Swedbank AB (publ)

Good morning and welcome to Swedbank's 2022 full year and fourth quarter results presentation. My name is Annie Ho from Investor Relations and also on the line is our CEO, CFO and CRO Jens Henriksson, Anders Karlsson and Rolf Marquardt. As this is also the full year report, we will have a slightly longer presentation than usual before we open up for questions. But with that, let me hand over to Jens straight away. Please, go ahead.

Thank you, Annie, and a warm welcome, everybody, to this presentation of Swedbank's result for 2022. It's a year marked by the pandemic, war and inflation. And in these turbulent times, we are a reliable and stable partner. We listen and use our expertise to support and help our customers with advice and financing and contribute to financial stability for society at large. The fourth quarter was characterized by a weaker macroeconomic outlook. Increased prices and higher rates reduce demand as our home markets enters into recession. Inflation rates are forecasted to subdue and policy rates will peak during the first half of 2023. Swedbank is a low-risk bank and our four home markets, Sweden, Estonia, Latvia and Lithuania, are characterized by strong public finances, well-managed firms and resilient households. And in this situation with high energy prices, increased cost of living and a continued global uncertainty, there is a need for stable, sustainable and thus profitable banks. And in these turbulent times, I am proud to present a strong result for the full year of 2022. We have for a long time positioned the bank to benefit from a normalised rate environment. As a result, net interest income was up 6 billion kroner. During the year, margins on mortgages are down while they're up on deposits. The turbulence in the markets and falling asset prices affected net commission income that was down 4%. Other income was up 6%, mainly from insurance-related income. And we control our costs. More than two years ago, in a low inflation environment, we announced a nominal cost cap. And apart from the costs related to the closing of the Danish branch and the winter allowance to employees in the Baltics, we delivered spot on target. Weaker macroeconomic outlook drives impairments, and they were up 1.3 billion compared to 2021, all according to IFRS 9. For individual assessments, recoveries were larger than the provisions. During 2022, we made other impairments for IT systems and goodwill of around 1 billion, and the bank tax landed at the same size, 1 billion. And if the tax were to be removed, this would fully benefit our customers. In total, net profit was up 5% compared to 2021. Our cost-to-income ratio was down to 0.40, return on equity was 13.3%, and earnings per share is 19 Swedish crowns and 43 öre. A sustainable bank is a profitable bank. The returns we generate to benefit our owners, our customers, our employees and society at large. During the quarter, we have delivered in accordance with the plan we presented at our investor day, with improved availability and based on our proven business model and pricing strategy, and we report a profit of 6.8 billion kronor in the last quarter of 2022. Return on equity was 15.8%. Our cost-to-income ratio was 0.36%. And as you see, net interest income developed well. Deposits margins were up, while the mortgage margins continued to be under pressure, down a couple of basis points. Net commission and other income were down compared to the previous quarter, and cost increased in accordance with our plan. We have a strong and stable position. Our credit quality is good, and our proven business model with a thorough and conservative credit origination process delivers. During the quarter, we had credit impairments of 680 million kronor connected to the weaker macroeconomic outlook. Provisions on individual engagements were only 30 million Swedish kronor. Since the beginning of the pandemic, we have held an expert portfolio adjustment above what the model shows. It increased somewhat during the quarter and is now 1.7 billion kroner. Our exposure to everything property related is in line with the bank's strategy and risk appetite. In line with what we communicated at our investor day, we have proactively added on to our risk exposure amount while waiting for the dialogue with the Swedish financial supervisory authority to be finalized. This is prudent and this is transparent. Our liquidity and capital position is strong, and we now have a buffer of 3.4 percentage points relative to the capital requirement. Geopolitical tensions are high, and the debate on threats and cyber attacks continue, and we continue to invest in security. We are stable and well prepared. Our dividend policy is to distribute half of the profit. That is a dividend that contributes to society through savings banks, pension funds, insurance companies, retail and other investors, and foundations, which in turn donate to local sports and cultural activities to help their communities grow. The Board of Directors proposes a dividend of 9 kroner and 75 euro per share. the remainder of the profit is used to grow our business in line with the strategy. In Swedbank, we have, for the last three years, focused on our fundamentals, and this has produced results. I am proud of the plan we presented at the end of last year, Swedbank 1525, where we will grow business and reach a sustainable return on equity of 15% by 2025. We set out four business priorities in Sweden, Estonia, Latvia and Lithuania in line with our core business. First, we are leveraging our proven business model and pricing strategy. Secondly, we are growing our share of wallet for existing customers. Thirdly, we are growing the business in prioritized segments. And fourth, we're improving our availability and operational excellence. And these are priorities that will grow our income three percentage points more than costs on average. And we will not hold more capital than necessary and maintain our focus on credit quality. And that is how we reach our goal of 1525. The Swedish housing market has stalled. Falling home prices and lower turnover increase competition. And we maintain our long-term pricing strategy. We are not the most expensive nor the cheapest, but we have the best full service offering. In Estonia, Latvia and Lithuania, there is a structural underlying demand for mortgage loans from younger generations looking to buy their first home, and this is driving volume. Swedbank has the best full service offering and our many savings options give customers an opportunity to choose what suits them best. We have raised interest rates on our savings account in both kronor and euro as we empower our customers to save for a better future with a good return. In Sweden, savings in fixed income funds increased while it decreased for equity funds during the quarter. At the same time, we see steady interest and growth in fund savings in Estonia, Latvia and Lithuania. In Sweden, corporate lending decreased slightly compared to previous quarter. Activity in the capital market rose, and Swedbank assisted customers to raise capital in the bond markets. A continued focus on our four-home market is an important part of the Swedbank 1525 plan, and we have thus decided to close our branch office in Denmark. Corporate customers will be served going forward through a strategic partnership with Danish Sydbank, and it's a similar solution to the one we had with SR Bank in Norway. And as we pointed out on our investor day, we want to grow among mid-sized corporates. In January, I recruited Bo Bengtsson to be the new head of LC&I. And he has a long experience working with these types of customers, and he will deliver on our corporate strategy and grow our market share in the segment. Swedbank stands in the middle of the digital transformation in society. And for us, it is always our customers that take priority as we develop the bank. And increased availability is also a key part of the Swedbank 1525. In Latvia, as a first step, we have rolled out the cloud-based omni-channel communication platform that makes the next generation of customer meetings possible. New technology now integrates services via branches, telephone, the internet bank and the app. The platform will be gradually launched in our other home market. We have a 200-year history of innovation, and during the quarter we made it possible for customers to use facial recognition or biometrics for identification by mobile phone when customers order their bank ID. And we've also been awarded with two European prizes that recognize this customer value delivered through our virtual assistant. Swedbank has for several years focused on reducing our own carbon footprint through less travel, less postal mail, and more energy-efficient offices. In the quarter, we took a new and important step as we adopted science-based targets for our credit portfolio. And the targets cover five sectors, mortgages, commercial real estate, power generation, oil and gas, and steel. To contribute to a climate-neutral world, our finance carbon emissions will be reduced, as you see on the slide, by between 29% and 59% by 2030. These sectors have been chosen based on their impact on the climate, the bank's portfolio exposure, and available data. Now, Anders, I will turn over the microphone to you. You will do a deep dive into the results.

