Swedbank AB (publ)

Good morning, everybody, and welcome to the presentation of Swedbank's third quarter 2021 results. My name is Annie Ho, Head of Investor Relations. With me in the room is Jens Henriksson, Anders Karlsson, and Rolf Marquardt, our CEO, CFO, and CRO. We will begin with a short presentation, followed by Q&A as usual. But with that, I think I hand straight over to Jens to begin our presentation.

Thank you, Annie, and welcome all to the presentation of Swedbank's results for the third quarter. Again, a strong quarter with focus on the business. The quarter has been characterized by a stepwise journey towards a new normal. In Sweden, restrictions are being lifted and many are returning to their workplaces. In our other home markets, Estonia, Latvia and Lithuania, there are still restrictions in place. For the last 20 years, I have, in one capacity or the other, attended the IMF annual meetings. So also this year, although digitally. And if I would summarize it, I would say the global recovery continues, but the momentum has weakened. There is a worry about inflation. It seems to be temporary, although rising energy prices, shortages of semiconductors and higher commodity prices combined with matching problems in the labour market could create longer-lasting problems. There are also risks associated with how and at what pace government tapers support to households and companies. and the pandemic is still far from over. In these uncertain times, Swedbank stands strong. Today, I'm proud to present another strong quarterly result. For the second quarter in a row, our profit after tax is 5.5 billion kronor. Net interest income is stable, and net commission income increased once again to record levels from increased asset management income and higher activity in the card business. Costs are in line with our forecast and our cost guidance of 24.5 billion SIK, excluding the expenses related to the US investigations, they remains 2021 and 2022. In the third quarter, Swedbank had a return on equity of 13.6%. And as you all know, our return is impacted both by caps that accrue during the year and that the quarter of the profit of 2019 and 2020 has not yet been paid out to the shareholders. But next week, that can change. The Board of Swedbank has asked for an extra general meeting to decide on the proposed dividend on SEK 7.30, a proposal in accordance with the bank's dividend policy. Our capital and liquidity positions are strong, our earning capacity as well, and we have a buffer relative to the updated Swedish FSA's minimum requirement of approximately 480 basis points. Our credit quality remains strong and we maintain a management overlay of approximately 1.9 billion kronor. The continued work to improve governance and controls gives results. We have received a green light from the European Central Bank on the new organization of our Baltic banking operations and availability in our channels increased again during the quarter. Our customers shall have access to us 24 hours a day, seven days a week, and be able to bank with us whenever or wherever they want. Swedbank is the bank for mortgages. In Sweden, we were together with the savings banks market leaders in June, July, and August. Our market share through our own channels exceeded 19% in August, and that surpassed our existing That is just 2%. And as usual, we do not get the market share figures until a few weeks before month end. But volume in September was at the same level as August, an increase of 65% compared to last year. We have shortened the time from loan commitment to closure. We have reduced the time spent in queues, and the collaboration with the Fartighetsbyrån, our real estate agency, has improved, and our pricing strategy holds. We are neither the most expensive nor the cheapest, but we have the best full-service offerings. We maintain our position as the leading mortgage provider in Estonia, Latvia, and Lithuania. During the quarter, we have continued to meet our customers' needs as the economic conditions change. We are supporting businesses with credits, rich financing, and to a larger extent, helping them raising funds from the capital markets. For our 7 million private customers, we continue to develop and expand advisories. And this takes place in all of our channels and is being added in more parts of the business, generating a higher share of digital sales. Throughout the bank's history, we have been at the forefront of technological development, using new technology to make our customers' financial life easier. And honestly, we are the original fintech company. We have worked in the mass markets since the 1820s. We had bank buses and bank boats. Minuten with cash from a machine was the first ATM in Sweden. We began to offer online services almost 25 years ago. And now our customers carry the bank in their pockets around the clock using the most frequently used bank app. And we launched it 10 years ago. Customer satisfaction for both the internet bank and the app is high, and we work continuously to improve our customer relations. During the quarter, we made it possible to freeze and replace a debit card through the Swedbank app. We have launched more detailed information on card transactions in the mobile bank. It's a good way to quickly detect fraud. And more than 90% of savings and pension transactions in the group are now made using digital channels. Sustainable savings are attracting many customers, and especially the young. And to improve their mobile customer experience, we've developed a financial glossary especially for them. And in Swedbank's fund platform, it is now easier to make climate-smart decisions. We have introduced a label that shows the funds rate when it comes to ESG and CO2 risk for example, all available in the app. To address climate-related risks in a bank, we collaborate with the Swedish Meteorological and Hydrological Institute, that is the contact point in Sweden for the IPCC. We want to understand how the effects from climate change, such as flooding, can impact the real estate sector. The EU's taxonomy will change the prerequisites for the banking sector, it will lead to increased transparency and comparability regarding the sustainability of both lending and investment. And correctly designed regulations contribute to sustainability being an integrated part of the bank's offering. And the financial sector has a central role in the transition required to reach the Paris Agreement's climate target and the UN's Sustainable Development Goals. And we continue to develop our advice to companies that are in transition. A clear example of that is that during the year, we have arranged two green bond issues per week for corporate customers. And Swedbank Robor now manage assets close to 2 trillion Swedish kronor. And the goal is to manage it in accordance with the Paris Agreement by 2025. And in Estonia, we want to build a sustainable savings culture Customers who turn 18, they offer the free Robofond share as a birthday present. Talking about Estonia, we are very proud to be operating in Estonia and Latvia and Lithuania, where we continue to see a positive development. Three countries with rapid economic growth that already has surpassed the pre-pandemic GDP levels. For Swedbank, three home markets that for many years will grow faster than Sweden. The share of people owning their home is low but rising. Demand for financial products such as mortgages, insurances and savings increase as prosperity grows. And we work to increase awareness about sustainable personal finance and interest in Robur's fund is growing. We are the largest business bank in Estonia and the largest bank for private customers in Estonia. Estonia, Latvia, and Lithuania. And we have a long-term commitment to financially sound and sustainable society in Estonia, Latvia, and Lithuania. And during the quarter, we received proof that we are doing the right things when Svembank again was named the most loved brand in Estonia, Latvia, and Lithuania. With this love, I give it over to you, Anders.

