Svenska Handelsbanken AB (publ)

Welcome. For those of you who want to follow the presentation simultaneously translated into English, please choose English in the top right menu. Välkommen till presentationen av Handelsbankens delårsrapport för första kvartalet 2024.

Mikael Gren, vd och konferenschef, presenterar resultatet.

Presentationen direktsänds och publiceras därefter på handelsbanken.se.

Klockan 08.45 inleds en frågestund på engelska med CSO Paul Ederskjöld och EUCO Peter Grabe.

Information om hur du använder slutet av frågestunden finns på handelsbanken.se.

So, a warm welcome to this presentation of Q1 2024.

During the past few years, it's been very strong performance development.

However, this trend unfortunately

Rörelseresultatet på 8,3 miljarder är på en lägre nivå än för ett par år sedan.

Det är på en betydligt högre nivå än för ett par år sedan. Men faller jämfört med ett par år sedan.

Intäkterna faller och kostnaderna ökar. Det är vi inte nöjda med. and we are far from satisfied.

We're never satisfied when development goes in that direction. Return on equity in the quarter amounted to 14%, which is somewhat down from the previous quarter and just below the average of the past 10 quarters. Net interest income was generally impacted by a continued reduced credit demand and a high rate of amortizations in our home markets. But we also see quite a significant increase in pressures on the margins, especially on deposits in all of our home markets. Net fee and commission is holding up well. We see a continued good trend in savings, in particular in private banking and occupational pensions. These are areas, of course, which are very significant for our growth, which is to be balanced both against lending growth and fees and commission business. We have a cost increase of 6% in the quarter. Some parts of this were non-recurring nature, such as a major component to the profit-sharing system, Octagon, and mostly from 2023. And what's pleasing to note, however, in terms of the cost increases, is that our branches are hiring more people. There's a demand for services out in the country now. and this is met by a somewhat increased level of employees. CI ratio amounted to 42%, and credit quality is, as expected, continued, very stable, and we report net reversals of employees 95 million, yet again a sign of the fact that the bank's model with lending to strong, resilient customers and our proximity to our customers is a way for us to manage, for example, balancing credit losses. Credit losses are all about how you manage credits over time, and our branches do this in a very, very specific way. Goodway, with a strongly entrenched organisation locally. The proximity to our customers is not only building our customer satisfaction, but we can also operate close to the bank's customers, make necessary adjustments and reduce the risk as a result. The common equity tier one ratio is 18.8%, four percentage points above the regulatory requirement. In-house, in the bank where we are right now, there's a very determined work of change ongoing to improve efficiency and strength around our organization. And as of the 1st of April, we have a new organization. In place, we've moved central business supporting units and components closer to our business, and you know that we want to keep costs and expenses as close to income as possible. So business support operation costs are transferred closer to business decision, and we strengthen and expand the decentralized responsibility for the implementation of efficiency improvement to improve our abilities. In 15 years, our corporate objective has been to have a higher return on equity than our competitors' in our competitive and comparable home markets. We have five main areas where we work in a very focused manner right now. The first one is the fact that we need to find an efficient operation, an efficient we require a good balance between business generating and business supporting units. And we're now reviewing very, in a very focused manner, how we can improve efficiency, mainly in the business supporting component and deliver everything that we need to drive our business forward. But no more than that. IT development expenses have been at a high level for a number of years now. And as a result, we have a number of new tools for our people to use, such as a CRM system. We've worked with Microsoft 365 that we've implemented, amongst many other things. And we've worked a lot with regulatory-based requirements to be in line with compliance. And all of this is obviously reflected in our development costs. Intense work is ongoing to make our IT development work more efficient. We're reviewing what to develop further, and I look forward to a situation, and I expect that we will reduce the pace of IT development to some extent. This is part of the bank, which moves back and forth depending on competitors' requirements. on a regulatory basis, what the customers are asking of us, etc. But we've been at a very high level and we will probably reduce the pace and focus on what we really need to deliver upon in particular. We are not like any other bank and our business model stands out. We're always using as our point of departure, our customers. We have a strong belief We're convinced that we have this decentralized business model for a reason. Strong power to make decisions locally. We're personal. We value long-term relations with our customers. We also value our financial stability and low risk tolerance. And in a world where more and more banks are becoming more and more alike, it's very important that we