What an introduction. Thank you, Jens. I'm pleased to dive into the financials in more detail. As I go through the results, I will mention a couple of one-offs. But overall, it has been a really good quarter and full year. Let's start with lending and deposits. The total loan portfolio was stable. Swedish mortgage lending volumes were broadly unchanged. The trends in the housing market, which we saw already last quarter, continued. Both house prices and the number of transactions decreased, while extra amortizations increased as a reaction to the economic outlook. Corporate lending decreased by 4 billion, excluding FX of 2 billion. Lending in LC&I decreased by 2 billion despite a good amount of activity. During the start of the quarter, we increased lending by 10 billion through higher RCF utilization and lending to the manufacturing sector. This was offset by repayments to both RCFs and term loans across several sectors in December. Baltic banking increased lending by 2 billion each in both private and corporate segments. Customer deposits increased by 14 billion, excluding a positive FX impact of 7 billion. deposit volumes were lower in Swedish banking, driven by a decrease of 6 billion in private transaction deposits. We also saw a movement of around 15 billion from on-demand savings accounts to term savings account. Baltic banking contributed with an increase of 25 billion, excluding FX, mostly in on-demand deposits, and mainly due to seasonality of salary bonus payments and distribution of government funds. Elsie and I had stable volumes. Now looking at the revenue lines, starting off with net interest income, which increased by 31% quarter on quarter, The strong development was driven by an expansion of net interest margin, particularly in Baltic banking and Swedish banking. In addition, there was a positive adjustment of the Swedish deposit guarantee fee that decreased by 130 million. In terms of outlook, The view of our macro research team is that during the first half of 2023, both the Riksbank and ECB will raise rates further. But let me reiterate. our belief that the higher policy rates go, the narrower the expected positive differential in pass-through on lending and deposits will become. These market dynamics were already apparent during the latter part of Q4. We will continue our pricing strategy. and aim to strike an optimal balance between volumes and margins, subject to changes in risk, market rates, market growth and competition. Over to net commission income. Where card commissions were seasonally lower, there was also a negative effect of 80 million from adjustments relating to MasterCard. Asset management was broadly stable. We saw a shift from equity to fixed income funds, which negatively impacted income. In terms of Swedish mutual fund flows, we saw net inflows totaling 28 billion, mainly institutional, while retail flows were stable. Corporate finance and securities increased by 20 million thanks to the annual market maker fees. Turning to net gains and losses, which was once again strong, client trading performed well, especially in FX within LC&I. The result in Treasury was positively impacted by FX swaps and covered bond buybacks, which more than offset negative effects in hedge accounting and derivatives valuation. and valuations in the liquidity portfolio improved due to narrowing credit spreads. Other income decreased by 90 million due to lower profit in net insurance and Intercard, while the savings banks continue to perform well. Regarding expenses, we exercised strict cost discipline throughout 2022. Full year underlying expenses were in line with the cost cap of 20.5 billion set two years ago. Total underlying expenses ended at 20.65 billion, a deviation of 0.7%. The deviation can be explained by the 60 million of winter allowance to colleagues in the Baltic countries and the one-off of 80 million relating to the closure of our Danish branch in Q4. For the full year, AML investigation costs total 443 million and the FX effect was 320 million reminding you that the FX effect is positive for net profit. As part of our investor day in December, we stated that we would use a cost-income ratio of 0.4 to support our ambition to reach a sustainable 15% return on equity in 2025. This is therefore a long-term supporting KPI that looks through the annual cycle. Going forward, we will continue to exercise strict cost discipline. Moving to other impairments. As part of the annual impairment test, we have recognized impairments of 681 million relating to Payex regarding goodwill, internally developed software and brand. As we mentioned at our investor day, the card acquiring business in the Nordics has been facing challenges to reach profitability in a market with increased competition and rapid technological development. While it continues to add value from a total customer offering point of view, we intend to implement measures to improve profitability going forward. The Baltic part of the business is, in contrast, profitable, operating within a market where cash-to-card conversion is still occurring. In addition, the Baltic merchant payment operations is an integrated part of overall business banking, and so we will continue to develop the Baltic merchant payment business. Now over to you, Rolf, to talk about asset quality and credit impairments. Thank you, Anders.

