Swedbank AB (publ)

Good morning, everybody, and welcome to the call. My name's Annie Ho, Head of Investor Relations here at Swedbank, and also on the line today we have Jens Henriksson, our CEO, Anders Carlson, our CFO, and Rolf Markvart, our CRO. As per usual, we have one hour for the call, where we'll start with a short presentation, followed by Q&A. So without further ado, Jens, please begin.

Thank you, Annie, and good morning to everyone, and welcome to the presentation of Swedbank's result for the fourth quarter of 2021. And it was a quarter with a stable underlying business and continued good economic growth in our home markets, supported by both expansionary fiscal and monetary policy. And it was once again a quarter dominated by the pandemic. And right now we see high level of sick leave and absence among our coworkers. The spread of the virus led to renewed restrictions. Inflation continued to rise, driven by increasing energy prices, high demand, and bottlenecks. Global growth is expected to remain good, even if, as you know, the IMF recently revised down their outlook. But rising inflation, continued spread of the virus, and geopolitical tensions is creating great uncertainty. In these times, Swedbank stands strong. Net profit for the quarter was 4.8 billion kronor, or 4.30 kronor per share. Net interest income was stable, and commission income was yet again record high, driven by both asset management and capital market advice. Costs, excluding the investigation expenses, rose on a seasonal basis just as planned, compared with the third quarter. And full year 2021 costs were just below of our cap of 20.5 billion kronor. Our return on equity was 12%. I can now sum up the results for 2021, and it is the second best result in the history of Swedbank. Income rose faster than cost, and cost control is a key priority within the bank, and full year return on equity is 13.2%. Our target of 15% return on equity remains, even if the new bank tax is a factor. And I will, before the end of the year, present the plan how we can reach that target. Swedbank's capital and liquidity position is strong. Our dividend policy of 50% of profit remains, and our strong position makes it possible for the board of directors to suggest the AGM a special dividend of two kronor. And combined with our ordinary dividend, we suggest to distribute 11 kronor and 25 dollar per share. Dividend to our shareholder is important. We then have a buffer to the Swedish FSA's requirement of 460 basis points. Credit quality remains strong. For the full year, there were credit impairments of 170 million kronor. And we maintain a management overlay of 1.8 billion kronor because of the uncertainties related to the pandemic. Our run-off portfolio has, since 2015, decreased from 23.5 billion kronor to 3.5 billion kronor. Our work with stable and resilient IT platform continues and availability has increased this year. And the work to strengthen compliance and risk control continues at a high pace. We have recruited a new chief compliance officer from Bank of Ireland as the present one is retiring. Our cost cap of 20.5 billion kronor remains for 2022, excluding the investigation cost. And during 2021, we closed all Swedish investigations regarding our historical shortcomings in the AML CTF sanctions area. And as we have communicated all along, the US investigations are ongoing. They are in different phases and we can still not estimate any potential fines or when the investigations will be concluded. All in all, the foundation of Swedbanks becomes more and more solid. And this makes it possible for us to deliver good results for the benefit of society at large, our customers and the shareholders. And I see several opportunities where we can grow. The first one is mortgages, where the markets remain strong. We have the market leading position in new mortgage lending in Sweden. We were number one in the Swedish mortgage market in June, July, August, September, October, November and December. And the measures we took to come back after a weak start in 2021 delivered, we have been closer to the customers, worked proactively and met their needs faster and more efficiently with the right price. Swedbank is the market leader in mortgages in all our four home markets, Sweden, Estonia, Latvia, and Lithuania. Secondly, we are a digital bank with physical presence. And in 2021, we added more than 50,000 new customers through digital self-service solutions. Our customers becomes more mobile, more daily banking functions through the app creates efficiency and free up time for expertise advice online via customer centers and in our branches. Saving and advice is our core business. And during the last year, we had a big inflow of deposits. Customers are seeking expertise and safe solutions to grow their savings. We therefore trained our advisors. And the savings business is characterized by intense innovation. We have, as one example, tested a new model for occupational tension solutions to companies. Customers have been able to access advice in our digital channels with the transition to remote meetings with advisors. And there we have listened and reasoned with customers face to face and given them customized advice. Everything digital, everything seamless. And the cooperation with an outsourced infrastructure together with FNZ leverage our position. And during next year, we look forward to launch services and products that builds on the new savings platform with a target to multiply the number of advisory sessions. Third, Swaybank does not have a separate strategy for sustainability. Sustainability is the core of Swaybank's strategy. We've taken a clear position on climate change. Not because we are climate activists, well, it's actually some more, but because we have an obligation to our owners, clients, employees, and society at large. Sustainability is business. In the fourth quarter, we decided to no longer directly finance new oil tankers or refineries for fossil fuel. And we take steps to contribute more to the UN Sustainable Development Goals and the Paris Agreement to reduce carbon emission. We give advice and support to our customers in their transition to increase sustainability. We make more and more better business. We offer products that simplifies and improves their transition. We are number one among arranges of corporate bonds in Kroner, both traditional and ESG bonds. And during the quarter, our green portfolio grew with 12%. And we continue to be at the forefront in our own funding. We were the first Nordic bank to issue a green bond in US dollars. And as a result, we have sustainability funding for the bank in Euros, Stirling, Kroner, and just as I said, dollar. And for the second year in a row, we are included in the Dow Jones Sustainability Index. And we keep working hard towards our vision of a financially sound and sustainable society. Svedbank Grover is Sweden's largest fund company. And during 2021, assets under management grew by 20%. And total assets under management surpassed two trillion Kroner during the quarter. And Svedbank Grover continues to create values for savers and 13 funds have the highest Morningstar ratings in terms of performance. In 2021, new fund sales in our own channels were the strongest in seven years in Sweden. And this year, we aim to do even more in our own channel. The fund offering is completely green with a high sustainability level. And Svedbank Grover is keeping pace with its target that all assets under management aligns with the Paris Agreement in three years and to reach net zero by 2040, a result of active management. Savings in Svedbank Grover funds launched in Estonia, Latvia and Lithuania during 2021 grows steady, although from a low level. And we look forward to increase that business. And fourth, moving to the Baltics, or as I prefer to call it, Estonia, Latvia, Lithuania. We have a solid and long-term commitment to Estonia, Latvia and Lithuania. And we are working constantly to improve our offering. And in some areas, we are even at the forefront in the bank. Our customers in the Baltics can now easily obtain a mortgage in a fully digitized process. In the corporate market, we see new business, our customers grow more financially sophisticated. The economies grow fast and so does the need for financial services such as funds, insurance and e-commerce solutions. And thanks to our roots in the savings banks movement, we know that the ability to build sound and sustainable personal finances improves with more knowledge. In 2021, we held 900 lectures on finance for young people and the customers could choose for more than 200 online seminars. And they showed great interest for finance and sustainability with a focus on savings, pensions, investments and budget planning. And I'm again proud of the strong trust we have in Estonia, Latvia, Lithuania, where Swedbank ranks as a top brand. And by that is the time now for our CFO, Andros Karlsson, to dig deeper into the numbers. Anders, the floor is yours.