Thank you, Jens. Now let's go into the details of the quarterly results, beginning with lending and deposits. Compared to last quarter, the total loan portfolio increased by 15 billion SEK in local currencies, excluding a positive FX impact of 2 billion. Mortgage lending in both Sweden and the Baltics continued to grow on the back of strong markets and a continued business focus. In particular, Swedish mortgages increased by 13 billion quarter-on-quarter, maintaining the all-time highs in new lending seen over the second quarter. Corporate lending remains muted and quarter-on-quarter volumes were stable. We see some growth in Swedish and Baltic banking. While in large corporates, we continue to see demand for bridge financing and capital market funding from our customers. Customer deposit inflows slowed, this quarter increasing by 19 billion, excluding a positive FX effect of 3 billion. Corporate deposits in Baltic banking decreased, driven by customers with large deposits that are charged a fee. And in Swedish banking, we saw a decrease mainly from the public sector. Total deposits in Baltic banking was flat in local currency terms if we exclude the impact of a new pension reform in Estonia, allowing individuals a one-time opportunity to withdraw funds from their future pension. Now looking at the revenue lines, starting off with net interest income, which is stable. The underlying NII increased by around 70 million as a combination of increased lending volumes, overall stable lending margins, a continued pressure from deposits, and effects from group treasury. The treasury result benefited from internal pricing changes, interest rate risk management, and lower funding costs. The negative margin impact on the Swedish mortgage portfolio was only about one basis point in the quarter, and it was compensated by higher volumes. During 2021, higher NII from volume growth in Swedish mortgages has so far offset margin pressure. Going forward, we continue to see certain tailwinds and headwinds that may impact NII. Volume growth and lower funding costs will continue to support NII. On the other hand, excess liquidity in the system is still weighing on NII. There could be continued margin pressure in Swedish mortgages if the market pricing dynamics prevail and the trend of customer choosing fixed loans continues. Then it will be dependent on market rates and security development going forward. Over to net commission income, which is again at record high. The asset management business continues to perform very well, and year-to-date income has increased by 30% compared to the same period last year. The development in the equity markets continues to be supportive. Ruber's Swedish fund business saw net outflows of 3 billion, partly due to outflows on the state-run premium pension platform, while the outflows in Baltic banking was due to the pension reform in Estonia mentioned earlier. Underlying card commissions improved sequentially quarter- having benefited from the summer months and increased consumption levels from a gradual easing of COVID-19 restrictions. Income from FX transactions from foreign travel is improving, but still lagging. Corporate advisory commissions were seasonally lower, reminding you that Q2 was positively impacted by a large 5PO deal. Turning to net gains and losses. Underlying NGL was at the normal level. The NGL result was lower as there was a positive 100 million valuation effect in the second quarter from shares held by Fastid Spiron in Hemnet, which had IPO'd. A few words on expenses before I hand over to Rolf. Expenses were on a similar level as last quarter, as were AML investigation costs, which amounted to 96 million. Cost control is a key priority, and our overall cost development is in line with our plan. Our cost guidance of 20.5 billion for underlying expenses this year and next year I will now hand over to Rolf to talk about asset quality and the credit provisions that were made in the quarter.