The macro development continued to deteriorate and the updated macro forecasts were downward adjusted for Sweden and the Baltic countries. Interest rates, energy costs and inflation impacted households and are becoming challenging for some households with limited margins. The number of bankruptcies increased and retail sales slowed down. Swedbank's credit quality, on the other hand, was strong in the quarter, and with only limited negative signs in credit risk indicators. This reflects that our customers generally are well equipped to manage the changing conditions. Going forward, we expect to see more credit migrations due to the weakened macro situation. These tendencies also are the background to the very low level of individual provisions and increased provisions for expected credit losses. In the fourth quarter, past due loans to corporate customers were stable both in Sweden and in the Baltic countries. For private customers, past due loans were stable in the Baltic countries. In Sweden, they increased slightly but remained at a very low level. The amount of exposures in forbearance were unchanged. Now turning to the numbers. Credit impairments ended at 679 million in the fourth quarter. The updated macro forecasts increased provisions by 207 million. Credit migrations added 343 million. And out of this, Swedish banking accounted for 198 million, which was mainly related to property management and the retail sector. In Baltic banking, credit migrations added 118 million, mainly explained by the manufacturing and transportation sectors. And in large corporate and institutions, we had 27 million of effect. Expert portfolio adjustments increased by 34 million to 1,738 million. Reductions were made by 115 million for oil and offshore exposures, while provisions increased by 160 million for property management and 70 million for retail. Individual assessments were limited and ended at 32 million. When we summarize 2022, we can conclude that provisions of 1.5 billion are almost exclusively explained by the updated macro forecasts and credit migrations. Regarding individual assessments, we saw net releases. Expert portfolio adjustments were largely unchanged, but releases have been made for oil and offshore exposures, while increases have been made primarily for property management, manufacturing, and agriculture. Now turning to property management. The foundation here is our redination standards, based on strong cash flows and collateral. But it is not only about formal criteria. A key element is to be close to customers, to have a continuous dialogue and to support good customers, but also to detect problems at an early stage and to be able to respond quickly. And this we do. We also take note of the fact that these companies have shored up liquidity to manage maturities. in most cases for the coming 18 months or longer, and that structural changes are ongoing in the sector, which reduce risks. Against this background, we assess that the bank is well positioned also under more stressed conditions. So with that, back to you, Anders.

