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.

Hello, everyone, and welcome back. We are now ready to start the question and answer session. So, operator, could we please have the first question?

To ask a question, please press star one on your telephone. To withdraw your question, please press the power or hash key. Participants are requested to restrict for two questions at each time. First question comes from the line of Antonio Reale from Morgan Stanley. Please go ahead.

Hi morning everyone. Thanks for taking the questions. I have two questions and one clarification if I can on costs. The first one is on the UK and it looks like you finally reached that inflection point when it comes to net interest income in the UK. We've seen mortgage approvals at record highs for the last two, three quarters at least. Piers, pricing almost doubled. I guess to what extent are we seeing a catch-up And what's your expectation for Handelsbanken in terms of contribution from your UK operations this year? If you could perhaps comment on the key line items across the P&L, that would be great. My clarification on costs. Is there still sort of items affecting underlying costs this quarter, particularly higher IT development going through the P&L versus being capitalized on the balance sheet? You mentioned in the financial report you're running a number of projects to do with migration to cloud services. Now, I'm conscious you're running quite a lot of them, but to the extent you can, help us sort of reduce some of the volatility and help us quantify this amount going forward? Could you share some color there? Can we use your IT investments as a proxy for this? I think you had $500 million budgeted left for 2022. Any color you can share here will be very helpful. And lastly, on the structural effects position, you've made it very clear now you have to risk weight those And given the material increase, you've talked about alternative methods. Can you maybe elaborate a little bit more on how much you would expect to recover from the sale of Denmark and Finland and from any management actions? Thank you.

Thank you, Antonia, for your questions. Well, let's start with the UK then. As you say, we reached an inflection point, we believe now. And we obviously see, first of all, increased NII. And that primarily, as you can see in the figures, comes from a margin improvement. which comes from obviously increased rates from Bank of England flowing through our books as well. And as you know, we have a really good loan to deposit ratio there. So increased rates means higher deposit margins and as well high returns on the pounds we leave at the central bank in UK. Then when it comes to cost, yes, as we've said numerous times, we've spent an awful lot of time going through the KYC on all of our clients, etc. That has required a lot of consultants. And in this quarter, you see quite a sharp decrease in the number of consultants. So that will prolong. And we've also done... some efficiency, which we've also been working on in the UK, as you know. We've been merging a few branches. We've been going from five regional banks to one, et cetera. So we look constructive on going forward. We do believe, as Karina was saying, that in the end of the quarter, we saw actually positive volume development, especially in corporates. So as we've said before, it's not unlikely that we could see cost drop and income improving. And right now, as we are in an increasing rate environment, we haven't changed that view at all. Then when it comes to the IT cost question of yours. Yes, as you say, we spend a lot on the IT development and that's obviously been a strategic choice for us. We've had the view we needed to improve here. So year over year, we've increased the IT spending by 32% and quarter by quarter, we've increased the IT spend by four percentage points. As you say, we plan to spend 500 million in 2022 as the extra added IT spending. And after that, we plan to scale that down. But as we've also said, obviously, we are in a position now where we like where we are positioned in the various home markets. We do believe we have position to possibility to grow. And we definitely want to catch that possibility. So if we will do further investments, we will get back to that later. When it comes to the structural effects question of yours, we are in a discussion with the Swedish FSA. We have delivered them more info and we will do so. So the discussion isn't closed. This is the outcome as of the 1st of Jan. So that's the first question of it. And if you would look back on the behavior of our C to 1 ratio, you would see that the structural FX hedge has obviously been extremely structured and beneficial for the stability of the C to 1 ratio. So we think we look constructive on that discussion. When it comes to divestment of Denmark and Finland, I think you can look at the volumes of these segments and you can get a fair assumption of the relative size of that hedge. I think that, well, obviously, then it comes down to we've obviously... stabilized the balance sheet to quite a lot of extent during the last year. Now, we have we have obviously changed the way we manage our pension system and we've also improved quite a lot in the structure and stability. So in the end, obviously, we we we will we will to balance the possibilities out and see if we continue doing it like this, if we hedge it by other financial instruments, or if we live with higher volatility. And we will get back to that, but it starts with a clear decision from the Swedish FSA.