Thank you, Anders. So during the third quarter, we have seen continued economic recovery from COVID and signs of approaching a new normal. Economic growth has been good in all her markets, but has lately moderated, as Jens mentioned. The societies in our home markets have gradually opened up and the Covid situation has been stable in Sweden, but there have also been new outbreaks in the Baltic countries. Asset quality remained strong during the third quarter. The total credit impairment was 18 million. And as you can see in this slide, Swedish banking recovered 83 million and Baltic banking 20 million, while dot corporate and institutions continues to be impacted by oil and offshore exposures. Macroeconomic forecasts impacted slightly with 75 million. In the second quarter, the management overlay stood at almost 2 billion compared to 1.9 billion this quarter. In the third quarter, a few adjustments have been made, and in sectors where the impact from COVID is limited, 365 million was released. For portfolios where COVID-related uncertainty remains, the overlay has been retained. This includes exposures to the hospitality, retail, and transportation sectors, as well as in the Baltic countries on the back of continued COVID uncertainty. For oil and offshore, an additional 265 million Stage 2 provision was made. To sum up, 100 million of the management overlay was released in the third quarter. The Stage 3 provisions for individual assessments of 196 million were mainly related to oil and offshore within large corporate institutions. Trading and stage migrations increased provisions by 31 million. Volume migrations and other factors reduced provisions by 184 million. As we have communicated before, the main part of our oil and offshore business is in runoff. Since Q1 2020, the gross exposure has been reduced from 12.9 billion to 6.5 billion today. We now have 3.5 billion in stage three and total provisions amounts to 2.7 billion. So I'm back to you again Anders.

Thank you Rolf. Let me now turn to capital. We report a strong capital position with a CC1 capital ratio of 18.5%. Risk exposure amount increased by 15 billion to 703 billion in the quarter. The capital buffer stands at around 480 basis points to the updated minimum regulatory requirements we received this quarter, which take into account an additional 150 basis points for Pillar 2 guidance and 20 basis points reduction in the Pillar 2 requirement. In terms of future capital requirements, The Swedish FSA has announced that the countercyclical buffer will be raised to 1% and be implemented at the end of the third quarter 2022. Regarding the IRB overhaul exercise, it remains the case that overall we expect higher risk weights. Given that we already are in the last months of the year and we continue to await a response from the Swedish FSA, regarding our submitted models, it is unlikely that any phase-in will commence this year. We still do not know the exact impact from these regulatory initiatives, but once we are through all these changes, we will remain well capitalized, and we expect our CT1 capital buffer to end up within our capital target range of 100 to 300 basis points. With that, I hand over to Jens to conclude.