communicate our special nature for this bank. ever more clearly in all the communications channels in the bank, externally, internally, and I will continue to work to make sure that we clearly stand out in showing what the core of Handelsbanken really is. Savings business is a very important part in our bank and there's more to gain here when it comes to our home markets. If we look at the UK, Norway and the Netherlands, we see that there's a more that we can wish for. It's very important when we build this bank that we do this in a balanced way with a balance between deposits, lending, net fees and commission, mainly in savings, but also in payments. And we have real opportunities to see increases in all our markets. We have excellent customer satisfaction and very skilled people. We're close to our customers in all our home markets. So we have opportunities to improve our situation in net fees and commissions, not least in all of these home markets. mentioned already for Q4, we've had a focus on the Norwegian operations. They saw a Q4 which was on the weak side and in Q1 as well, we can see that the poor performance development in the Norwegian business has continued and we need therefore to be focused and have a new strategic refocus. I'm going to get back to that in more detail. But It is really about having even clearer focus on the fees and commissions and savings and deposits, stepping down potentially a little bit on lending. If we look a little bit closer at our result development for the first quarter, we see that ROE amounted to 14% approximately, net interest income down by 5%, mainly due to lower interest rate margins. The net fees and commission was also down somewhat. Increased savings in advisory services fees and commissions counteracted by seasonally lower payment commissions. And total income down, therefore, by 3%. Expenses up by 6%, but adjusted for the octagon by 4%. And it is in particular the annual salary adjustment and a somewhat increased number of employees, which are the reason for this. CA ratio up to 42%. Credit losses were net reversals, and credit loss ratio was negative by 0.01%. And all in all, underlying operating profit reduced by 7%. Let's have a look at our results compared to the previous period last year. Income was up by 2%, cost increased by 12%. The cost increase was, in addition to it being a year with unusually high cost inflation in all the home markets, mainly due to the salary adjustments. an increase in the payroll, and in particular in our IT department and also in other markets, not just Sweden, where the work to combat financial crime is gaining in importance, and we're hiring more people, in fact, to strengthen our business in that respect. But we also see that in the branch operations, they're also hiring more people. Credit losses were low also last year, all in our operating profit down by 3%. Net interest income during the quarter, as I mentioned, is down by 5%. And this reduction is mainly explained by lower interest rate margins as a result of an increased competition in our markets. And competition, as you know, is something we face every single day. But we have very skilled people and heads of branches, and they're always focusing on the local situation, local competition, ensuring that we don't lose business with our excellent customers. And we know that this, of course, is going to cost us a little bit on the interest rates. But we have a long-term focus on our customers, and it goes up and down. We adapt to competition, and our branches have tackled this issue head-on, working with pricing and offering customers the right options at any given point in time. And we're also seeing a transfer. Customers are moving from low interest rate accounts to accounts with higher interest rates. And it's a perfectly rational move. And it's building long term customer satisfaction, of course. All in all, we saw an impact from the net effective margins and funding costs to the tune of minus 392 or below. Three percentage points of reduction in net interest income. A change in business volume also had an impact of 87 million or 1% of net interest income. Credit demand generally seems still modest in most of our home markets. And there's a high rate of amortization we see in our customers in Sweden and in the UK as well. That is a good thing at the end of the day because we have customers who are able to pay off on their mortgages and their debts. It's a rational decision and it's good for our customers. Underlying, there's a better tone with somewhat stronger demand for both mortgage and real estate funding opportunities. and other factors. That's what we're sort of perceiving under the surface right now. We also have a day effect between the quarters, which means that we have 105 million kroner lower. And the government deposit guarantee scheme fees up by 72 million to 61 when the comparison quarter was impacted by the final fee for 2023, which was in fact lower than had been anticipated during the beginning of the year. Liquidity portfolio, foreign currency effects, and other effects, so a smaller effect than in previous years. The net fees and commissions, with the exception of the pandemic period, have been stable and growing. Savings commissions, two-thirds of the net, and a stable trend in spite of volatile stock exchanges and not reasonable explanations in the stable net inflow in our funds. And net payment commissions also going gradually. For the first quarter, we saw the normal seasonal pattern, and it was down a little bit from the fourth quarter where our customers spent a little bit more.