Thank you for the question. Next question comes from Andreas Hakkonsson from Danske Bank. Please go ahead.

Morning, everyone. If we look at the corporate volumes, they were quite good, and you mentioned real estate. Could you tell us a bit about your corporate volumes? One question is, have you seen more bridge financing, which could fall off in coming quarters? That's one part. And also on the real estate side, is that new clients that have had a tougher time funding in the market because of rising spreads, or what's driving the corporate loan growth? Let's start with that question.

Thank you very much, Andreas. Yes, as you said, our corporate volumes definitely increased and we have seen that high activity in the end of 2021. And as I said, it's a really good mix of real estate and ordinary corporate business, corporate volumes. And so that is something that we have seen for quite some time. So obviously, we do still have a really... good standing when it comes to real estate business but at the same time we have we see an increase in the other corporate lending so to speak and what we see now is it's real volume growth it's not bridge financing it's it's real volume growth taking place in our balance sheet um so that is for sure do you take the funding sorry andreas can you can you iterate your last question

That was good on the corporate side. I have two more questions. Well, you were supposed to only do two. So let's do your capital position. At time of Q4, you said that if you would have sold Denmark and Finland, then your capital position would have allowed you to do buybacks for the proceeds. Could you tell us how do you feel with your capital position now when you start to see better volume growth and a little bit tighter capital?

No, as you said, obviously, we really like the volume growth we have this month or this quarter. And we've also said in the last quarter that that was a reason for us to stay conservative when it comes to dividend. But we do believe that the bank is generating quite a lot of capital. We are in a balanced situation right now. So we will get back when we divest Denmark and Finland. We will get back on how we used to proceed. But But yes, we are in a really good situation, obviously, and we're not in a need of capital.

Thank you for the questions. Next questions will come from the line of Sophie Patterson from JP Morgan. Please go ahead.

Yeah. Hi, morning. Here is Sophie from JP Morgan. So my first question would be on interest rates in Sweden. In the past you never gave rate sensitivity but if you give that now that would be extremely helpful. But if you don't give guidance could you just comment on Inves or the governor of the Riksbank have said that he thinks that it's not unconceivable that Sweden is going to have 10 rate hikes by end of 2024. Given that you have a lot of real estate on your book, some of the real estate companies are quite levered in Sweden in particular. How should we think about asset quality for Handelsbanken and what are you doing to stress your clients in a higher interest rate environment? How comfortable do you see with the losses remaining close to zero even in a rising rate environment? So that would be my first question. My second question would be a follow up on Denmark and Finland. Could you just give any update on the sale in Denmark and Finland? When should we expect a potential transaction to be announced? How is the discussion going in any color you can share with us? Thank you.

Well, first let's start with the English question then. Yes, as you said, he went vocal and said that we might see 10 hikes or 25 each, more or less. And that obviously would change the picture quite dramatically. And so it's obviously a fair discussion. We as a bank obviously are working under the same underwriting policy and the same principles as we've done always. We tend to be beneficiaries when the market turns a bit more south. And we don't change anything in the way we think about risk. We rather have stayed constant during the upturn, and we will try to stay constant during the downturn. But of course, as you say, if rates are increased quite a lot, most likely the demand will tend to be a bit less. But on the other hand, we've seen such a massive uptick in the capital market finance perspectives over the last years. And we obviously see ourselves as beneficiaries if we go back to bilateral. And being then a bank with an extremely sound capital situation, we believe, puts us in a good position. actually even in a downturn. When it comes to Denmark and Finland, we won't give you any more guidance. It works according to plan. We will get back as soon as possible when we have something to say. So we don't have any further information there at the time being.

Thank you for the questions. Our next question comes from the line of Robin Rearney from Kepler Chavarria. Please go ahead.