Thank you, Anders. We continue to make our customers' financial life easier. And the annual number of digital interactions with our customers is now 2.7 billions. This year, we've educated 50,000 young people in Sweden on private finance. And in Lithuania, we have published a financial guidebook for teenagers. This is something we do based on our heritage in the savings tax movement. Allow me to sum up. We have, during the quarter, once again delivered a profit of 5.5 billion kronor. Again, with a strong focus on business. Consumption of services and goods have recovered in most sectors. However, we remain vigilant and we are prepared for new outbreaks and setbacks. With a strong credit portfolio, economic growth in our home markets and a strong business focus, I look forward with confidence. The future of our customer is our focus. And with that, I give The floor back to you, Annie.

Yes, thank you very much. Perhaps, operator, could you open up the lines for questions?

Of course. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. One moment for the first question, please. And our first question comes from Magnus Andersen, RBG. Please go ahead. Your line is now open.

Yes. Hi. Good morning. Just starting off with costs. I mean, you are still running a bit below your guidance, but you keep it. So I was just thinking, since it implies a quite sharp uptick in Q4, like you had last year, it's a bit larger than we were used to before that. Is there anything in particular you expect to drive that, or should we consider it as kind of normal seasonality? And secondly, related to costs, we talked about a lower staff turnover during the pandemic previously as one reason for your headcount. going up. It has slowed, but it's still up in all areas. But the Baltics, are we back to normal there when it comes to stock turnover, or is there still an effect from that? I think I'll start there.

Anders, do you want to start? Yes. Thank you, Magnus, and good morning to you. I agree with you that there is a seasonal pattern in the cost development over the year, and the same we saw last year. and the year before that. So it's seasonality is the answer to your first question. What I would like to remind you is that Q4 is a very intense quarter from a development and investment perspective. So I think that what is important for you is to understand that it's not entirely building run rate. As far as DfD comes,

No, but when we look on sort of churn, we have quite a lot of churn in the, I think especially in the Baltics right now. I think that we could also be now when we see the sort of lockdowns in what was in Latvia the other day.

I'll stop there. Yeah. And Magnus, I think it is, we see that the attrition rate is coming back to, even higher levels than pre-pandemic in certain areas or pockets. But we have a plan and we follow that plan. And the sharp increase you saw during the pandemic outbreak is not part of that plan.

Okay, thank you. I have a question to you, Jens, just on your financial targets. First of all, you have this RE target of being about 15% RE. Do you have any plan to put a timeline on that target, potentially to put some more pressure on the organization? And that's the first one. And secondly, just if you have any reflection about your profitability in the large corporate and institutions divisions, which remains around now. around 9% and has done so for a very long time, regardless of market.

Well, let me start by taking the overall picture here. And this quarter, we had a return on equity of 13.6%. And if you would deduct the dividend that share owners will decide on October 28th, it would have been 14.2%. In my introduction, I talked about four areas of income growth. Mortgages. We are the market leaders in all our four home markets. We have a price strategy that works. Advice. We have 7 million private customers, and every year we have 2.7 billion digital transactions. And with FNZ, we're investing in a cloud-based solution for tailor-made advice for our customers. Sustainability. We have a 200-year heritage of sustainability experience. And we are part of the transformational journey that all our home markets are going through. And the Baltics. Three countries where GDP will grow with, let's say, one to one and a half percentage points more than Sweden for many years ahead. We are the market leaders and we are the most loved brand in all three countries. Four areas and continued cost control. And our target of 15% return on equity stands. It is possible. but difficult to reach. And our strategic direction is a broad strategy on how to reach it. So that's the overall picture.

May I follow up? Just on this overall picture, I mean, first of all, I guess your ROE target, when you tell me what it If exclusion dividend, et cetera, I guess you don't include one basis point of loan losses when you look at your RE target. And secondly, my question was, would you consider putting a timeline on it?

