Svenska Handelsbanken AB (publ)

Good morning everyone and welcome to this presentation of Handelsbanken's results for the first half and second quarter of 2024. In the second quarter we saw recovering earnings, the financial position remaining solid and high activity within the bank with execution efficiency enhancing measures. ROE improved to 15.2% from 13.7% in the previous quarter. Operating profit rose by 3% to 8.5 billion. As income grew, costs dropped and another quarter with net credit loss recoveries. The cost-income ratio dropped to 41.5 from 42.2. In short, a positive development on the key lines. The financial position of the bank remains very healthy. The CE1 ratio was 18.9%, was 400 basis points above the regulatory requirement, which was in line with previous communication. As of April 1st, a new organizational structure was implemented in the central and business supporting units. With the organizational changes, decentralization was enhanced and measures taken for increased efficiency and profitability going forward. Business support functions have been more closely connected to the business generating units and group functions have been streamlined. Group functions now accounts only for 4% of the workforce in the bank, down from 8% prior to the reorganization. As a result of the changes, the expenses and the revenues get more closely connected. With increased transparency facilitates the prioritization of business-oriented IT development and clarifies P&L responsibilities. As part of the efficiency initiatives in Q2, around 200 employees have signed agreements to leave the bank, which was reflected in around CEC 300 million of one-off cost for redundancy payments. About half of the related employees ended their employment at the last day of the quarter and the rest will leave in coming months. Hence, there was no visible effects on underlying costs in Q2 from these agreements. Furthermore, a review of use of external consultants concluded to decline in the numbers of contracted consultants by 15% at the end of the quarter compared to the end of previous quarter. While the efficiency work has started off and been executed on swiftly, the work will continue also in the coming quarters. Redundancies that will be recognized will be addressed and accounted for continuously. Finally, the bank's position as one of the few banks globally that have the highest combined credit ratings by the leading rating agencies was again confirmed in the quarter as Moody's not only confirmed its AA2 rating on the bank, but also raised the outlook from negative to stable. Now, if we look closer at the second quarter, we can see, as previously mentioned, that ROE increased to 15.2. The cost-to-income ratio dropped to 41.5 and credit losses amounted to net recoveries of two basis points. NII increased by 1% as the net effect of margins and funding recovered from Q1. Part of the effects related to volume mix effects on deposit, with a slightly bigger share of deposits on transaction accounts. Volume growth generally remains subdued in all of our home markets. Adjusted for currency effects, the fee and commission income grew by 6% and reached the second highest level historically. The key contributor was again the savings and mutual funds business, which saw asset under management, supported by stock market development, as well as net inflows. Expenses dropped by 1%. Adjusted for the one-off costs relating to staff layoff agreements, Octogonen and FX, the expenses dropped by 2%. Credit losses consisted of net recoveries of 133 million or two basis points. All in all, operating profit grew by 3% and 2% adjusted for the items affecting comparability. If we then move over to the accumulated numbers for the first half year compared to the same period last year. RE amounted to 14%, the cost income ratio to 41.9 and net credit losses recoveries of 228 million or one basis point. On underlying basis, NII was fairly flat compared to the same period last year and fee and commission grew by 3%. Expenses increased by 10%. The increase was attributable to increased staffing, which were up 70% in between the years, as well as the annual salary revisions. The net credit losses recoveries amounted, as said, to 228 million. All in all, the operating profits declined by 2%. Now, if we zoom into the NII development compared to the previous quarter, While the NII impact from volume changes remain muted, the key driver, apart from positive FX effects of 92 million, was the sum of the effects from margin, development and funding costs. In this category, there were always many different components, sometimes pulling in different directions. The cut in central bank interest rates affected negatively in the quarter, but was offset by a break in the trend of deposit volumes moving from lower to higher yielding deposits account and positive net funding effects. As always, our branches individually adjust and fine tune the customer rates to the prevailing local market and conditions. Furthermore, we saw net positive funding cost impact on our Treasury Department. Fee and commission income recovered in the quarter. Almost 70% comes from the savings related commissions, where we saw the main pickup in the quarter. Payment fees also rose in lines with normal seasonality. Now over to the expenses. First, to the left, the staff costs increased by 1% in the quarter. There were two main effects in the quarter that more or less offset each other. Firstly, there was a net positive effect of 307 million relating to octogonen. Last quarter, there was a total provision of 233 million, which included a final calibration of 170 million related to the provision for 2023, as well as a provision for Q1 of 63 million. In this quarter, there was instead a reversal of the latter, bringing the difference in octogonal provision to 307 million between the quarters. Then secondly, as previously mentioned, a one-off cost of 302 million was taken related to the redundancies. Again, the majority of the employees referred to were employed until the last day of the quarter, and hence the redundancies had no effect on