We've seen a long positive trend when it comes to net savings in Sweden and this continues. The Handelsbanken market share of accumulated net inflows in mutual funds, that's 12% of the market, but since 2010 we've had a market share of 25% of net inflows in mutual funds, new savings. And we see that net inflows are significantly higher than the market share, outstanding volumes. And savings is important when building long-term growth. And, of course, this is something that builds profitable growth over time. An important explanation to these nice flows, of course, is our way to meet customers in our branches, where we reach customers in a very efficient manner. We have a good combination with digital services that customers like. And that is also where we have savings as a very important part of the business. And oftentimes, this is where we have the first conversations with our customers within savings. We also see, and I've said that before, that we have a positive trend within private banking and the occupational pension business for a few years. Years back now, our advisors have been working out in the branches together with the co-workers in the branches, and this has proven to be very successful. We have a nice growth compared to last year. We have an increase in the customer base with 16% in the private banking business, and we see growth. occupational plans, pension plans up 20%. Looking at expenses, they're up 6% in the quarter, but underlying it's significantly lower. And we can see that we have staff costs to the left and where we have provisions to the profit-sharing system octagonal with 233 million, and 170 of that was an adjustment from the year 2023. Pension expenses were up 76 million, and this is due to costs for pensions earned that are up with a lower discount rent compared to the previous year. And the Expenses charged to expenses for IT were up 55 million, and this is a result of us having replaced consultants with employees, but also the fact that we charged this to expenses to a higher degree compared to activating it in the balance sheet. Other expenses, roughly around 3%, that increase is explained by the annual salary review and the fact that we have more employees. And overall, staff costs were up 2%, more employees is part of the explanation, and we also have more preventive work combating financial crime, and we're developing our business and IT. And we see an increase 4% between quarters. Development costs were down to a certain extent because of the switch from consultants to employees. But we also see seasonal effects. Credit losses, and I've mentioned this before, we have reversals of 95. And you see down to the right that we have a credit loss level that has been around zero for the last few years. In this quarter, we had a 75 million reversal, the so-called management add-on. And this was something, a reversal, a reserve that we started with the pandemic, but we haven't had to use it to meet losses. And that was why we could reverse 75 million losses. And the end of the quarter, the remaining reserve was 529 million krona. Historically speaking, we have seen that in economical downturns, we have lower credit losses than other banks. And this is not by coincidence. It's a result of our lending portfolio and the strict view we have on risk, where we take responsibility locally, nationally. And we can early on identify risky situations and we can act early and thereby limit risks. And we feel that we're very safe and secure when it comes to the credit quality in our lending portfolio. Then looking at the capital situation, we have CET1 ratio that is 18.8, 4 percentage points above the regulatory requirements that we have from the financial supervisory authority. And in the previous quarter, we communicated... But we look at the world around us and feel that these are troubled times and we want an extra capital buffer of one percentage point long term, 1.3% above the target range. And we want to be a first class partner in uncertain times and that is what we also see in Europe. the ratings we get from rating institutes. We have an extra buffer and that means that we have capacity notwithstanding what happens in the world around us. We can take responsibility for credit supplies and we can grow our business. The bank will at year end look at what is necessary in terms of a buffer for next year looking at the world around us. To calibrate the level in the quarter to 18.8, well, we anticipate a dividend of 1.3 krona per share, which corresponds to around 40% of the result for Q1. But as always, this anticipation should not be seen as guidance for what the dividend will be, but rather guidance. This anticipation was negatively impacted in Q1 because of the risk exposure amount and what we see in operational risks and the structural currency position. And these, to a certain extent, are of temporary nature. And then our home markets, starting with the UK, representing 17% of the operating profit of the group today. And the CI ratio was 53% and the return allocated capital 17%. We see falling volumes within consumer and corporate lending alike. And this has an impact, of course, of the market development. We see a high degree of... amortization, but we have a low demand that we've seen when it comes to new loans. At the same time, UK is where we have the highest level of customer satisfaction and stands out in the local market. We have local decision-making and we have easy access to advisory experts, which is unusual in the UK, and that is why we stand out. Looking into the future, we want to upgrade our digital channels in the UK and we want to strengthen the local competences that we have in the branches. We have a small market share as of today and we have great potential to grow. Looking at Norway, Norway represents 6% of operating profit and CI ratio is up to 52% and the return on allocated capital is down to 7%. And as I have stated, we've stated before, we are not happy with the results and profitability in Norway. We've seen weak development, and this is partly linked to major investments to strengthen our offerings for our customers, and we continue working on that. And what we could say being positive this quarter is that we have a volume growth in consumer side, and we see growth in mortgages as well, which is promising. And as I said in Q4, analyzing the Norwegian businesses, well, that is something that we have done. And we have decided to look at the strategy that we have in Norway, and we're going to become more of Handelsbanken, focus on the branches, and we're going to focus more on our savings business, and perhaps slow down a bit when it comes to the growth ambition so that we can grow but not too fast. So we will become more of a handelsbanken and we have developed a business in to a certain extent in new ways. We have a new manager as of May 2nd and the work will begin with evaluating changes that need to be done. And this will be done together with the strong branch business that we have in Norway. And we should not forget that Norway underlying has a strong business with satisfied customers, skilled co-workers. And this is the country where we want to be and where we are to grow and become more of Handelsbanken. Netherlands representing 3% of operating profit of the group, CI ratio 53, return on allocated capital 12. And as you know, this is a more narrow activity where we focus on mortgages, property financing, and we're going to continue to deliver when it comes to the Netherlands. And here as well, we have seen that costs have increased significantly. number of employees have increased, and we're also working with the combating financial crime. Sweden represents close to 80% of the operating profit of the group, CI ratio 31%, and return on allocated capital 16. And here, well, we have to do what we promised, Q4. And I've mentioned this, we have in the bank to either Do business or help those who do the business and other administrative costs should be reduced as much as possible. As of April 1st, we have a new organization where we have brought together different administrative functions. We are trying to eliminate overlaps. and unnecessary bureaucracy. And this is work that is being done now to make the bank more efficient and remedy these shortcomings. And we also have an ambition to continue this focus. And a lot of work is being done with intensifying what we do to make sure that we become even more competitive and help our branches by keeping costs down when it comes to the administration. And this work will continue throughout the year. And my ambition is that this way we'll have more focus on customers, good corporate offerings with good business support, and that we'll also have IT developments that's closer to the businesses so that we overall become more efficient and have more of a business focus in the entire bank. We're moving towards becoming even more of a handelsbank, and we have challenges, things that we're not happy with. We know what these things are and we're taking action. But we're also very proud when it comes to other aspects and we're working on becoming even more stronger here. We are in a position of strength and we are working with changes operationally and that creates a foundation for future profitable growth. Thank you.