Yes, good morning, and thank you for taking the questions. Two questions on NII. So, as you mentioned, the margin contribution in the quarter was quite large, and I guess the largest that we have seen for some time, much driven by UK and Norway, as I understood it. Are there any temporary factors we should consider in this, or should this really be viewed as the new baseline? And then my second question on the NAI. So looking into the possible rate hikes, we mentioned 10 possible rate hikes from Ingves. How do you think about your ability to pass on high lending rate to customers? Are there any markets or segments where this would be easier or more challenging? For example, the Swedish mortgage market or

or mortgage market in other countries so that's my two questions thank you thank you robin well well then to start with the nir question yes as you say we we obviously see really good margin improvement then on this quarter and we can confirm that there are no temporary effects behind that one And it is obviously in Norway and UK. And it is to quite high extent, actually, from the deposit margins coming. So we won't give you any guidance going forward. As you know, it's very complicated to make guidance because it's so many factors around it. And it is also both both lending, obviously, and deposits around it. But we look really positive on it and we like what we see. So far, we only see it in Norway and UK to some extent. The possible hikes and the ability to pass on these to clients, I think that will be a matter of the competitive landscape. Right now, we must say that we see fierce competition in the Swedish mortgage business. We're really, really happy to have such a good performance and so happy clients on the corporate side with us. So we see really good volumes there. But as you know, we've been struggling a touch on the mortgage business, and it is due to the fierce competition there. When hikes come through, or if hikes come through, there might be reason to believe that it will affect the competitive landscape. It has been extremely easy to fund startups and to fund initiatives from the pension system. they will have other possibilities to solve their ALM perspective. So the landscape might change. But so far, we sit in a situation with fierce competition. So it is hard to say how much of it we will pass on or how much we will take as some kind of margin increase or pressure. So time will have to tell. But so far, so good, I think. As you know, we've been guided on a few quarters that we... thought the constructive margin development would come from the countries which hikes earliest. And we've already seen it now flowing through the books. We will have to wait and see what happens to Netherlands and Sweden.

Thank you for the questions. Next questions will come from the line of Richard Strong from Nordea. Please go ahead.

Hi, good morning. Thanks for taking the question. First off, a question on your cost outlook. You previously talked about the 3 billion of gross savings. If you could just start by giving us an update of where you are with those. You talked about 70 percent of initiatives being in place, et cetera, but could we just start there with an update, please?

Yes. Thanks, Richard, for the question. Yeah. As we said, we talked about the three billion worth of cost initiatives and we have agreed and negotiated two point three in value during at the end of Q1. And 500 million on a quarterly basis is flowing through the books now per Q1. And the reason why that has increased a bit is that obviously the AML and KYC consultants in UK, they have moved out of the books. So that's been quite a good development. So we've come quite far, 2.3 billion of three, roughly.

Okay, thanks. Then a second question on the UK operations. You talked about the activity and the demand among your clients picking up and a good start of the year so far. Still, the household volumes appear to be down 2% quarter on quarter and same sort of pace as in Q4, et cetera. What do you see there? What do you need for that one to turn around if you could give us an outlook of when you expect that to be flat or level out.

Yeah, we won't guide you on when we expect to become flat or positive or so. But as you say, yes, it's true that we've struggled a bit more on the household lending vis-à-vis the corporate lending. And we do believe the bank... As being the bank we are in UK, we do believe that the turn will first come on the corporate side. And we see that happening now during the last month of the quarter. So it is tougher on the household side. We will have to wait and see. But obviously they tend to be a bit correlated at least. But time will have to tell and we will have to wait and see when that turns positive.

Thank you for the question. Next question is from . Please go ahead.