Thank you, Rolf. Turning to risk exposure amount and capital. Last quarter, we implemented the new definition of default as part of IRB overhaul. This quarter, ECB required a recalibration of Baltic models due to the new definition, which added 11 billion of risk exposure amount. At our investor day, we gave an estimate of our latest view of the CET1 buffer impact from the IRB overhaul exercise. While the discussions with the regulators are still ongoing, we have decided to be prudent and proactive by recognizing this estimate already now. Therefore, the risk exposure amount increased by 36 billion via an additional Article 3 add-on. The IRB model's application process is expected to last into 2024, and Basel IV Stage 1 effects are due to be implemented in 2025, according to legislative proposals. Subsequently, our CT1 capital ratio stands at 17.8%, with the buffer above the minimum regulatory requirements at around 340 basis points. Regarding expected future capital requirements, the counter-cyclical buffer in Sweden will be raised by a further 100 basis points in the second quarter this year. The capital target range of 100 to 300 basis points remains and our capital position continues to be strong. With that, I hand over to you Jens to conclude.

Thank you. 2022 was a difficult year characterized by pandemic, war and inflation. In this situation, Swedbank stands strong. We've been there for our customers, and together we delivered a strong result that is characterized by a strong cost control, a strong liquidity and capital position, a strong credit quality, leading to a return on equity of 13.3%. for the benefit of our owners, customers, employees and society at large. A result that enables us to propose a dividend of 9 kroner and 75 euro to our owners. A result that also makes it possible to continue to educate the young in personal finance. And during 2022, Swedbank and the savings banks together educated a total of 400,000 children and youngsters in Estonia, Latvia, Lithuania, and Sweden. A sustainable bank is a profitable bank. And in 2023, we will take Swedbank forward in the strategic direction towards Swedbank 1525 with a focus on our customers' future. Annie.

Thank you very much. Well, let's open the lines for Q&A. But before we do that, may I just remind you, as per usual, to stick to two questions per turn. Alice, over to you, please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. You will hear a return to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only answers while asking a question. Anyone who has a question may press star and 1 at this time. Our first question comes from the line of Magnus Andersson with ABG. Please go ahead.

Yes, good morning. First on deposits, Anders, you mentioned there that the decline in Sweden was partly due to amortization. Could you tell us a bit about the competitive situation on deposits in Sweden, if you're also losing anything to competition, or what share is amortization of that decline? And related also to deposits, just of your Baltic deposits. If you could tell us on what share you had zero interest rates in Q4 and whether that has changed in Q1. And the second one, just on lending, I note that on your Swedish CRE book, you have the lowest quarterly growth rate now since Q3 2021. If there is any deliberate decision behind this or if it's just by coincidence. Thank you.

Well, should I start before I give the floor to you, Anders? When it comes to property management exposure, we have an exposure of 293 billion kronor, and that is the lowest among the three large Swedish banks. That exposure is in line with our strategy and also in line with our risk appetite. Looking forward, we have a cautious mindset But we are ready to support our core customers further if it's in line with our strategy, our risk appetite, and leads to well-balanced growth. Anders.