And then we open up for questions.

We're going to open up for questions.

Okay.

Okay, you were holding the microphone by yourself. We will round off there then. Thank you very much to all. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. © transcript Emily Beynon Bye. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. © transcript Emily Beynon Thank you. Bye. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. ... ... ... ... ... Thank you. Thank you. Thank you. ... ... ... ... ... ... Thank you. Thank you. Thank you. Thank you.

Hello everyone and welcome back. We are now ready to start taking questions and as always we would prefer if you would ask one question at a time so that everyone has a chance to ask a question. So, operator, we're ready to take on the first question, please.

Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To read through your question, please press star 1 1 again. We kindly ask you to limit to one question per person. We will now take the first question. It comes from the line of Richard Strand from Nordea. Please go ahead, your line is open.

Yes, hi and good morning. A question on the profitability in Norway. If you could just sort of share some details on your current assessment there, if you think that the main problem is primarily due to the household or the corporate segment and what do you think you could do to... as Michael commented in the press conference, grow more in a Handelsbanken fashion. What do you mean with that? Thank you.

Yes, thank you, Richard, for that question, and good morning. Yes, as you know, in Handelsbanken, we work with trying to build profitable growth. And we build it by the branches. The branches choose their clients and build their business with the clients name by name. And obviously, as we've kept reiterating for some time now, that Norway, as it is right now, is unbalanced in the business model. Quite a lot of lending, much less of deposits and much less of savings business. So we want to build a more balanced mix there. But it is of necessity that we try to build it from the branches name by name. So you should expect a higher emphasis on profitable growth. And of course, we want to build a better business mix. And that business mix will imply both a higher focus on savings business and deposits.

Sorry, just a brief follow-up there. Is it primarily then on the household segment that you need this improvement or...

I think it's fair to say that if you look at our business mix, we have a high tilt towards corporate sectors. Of course, we want to grow in the private sector, but we want to do it with the branches in the leading roles. The branches choose their clients. they bank with, and yes, a more balanced business mix will imply a higher degree of private individuals, most likely, and a higher degree of savings business and capitalized income.

Thank you very much.

Thank you. We will now take the next question. Coming from the line of Magnus Andersson from ABGSC. Please go ahead.