Thank you, Jens. Yes, 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 23 billion, excluding a positive FX impact of 3 billion. Mortgage lending in both Sweden and the Baltics continue to grow on the back of strong markets and continued business focus. It is particularly pleasing to report that Swedish mortgages increased by 13 billion for the third quarter in a row. Corporate lending increased by 8 billion, driven by growth in Baltic banking and property management in LC&I, of which 5 billion was a transfer from Swedish banking. Customer deposit inflows continued this quarter, increasing by 31 billion, excluding a positive FX effect of 3 billion. Now looking at the revenue lines, starting off with net interest income, which is stable. The underlying NII decreased by around 36 million, as higher average lending volumes were offset by lower lending margins. NII from corporate lending margins declined by around 20 million, mainly from lending portfolio composition changes during the quarter, rather than price pressure. NII from private mortgages in Swedish banking increased somewhat as increased lending volumes mitigated decreased margins. Deposit margins improved in the quarter as more clients were charged for deposits in LC&I and Baltic banking. The group Treasury NII decreased somewhat due to less favorable conditions in the short-term money markets. The benefit from cheaper covered bond funding was offset by senior N81 issuance. Other NII effects in the quarter includes a positive effect from the ECB liquidity facilities in Baltic banking, and a negative one-off effect in the leasing business. Before talking about factors impacting NII, let me take one step back and remind you that in the last two years, deposits have increased by 307 billion, and lending have increased by 73 billion, a factor of four. The development of NII will of course depend on the combined development of manufacturers such as lending growth, potential central bank actions, development of base rates, customer preferences as well as the competitive landscape. With our current liability composition, we will benefit from increasing short-term rates, reminding you of the flooring of corporate loans on the asset side. Over to net commission income, which is yet again at a record high. Underlying card commissions were seasonally lower quarter over quarter, and we saw dampened card activity over Christmas period as COVID restrictions returned. There was a positive impact related to the second half of 2021 from MasterCard of 64 million. Income from asset management increased slightly by 43 million, supported by market development and performance fees of 34 million. Robert's Swedish fund business saw net inflows of seven billion as a result of annual transfers of funds from the pension authority and improved sales primarily in our own channels, which are more profitable. Corporate advisory had a strong quarter due to participation in a number of IPOs and market maker fees of 28 million during the quarter. Turning to net gains and losses, NDL was at a low level this quarter. The fixed income markets has been difficult throughout 2021 and the market volatility in late October and the beginning of November, particularly impacted client trading. While group treasury NDL was impacted by negative valuation effects in derivatives used to manage interest rate risk. Other income was stable quarter over quarter. Looking at the annual development, this has been a steadily increasing source of diversified income. A few words on expenses before I hand over to Rolf. Expenses were as expected, higher quarter on quarter, driven mainly by seasonality in staff cost, IT expenses, business consultants and marketing. Cost discipline continues to be one of our key priorities and this has enabled us to end the year with underlying expenses in line with the cost cap of 20.5 billion. AML investigation costs amounted to 355 million in addition to this. As Jens mentioned, our cost cap of 20.5 billion for 2022 underlying expenses still stands and we reiterate our best guess of AML investigation costs for this year of 500 million. From next quarter onwards, the new bank tax will be implemented which will be around one billion gross for 2022. I will now hand over to Rolf to talk about asset quality and credit impairments.