Yes, good morning. Just on costs, and partly UK and Sweden there again, I note that the average number of headcount is flat again quarter-on-quarter after having declined in Q4, and it's even up slightly in Sweden, flat in the others, and down in the UK. Is this what we should see going forward? Was the decline we saw in Q4, was that it on headcount reduction from your efficiency-enhancing measures, and that it could increase from here with perhaps a decline in the UK and flatter increasing in in Sweden. And related to that, I saw the number of branches is down quite significantly in the UK as well. So I guess absolute costs should be down going forward in the UK, but not necessarily so in Sweden. That's number one on cost. And secondly, I might have missed it, but I didn't see anything about how much of your structural charge you now have used. That's cost. And just on capital briefly, if you could say whether you would actually consider share buybacks as a realistic option in addition to dividends as a way of repatriating any potential excess cash.

Thanks, Magnus. And please, Peter and Carina, fill in if I missed something here. Well, first of all, obviously, yes, you're correct on that one. We've seen FT numbers drop for some time, but quarter by quarter, we saw an increase in Sweden. And the reason for that one is that we've actually seen very, very healthy demand here. So as we say, it is a matter of... one foot at each pedal here. We try to serve our clients and be reactive to the growth possibilities whilst also working a lot on the structural efficiency. So we will continue and most likely see a decrease when it comes to headcounts from the structural initiatives. But also we will be constructive when it comes to the possibilities we see in various parts. When it comes to the structural charge, we have a bit more than 500 million left. So that's what you see in the numbers. And yes, as you say, when and if we repatriate money, we're used to using more of the dividend route. But we don't close the door at all to buybacks. And that will be a question of both, obviously, the valuation of the bank, but also a bit around the efficiency around the tools going forward. But no, we don't close the door on buybacks. And please, did I miss something, Peter?

No.

Thank you for the question. Next question comes from Namita Samtani from Barclays. Please go ahead.

Hi. Just a question on the staff costs. I see they increased by a percent quarter on quarter, and I included the annual salary review. Could you just tell us in terms of percentage, how much have you passed on in each country, and will the next salary increases be in 2023 now? And the second question on the UK NII. So the net amount of change margins and funding costs increased net interest income by 128 million quarter on quarter. Are you able to tell us the split between what was higher deposit margins and what was the improved return on the liquidity deposited within the Bank of England banks?

Let me start with the first question and then Peter can fill in the second. As you say, the staff cost, yes, they increased. The yearly salaries are in the books now. And apart from one of the countries, we do this at a similar time of the year. So you're definitely seeing the absolute majority of the staff cost inflation flowing through the books right now in the figures. And then when it comes to the UK NII,

Yeah, what we saw on the margin effects in the UK, it was predominantly driven by the deposit margin increase. We saw some slight lending margin pressure, as we've seen for some time. But of the overall figure, it's predominantly deposit margin. So the lending margin impact was minor in relation to the deposit margin impact.

Thank you for the questions. Next question comes from Mark Laledo from SCIB. Please go ahead.

Yes, good morning. Thank you. A little bit on asset management, good inflow, but have you seen any change in behavior for clients? We have seen or peers have said that some investors in a higher degree choose more passive funds or fixed income, and could that have an effect on margins going forward? We can start with that. Thanks.

Thanks, Mats. As you say, during the first quarter, we've obviously seen outflows. On the other hand, we've seen less outflows vis-à-vis our market share. We're actually gaining market share in the downturn there as well. We show the same trend as we've seen in the very positive years now. As you say, yes, when markets turn sour, you tend to see the investor change from active equity funds into passive equity or into fixed income or into mixed solutions funds. And I would say that if we see selling markets in general we most likely will have a negative margin pressure. But on the other hand, the solution funds have quite nice margins on them. And people tend to move from active equity into solution funds as well. So yes, most likely we will see a structured trend. But as we've seen As we've said before as well, we see a really constructive way we build the business model now in Netherlands, Norway, UK when it comes to the savings business as well. And when we grow retail flows in these markets, they will tend to come with higher margins vis-à-vis the Swedish average. So it's a lot of moving parts in that portfolio mix as well.

Okay, thank you. While you mentioned the Netherlands, anything new here? I note that it was, I know you moved this UK or Euro liquidity buffer there, but the results look a little bit or a tad weak, but inflows are relatively good. How do you see Netherlands going forward? Any change in your thinking here?