Yes, good morning. I'm sorry if you touched upon this already at the press conference this morning. I didn't have time to listen into it. So I would just like you to explain how the net funding and margin effect could go from plus 245 million in Q4 23 to minus 392 in Q1 24. And also if you could say something about what you expect in terms of migration or any other effect we should be aware of going forward for the year, whether this is actually the correct starting point for NII, and also whether you were surprised or not about the development in Q1.

Thanks, Magnus, and good morning. Well, first of all, I mean, the way we treat our NII is obviously that the branches treat the relationships with the clients and they both choose their level they lend on and what they pay on their deposit mix. And what we've seen this quarter is obviously quite a bit of a hit. And even though we don't normally divide it in, it comes from pressure on deposit margins. And that coordinates with a movement from transaction account into savings account, and primarily like three-month savings accounts. It's been quite a tough competition landscape there. As you've seen for a long time, SBAB has taken quite a bit of market share. Our branches will never, ever want to lose a good client on price, so they've done what they normally do. And this quarter we see a bigger movement than usual. I don't think you can put a meaningful estimate on the future if that's consistent. if it's going to move, because all the branches will, each and every time, they will try to stay competitive and do the best to build a long-term relationship. But margins do go up and down, but this quarter, obviously, it's a high number in margin drop there.

Yeah, but, I mean, if you look forward throughout the year, do you think, is it unusually large this quarter, or... Because it seems like it's larger than you kind of indicated during the second half of 2023, this impact in terms of migration.

Yes, it is larger than you would expect. And it's not from a central perspective done. So it is branches who, the aggregate of the branches, their decision has come up to this solution this quarter. And yes, that might change. And we... And I think the important message for us is as well, we really believe in this business model. This is what is taking us to the situation of having really, really strong client satisfaction. So we really want the branches to keep doing what they do. But margins will go up and down with their business.

Okay. Thank you.

Thank you. We will now take the next question. from the line of Andreas Hakkonsson from SEB. Please go ahead.

Good morning, guys. Questions on costs. I mean, costs are rising very quickly. I mean, if I take out Dr. Gorn and you're up, what is it, almost 10% or 9% Q1 of the Q1. And when I listen to your CEO, sometimes it sounds like he wants to reduce costs. Sometimes it sounds like he wants to invest. Could you tell us a little bit where should we expect cost to go from here? Are they going to go up or down or sideways or what's your feeling? Could you help us a little bit on that?

Yes, thanks and good morning Andreas. I think it's fair to say that we in the bank view cost in two different ways more or less. We really like cost where the business is generated. If branches see more business possibilities, we really want them to go out there and hire and do more business. And thereby we expect it to come with quite decent key ratios and business outcomes. On the other hand, we obviously know that cost in the banking system is a lot more than just the distribution and the branch level. And all the other costs, we really try to stay really conservative around and try to be efficient. So, yes, I think you understand Michael correctly. He do appreciate cost if it increases income, but we don't like cost which is just increasing cost. So what we will spend and what we do spend a very large focus on now is obviously that, first of all, trying to merge a few operations. which is support functions. We merge them between the group functions and the Swedish operations, and thereby we can increase the efficiency and go down in FTEs and cost there. So that is one of the key targets. Another key target is obviously to improve the way we do IT development. We've built an agile way of developing over the last five plus years. And we think that can be merged and streamlined by the way we steer the rest of the bank. And we think that will create efficiency gain on that one, bringing down cost. We also think that over a few years now we've invested quite heavily both in CRM and like the toolbox for the employees. And we think we can spend a bit less there. So all else we will do our utmost to actually bring down both consultancy levels and NFT levels. We won't guide on it, but that's our main focus. And thereby, I'm expecting to see cost basis to move in a much better direction, whilst also seeing a reallocation. from central costs to allocating more of the cost base to where the income is generated as well.

Okay. Just on octogon, this is related to cost. I mean, your profitability in Sweden and Norway is below peers, and the UK and Holland, I would say, I'm not sure they are comparable to the local banks in those markets. So I don't quite understand why you allocate any money to Goinne. When you compare to the other Swedish banks, are you adjusting for something to reach a higher RE than the peer group?

We are measuring our ROE vis-à-vis peers in the markets, in the comparable markets. So, I mean, and we think we have really good ROE in our Swedish operation. We definitely trail our peers when it comes to Norwegian ones, but we have good ROE as well when it comes to the British and the Dutch one. Okay. Thank you.

Thank you. We will now take the next question. From the line of Namita Samthani from Barclays, please go ahead.