Thank you, Magnus. If we start with the deposit situation in Swedish banking, I think what you see in this quarter is a combination of things. It's paying higher electricity bills and higher living costs. It's extra amortizations. It's a certain migration from transaction and savings accounts to term accounts. savings accounts in Swedbank but we also see some outflows to niche players that's for sure it's not something where the volumes are concerning us but we are following it closely on the Baltic side Out of 380 billion of deposits, 330 billion is transaction deposits. We see small signs of migration to some of the savings accounts where we're paying interest, but it's very limited.

Okay, so just to clarify then, on the 330, you paid zero interest rate in Q4?

Correct, yes.

And you're still doing that as of now?

Correct.

Okay. Thank you very much.

The next question comes from the line of Mats Liljedal with SCB. Please go ahead.

Yes, good morning and thank you. A follow-up on Magnus' question here, and you discussed the pass-through on rates. Could you share some details on how large was the impact on pass-through in Q4 in terms of, I mean, obviously, NII was extremely strong, but how large part or did that impact the P&L in Q4, if you could shed some light on that? And then PayEx, how should we think about that? Obviously, you stated that it's an important part of the business, but could we expect further adjustments related to PayEx going forward? Yeah, that's it for me.

Thanks. Thank you, Mats. I will not go into the details on pass-through, but what you can see quite clearly is that the uptick in NII is coming on the back of... NIM expansion, in particular on the deposit side, and to give you some flavor, half of the delta is explained by the Baltic balance sheet and the other half is explained by the Swedish balance sheet. So to conclude, we have successfully applied our pricing strategy during the second half of 2022, which is evident. But I've also been quite clear saying that it will become more difficult in the future to maintain that differential in pass-through on lending and deposits. On Payex, we have written down everything that was above book value. We will do impairment tests as a regular part of our quarterly reports, but that I think is an important information for you.

Okay, thank you.

The next question comes from the line of Andreas Håkansson with Danske Bank. Please go ahead.

Morning, everyone. Sorry, I'm going to have to go back to the NII. I guess that's the most important driver at the moment. So, I mean, unless you're saying that it's become more difficult, which we understand, of course, but considering you have 330 billion in the Baltics that you pay nothing and we expect ECB rates to move up 100 bps at least from here. You have the equity in Sweden that's placed on the short end. So those are two quite powerful drivers that should materialize this year. Then if you look at the Swedish deposit base, if we assume that all future rate hikes will be passed on to clients, which isn't a given, and then you have competition, of course. Do you see any reason why we shouldn't take the Q4 NII as a very good starting point and grow that in terms of NII for 2023?

Thank you, Andreas. I think it has been a shift in NII, so I would recommend you to start off with Q4 as a starting point. And I agree with you that there are some automatic effects coming from equity. When it comes to the deposit side in Baltic banking, We have no intention, as we speak, to change rates, but I expect competition to pick up there as well.

But in the Baltics, could you tell us? I don't really know. But in Sweden, we know that there are niche players that are after deposits, of course. But in the Baltics, given that both you and SCB and you are basically the banking system, you have an enormous amount of excess deposits. Is it anyone or who would it be that would pay up for deposits? And aren't they so small so you can actually afford to lose a bit? Or what's the dynamics there?

It's mainly local players who do not have access to the capital markets funding that might be where it might be attractive. But then you need to find healthy growth in the lending space. And I think that has been fairly subdued compared to history. So you're correct. And we are running with a... loan-to-deposit ratio close to 60%. So from that perspective, it's not so that we will act in any irrational way when it comes to potential volume outflows.

Thanks. And then on costs, Anders, you were making a specific point of the 40% cost-to-income target being a long-term target over the cycle, however you Does that mean that you could actually go a bit below or quite a bit below in a couple of years now when rates are as high as you are? Because your long-term 15% RE target, remind us, is that based on 2% interest rates?

It's based on the assumptions that I gave you on the investor day when it comes to the rate cycle. I don't have that exactly on the top of my head, Andreas, but Annie is helping me out. The assumption is... that the policy rate from the Riksbank will be 225 during this year and two next year, and the ECB will have a slightly different one. But let me give you the details afterwards. When it comes to the cost-income ratio, You are correct. We have for two consecutive quarters been below 0.4 already in 2022. That's why I think it is important to have that as a long-term indication of how an efficient retail bank should perform from a cost-to-income perspective. So you can expect us to have some quarters to be below 40%. and maybe some quarters to be above, but the long-term target is 40%.

That's fine. That's all from me. Thank you.

