saw high activities end of 2021 and that continues in this quarter we see household lending developing in a stable manner mortgages are growing they've been doing so for several years now with five percent which is very good And comparing this with last year, we also see that corporate lending is up with 8%. And that is, well, a nice mix of property-related lending and also other types of corporate lending. Our fee and commission, as I've said, continue to show nice developments compared to previous years. Our asset management, our savings business, this is the engine in the growth, and we continue to grow, and we do that in a stable manner. If we look at savings-related fee and commissions, the last few years, we have seen an increase, an average of 15%, which is very, very good, which also means, of course, that we had a good offering. And this is something that grows steadily and has been doing so. Funds has been growing in average with 16%. And 2021, with our market share of 16%, we got twice as much of the net inflows. So this is something that is very stable. So income is growing faster than expenses. And at the same time, we see that we are in a period where we are doing a lot of development work in the bank to increase efficiencies and to ensure that we will have future growth in the bank. The last couple of years, and that is what you see here, income has gone up an average with 4%, whereas expenses are up 1%, and the CI ratio has been going down during this period. We grow our business with good cost control and at the same time we invest more than we've been doing before. And we have a continuously good credit quality, credit losses being basically at zero. And this is a trend with the low credit losses that is not a chance comparing us to our banks. We have good customers great co-workers and a well tried and tested credit process which means that we have been able to keep credit losses at extremely low levels. And then if I'm to conclude before I hand over to Carl with a few words in our home markets, if we look at Norway and the Netherlands together, we see that the growth continues. It's high. It's stable. In Norway, lending in local currency is up 4%, and in the Netherlands, 18% year-on-year. And in Norway, heavy increasing interest rates, and that, of course, has an impact. NAI is up 6%, and the CI ratio is 37.9. In the Netherlands, income is up 17%, and the CI ratio is down to 54.6%. And as I mentioned initially, in the United Kingdom, we see the strongest start of the year that we've had for several years. And this is in accordance to expectations. We have seen a negative trend, but that has stopped. We see corporate lending that had a positive development end of Q4 2020. And we see that continue. And in IAEA, local currency is up 6% compared to previous quarter and reached its highest level for eight quarters and costs expenses are being reduced with 6%. and we end up with a CI ratio of 67.6%. Last but not least, Sweden. Sweden is stable with high efficiencies and very good profitability. Lending is growing in a stable manner, and that is what we've seen for several quarters, up 6% compared to last year. I've already mentioned household lending, mortgages up in a very competitive market, and lending to companies up 8%, CI ratio ending up at 36% and ROE 13.1. So all in all, all our home markets, we see a lot of activities, we see volumes and improved margins, and that means that we have a stable net interest income and we continue to reduce expenses, which is very gratifying. And that being said, I would like to hand over to Carl.

Thank you, Carina. Well, now we're going to have a look more specifically at the net interest income. On this slide, you can see the development for the bank compared to the previous quarter. And what you see in this slide in the top right-hand corner, you see that we have a strong NII development, up by 4% from one quarter to the next. And it's driven both by positive volume growth to the tune of just under 2%, and in addition, a positive margins development. This is something that we've seen. We've talked about it to some extent. We can see this as we move forward. And it's Norway and the UK that are taking the lead. Central banks raising interest rates, it's producing raised margins and dividend on the money we have in the central banks. A very positive development and you see that we have more temporary factors that set off each other for the rest. We have a positive FX effect but a negative one on the day count etc. So a strong development for the quarter all in all. If we look at the same numbers comparing the first quarter of this year to the first quarter of last year, we have a very strong development up 8% on net interest income. We see that this is driven by volume, the large green box, almost 5% in volume growth. and still a relatively low, flat situation for margins. But in the shift between the quarters, we're starting to see some reactions, so that may well develop further. We see the positive FX effect of a weakened Swedish currency, the krona, and so the adjusted underlying net interest income is at 5%. Looking at net fee and commission income, we've seen a stable development over a number of years. And since 2019, you can see here in this slide that we are up by 9%. And in spite of the stock markets dropping during the first quarter, the net fee and commission from savings is up. If we break down the fee and commission in different components, we are gratified to see that we're going in the right places. Savings fees and commissions to the left by 11 percent from last year. This is our engine. However it's also gratifying to see the bars in the middle payment fees net. We're coming out of a pandemic period. We see Societies opening up, people are socializing, traveling. And so payment fees also see a positive development, up by 16% compared to last year. In other fee and commissions, relatively flat overall, we see good development of corporate advisory related fees. So that's worth noting. Moving on then to have a look at our expenses, the cost side. relevant and important to tell the story based on what we're doing to develop the bank. To the left in this slide, you see a breakdown of our development portfolio split into different components. We've wanted to achieve the right balance. About one-third of our development costs are allocated to running the bank, the operations, basic development of fundamentals, and then one-third where we create preconditions for long-term productivity. and efficiency. It's anything from cloud transformation to transitioning to a more data-driven business model. And then the final third has a lot to do with strengthening the meeting with customers. It's business-driven. And you know that we've stepped up our ambition over the past year. And you see this to the right on this slide. You see the development over the year. for our costs. The bars to the right describe our fundamental basic development, 600 million per quarter, more or less, with some seasonability, or seasonality, should I say. And then... Next to those bars you see the extra billion that we've added during 2021 and 22 to strengthen our meeting places how we interact with customers to drive customer satisfaction and growth. Now to sum up expenses. This shows cost development compared to quarter one of last year. The bank has