Thank you Anders. During the quarter we have continued to see good economic development in all our home markets but as Jens mentioned, it has been slightly moderated by the supply side bottlenecks, energy prices and other related effects. The COVID situation has once more deteriorated and restrictions have been reintroduced. Despite this, credit quality remains strong and the quarter was characterized by small changes. When looking at credit risk indicators like past due loans for different sectors and geographies, credit migrations, watchlist exposures and impairments, we conclude that the situation continues to be stable. Changes have been limited also in the sectors impacted by COVID but the uncertainties remain on the back of the recent development. During the fourth quarter, total credit impairments ended at a recovery of 67 million. As you can see, Swedish banking made smaller provisions while Baltic banking and large corporate institutions made recoveries. The work with winding down the oil-related exit portfolio continued and it has now been reduced to 3.5 billion. Going into the details, macroeconomic forecasts impacted by minus 93 million, expert portfolio adjustments ended at minus 107, which includes the impact from oil-related exposures that have been divested and restructured during the quarter and a change between stage two and individually assessed oil-related exposures. The management overlay now amounts to 1.8 billion. Individual assessments ended at 66 million, mainly explained by oil-related exposures. Rating and stage migrations increased provisions by 107 million and other factors decreased by 40 million. And to summarize where I started, our credit quality remains strong. So back to you, Anders. Thank you, Rolf.

Turning to capital, our capital position remains strong with a C to one capital ratio of 18.3%. The capital buffer ended at around 460 basis points above the minimum regulatory requirements after taking into account the proposed dividend of 9.25 krona per share in accordance with our dividend policy. And the proposed special dividend of two krona per share. The capital target range of 100 to 300 basis point still stands. Risk exposure amount increased by 4.5 billion to 708 billion in the quarter. Let me recap what we now know about future capital requirements. The counter-cyclical buffer will be reintroduced at the end of the third quarter of 2022 and be raised to 1%. The Swedish FSA has communicated its intention to gradually raise the buffer to 2% if the economic recovery continues. Regarding the IRB overhaul exercise, it is further delayed. We are still in the approval process which is expected to continue to the end of 2022 according to plans communicated by the Swedish FSA. It remains the case that overall we expect higher risk weights. In addition, the Basel IV phase-in is also delayed from 2023 to begin in 2025. We still do not know the exact impact from these regulatory initiatives, but once we are through, we expect to remain well capitalized. With that, I hand over to Jens