Thanks for taking my question. I don't really understand the comment that NetExtrusion was negatively impacting from ITIN competition, particularly on customer accounts. If I compare your personal class of deposit rates listed on your Swedish website for the present, that was in July last year, the six-month deposit rates have come down by 50 bps on average. Savings accounts rates of 2% have been changed to 0.50% and only the three-month rate has increased by 35 bps. So, please can you explain to me how much of this impact has really affected interest income and how deposit makes shift the dominance of assets with mortgage margin pressure. Thanks.

I'm sorry, Namit, and good morning, by the way. But we couldn't really hear your question there. Could you repeat it, please? Sure.

So I just wanted to understand that comment on net interest income, where you're talking about heightened competition on pricing, particularly on customer deposit accounts. because if I look at your personal customer deposit rates posted on your Swedish website at present, that's in July last year, the six-month to five-year deposit rates have come down by 50 bits on average. The savings account rate of 2% hasn't changed for below 50,000 kronor, and only the three-month rate is raised by 35%. So please can you explain to me how much this is really impacting them, and is this a mixed shift? I'm sorry, Amita.

Your line is occasionally breaking up, but we'll try to answer what we think is your question, at least. If I understand correctly, you're wondering about the quantification of the impact of deposit-related NII, if I understand correctly. Yes. Yeah. Now, what you saw in this quarter was that an increasing share of the customer deposits were put on short-term savings deposits. And we have one product, for example, or it's called Taseriskonto. It would be like a savings investments account. It's a three-month fixing. It's currently paying 4% interest. So what we saw during the quarter was that an increasing share of customers moved from transaction accounts into these short-term savings accounts. So moving from 0.25% interest rate to 4% interest rate. And that, I would say, would be the main impact for the squeeze in overall NIMS.

Thank you very much. Thank you. Thank you. We will now take the next question. from the line of Sophie Peterson from JP Morgan. Please go ahead.

Yeah, hi. Here is Sophie from JP Morgan. Thanks for taking my question. I knew you didn't guide on net interest income and rate sensitivity, but maybe if you just talk us through the moving parts going forward, how should we think about net interest income growth? What will be the main driver? Is it loan growth? ISU margins? are not really going to move much from current levels unless we have rate cuts. But if you could just talk about the different building blocks to help us model the net interest income going forward. Thank you. Thank you.

Yes, thanks, Namit. Thanks, Sophie, and good morning to you. Yes, obviously, we've seen slow growth. We've seen slow volume development. That holds for most of our home markets. And it's both slow gross growth, but it's also high amortizations happening in the system still. One could expect, obviously, amortizations to drop off once rates are starting leveling out. And it should also drop off when we've gone through a rate cycle, more or less, and the whole loan book has matured into a new rate level. You could expect, as well, amortizations to drop off. But they're still at elevated levels. And we don't, as of yet, foresee, we don't see growth picking up. But, I mean, as you know, quite a bit of the other liquidity factors or growth factors point to that we're closing in towards it. But so far, slow growth. Then the exemption there is obviously Norway, where we see strong growth both in households or especially in households, I should say. On the deposit side, we've seen on the household side, the deposit growth has obviously mirrored the household lending, and that's what we expect to keep on seeing. On the corporate side, we've seen obviously quite a lot of deleveraging, so paying off both lending and taking deposits and using it to pay off their borrowing. That could obviously slow down when rates are now perhaps moving downwards again. When you go to the margin situation, yes, I think it's likely to see if rates start dropping down. There should be a pressure on deposit margins, as we've seen, obviously. But with some volatility over the quarters, obviously, based on the branches' decisions. We haven't. We're likely to see a movement from if rates move down, obviously we can't guide on the outcome because that's a factor of competition. But on the upside, at least, if deposit margins have increased and lending margins have decreased, the opposite wouldn't surprise us. So that I think is... And then a few things to mention. We have the notice periods in Norway. They should be a positive benefit going forward. We see some signs of positive margin development on the corporate side. And obviously, yes, we start seeing some... spring signs or some positive signs on the mortgage business in Sweden and Norway.

That's very helpful. Could I just ask a follow-up question? In terms of rate cuts, what's your expectation when you expect Sweden to cut rates?

I think our economist view is that Sweden will cut three times this year. and that they start in the summertime. But obviously, that's our economist view, and we don't base our business model on these decisions.

So the branches are not basing their pricing on future rate cuts?