The next question comes from the line of Rickard Tran with Nordea. Please go ahead. Mr. Tran, your line is open. You may ask a question.

Okay, hear me? Can you hear me?

Yes.

Yes, sorry for that. So first question on costs. If you could give an updated view on what you expect in terms of salary inflation in Sweden and the Baltics for 2023. And also in terms of IT spending, if you expect that to more or less grow in line with the general cost growth for 2023, or if you expect a pickup or decline from the current level.

Thank you. What we said in the investor day was that we will have a headwind of around 1 to 1.2 billion this year coming primarily from salary increases. We are, as you know, not finalized the negotiations in Sweden and in the Baltics it will come at a later stage. And the second important factor is that we see that some of the external providers, the contracts, will increase in price, which is primarily IT maintenance related. When it comes to investments into IT development, we will... most likely be at the same level as we have been for a couple of years. And that is more about our capacity to deliver rather than our capacity to invest.

Thank you. And then over to asset quality, just looked at the stage two provision for property management was up 175 million Q1Q. Just want to hear if you could share some caller on if this is primarily due to the, as you talked about, the macro assumptions that changed, or if it's something more specific for the sector.

Hi, Rikard. So that is a combination. So it's mostly explained by downgradings of some customers. And that's part of the normal credit risk assessment process. And then as a consequence, we have seen migrations to stage two. And then there is also an element of the combined effect of macro adjustments we have done this quarter and also in the past that sort of could also push customers over that edge to move into stage two. But that's a smaller part of it.

Okay, so the majority is from the downgrading then?

Yes, that's correct.

Yes, okay. Thank you.

The next question comes from the line of Maria Simikatova with Citibank. Please go ahead.

Yes, hello. Thank you for the presentation. A couple of questions. First of all, on the capital impact and this IRB overhaul, if you could provide a little bit of clarity. We've seen 1.2% hit this quarter. And I believe that previously you guided for 2.1 CH1 impact, and that was related both to IRB and Basel IV before the Pillar 2 offset. Just wanted to check how much we're going to see of additional impact from here, if you can have a bit more clarity of IRB versus expected Basel IV impact in 2025.

Thank you, Marie. I will start and then I will hand over to Rolf. What we said in conjunction with the investor day is that our best estimate when it comes to future capital requirements from IRB overhaul and Basel IV combined was 130 basis points. And what you see this quarter is only IRB overhaul-related assets. estimates from us. So 130 versus 120. When it comes to impact from Basel IV, it's quite early to say, but there will be a number of moving parts as we go along. You will see most likely changes in Pillar 2 add-ons and you will see some additional impact from Basel IV, but I would say In light of the 120 that we took this quarter, it's a very limited impact. Maybe, Rolf, you can fill in.

About the Article 3 add-on this quarter. So this should be understood and is our best assessment today of the full impact on RBO overhaul on the risk exposure amount. So that's what you have on the table.

And just to clarify, this calibration in the Baltics, that was expected, right? That was part of your guided overall impact?

Yes, that was part of the overall impact we communicated on the yesterday.

Understood. And then on the margin and strong impact in the fourth quarter, I appreciate your comments, but maybe more... A couple of things, if you could shed some light. First of all, if there's any lag effect on the loan portfolio of already announced pricing, but that hasn't filtered through yet. And then you mentioned there is a shift from savings to term deposits in Sweden. Could you disclose what proportion is on term deposits among households in Sweden?

Yes, there is always. As you know, if we start with Baltic banking, the liability side is immediately repriced if there are any changes to that. And on the asset side, most of the loans are linked to six-month Uribor, which means that they will gradually roll in. And then you have the liquidity excess, which is placed with ECB, which is obviously repricing more faster. On the Swedish side, there is always an element of rolling in when we change primarily mortgage prices. We have on the three-month side, it's rolling in with one-third approximately every month. And then you have the fixed part of the book, which is rolling in gradually over the years to come. When it comes to your second question, it was 15 billion in the quarter, and I think that the term deposit volumes in Sweden today in Swedish banking is around 45 to 50 billion out of a quite substantial deposit base, which is, I don't know the numbers on the top of my head, but it's I would say, 400-500 billion. So it's still limited, but you clearly see that people, when they have excess liquidity, they place it on the term. More specifically, the three months has been the most popular one.