to conclude. Thank you, Ando. Allow me to end by summing up. We have again delivered a stable profit in the quarter, 4.8 billion kronor. The result for 2021 is the second best in the history of the bank. Our capital and liquidity positions are strong. Our cost discipline give results. Credit quality remains strong. We have a clear strategic direction. We develop our services and the cooperations with the savings banks. Trust for the bank and our brand improves. Swedbank stands strong in uncertain times. And we are well positioned to manage both downturns and upturns. And the future of our customer is our focus. And with those nice words, I give the floor back to you,

Annie. Thank you very much, Jens. Operator, please open the lines. But before we do so, can I just remind everybody to stick to two questions for call out of time? Please go ahead.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero and one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero and two to cancel. The first question we've received is from Mark Lindendahl, SEP. Your line is now open. Please go ahead.

Yes, thank you. And good morning. Two questions then. One for Jens and one for Anders. On Jens, on the strategic update, why do you present that towards the end of the year? And could you share some light on the new deal with the savings bank? And I also read a comment about the changed organization in Swedish banking. So a little bit more details of what is happening on the strategic update. And then for Anders on costs here. AML guiding for 500 million. How long do you see this as, should we carry a one off or put it at the side of the ordinary cost? As we see, normal cost is also higher, especially related to IT and consultants. So should we expect 500 to be sort of a long going target? Now you were at 355 this year, but guiding for 500. Or how should we pencil in this? Thank you.

Well, thank you. Let me then start. I need to step a bit back because in, as you know, in 2021, we delivered a return on equity of 13.2%. That is an increase with 1.8 percentage points compared to last year. Now I'm even excluding the fine. We are on the right track. And as I said, that you alluded to, we will before the year end, come back with a plan on how we can reach the target of 50%. And what you all know, the levers to meet the 50% target. Cost control, and Anders will talk more about that. Impairments, Rolf talked about the strong credit portfolio. Capital, we have no wish to keep more capital than we needed. And I think what we came out the board decided yesterday about the special dividend is a good example of that. Revenues, in my speech, I mentioned the four areas, mortgages, advice, sustainability, and then Estonia, Latvia, and Lithuania. So will it be difficult to reach the 50%? Yes. Can we do it? Yes. And we will get back on that before year end. Savings banks agreement, we have that. It's, I would say it's a foundation. It means that we can share costs and also be profitable. And I think one of the big parts of this is cooperation, where we can use the FMZ thing. Then the third question, what was that that was about? Swedish Bank. Swedish Bank is a new organization. Well, we've taken away a layer, making sure that we are better on finding the regional solution while keeping an oversight from the top. So good for business and good for sweat banks. Anders. But

there's nothing new in the deal with savings banks in terms of sharing of costs and profits, et cetera.

No, it's very similar, but it's better written and it was a deal made in a very good spirit. So very similar, but better. Okay, thank you. So on

your, I understand your question. When it comes to AML investigation costs, they are very much driven by how the American investigations are developing. So we are responding to questions. We are responding to whatever they are requiring. So it's very much dependent upon that. This is our best estimate. But again, we are not in the driver's seat. Will this come to an end? Yes, it will. Do we know when? No, we don't. So it will never be part of my underlying cost base to answer that question specifically.

But in terms of the other cost increases in the quarter, if you go to IT cost and consultants, what is that directed to? Is this more, you can say, earnings-driven investments or is it just repairing old systems and reporting functions, et cetera? Or is there anything we could read that it will drive or should drive earnings going forward?

You shouldn't do sort of a parallel to that. If you look back in Q4 for a couple of years at least, you have the seasonality. Investments tend to pick up. You want to deliver things before year end, so it's more of a quarterly effect than anything special to read into that.