Well, I will ask you later what kind of weakness you see in the figures, because we're extremely happy with the Netherlands performance. And as we've said for a long time now, Netherlands are a very focused business model. They focus on lending to private individuals and to real estate primarily. We are also building and making improvements in our savings offering. And for the last years, two years more or less, we've been working quite heavily on integrating the asset management in the bank so we get the power of the distribution capability from the branch network. So we look very positive on that one. It's obviously growing massively, and that's been really impressive. And as you say, we have moved the euro liquidity into the Netherlands, and that might obviously come with a touch a hit on the income line, but nothing we see a stretch along.

Thank you for the questions. Next question comes from the line of Maria from Citibank. Please go ahead.

Yes, hello. Thank you for the presentation. Two questions from my side. First on expenses. I understand that you have additional 500 million of IT costs that was budgeted and flat previously. But if I look at the ordinary development spend, it was around $2.9 billion if I annualize first quarter, and this is compared to $2.1 billion last year. We just want to check with you, have you increased the ordinary development budget spend, or we should expect lower spending in the coming quarters? That's the first question. And second, on margins, we have seen that effect of margins and funding costs in Sweden was negative. You mentioned that you are facing serious competition in Swedish mortgages. Do you see signs of intensifying competition over the quarter given the increasing funding costs? And also, if you could provide some comments, what is happening with the corporate margins in Sweden? Thank you.

Well, let me start with the development cost. No, we can't say we haven't made any decision to increase the underlying IT spend. As you see on the staples we showed, it's a huge fluctuation around it. And the average was actually 600 million of it, which is obviously 2.4 on the yearly number. So we still plan to have 2.6-ish on the underlying IT spend. So nothing has changed there. When it comes to the margin development, I think the first quarter in Sweden has been a very challenging quarter in the sense that rates has moved so dramatically, which makes different business model, which which reacts to the movements from the central banks, they react differently. So I think it's been a challenging month in the way that you can't really judge the real competitive pressure here because some parties might have had the same rate for a bit too long time or other ones have moved it instantly when the central banks has changed. So we we tend to see little reason why structurally the competitive pressure should increase when rate increases. On the other hand obviously we see initiatives are being started or being improved in Sweden so we will have to wait and see but nothing in the first quarter changed our view of the competitive landscape there. The last question was corporate margins, was it?

Corporate margins tend to be more volatile than the mortgage margins, as we've seen historically. There's a slight pressure in this quarter, but again, it varies more on the corporate side than on the household side.

Thank you for the questions. Next question comes from Jacob Cruz from Autonomous. Please go ahead.

Thank you. Just two quick ones on NAI. Firstly, could you just say how much, I think you guided for 100 million of impact of the move of liquidity from the discontinued to the continuing operations of the liquidity to the Netherlands from Finland. Was that 100 million fully reflected in this quarter, or is there something coming through in Q2? And then secondly, just on the interest rate sensitivity, You give the sensitivity in your annual report of about 1.4 billion of NII for 100 basis points, which I think you talk about being based on historical data. How do you view that indication relative to what you kind of expect when you look at the

To start off with the Euro liquidity that we placed on the Finnish central bank. That liquidity was moved to the Netherlands in the last days of the quarter. So we did not see any NII impact in continuing operations in the first quarter. But that of course means that the effect should show up in total for the second quarter. So what you see in the numbers is that we're talking about roughly 125, 130 million or so, all else equal, being the total negative effect in these continuing operations. All of that has not moved to the Netherlands, only the part that does not relate to the Finnish operation. So you say 100 million roughly, I mean, it's probably a fair ballpark number. But of course, when we move it to continuing operations, it means that there will be an offsetting impact in continuing operations with the same amount. So that should be reflected in your Q2 numbers. And then in terms of NIH sensitivity, as Carl said earlier, there are a lot of moving parts, and we refrain from providing any detailed guidance on that.

