Svenska Handelsbanken AB (publ)

Good morning, everyone, and welcome to this presentation on Handelsbanken's results for the first nine months. The bank reported a solid quarter with earnings growing compared to Q2. Operating profit grew by 8% and the ROE amounted to 13%. As income grew, increased by 4% and costs dropped by 5%, the cost-income ratio improved from 44% to 40%. The cost-income ratio improved in all of our home markets in this quarter. Net credit losses again, now for the seventh consecutive quarter, amounted to net credit loss reversals. And clearly the asset quality remains very strong. And highlighted many times before, the bank is not only around low credit risk, but also with low funding and liquidity risks, and an ample liquidity portfolio amounting to around one quarter of the total balance sheet. The CET1 ratio stood at 18.2%, which was 350 basis points above the regulatory minimum, and thereby 50% above our long-term target range. The anticipated dividend for the first nine months, which deducted from the capital base, amounted to 10 krona and 65 euro per share, or 119% of the earnings generated this year to date. During the quarter, the bank received a number of external recognitions, highlighting the customer's appreciation of our way of running a bank. For the fourth consecutive year, the bank received the reward The Business Bank of the Year, and for the 13th consecutive year, Sweden's SME Bank. In the annual EPSI survey in each of our home markets, the bank scored higher overall customer satisfaction among households and corporates than the sector average, as well the larger peers. And to note in the comments by the Swedish arm of EPSI, or SKI, as it's called here in Sweden, the companies do not only appreciate the local presence and offering, but also rank our digital offering the highest among the larger banks. For the bank, a state-of-the-art digital offer to the customers is merely a hygiene factor, and we rather believe that the USP for the bank relates to our locally connected, decentralized, and customer-oriented business model. But of course, we recognize and we appreciate the recognition. Now, if we look closer to the financial summer of the third quarter compared to the second quarter, ROE amounted to just above 13%. In the wake of lower policy rates, the NII dropped by 2%, which offset otherwise beginning signs of lending volume growth in several of our home markets. Increased volumes in the savings business contributed to an increase in fee and commissions by 4%. Compared to Q2, the income development was also supported by NFT returning as expected to a more normal level after temporarily negative effects in the previous quarter. All in all, income grew by 4%. Expenses continue to develop in line with the trend seen for some time now and decline a further 5% in the quarter. The drop hits partly to seasonality, but also a stronger general cost awareness throughout the bank with an everyday challenging of unnecessary costs. The cost-to-income ratio improved to 40%. Again, we saw net credit loss reversals this quarter of 35 million Swedish kronor. Now, if we instead compare the nine months of the year compared to the same period last year, NII declined by 7%, again mainly as a result of the material cuts in central bank policy rates. Net fee and commission income, on the other hand, remained resilient and increased by 1%. The key contributor was again the savings business. Due to primarily the drop in NII, the total income declined by 8%. Expenses dropped by 6%. When adjusting for FX, restructuring expenses and octogonen, the underlying decline was 3%. The reduced cost base comes as a result of the initiatives carried out over the last year, with effect offsetting general inflation and annual salary increases by a wide margin. Net credit losses reversals amounted to 308 million compared to 369 million a year ago. So all in all the underlying operating profit was down by 10%. Now if we turn to slide 5. Over a number of months we've seen positive sign of recovering covering growth. particularly in the UK and the Netherlands, but also in the mortgage lending in Sweden. Overall, however, volume development only contributed with 22 million to the NII in the quarter. Main effect in the NII, however, related to policy rate cuts that impacted the net of margins and funding. Other effects overall had a fairly small effect. So if we look to slide 6, net fees and commission income for the nine months increased by 4%, and in the quarter by 1% accumulated year on year for the first nine months. The bulk relates to a savings business, especially in the neutral funds offering. The increased commission comes as a result of higher asset under management, thanks to both the positive market development as well as continued strong net inflows into our fund markets, funds under management. The bank has for more than a decade continuously had a market share of net inflows into the Swedish mutual funds market at around two times the market share of the bank's current outstanding mutual funds volumes. We saw that the trend continued during the quarter as well as the first nine months of this year. The second largest fee and commission line is payment fees, which followed the seasonal trend of upticking in the third quarter. These were up along with the normal seasonality and fairly stable compared to last year. And the other fees were relatively stable. Now over to the expenses. Over the course of the past 18 months, the past 18 months, intense internal work has been carried out to put the bank in a more cost-efficient position. We've streamlined in central and business support functions and reduced the uses of external consultants. The level of IT development spend has also affected the run rate of the cost and it's currently at a lower level compared to the elevated levels in the previous years. Although running the bank with a lower level, there has been no change in our ambitions to continuously invest in order to improve efficiency and productivity in our daily operations, as well as continuously develop and enhance our digital offering to our customers. The total staffing, meaning employees and external resources, has been reduced with more than 1,200 people. or 9% compared to when the internal inefficiency work was initiated in Q1 last year. Compared to the same quarter last year, the total underlying staff costs and other expenses were both down by 5%. Now over to asset quality and credit loss reversals. Over the past five years, the bank has total booked net reversals. And to bear in mind, this includes a period of pandemic, sharp up and down turns in policy rates, disruption of supply chain, stress in commercial real estate sector, war