Yeah, I know. That is usually a season pattern. Okay, thank you. Thank you.

The next question is from Magnus Andersson, ABG. Please go ahead, your line is open.

Thank you and good morning. Just to follow up on the ROE plan and your presentation there, you said you will give us a feeling for how you will get there. Will you also give us some sense of when you could be there and related to that presentation, will you also then guide for costs for 2023? That's the first one. And the second one, just on capital on the IRB overhaul, I read that you have now supplied your models in the report and you mentioned, Anders, that they were delayed and we can see something towards the end of 2022. How will this play out during the year? Do you expect to get models approved gradually so that risk-weighted assets will be impacted by this quarter by quarter or will we see everything in one go?

Well, thank you. Let me start first. Having a target without the date, that's, I mean, it doesn't really stand. So of course we'll come out and say, this is when we will reach it and this is how we can reach that. Of course, cost is a part of this, so we need to talk about the cost. Exactly when we come with that, we'll see that.

And Magnus, I will ask Rolf who's been the one who's mostly involved in the process with the Swedish FSA on your second question.

Okay, yeah, so we could expect the approvals to go through late in the year. So of course this is, approval process is now ongoing and we expect the outcome late in the year. So that's, and it will gradually feed through, yes, but late in the year.

So it could be over the Q3 and Q4 reports, for example.

Yeah, Q3 at the earliest, I would say.

Yeah, okay, thanks very much.

Thank you,

Magnus. The next question is from Andreas Hackenton, from Skibank, the line is not open. Please go ahead.

Good morning, everyone. First question on the NII. If we look back to 2021, the constant decline in wholesale funding up until Q4 was a real support for your NII. Now in Q4, we start to see that the cover bonds, senior and secured, non-preferred and so on, all started to grow again. Going into 2022, how do you think that the funding cost will support your NII or is that behind us now? That's my first question.

Okay, should I take that immediately, Andreas? Or do you want to take the one second one? Yeah, you can

take that directly if you want.

Yep. You're right on the fact that we need to issue senior and senior non-preferred from a regulatory perspective, not that we need it from a funding perspective per se. So that will continue because as you know, it's a phase in of the rules. That is a more expensive funding. There is still funding, old funding maturing during 2022 where we will benefit, although we will continue to issue covered bond at a lower level than normal. The issuance you saw in covered bonds in particular during the autumn was at very good prices. So we took the opportunity to do it. So it was more opportunistic to pre-fund.

So if in 2022, would you expect that the margin pressure you saw from competition and mix effect, would that continue to be offset by a lower funding cost?

I will not give you the exact numbers of that, Andreas. But what I think is important to have in the back of your mind is first of all, the one point I made around deposits. If you look at, for example, the Swedish Banking's deposit basis, it's now 700 billion. And the floating rate mortgages is around 360 billion. So that's sort of one important component for you to have in the back of your mind. The other one is that since November, we have changed our list prices on mortgages two times. So we have been moving from an inverted list price curve to a positively sloping list price curve, which seems to change the preferences from customers to go from longer fixings to shorter fixings, typically one to two years, where the margins are higher.

Good, thank you. And then the next question, back on costs again. You came in in line with your guidance of 20.5, but I assume that when you set those targets, you expected things to go back to normality, i.e. normal travel spend and entertainment and so on, and that continued to be very low. So the IT increase you saw in the end of the year, which brought you up to the target still, was that since you had room to do it, and rather than beating a cost that you invested a bit more, or how should we look at this increase in IT when actually underlying costs were actually quite low in the year?

I think, as I said, it was a combination of many different things in the quarter. IT expenses tend to go up. In this case, it was primarily maintenance, but also some development. What we did in the quarter, though, we took a restructuring cost of around 80 million, where we asked a couple of coworkers to leave the bank because we had room for it. And what we also did, which we usually do, but it's a bit higher than has been higher during the pandemic, and that is to take a provision for unused vacation. And then you know that Q3 is a low cost from staff because of Norway and pay-ex in Norway. So the Delta Juston staff, which is sort of at one off, is around 210 million out of that expense increase you saw in Q4.

Okay, thank you.

The next question is from Nicholas Mastbeck. CNB, please go ahead. Your line is open.