Thank you for the questions. Our next question comes from Martin from Goldman Sachs. Please go ahead.

Yes, good morning, and thank you for taking my question. I just have a follow-up question on some of the earlier questions regarding the mortgage market in Sweden. And I was just wondering if you could share your outlook for the mortgage market, maybe in terms of volumes this year coming from very strong volume growing at this time last year. Would you expect the mortgage market to continue with its strength? Or do you see risk that is potentially a slowdown in terms of volume? And within that, have you seen any changes in terms of customer behavior? So whether that's switching from variable rate mortgages into fixed rate mortgages, has there been any change there? And is your ambition to essentially retain your kind of share both in terms of stock and flow going forward? Thank you.

Well, thanks, and please fill in. Well, first of all, obviously, when it comes to the mortgage market and sensitivity versus rates, obviously, it's a lot of uncertainty now. Yes, if we see the hikes Ingves is mentioning, obviously, that will be tough for the market to swallow. That will increase the cost of living quite a lot for the ones who own their apartments or houses, obviously. But obviously also we've been talking for many years about a pent-up demand for houses. That comes on the other hand of it. And then when it comes to markets going a bit more sour, we tend to be beneficiaries there. So being in a situation with the balance sheet we have, we tend to stay very constant in our behaviour. So that could actually be good for us on the other hand. And then, as you know, we're investing and focusing quite a lot on strengthening our offering here. And we hope to make improvements there as well. So that could turn positive for us. Yes, as you say, the client behavior has changed from floating rates to a higher proportion of fixed rates. And fixed rates has lower average margins. So that comes with the margin pressure. On the other hand, obviously, the clients tend to stick in the bank longer when it has fixed rates. And obviously, if the market's pricing is too many hikes, it becomes tough to go from floating to fixed. But time will have to tell when that dynamic is changing. Did I miss some question?

No, I don't think so.

Thank you for the questions. As a reminder, to ask questions, please press star 1 on your telephone. Our next question comes from the line of Cameron Vandermeer from Meteor Banka. Please go ahead.

Good morning. Good morning, everybody. Thanks for taking my question. I have just one. It's on the risk cost. When COVID-19, at the time of COVID-19 outbreak, you charged some overlays right at the beginning, but then the risk cost remained very low throughout all the pandemic. I'm not asking you for guidance. I know you will not give it. I'm just trying to understand, this time with Ukraine and Russia conflict, do you see The level of uncertainty being higher this time than when it was about judging, assessing what might have happened with COVID-19.

Thanks Cameron for the question. I think our message is that we're extremely pleased with the asset quality we have in the books and we've been working quite many years and the strategy we run in the bank we believe have improved the general asset quality. Then, obviously, we work according to the accounting rules. We try to interpret them as good as we can and then work accordingly. As you say, we've been moving from a Covid overlay to some kind of expert-based overlay now. I don't know if the uncertainty, I think the uncertainty is quite high in the market. I think that over time obviously some things have changed with Russia's invasion of Ukraine and it will have an impact and these kind of impacts will most likely be, it will stop the globalization and it will make us onshore a bit more of our business. We tend to believe that we're in a situation where we're fairly well positioned in this. We have zero direct exposure, we have very little indirect exposure, we have strategically focused the business model to four countries which we think is very well suited in Europe for such a transition. So in that sense we do like the the strategic position of the bank and we can't say that on a relative perspective has dropped since the invasion. Then obviously we will see a lot of structural changes in the world coming from the invasion. But that's long term. And then I think it's also important to stress that it's only gone five weeks since the invasion. And we will have to review this method of ours every quarter. And that's exactly what we've done with the COVID overlay as well. So we will take all the prudent approaches we can going forward.

Thank you for the question. There are no more questions from the line. I'd like to hand the call back to the management for concluding remarks.

Thank you very much. And thank you for all your questions and issues. And thank you for being with us during this almost hour. And so have a real nice day and hear from you again. Thank you very much.

Thank you all.