breaking out in the Ukraine, tariff turbulence, etc. The absence of credit loss is an evidence of the prudency in the bank when it comes to managing credit risk, both in terms of underwriting capabilities and risk appetite. the customer selection and consistency in our underwriting procedures and policies, as well as the presence for collateralized lending. But also, not least, in the ability to detect early signs of current risk deterioration and the ability to quickly make necessary actions. In this context, the local persons throughout our branches and the close connection to our customers is essential. Now, in the bank, we always limit funding liquidity and market-related risk as much as possible in order to ensure the capabilities to always be able to support our customers and safeguard the bank regardless of whatever unknown external events that might occur. In Q3, we received the annual regulatory requirement by the Swedish FSA, the so-called SREP. The P2 requirement was lowered by 15 basis points, which means that the regulatory requirement dropped to 14.7. As we anticipate the dividend during the year, to calibrate the CET1 ratio to be at a 350 basis point above the SREP, The CETA ratio was 18.2. And as I previously mentioned, the anticipated dividend for the first nine months amounted to 10,65 SEK per share, which was 118% of the earnings generated during this period. The CET1 ratio was in other words 50 basis points above the long-term target range of 100 to 300 basis points, above the regulatory requirement. And as we've said previously, this buffer level above the target range is renewed at a continuous basis. The solid financials, including the robust capital position, put the bank in a position of strength. being one of the most trustworthy and stable counterparts in the industry. This view is shared by the leading rating agencies who rate the bank as the highest among the comparable banks globally. And in Q3 the bank also again was ranked as the safest bank in Europe and one of the world's safest banks by independent surveys. Now turning to slide 10, a few words about our respective home markets. In our largest home market, Sweden, which accounts for 73% of the group earnings, the market position in Sweden is very strong, with the bank being the largest combined lender in private and corporate lending. Mortgage volumes are showing signs of a picking up, while corporate remains a bit cautious given the current business cycle and geopolitical situation. The savings business, as I've touched upon earlier, continues to develop very well. The cost income ratio was 31 in Q3. The profits grew by 1% in the quarter, and the profitability was 16%. The UK amounts to 13% of group earnings. The trend in household lending volumes have broken the negative trend seen for a number of years, and we have now consistently seen volumes increase each month since the beginning of this year. Also on the corporate lending side, we've seen a clear trend shift since a year ago, with growth again. High activity within our branches have led to more business at the same time as the amortization levels have come down from the high levels seen in the past year, meaning that the new business we've seen now also start to show in the net number. In the recent quarters, the UK has been improving the efficiency, and we saw the initiatives filtering through in the cost base to offset margin pressure on NII relating to the lower short-term rates. The cost-income ratio improved slightly in the quarter to 59%. The profit before credit losses were flat versus Q2, but operating profit decreased by 4% as the net credit losses recoveries were a touch lower. The profitability was 13%. Now, Norway accounts for around 10% of the group earnings. After a refocused period that started during the spring last year, the business is now gradually becoming more balanced between lending, deposits and savings. with the competition, especially in the mortgage market, is fierce and has picked up gradually over the last year. The bank continues to focus on deepening our customer relationships, also in the field of deposits and savings. In Q3, deposit grew by 2% and asset under management grew with 6% compared to Q2. The increased cost focus is also gradually showing in the numbers, offsetting margin pressure from lower rates. The cost-income ratio improved to 41.5 and the profits grew by 3%. The profitability was 12%. Finally, the Netherlands accounts for 2% of the group earnings. Since the year back, we've seen growth in both our household and corporate lending. The positive volume development was however been offset by margins that also in the Netherlands have been affected by lower short-term rates. Although coming from a low level, the commission income is ticking upwards, mainly as a result of a growth in asset under management. The ROE improved somewhat in the quarter. Finally, a few words to wrap up where the bank stands after this quarter. NII has adjusted to a more stable level after a period in the past two years with unusual big volatility in margins as a consequence of the big swings in policy rates. We start to see positive household lending growth in most of our markets and with corporate lending growth also in the UK and the Netherlands. In Sweden and Norway, the corporate lending growth remains somewhat muted, which is not surprising given where we are in the economic cycle. However, we have a firm belief that the activity and borrowing demand from customers eventually will pick up long with an improved macro picture. The commission business is growing and we see momentum continuing to build in the customers' saving volumes. Costs are decreasing as we gradually become more and more efficient. Asset quality is strong, also in the financial position, even though the bank is anticipating 190% of the earnings in dividend. And finally, not least, our endless efforts on making sure that our advisors in the branches are close to and easily available for our customers continue and we're happy to see evidence not only in our own interaction with customers but also in external surveys and with those final remarks we now take a short break before moving into q a session thank you so much

Hello, everyone, and welcome back and welcome to the Q&A session. This is Peter Grabe, Head of Investor Relations, speaking. And with me for this Q&A session, we have Michael Green, CEO, and also Morten Bjurman, the CFO. As always, we would appreciate very much if you limit your questions to one question at a time in order to make sure that everyone gets a chance to ask their questions. And with those words, operator, could we please have this question?

The first question is from Magnus Andersson from ABGSC.