Svenska Handelsbanken AB (publ)

Good morning, everyone, and welcome to this presentation of Handelsbanken's result for the second quarter and the first six months of 2025. The second quarter showed an operating profit of 7.2 billion. The ROE was 13%, which was unchanged compared to the previous quarter. Income dropped compared to the first quarter this year. This was mainly due to catch-up effects from central bank rate cuts seen in the previous quarter, which affected NII. A touch lower asset management fee and commissions as the average asset under management were affected by lower average stock market indicates. Temporary effects on the NFT relating to valuation of instrument used to hedge risk and not least effects from a significant strengthening of the Swedish krona affecting mainly the NII. Cost, on the other hand, remains stable at a materially lower level compared to a year ago, being down 4% on underlying basis. Year on year, despite general inflation, also the annual salary revision was carried out in the beginning of the year. The cost-income ratio amounted to 44% in the quarter and 42% in the first half of the year. Up a touch from last year, but still at a low level in an historical context. Net credit losses again, now for the sixth consecutive quarter, amounted to net credit loss reversals. And we have highlighted, as we have highlighted many times before, the bank is run with not only low credit risk, but also low funding and liquidity risks and an ample liquidity portfolio amounting to around one fourth of the total balance sheet. In addition, the capital position is robust, with a CE1 ratio of 18.4%, which is 50 basis points above the long-term range target. This all in all puts the bank in a solid financial position. The anticipated dividend, which is deducted from the capital base for the first half of the year, amounted to 7.15 krona per share, or 120% of the earnings generated. Now, if we look closer at the financial summary of the second quarter compared to the first quarter this year, ROE amounted, as said, to 13%, NII declined by 6% to 10.7 billion, or by 4% when adjusting for FX impacts. Fee and commission were down by 1% to 2.9 billion, primarily due to lower average market values of the asset under management in the wake of volatile stock markets. The customer-driven NFT in our home markets and Handelsbanken Markets division progressed well and increased in the quarter by 10% to SEK 504 million. This part of the NFT is rather stable and relates to the bank's customer offering within the fields of FX, fixed income and equities. Other NFT components are more volatile by nature. We are then talking mainly about impacts from market valuations of derivatives used to hedge risk in the funding and liquidity management of the bank. The market value of these derivative contracts, however, pulled to par over time. Furthermore, in Q2, there was a negative one-off effect of 121 million negatively impacted relating to the divestment of the credit card portfolios in the subsidiary Exeter in Finland. So all in all, the NFT amounted to minus 64 million, but as said, largely due to temporary effects in total, income dropped by 8%. Expenses were, on the other hand, down 2% compared to 2.1% if we adjust for FX effect, octagonal provisions and restructuring expenses costs were down marginally. The cost to income ratio was 44% and 43% on an underlying basis. The net credit losses amounted to a net reversal of 219 million or three basis points, bringing the operating profit to 7.2 billion or down 12% compared to Q1. If we instead compare the first half of the year compared to the same period last year, NII declined by 6%, again mainly as a result of the material cuts in central bank policy rates and FX effects. Net fee and commission income remained resilient and increased by 1%, with the key contributor again being the savings and mutual funds business. And due to aforementioned reasons, the NFT declined a bit. On the expense side, we saw an underlying reduction by 4%. The decline comes as an effect of the cost initiatives carried out over the last year, which by a wide margin offset effects from general inflation and salary increases kicking in at the beginning of the year. Net credit losses were higher than last year and amounted to 273 million compared to 228 a year ago. All in all, the operating profit was down by 9%. Now, if we take a closer look at the NII development compared to the previous quarter, as said, the NII dropped 6%. Volume development had a positive effect of 57 million or half a percentage point. The net of margins and funding contributed with an almost 5 percentage points drop. In the quarters of policy rate cuts, there are often a positive effect that arises from the fact that parts of our deposit reprice earlier than part of the lending. This relates simply to different contractual dates for repricing. Q2 was the first quarter in quite some time when the policy rate was flat in more or less the full quarter in our largest home market, Sweden. That meant that the positive repricing effects seen in previous quarters did not repeat and explain the lion's share of the decline in net margins and funding. Furthermore, the material appreciation of the Swedish krona resulted in around one and a half percentage point drop in the NII. Other effects all in all had a net neutral effect. Net fee and commission income for the first half of the year increased by 1% compared to last year, but was slightly down versus Q1. The majority of the fee and commission comes from the savings business and in particular the mutual funds offering. The bank has for more than a decade continuously had a market share of net flows into the Swedish mutual funds market at around two times the market share on the bank's currently outstanding mutual funds volumes. We saw that trend continue during the quarter as well as the first half year. The assets under management are, however, of course, affected by the price development of financial markets. So in Q2, the positive impact from a continued healthy net inflow into mutual funds were offset by lower market pricing on average. The second largest fee and commission line is payment fees. These were up along with normal seasonality and fairly stable compared to last year. Also, the other fees were stable. Now over to the expenses. So over the course of the past 12 months, intense internal work has been carried out to establish the bank in a more cost-efficient position. The total staffing, meaning employees and external resources, was down by 9% compared to when the internal efficiency work were initiated in Q1 last year. And the total underlying costs were down 5% compared to Q2 last year. As a result of the previous year's elevated level of IT development and spending and fairly material rollouts of new IT systems and tools, the organization is now step by step implementing and extracting the benefits from these. For example, in the field of CRM, FCP, internal workflows, customer interaction in areas of signing documentation and onboarding, advisory tools, M365, cloud solution, to name a few. This leads to step-by-step streamlining of daily procedures. improves efficiency and productivity, as well as the productivity and quality