No, no. What we do is, as we've kept saying, is that the central treasury, they price their marginal funding cost. And obviously the marginal funding cost will have an implication of the future rate expectations. But that's what they give to the branches and then they decide their margins.

Thank you. That's very helpful.

Thank you. We will now take the next question. from the line of Nicolas Macbeth from GMB. Please go ahead.

Thank you, and good morning. I wanted to ask about your comments that you made that the branches are recruiting more FTEs. That indicates rising demand at the branch office level. But looking at the volumes, for you in a quarter, they're actually mostly declining, nor does it seem that you're actually taking market shares on lending or deposits. So I was just wondering by what metric you look at when you say that you see customer demand, that the customer interaction levels are increasing, and whether you also could say anything if we should expect FTEs to continue to go up during the year. Thank you.

Yes, thanks, and good morning, Niklas. First of all, obviously, the branches do have their own decisions if they're going to hire or not, and they're quite sensitive to the business climate. And they're obviously cost-conscious as well, because they are benchmarked vis-à-vis all the other branches when it comes to cost-to-income development. So that's quite a neat system which has proven to work for many, many years. If they decide now to hire, I mean, you won't see that in the historic figures. That's future-looking. So if... If the FTE levels right now is moving upwards, that implies that they see a better situation going forward. What we can say is that we've seen, obviously, the number of advices done in the bank has grown quite materially in the start of the year, and the number of private banking advising, which is happening at the branch levels, and also the occupational pension advising. these ones have moved in really the correct direction. So, therefore, that could imply that they keep on hiring. And we don't have any guidance on that one going forward. But, I mean, we as a bank will be cost-conscious definitely moving forward as well. Perfect. Thanks.

Thank you. As a reminder, please ask one question per person. We will now take the next question from the line of Gulnara Saitkulova from Morgan Stanley. Please go ahead.

Hi, good morning and thank you very much for taking my question. It's Gulnara from Morgan Stanley. I have a follow-up question on the competition, please. You mentioned the intensified competition on the pricing and in particular on the deposit accounts. I wanted to ask, what are you seeing in terms of the competitive behavior on the lending side? And would you potentially expect the competition to ease once the rates start to decrease? And also, can you talk about what, in your view, is the main underlying driver behind these competitive pressures? Is it driven mainly by the smaller competitive peers like SBAB? Or do you think the core reason is overall the muted demand and the volumes? And can you please talk about the underlying reasons and what is your outlook for the competitive environment going forward? Thank you.

Yes, thanks, Gulnara. I think it's fair to say that the way we run our bank is obviously that we run a long-term business model. We try to build long-term relationships with our clients. And that's really been proven over the years that that one works. But then in each and every time, we will face different competition. And some of our peers, which is more top-down driven, will run with various initiatives. Right now, obviously, we see some campaigns when it comes to the mortgage business that some of the peers might offer a few months for free or so. Other times we might face other kind of campaigns. It's fair to say that on the deposit side, we've obviously seen that SBAB has obviously been really competitive for the last year. On the lending business, it's been other peers, more niche banks. I can't say that... So we don't foresee this structurally to be one of the competitors which will be the main competitor going forward. Rather, we expect to see a competitive landscape, and that's for our branches to compete in, and we're used to do that. So it's going to be a moving competitive landscape going forward. But having said that, I mean, if... we have low margins on lending, and the banking system has higher margins on deposits, obviously. So that should probably point to the competitive toughness will be tougher on deposits vis-à-vis mortgages.

Thank you. Thank you. We will now take the next question. from the line of Ricardo Rovere from Mediobanca. Please go ahead.

Thanks. Thanks for taking my question. I hope you can hear me well. Just a quick one. In your report, you say that credit risk migrations had an impact of 0.1 percentage points on the capital. But you are So there was negative risk migration, I understand. But on the other hand, your credit losses continue to be positive, zero or positive. How can this be possible that you have a negative impact on credit migrations and positive credit losses when both technically should be more or less based on the same parameters, probability of defaults? and loss given defaults. I mean, if risk-related assets go up, why are we seeing nothing on the credit, on credit losses? And sorry, just a quick follow-up. There is no guidance on cost, right? Correct me if I'm wrong.