Thanks and good morning. So first, another question on costs, please. If you could please elaborate on the key drivers that you see for the cost development beyond 2022 and for the medium term, and what you think are the main uncertainties except for the AML investigation costs. So I mean, noting that the number of FTs continues to increase, I guess there's also some kind of wage inflation that's picking up, and possibly also, I guess, some need to increase IT investments. So yeah, how do you think about these cost drivers for Svalbank beyond 2023? If you could reason around those issues could be interesting to hear. Anders.

Nicholas, thank you very much for that question. I think I will wait and talk about the cost drivers for 2023 when we come back to you on that specific one. The only thing I can say is that the investment level or pace will continue. We will continue to work with our AML issues, historical, current and future. But there are so many other things that we are working on for the future. So let me please come back to you when it's time.

Okay, fair enough. And then another question, please, on the NII. So a clarification on the NII in the Swedish banking division, which fell 4% quarter on quarter. At the same time as you write that the combined effect from higher lending volumes and lower margins in mortgages was positive. You state that you transferred some property lending volumes from this division to the LCI, but that I think was only five billion, so probably cannot explain the entire drop in the Swedish banking division. So if you could please explain what's happening there.

But there are two things. One is a continuation of margin pressure on the deposit side. And the other thing is actually that the transfer is retrospectively allocated, the full effect is retrospectively allocated to LCI. I wish I could have more sophisticated systems, but unfortunately I don't. So that's, it's not five billion in a quarter, it's five billion for the full year.

Okay, thanks for that.

The next question is from Rickard Strand, Modea. Please go ahead, your line is open.

Yes, hi. To start with a question on costs, you're one of very few banks in the Nordics that keep on growing your IT intangibles at a high rate and they're up 1.1 billion just in 2021 according to your fact book. To start with just wondering how long you think that this kind of growth of IT intangibles is sustainable with a very high capitalization amount and a very low amortization rate. That's the first one.

Just to remind you on one particular point when it comes to the capitalization, as you know, savings banks are also paying for the development and that is something you should net from the capitalization level because that's also deferred. But you are right, we have many projects that are still in the development phase. We have, as you know, picked up our investment phase the last years, that will continue. Many of the projects are of larger nature and regulatory nature, so it takes time before they are sort of finalized and come into the amortization schedule. This is something that we do in accordance with accounting principles, so we have very clear and strict guidelines around that. To give you a flavor on how it will most likely develop for the next coming years, you will see an increase in capitalization of around 120 million per annum and you will see an increase in amortization of around 70 million per annum, if the current plan of completing and activating projects stands. So you're right.

But that still implies that you will keep growing your IT intangibles by around 800 million per year if you only decrease the capitalization by 120 and increase the amortization by 70.

It will continue, yes.

Okay. And then the second question is on the, what do you foresee then for 2022 then in terms of the FT development that keeps on growing year by year currently?

Yeah. It slowed down in 2021 compared to 2020, which I think was kind of a special year for many different aspects. We are planning to hire a number of FT's this year as well, but it's at the much lower pace.

Right, thank you.

Thank you. The next question is from Maria Semikatova, Citibank, the line is now open, please go ahead.

Hi, yes, hello, thank you for the presentation. Couple of questions, I will ask them both at the same time. First, in the report you mentioned that you expect Riggs Bank to raise the repo rate twice in 2023, I see that you provide sensitivity analysis in the fact book which implies around more than six billion SEC for a hundred basis point move. Could you please comment what the kind of the best guess of the impact from the rate movement in Sweden? And then the second question on the cost outlook specifically in Baltics, one of your peers mentioned that there is increasing competition in the region which would imply the need for increased spend in the Baltic operations and also margin pressure. Your expenses in Baltics grew 13% in local currency in 2021. Just want to hear your thoughts specific for the Baltic cost development and margin outlook. There's anything you can share, thank

you. Well, let me just say a few words on the central bank action. That is what our economists expect for the next year. But we as a bank do not have a position in that sense, but Anders, you can explain.