We haven't decided to put a timeline on it. We want to reach the 15%, and as I said, it's feasible to do it. Now, looking at the NC&I, NC&I had times when they are strong and times when they are a bit weaker. I mean, this is the kind of market. When they are a bit weaker, it has to do with how the capital markets work. And we see sort of a lot of companies going into the capital markets rather than direct lending. And that affects NC&I. You should also broaden it a bit to talk about the whole corporate sector. And we, I mean, sometimes people say you should have targets on LC&I and Swedish banking and Baltic banking. I think the key point is to have an overall target for Swedbank, because that means that, yes, there is competition, but it also means that you can transfer companies from Swedish banking that want to move up to LC&I and and banks that want to have the local representatives and stuff like that. So it's a tough time for NC&I, but the overall target for the Swedbank group stands 15%.

What do you think is the normalized level for NC&I over time?

Well, I'm not going to answer that question. The overall target for the Swedbank group is 15%, and that stands.

Okay. Thank you.

Thank you.

And our next question comes from Martin Leiblich, Goldman Sachs. Please go ahead. Your line is now open.

Yes, good morning. Thank you. Thank you for taking my question. I was just having a couple of questions as a follow-up for your earlier comments on the mortgage market in Sweden. And I was just wondering if you could elaborate. What trends you're seeing in terms of customers switching from variable to fixed? Is this broadly stable? Is this accelerating or slowing down? And what are customers switching into? Are they switching into a blend of one, three, five year or just more five year? And I was just wondering, what is your outlook for the switching going forward? You mentioned inflation earlier. Would it be rational to assume that there should be an increase in switching if clients are worried that inflation and at some point interest rates would go up? And related to that, I was just wondering, what is your outlook for pricing in Sweden? It seems like a lot of growth is focused on fixed-rate mortgages at the moment. Swap rates have increased. for the Swedish krona, would it be fair to assume that average negotiated pricing, say, for the five-year would also increase over time? Thank you.

Thank you very much. There was a load of questions, so if I forget one of them or two, you have to remind me. On your first question, the tendency of choosing fixed rate continues. which I think is in sense rational if you look at how the price curve looks for mortgages in the Swedish market as we speak. They are mainly the nodes on the yield curve that are the most popular ones are the one and two year nodes, which essentially means that they will reprice quite quickly. When it comes to inflationary behavior, I don't think that that is the underlying reason. I think it is the sort of inverted market pricing curve that is driving the preference for fixed rate. And as you are correctly alluding to, swoop rates further out on the yield curve have increased sharply, in particular this month. We have seen small corrections by some players, but we are keeping our list price intact. That means a margin compression on that specific part of the portfolio, but I think that when you talk about this, you need to have in the back of your head that you talk about front book and new sales. We also have a back book of more than 900 billion of mortgages. So for us it is a balancing act. We want to be relevant in new sales and at the same time we are trying to protect back book margins and NII. So that is the balancing act that we are working with every day.

Thank you. One follow-up, if I may. Just looking, you know, you mentioned headwinds and daywinds to the outlook here. From today's perspective, how do you think about the NRI for the overall group to develop? Should we assume this kind of 70 million underlying run rate increase in the quarter to continue or would you expect it to be more stable or what is your outlook for NRI progression over the next one or two years?

I've given you the dynamics. I will not guide you on any particular number. You have to to do that on the back of an envelope yourself.

Okay, thank you very much.

Are all your questions answered, sir?

Perfect, yeah, thank you very much.

Perfect. The next question then comes from Nicholas McBeath, BNB. Please go ahead, your line is now open.

Thanks and good morning. So first question about your dividend policy. Looking at your capital generation, I think you now generate return on C81 capital of about 15%, which should imply that you could grow your REA by more than 7% without diluting your capital ratio, given the 50% debt ratio that you have. So just interested how you think about... And do you think you will take on a more generous dividend policy in the foreseeable future? And if so, if you could comment also if you prefer to address any accumulating excess capital with buybacks or more dividends. So that's the first question, please.

Thank you. You're right. With the capital generation we have and with the dividend policy of 50%, you're perfectly right. I think... We have stated, I think, first of all, there is a lot of unclarities still out there, so it's too early to talk about this. Secondly, if you have this target of returning 15% on your equity, you will not keep your dividend policy for the sake of keeping it. That's for sure. But I think it is a bit too early to talk about these things.