Thanks. Well, no, there is no guidance on cost. You are correct in that one. And we hear you loud and clear. And good morning, Ricardo. Well, first of all, obviously, we've seen obviously negative credit migration for quite a few quarters now. That is obviously very intuitively understandable. When rates are increased, clients' cash flow outlook will become a bit more troublesome, and that implies in many times a negative credit migration. We've also said that Since we have good clients with good owners, with good financials, even though we see a negative credit migration, that might not imply a higher credit risk. And especially if we have a collateral in place with low LTVs. And this has been obviously something which has happened during the last years, that we've seen stage two volumes going up without stage three reservations going up. So that's exactly what is happening in this quarter as well. We don't see credit losses happening. We see very little, actually, actual credit losses happening. There is like single digit ones with low nominals on them. So a really good credit situation. Having said that, if we obviously increase the Stage 2 volumes and we see a negative credit migration, that will have an impact when you calculate the credit losses in the capital. And we have an opposite side of that one, which is the risk-weight floors. So I don't see any... There isn't anything strange in this. You can definitely keep on seeing negative migrations whilst not see any problem with the asset quality or credit losses. And that will have an implication on the capital calculation.

And just to add there, Ricardo, also, if you look in the slide deck on slide 21, you have a breakdown of the credit losses recognized in the quarter. And you can see there in that table or that picture that rates in migrations accounted for 49 million of additional credit losses. But those are offset by the reversal of the expert-based add-on, better quality of new loans coming in compared to the old ones, and also macro assumptions and so on and so on. But you have the breakdown of slide 21, which clarifies the issue.

Thanks. Thanks a lot, Lars. Thanks.

Thank you. We will now take the next question. from the line of Hugh Morehead from Barenberg. Please go ahead.

Hi, good morning. Thanks very much for taking my question. Just a quick follow-up on Norway, please. You've obviously spoken about how you'd like to increase deposit volumes there. What's your strategy going to be for doing that in what's a very competitive market and perhaps what's worked or what appears to have worked in Q1 in terms of increasing household deposit volumes there? And adjacent to that, Are you still guiding for IT investment spend in Norway to drop down this year, which I think you previously guided for? Thank you.

Yes, thank you. Well, I mean, Norway is a country, it's obviously a country with quite wealthy people, and we think our banking offering should suit that market quite well. So, I mean, we're used to working with the branches, close to our client, working with all of their balance sheet, more or less. We both lend to them, and we take on their deposits, and we take on their asset management business. So, nothing extreme in a strategy apart from being very close to the clients by the branches and doing a lot of advisory. So, fairly similar to what we do in Sweden. Yes, the IT investment in Norway will obviously drop down over this year. Having said that, obviously, we will have the amortization effect of the investments we've done. So the cost side of it will obviously not drop down as of yet.

Okay. Thank you.

Thank you. Thank you. We will now take the last question from the line of Jens Hallen from Carnegie Investment Bank. Please go ahead.

Thank you. Good morning. It's the final follow-up then on costs and trying to establish a point for the future. So my question is, in the quarter, is there any double counting of costs given that you're moving away from consultants to employees, the merging of group functions? Or maybe if we can use slide nine, what do you consider to be recurring on that side, particularly given all the comments you have on focusing IT and centric function on the important things? At least it sounds like you think it's on the high side.

Yes, thanks, Jens. If you look at slide 9, obviously, first on the left-hand side, obviously, starting then on the pink boxes here. First of all, obviously, we had the yearly salary, and we've also increased the number of FTEs this quarter. So we will work quite a lot on bringing down the FTEs. That is not the guidance, but still we will work quite a lot on moving them down. When it comes to Octogonen, that would obviously be decided by the performance this year, so we can't say anything on that one going forward. The pension expenses... The lower rate will be here for this year. So the pension expenses, if we have the same number of employees, that will more or less stay flat for the coming quarters. When it comes to the boxes with the dotted lines on it, What they more or less say between the staff cost and also the other expenses is that, yes, we have let consultants go, and some of these more sticky businesses we've hired people for. But we're expecting going forward both to let consultants go and replacing some of them, but not all of them. And the other part of the dotted boxes is that the IT development we've done, they imply a higher level of bringing it over the cost line and less of it over the balance sheet. So I don't know if that was an answer to your question, Jens.

Yeah, well, I think it was partly, but it sounds like from those boxes, there's nothing major like big cancellations on consultant contracts that should be coming out in the short term. That should be a gradual process of consultants and FDs coming down. Is that correct?

Agreed.

Yeah, okay. Thank you.

All right, everyone. Thank you very much for participating. And with those words, we wish you all a good day. Thank you very much. Thank you.