No, I mean, the fact book information is for you to play around with yourself. So when I simplify these things, I would look at the deposit side and make an assumption around the pass through, i.e. whether we will keep the deposit rates at zero if the Riksbank is increasing their rates. And then I would be more sophisticated and diversified the deposit base between savings accounts and transaction accounts on one side. On the other side, I would in particular look at our mortgage loan portfolio, the three months floating and make an assumption on how much pass through we would be able to have on that one. So I'm not giving you the numbers, I'm giving you some of the larger pieces to play around with. So that's not an answer, but that's the best to get from your particular first question. On the second question, when you look at Baltic Banking, a fair amount of the increase in expenses that you have seen there are actually coming from internally allocated costs from group functions and mainly positioned in Sweden. So that is one thing, it's on the back of, among other things, increased AML investments. Usually Baltic Banking are extremely cost efficient when it comes to the direct costs that they are operating themselves. So I can foresee a elevated level for them for a while, but they tend to be very efficient. On the margin side, yes, you can see a slight margin pressure in the Baltics, but the dynamics is different. So for example, when we talk about mortgages, they are not floating rate and not changed in that sense, they are IBO related and fairly long. So when you look at the front book and the back book, the dynamics is quite different in the Baltics from Sweden, but you are right, there is a small margin pressure and competition from in particular local players in the respective countries or increase.

Thank you for your answers. I understand that there are lots of moving parts on the sensitivity, but since you mentioned the three months floating portfolio, what was the amount of float spending balances in Sweden with a floating rate?

Now I'm taking it from the top of my head, but it's around 360 billion.

Thank you.

And then you should add consumer financing to it.

Thank you. Then we go to the next question. It is from Namita Suntani, Barclays. The line is now open. Please go ahead.

Hi, I've just got one question on the dividend. If you're able to pay a special dividend, why did you not take the opportunity to increase the payout ratio from the current 50%? Thanks.

Well, we have a dividend policy of 50% and it's, right, I said, unchanged. And then when we were closing 2021, we had the CET buffer north of 490 basis points. And then we felt that it's a strong capital position. We saw that a few things were moving. So we felt confidence to propose the special dividend of two kronor. And then that capital buffer is now 460 basis points. This, keep in mind a few things when you look forward. The first one is that we have a strong profit generating capacity, just as you mentioned. But we also need a strong buffer that allow us to grow with our customers. We also need a strong buffer to handle the regulatory uncertainties, such as the contra-cyclical buffers, IRB overhaul and Basel IV. We also have a strong buffer to handle other uncertainties such as macro, potential fines, COVID, and all other things that could happen in these very uncertain times. And we are confident that we have a good buffer to handle this. And we, I think it was very clear today, we have no intentions to hold more capital than what is needed. And as you might remember and observed, my chairman was very clear and outspoken during the pandemic on that dividend is in part of the contract between the owners and the bank. And we are proud to give out dividends.

Okay, so if you're not gonna change your 50% payout ratio, can we expect more special dividends in the future years?

Well, we don't have that plans. We stick to our dividend policy of 50%.

Okay, thanks very much.

The next question is from Antonio Reale, Morgan Stanley. Please go ahead. Come on, it's not open.

Good morning, thanks for the presentation. Two questions for me, please. The first one on operating leverage and the second on capital buffers. So on the cost side, you've reiterated your guidance for 2022. You've delivered positive operating leverage in 21 and that's important. I'd like to ask you on how you see the outlook for core revenues, NII and fees for this year. And if you can share your thoughts on how you see operating leverage play out in 2022. That's my first question. Secondly, on capital buffers, you have a management buffer of 100 to 300 basis points as a target to sustain at least 50% dividend payout and deal with any uncertainty. You're currently running the bank with 460 basis points. And now it's understandable that at times of uncertainty, you want to run the bank with higher buffers and we've seen it in the recent coffee beers. Can you help us understand how quickly you can realistically normalize that buffer within your target range, given AML uncertainty and more generally how you can tend to find that buffer between funding growth in the business and remunerating for others. Thank you.

Well, I'll take the last one first and then you have to take the difficult one or the other one. Now on the capital buffers, we are confident that we had good buffer to handle all the uncertainties. So that's the short answer.