Okay. And then the unclarities that you see, is it mainly regarding the capital requirements and the IRB overhauls, or is it also that you want to know the outcome from the AML investigations before you think that the unclarity is resolved?

It's the IRB overhaul.

Okay. Okay. And then second question, please, on the bank's tax or the risk tax, as they call it. What's the latest you've heard on the progress here, and do you expect this to be implemented in 2022? And if you could also please update on the assessed impact that you see from the risk tax if it were to be implemented.

Well, making political guesses is always difficult. I had the opportunity to meet the Minister of Financial Markets and the Minister of Environment and the Vice Prime Minister yesterday. And I mentioned and talked about the risk tax, and actually I called it the bank tax. He said it was straightforward stupid. I said it was wrong to do it. I don't like taxes for specific sectors and the tax that affects large banks that take very much a societal perspective and really think about sustainability, that they should be taxed more than small players. That's wrong. I was pretty straightforward there. The effect, what is it? Around a billion?

The forecast is around a billion next year if it's implemented. And then if it is... accounted for as the cost, there is a tax deductibility to it that you need to have in the back of your head. The 1 billion is the estimate.

Okay, but could you say anything about if you heard any update about the progress? Because I think we were supposed to get some news on it earlier in October, but it seems maybe they received some pushback or that the European Commission, I have some thoughts on it. Have you heard anything about that that you could share with us, please?

No, I don't. I didn't hear anything, actually, from the ministers yesterday. I just stated my point of view. I was there with other banks' CEOs.

Okay. Yeah. Okay, thanks. That's all my questions.

Thank you. Our next question comes from Maria Serikatova, Citigroup. Please go ahead. Your line is now open.

Yes, good morning. Thank you for the presentation. A couple of questions. First, just to follow up on NIA in Treasury. You mentioned different drivers, including interest rate management and lower funding costs. And I believe you expect that the support from funding costs would continue. So just to check if the number that we've seen in the third quarter is a good run rate going forward. That will be my first question.

Yeah, there were a couple of elements in Treasury. One part was the changed FTP on deposits that added to Treasury's result. The other one was a lower funding cost, which I think was – I don't have the numbers on my head. The way you should view it is that it's very much dependent on the – when outstanding bonds are maturing, then you have the possibility to replace it with cheaper funding. And there is, I think, a maturity coming up in Q4. So I will not give you any sense whether that is something you can expect from this quarter as a forecast. And the third element is what pressure should always have been doing, managing the balance sheet risk. and excess liquidity.

Okay, I see. Thank you. And then on mortgages, we've seen a very strong recovery in market share and you continue to improve your processes and digital channels. So I guess the next big competitive step is the full digitalization of the mortgage journey. Can you update us on where you currently are in the process and what are the key milestones for the next couple of quarters?

Well, I cannot update you on sort of exactly how it is, but we are working to make it as digital as possible. It's difficult because this is also linked to sort of how the government and what you can do. But we are working on making sure that we are up to speed. And as I said, we delivered during the quarter and we have speed up processes and we've cut down on telephone lines. And I would say we are getting better and better at it.

I understand, so you're not committing to any timeline on full digitalization?

No, as you know, I was very clear, and I called the spade a spade after the first quarter, and I said that this is something we just need to deliver. Therefore, it felt pretty good to show that this quarter, we were the market leaders in June, July, August, and in August even surpassing our back book figures for those that are sold through our own channels.

Okay, this is clear. And just maybe finally, if there's anything you can update us on your investments in the new savings platform.

Sorry, take it once again. I missed that part.

I guess so. So your new savings platform together with FMZ to develop the digital offering.

No, we are working with implementing it. It takes a while, and then we will roll out customer-friendly solutions for that.

Okay, thank you.

Thank you.

Our next question comes from Andreas Hakonsson, Danske Bank. Please go ahead. Your line is now open.

Hi, thank you. First question is just to follow up on NII. We've seen a continued decline in your cover bonds, and I think now 39% of your mortgages are funded with cover bonds, which is quite a big decline over the last couple of years. Do you see a lower limit, or... How much deposit funding can you do in that area? That's my first question.