now achieved a fairly good balance where we have reducing underlying cost. You can see that in the first green box down by one percent. And this is coupled with a strong income development, as Karina showed you earlier. So it's a good combination, a good position to be in. We're very pleased with the situation. The underlying costs are down by 1%, adjusted both for currency, octagonal, and IT. At the same time, we see the large growing pink box. And that's precisely what we're talking about. We're investing in growth for the future with a lot of IT development. From year to year, this cost is up by 32%. produces 4% on the total cost. And so the final bar impact is 3%. So these are costs we appreciate they're driven by development driving development in the future and productivity, and other costs are down and falling. We've put a great deal of work into our cost initiatives, and that's a very important component here. During the first quarter, our cost initiatives have reduced the cost base to the tune of about 500 million. clearly a major factor. We've achieved about 70% of the work completed on our initiatives. Overall, it's been going according to plan. There are some time adjustments where we have to make corrections and allow for adjustments. We've talked about Exeter. We had wanted to be even more even further in the process, but we're working constructively, and we will get back with more information as soon as possible. All in all, we're pleased with the current situation. We see a good development for underlying costs, and at the same time, we're investing for future growth. If we look at the development quarter on quarter, Let's begin by looking at the pink bars. As you can see, octogonen is up somewhat, and FX also on expenses. So the more temporary impact is up quite significantly. But if you adjust for those, you see that the underlying expenses are falling significantly, whilst IT is up somewhat. So a positive development, underlying costs down by 3%, IT adds one approximately. So fairly unchanged cost situation all in all. Let's have a look at credit losses. As Carina touched upon, we have a very strong asset quality. For the third of the past five quarters, we're at zero basis points of credit losses. It's a very strong development. Underlying reasons, we have 43 million in credit loss recoveries in phase three. And as Karina said initially, we've been through a quarter of turmoil with deterioration of macro forecast that in addition to stage one and two provisions has added 43 million in provisions. We've now gone through two years of pandemic and COVID. In this quarter, we've dissolved our COVID-related provisions, and the reasons being that in our home markets, the pandemic is no longer considered dangerous a threat to society in general but we've also had two years to adapt our own processes and we are now a lot more apt at assessing the impact in our own models at the same time the world around us is more insecure than it has been in a long time I'm thinking of course of the Russian invasion of Ukraine it has strengthened various trends and issues the uncertainty factors concerned interruptions in supply chains. We might see an impact of the current lockdowns in China or sanctions which will change commercial and trading patterns in the world. We see a lack of commodities, anything from wheat, electricity and labor to semiconductors. And we see disruptions of energy supply in various parts of the world. We've chosen to make a very conservative interpretation based on the regulatory environment. And so we've introduced a new expert based provisions. We work with this along the lines of previous past. And all in all, the new provisions amount to 512 million. The net of the resolved dissolved covid based provision and the new expert-based one is more or less unchanged. It's up by 13 million. All in all, 6 million in credit loss provisions in total. And by way of conclusion, a few words about capital. As Carina mentioned, we have a very good situation, 18.7 percent of CET1 ratio, 4.8 percent above the regulatory requirement, 13.9, and it's also 1.8 percent above our target range. Our ambition remains to calibrate towards the target range in normal times, but it's important to point out that we're currently in a period where we will reintroduce the countercyclical capital buffer requirements. We know that they will be approximately 1% higher in a year or so from now for the bank. So all else equal, we're calibrating towards the target range. During this quarter, our CET1 ratio dropped from 19.4 to 18.7. And it's worth perhaps having a look at the various components to see what it consists of. First of all, we're very much... in favor of the balance we have in the engine for the bank. 0.0 percentage points of increased CET1 ratio generated by our profit. We're using this to respond to the strong growth we've seen in our lending volumes. That covers about 0.3 of the 0.7. And then we make provisions for dividends. This quarter we've chosen not to do this according to the 40 points ratio, rather to anticipate based on historical numbers according to the regulatory framework. So we've allocated about 56% of the result, 0.4% minus. is the impact, so we can serve a strong growth and good capacity to pay dividend in the bank. For a number of years, we've had a position where we've excluded capital covered for structural value Add a core capital adequacy. The bank provides loans in different currencies and if there is a weakening of the crown we will see an impact and so we need to allocate more capital. to ensure capital adequacy. We've ensured that we are able to balance by having currency available. If you look at the small dotted line in pink on this slide, you can see that there is a weakening of the Swedish currency, the krona. So risk-weighted assets have reduced, but our own assets in other currencies is up. The FSA has informed us that we will no longer be allowed to make exemptions or exclude the hedging from capital coverage. And as you can see on these slides, this has a negative impact to the tune of 0.7 percentage points or to the right 28 billion in risk exposure amounts. We have a very constructive dialogue with the FSA currently. We've submitted a new application. And we know that we will be divesting Denmark and Finland, which reduces the need for structural FX hedging. And there are various options to deal with the situation. do not see any cause for concern, nor does this impact the long-term capital situation in the bank. With those words, we have to sum up an excellent capital situation being able to service on good growth and offering money up for a healthy dividend. Carina, back to you.

Well, thank you. Thank you, Carl. And before we start the Q&A session, let me say that we're in a very good position. The bank is stable. we have done what we said that we were to do and you can see that in our result activities continue to be high and we see this in volume developments as well in all our home markets we're bringing expenses down completely according to plan and very gratifying is that we have now seen a turnaround in our UK activities. And we have a very good feeling. Everything is very stable. With that being said, I said thank you to everyone who's been listening. We'll now have a short break, five minutes, and then we'll continue with the Q&A session.