Yes, and as we have said, the capital target stands. So when we are through with all the uncertainties, then we might have a new discussion but it's far too early to have that today. I will not guide you on income development. I've given you some flavor of NII and the sensitivity to exogenous factors. You know that our asset management is dependent primarily on how the stock exchanges is moving. When it comes to payments, it has been impacted by COVID. But if you assume that that is returning to normal, EDP is a good proxy for it. So I think you need to play around with income yourself.

Okay, thank you.

Next question, please, operator.

The next question is from Martin Lightgip, Goldman Sachs. Please go ahead, the line is open.

Yes, good morning. Thank you for the presentation and thank you for taking my questions. And the first question just to follow up on the NII and looking at the report and that the numbers, it seems like good lending volumes and lending growth was potentially offset by weaker lending margin. And I was just wondering, how should we think about this progressing into 2022? And just referring to your earlier comments that you have seen a change in customer behavior in terms of switching more into shorter duration, higher yielding mortgages. Should we read into that, that the outlook for NII could be more constructive? That's what we have seen during 2021. And secondly, on costs, I was just wondering if you could give us any steer in terms of where the cost base for 2023 could be. Just looking at the opening remarks, comments that inflation is on the rise, looking at some of the comments by peers, having guided for higher costs last week. Should we think directionally that 2023 costs should be higher compared to 2022? Thank you.

Thank you. On your last question, I prefer to revert back to you when it's time to talk about the cost for 2023. On your first question, I will not guide you on NII development. I gave you some of the factors. And I think that one important thing, again, to have in the back of your mind is that we have increased our deposit base enormously during the past two years. In Baltic banking, who are in negative rate territory, and in Sweden, which are very close to negative or zero territory. If you believe in rates coming up, that is a potential benefit for us. As far as your specific question on mortgages, I think the important thing is that last year we had a inverted list price curve, essentially meaning that while you have an underlying positively sloping base rate curve. So it was extremely cheap, relatively speaking, for customers to choose three and five years. We have changed our list prices two times since November. Now we have a positively sloping yield curve. And consequently, three and five years are more expensive, which leads me to believe that the preference from customers would be rather on one and two year, and there the margins are higher.

Thank you very much.

We are now taking the last question. It is from Sophia Peterson, JP Morgan. Please go ahead, your line is now open.

Yeah, hi, here is Sophia from JP Morgan. So there were some Bloomberg headlines this morning that you're not going to consider a share buyback. Out of curiosity, why not? Wouldn't it be quite good given that you have plenty of excess capital, but as you have said, you have plenty of uncertainty. So wouldn't the share buyback be the ideal way of managing excess capital? And then my second question would be with Russia tensions rising and potentially sanctions being deployed against Russia, will that have any impact on the Baltics, and especially I guess Latvia, which is very, one of the kind of key places where imports and exports go to Russia. So if you could just talk about any potential impacts in the Baltics from potential sanctions against Russia. Thank you.

Well, thank you. The first question first is that we like to give out dividends. I think we showed that clearly with this extra dividend of two Kronor, so we have no plans for share buyback plans. The second one when it comes to the geopolitical uncertainties, we have very low sort of, I forgot the word in English. We have very low volumes when it comes to sort of Russia, Ukraine and Belarus, I mean, they're extremely small. And the economies in Estonia, Latvia, and Lithuania are growing good.

Okay, but there is no kind of secondary effect from potential Russia sanctions, because if you look, for example, at Latvia, a lot of the export to Russia and of the imports to Russia go through Latvia.

Hi, Sophia's Rolf here. Well, so first of all, yes, you're right, there are dependencies between the countries, but what you should keep in mind is that that dependency and connection has been reduced a lot over the years. And I think when you think about this, you should go back to the credit quality we have and the origination standards and so on. So that gives us a good starting point. And then when we look at our portfolios and the exposures we have, also the secondary kind of effect and relationship is not very strong. So we don't have any particular worries around that. But of course we follow it.

Okay, that's very clear, thank you.

Thank you, Anna, you're looking at the watch and it's sharp and there were no more questions. So thank everybody for joining this call and thank you for listening. And I'm proud that Sveldank stands strong in uncertain times and looking forward to meeting you in different places. Take care, bye. Bye.

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