Okay, Andreas. I think that, I mean, first of all, the question to ask yourself is, will the deposit inflows continue forever? I mean, as you are aware of, we have been using cover bonds as sort of the balancing instrument here because we, have to uphold a certain amount of senior and senior non-preferred for regulatory issues. I don't think that there is a... I mean, the balancing act that we are having is to keep a liquid curve on mortgages and be present in the mortgage market, but to... So that's sort of the... the limit that you need to handle as far as I'm concerned.

So that should then continue to be the main driver of your NII also in the coming quarters, I would assume then?

Replacing old funding with cheaper funding, yes, together with volume growth on the lending side.

Yeah, but would you say that the volume growth is... Largely, as we see now, you had 80 million of volume growth and 67 million of margin decline. So it seems like that is relatively flattish, and then your funding benefits was really what's driving the NII.

I think when you look at the underlying NII, and if you decompose it a bit, Andreas, you could say that in the quarter, the volume growth in mortgages compensated for the margin pressure. And on top of that, you saw corporate loans, in particular in LC&I, where you have increased margins. And that goes back to my initial comments during my speech, that when you see more and more of the corporates moving into the capital markets, they are looking for other financial solutions than direct lending. One of them is bridge financing. It could be bridge to equity or it could be bridge to bond. And that is where we have seen a slight increase in margins on the corporate side. So it's a combination. It's related to both corporate and mortgages.

And then just another question, a bit different. Out of your sales of mutual funds, how big portion are you selling yourself and how much is going through the likes of Avanza and Nordnet? Can you tell us that?

Are you talking about market share or are you talking about sales during the year?

Over the year, like a percentage of flow, so to say.

I mean, if you look at the year, we have had a fairly... low net inflow net. There are four sources to that inflow. The first one is, as you rightly are looking for, Swedish banking and the savings banks. Then you have the third-party platforms that are more volatile. You have the premium pension platform, which is a fairly sort of competitive market from an income perspective. And then you have the swing factor, which is institutions. But if I look at this during the year, Swedish banking is standing for 90% of net sales in 2021.

Okay, thank you.

Our next question comes from Sophie Papkin, JP Morgan. Please go ahead, your line is now open.

Yeah, hi. Here is the feed from JP Morgan. My first question would be on the unused management everyday provisions. You released 100 million this quarter, but how much do you have left of these unused management everyday provisions and basically what needs to happen for these to be released?

Hi, Sophie. So we have left 1,877,000,000 of management overlay. And when we have released now, we have done that mainly in Sweden and related to industries where we don't see an elevated risk anymore related to COVID. And we have kept the management overlay for COVID-impacted parts of our portfolios. And what needs to happen for us to release those powers is that we want great clarity and certainty. So we need to pass the point where we now are, where we see a rollback of the supporting measures from the governments, and also that the situation becomes more normalized. And we are not at that point now. But I think you can also, from how we have acted this quarter, I think you can also sort of clearly see the strategy that we do have, where we have made releases related to the non-impacted portfolios.

Okay, that's very clear. So it's almost 1.9 billion that you potentially could release in coming years. My second question would be on kind of M&A. You have plenty of excess capital. You're generating a lot of capital. What's your view on M&A and, in particular, on 100 points and studying their Danish and Finnish operations? Is this something that you would consider, or this is totally off the table? Thank you.

Well, on M&A, first, we always look for opportunities, and we always look on that. But we have four home markets, Sweden, Estonia, Latvia, and Lithuania. So we have no plans of looking into that.

Okay, that's very clear. Thank you.

As a reminder, we have now 10 minutes left of Q&A, which means we are entering into the final phase of the Q&A session. Our next question comes from Antonio Reale, Morgan Stanley. Please go ahead. Your line is now open. Thank you. Good morning, everyone.

It's Antonio from Morgan Stanley. I have three questions, please. One on costs, one on mortgage market, and lastly on NII in the Baltics, please. The first one on costs, just a follow-up. Can you remind us what you've budgeted in terms of initiatives in order for you to keep underlying cost base unchanged next year? And could you also please remind us what's included in the 500 million AML-related costs? I remember you had an action plan agreed with the FSA with about 240 activities or so, of which about 60% were already completed. Would you stand on that now? Could you share any more color anecdotally, please? That's my first question.