in the customer advice. While the investment pace now can be run at a slightly lower level compared to previous years, it does not mean that we will not continue to have a high focus and continuous IT development. It is of utmost importance that we maintain the top-notch quality in our digital channels, and we will continue to ensure that that is the case. Now over to asset quality and credit loss reversals. Since Q4 2019, meaning before the outbreak of the pandemic and the subsequent more or less mandatory build-up of management add-ons, the net credit losses have been summed up to more or less zero. This includes a period with stress for corporates relating to the pandemic, from sharp rate hikes, disruption of supply chains, war breaking out in the Ukraine, tariff turbulence, et cetera, et cetera. Still no credit losses. This very much underscores the bank's prudency in regard to managing credit risk, both in terms of risk appetite, customer selection, as well as consistency in underwriting and preference for collateralized lending. But it also comes as a result of the ability to detect early signs and the ability to quick make necessary actions in situations of changing and deteriorating financial positions of customers. In this context, the local presence through our branches and the close relationship with customers makes a vital difference. After five years of management add-ons, the final part of 121 million was reversed in the quarter. And in Q2, there was also a positive effect of 48 million related to the aforementioned sale of Exeter Finland credits card portfolio. Excluding these two effects, the remaining net credit loss reversals amounted to 47 million. In the bank, we always strive at limiting funding, liquidity and market-related risk as much as possible. This in order to ensure the capabilities to always be able to support customers and to safeguard the bank regardless of whatever unknown external events that might occur. Over the past few years, we've increased the already ample liquidity buffer to add even further protection to the bank. Currently, the liquidity reserve amounts to around 900 billion kronor, meaning representing about a quarter of the balance sheet. And on top of that, there are unencumbered assets, which in practice means an additional liquidity buffer in the form of unused room for covered bond issuance. And on top of low credit risk, funding and liquidity risk, the capital situation is robust with a CET ratio of 18.4%, which is 50 basis points above the bank's long-term range of 100 to 300 basis points above the regulatory requirement. The solid financials put the bank in a position of strength, being one of the most trustworthy and stable counterparts in the industry. And this view is shared by the leading rating agencies who rate the bank the highest among comparable banks globally. Now a few words about the respective home markets. In our largest home market, Sweden, which accounts for almost 80% of the earnings of the group, the development is stable. The cost-income ratio was 32% in Q2 and the profitability above 16%. The market position in Sweden is strong, with the bank being the largest combined lender in private and corporate lending. During the first half of the year, the inflow of savings has continued to show a positive development, as mentioned earlier. In addition, the inflow of savings in the form of household deposit also progressed well, with an increase of 17 billion, or 4%. Total deposits were up 2%. In Norway, we've seen improvements since a year back. The cost-income ratio has improved from 46 in Q2 last year down to 42 in this quarter, and the ROE has increased from 10.9 to 11.3%. After a refocus period that was starting during the spring last year, the business growth is now more balanced between lending, deposits and savings. And cost initiatives are also gradually starting to show in the numbers. In the UK, we have the most satisfied customers in the market. Volume growth, however, remains relatively subdued, although Q2 was the first quarter in a very long time when household lending increased. We do note small signs of increased customer activity. Focused on the recent quarters has been on improving the efficiency, and we've gradually started to see initiatives filtering through in the cost base. In Q2, the staffing dropped by 90 persons or 3%, mainly within central functions as a part of the efficiency initiatives. As a result, there were restructuring expenses of 47 million kronor. The return on allocated capital increased somewhat compared to the previous quarter and amounted to 13%. Finally, the Netherlands, which is the smallest home market of the group, volume continues to grow on the lending asset and asset management side. However, the cost-income ratio and ROE deteriorated in the quarter, mainly as a result of negative effects from margins and funding in the NII. Finally, a few words to wrap up where the bank stands after this quarter. NII has adjusted to a lower rate after being temporary impact for some time. We have seen similar patterns in the past. During a rate hiking cycle, the bank can often regain previously pressed margins by benefiting from sticky pricing on transaction account while the yield on the asset side increase. During a rate-cutting cycle, on the other hand, the bank can often partly offset the negative impact from lower deposit margins by benefiting from contractual timing differences between when deposits and lending are repriced. When the cycle ends, these effects fade, just like we saw in Q2. Lending volume growth still remains slow, partly due to higher amortization levels than normal, but have gone back to a positive territory in all of our home markets. While the lower policy rates haven't yet materialized in an expansionary climate for our clients, customers, our branches have noticed a slight pickup in activity with our corporate clients during the past months. The commission business is picking up and we see momentum continuing to build in the customer's savings volumes. During the recent past, when the macro picture have remained muted, we have significantly and carefully addressed the expense level and the efficiency in the way we run the bank. And now we have a materially low level run rate compared to just a year ago. The bank has proven the exceptional asset quality through a few challenging periods, such as COVID, Russia's invasion of the Ukraine, high inflation periods, supply chain trade difficulties. We have also ensured a strong capital and liquidity position. And not least, we continue with our endless effort on making sure that our advisors in our branches are close to and easily available for our customers. And we have strengthened the local presence in our branches even further. we are in a good shape. When GDP and customer activity eventually recover, a strong branch network with satisfied customers along with a strong financial position should lead to business and income growth. Income growth matched with cost control should in turn lead to increased earnings growth and value creation for our shareholders. With those final remarks, we now take a short break before moving into the Q&A session. Thank you. .

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