the underlying cost in the quarter. The remaining staff cost increased by 2%, of which FX accounted for half of that. To the right, then, you can see other expenses, which declined by 4%. The decline was partly related to seasonality, but also effects from the scale down of external consultants' contracts during the course of the quarter, as previously mentioned. As we've said in Q1, we expect the IT development spend to run at a slightly lower rate going forward. The reduction of external consultants should be seen in that context. In the recent years, we have seen necessary but elevated investment in IT development. After the implementation of some larger development projects, such as a new CRM system for the bank, Microsoft 365 and cloud migration, we to some extent have an investment hurdle behind us. Going forward, we continue with our high ambition with our IT development and in a somewhat more focused way. Emphasis lies on a further strengthening of our already appreciated digital offering to customers, both individuals and corporates, as well as continuous improvements of tools for employees to increase internal efficiency and processes. We hear from our customers and also see in external surveys that our locally connected business model together with the strong digital offering create high customer satisfaction, which in turn form a foundation for long-term customer relationships and business opportunities. Now over to asset quality and credit losses, or rather the net credit recoveries that we have seen for the two consecutive quarters. For a long time, credit losses have been more or less zero and asset quality remains strong, just as it should expect it to be. The reason relates to the bank's limited risk appetite, the consistency in the underwriting, the preference for collateralized lending, and not least the local presence and local connection through our branches and their knowledge on their local business. Also in this quarter, the management add-ons was trimmed down, this time by 75 million. The add-ons is reassessed each quarter and stood at 454 million at the end of the quarter. The financial position of the bank is strong. The core T1 ratio stood at 18.9, which is 400 basis points above the regulatory requirement, which is in line with what we have guided for in 2024. The 100 basis point extra buffer that the bank holds on top of the long-term target range of 100 to 300 basis points above the regulatory requirement will be reviewed in conjunction with the year-end report at latest, subject to assessment of the prevailing geopolitic and macro uncertainties. In order to calibrate the CE1 ratio to 400 basis points above the regulatory requirement, the anticipated dividend in the quarter amounted to 4 SEK per share, or 116% of the quarter earnings. For the first six months, the anticipated dividend amounted to SEK 5.2 per share, or 78% of earnings. A few words about the respectively home markets. As I commented in the first quarter, Norway has struggled with the profitability over the past years, and a strategic review was made earlier this spring. A clearer profitability focus, a clarification of the responsibility between local head office and branches, and a review of the cost base have been carried out. In the second quarter, the earnings development was material. Operating profit grew by 37%. The cost-income ratio improved by 6 percentage points to 46%, and the return on equity increased from 7% to 11%. In Sweden, the development is quite natural and more stable, given the market position as the biggest lender combined on private and corporate customers in Sweden. Earnings grew by 2% in the quarter, and the cost-income ratio improved somewhat to 30%. The ROE stands at 18.3%, the highest among the home markets. In the UK, earnings and volumes remained stable and ROE of 18% was up from 17% in Q1 and was hence just shy of the level of Sweden's. Earnings grew by 1%, and the cost-income ratio was largely unchanged. Finally, the Netherlands, which is the smallest home market, operating profit dropped in the quarter, and the cost-income ratio increased from 53 to 55. ROE increased to 13%. So to sum up, earnings grew in the quarter as income increased, costs dropped, and there were, again, credit loss recoveries. are we increased in all of the bank's home markets. In the beginning of the year, we've initiated a review of parts of the bank in order to improve the efficiency in especially business support and central group functions. Since then, we've taken action. Today, we have a more business-oriented organization in place with the trimmed headquarter function and business support units more closely tied to the business-generating parts of the bank. We have identified, addressed and started to execute on redundancies with positive underlying financial effects yet to be materialized. We've also scaled down cost of external consultants which gradually materialized during the quarter. From a financial perspective, the bank stands strong. That means we're in a good position and have capacity to grow and ability to support customers regardless of the external factors that might occur. The position as one among only a handful of banks globally with the highest combined credit rating by the leading rating agencies confirms the stability of the bank, both from a business model perspective, risk level, as well as financial stability perspective. So the bank is in a good position, and we will continue to strive at becoming even more efficient, to grow with good profitability, and not least to continue to grow with satisfied customers, and thereby generate stable value growth to our shareholder over time. So thank you very much for listening in, and we will now take a short break before commencing the Q&A session. Thank you so much.

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Hello and welcome back to the Q&A session. As always, we would appreciate if you would limit your questions to one per person in order to create a chance for everyone to ask their questions. With that said, operator, we're ready to take on the first question, please.