Okay. I think you take them one by one. I have not given you any indication of initiatives that we will take in order to maintain our flat cost guidance for 2022. The only thing I've said is that cost control is important, and we have guided you on 2022. As far as the 500 million that we have forecasted for AML-related expenses, it is primarily for investigation costs. i.e. our advisors when it comes to the American authorities investigation. When it comes to an update on the 240... ish program. I think I hand it over to you.

No, as you know, when I came, I talked about that every time. And then people started saying, why are we talking so much about this? So we decided that now we bring it into our daily work. And we are working with this to make sure that we are a low-risk bank.

Thank you. My second question on the mortgage market. I mean, just an update on what you see in Sweden in mortgages, particularly if you could touch on some of the key points that were drivers in the past of the weakness, excess liquidity and the contribution from savings banks, the weak corporate demand, which is now recovering, that contributed to somewhat higher competition in the recent past. And lastly, if you've seen any changes in demand following the lift of the amortization payments on households from September onward.

Well, thank you for a good question. So when you look on the Swedish mortgage space, it is a competitive space. We've seen new entrants coming in. And also the combination of that and when we see more difficulties in sort of lending out to corporates, that means that the big banks are fighting about the mortgages. So it is a tough market in that sense. The good thing is that, as I said, we were the market leaders in June, July, and August. And if you look on the volumes for mortgages, it gave us an increase of NII of, what was it, 40 million kroner during the quarter. And the lower margins meant that NII on this side went down by 35 million kroner. So during the quarter, higher mortgage volumes more than compensated for the margin pressure.

Thank you.

Three questions, I think.

Yeah, no, the last one was really on the Baltics, because we've seen, obviously, excess liquidity and growth in deposits being a headwind. I think the NII in the Baltics continues to suffer also in this quarter, and I presume it's still on the back of that excess liquidity. When would you expect this trend to start reversing? I mean, what are you seeing on the ground in terms of loan demand? and rate of savings in households and corporates.

But you have seen a slight pickup as I alluded to in my speech when it comes both on the private side, in particular in mortgages in Estonia and Lithuania, but also to a certain extent for consumer financing. We have also seen a slight pickup when it comes to corporate demand. I think that When you look at the volume versus lending margins in the bull tricks, they are upholding their margins. So in that sense, It's not the margin pressure on the lending side. The issue at hand, now there is a curtain coming down. I'm not doing anything. It's automatic. Just for your information. As far as the headwind for the Baltic comes, it is that we are running the operation on a loan-to-deposit ratio, which is 0.6. And as you know, they are in the euro area with negative interest rates. The way we have tried to handle it in the Baltics when it comes to deposits and margins is to charge more and more customers for those deposits. Thank you. If you didn't hear my question, I will try again. I'm sorry for the curtain. No, no worries. I think I got it. Thanks.

And our last question comes from Namita Santani, Barclays. Please go ahead. Your line is now open.

Hi. I just have a question on the mutual funds in Sweden, where the net new sale market share has been below the natural market share of 21% for some quarters now and is there any aspiration to get closer to the natural market share?

Of course we have aspirations and that was one of the areas I talked about in my introduction. I talked about mortgages, I talked about savings and we have a huge potential here. We have the more than 4 million customers in Sweden and more than 7 million private customers overall. And we have, as I talked about, the 2.7 billion transactions that happen every year. So using the platform that was asked about before, met and said, and a good customer interface means that we can work with digital advice, and that can strengthen this business.

Thanks.

That was the curtain.

It's a sunny day.

And this concludes our Q&A session. I will hand back to the speakers.

I think all that's left is to thank you everybody for listening and taking part. Take care and speak soon.

Well, thank you very much for attending and looking forward to seeing you in real life. Absolutely. Goodbye. Bye.

This now concludes our conference call. Thank you all for attending. You may disconnect.