Okay, thank you very much. The next question comes from the line of Sophie Pettersens with JP Morgan. Please go ahead.

Yeah, hi. Here is the feed from JP Morgan. So just going back to the kind of NII, you guide that the rate sensitivities are lower here going forward, most likely, just given that the posture will narrow. But if I look at your fact book, the rate sensitivity guidance is broadly unchanged. So I was Just wondering, like, how should I think about NII growth for 2023? If I annualize the fourth quarter level, I get to do over 30% NII growth in 2023. But how much more do you think you can get a free price upwards that your mortgage rate? It sounds like there is a little bit more deposit pressure. But how should one think about the NII kind of progression throughout 2023? Has NII peaked or is it fair to assume that there is still more NII growth to come? That would be my first question.

Thank you, Sophie. Yes, the sensitivity that we provide you with the underlying assumptions are broadly unchanged quarter over quarter. What I also said is that the higher the policy rates go, the more difficult it will be to widen the differential between lending and deposits when it comes to pass-through. We have been very transparent to you, both in the investor day and in the fact book, so I will not guide you further on that one. You can easily see on our website what we are paying on our deposit accounts. You can see the average deposit rates on mortgages and the list prices on mortgages. So now it's really for you, Sophie, to, with that information, make your best estimate.

But do you think it's fair to assume that when it comes to net interest income, the best is behind us, or should we expect net interest income to grow further?

Sophie, I don't think you should expect a delta of 31% going forward. What I said when Andreas was asking the question is that a good starting point for you would be the Q4 level.

Okay, I'll work with that. And then my second question would be around... the potential kind of US fine. It just seems that you're almost lowballing your capital position in the fourth quarter. You dig the goodwill right down. You dig the software right down. You have much more macro or credit migration adjustments compared to your peers that have reported so far. You dig quite big IRB overhaul that... one of your peers, that will have a limited impact. You also think that the Baltics, that your peer didn't take anything. So should we take this as a sign that the AML issue starts to come to an end and potentially for the U.S. regulator, you want to have a lower capital position? or these items are totally unrelated.

Well, I think you answered it lately. It's totally unrelated. We do our best judgment the whole time of where we are in the business cycle. We do the provisions that the model tells us, and we've done an extra because we are careful and we follow the rules. That's important. Now, moving over to the different subject, namely that of U.S. authorities. And you know I've been telling you that when I was a new CEO, I called around and flew around to meet the European colleagues that have been in similar situations. And they told me that the process like this usually takes three to five years. And we have talked to the U.S. authorities now about our historical shortcomings for a little bit more than three years. So that means that that side of the window is open. Can I then promise that it will be closed within two years? No, of course not. It's in the hands of the U.S. authorities. We fully cooperate and we answer all incoming questions and the investigations are in different phases. And as we always communicate, we cannot estimate whether we will get any fine. And if we do get the fine, we cannot estimate any size of that potential fine.

Okay, that's very clear. Thank you.

The next question comes from the line of Nicolas McBeath with GMB. Please go ahead.

Thanks. So first a question on loan growth outlook, please. So loan growth in Sweden is coming down quite sharp in particular in the household segment. So your assumption of 3% to 4% annual growth for households that you communicated in the CMD, is that still a valid assumption in your view? And And related to that, if loan growth stays low like it has in recent months at least, do you target to grow your market share in that type of scenario so you still kind of achieve some loan growth or would you be content with keeping your loan book flat if that's the market development?

Thank you, Nicholas. I think that it's very difficult for me to give you a forecast on the development of loans. As you correctly said, we had an assumption on the investor day that was built upon the assumption that the economy's inflation will come down. You will see that the price drops in houses in Sweden will level out and there will be a more sort of more clarity and then we will see people coming back. So I still think it is valid, but I don't have a crystal ball on that one. When it comes to fighting for market share, in particular in the Swedish mortgage space, with very low transaction volumes, we are prioritizing price discipline over gaining market share. But having said that, we are also actively working with our prioritized customers to ensure that they stay with the bank.

Thanks, that's clear. And then a question, please, related to your profitability targets and your... I guess also coming back to the cost-income target, I think the performance you have now in Q4, I think adjusting for the 1-0 ROE was around 17%, and cost-income clearly below 40%. So that gives you kind of a luxury problem how you can drive improvements from here. So could you say something about how you think that your business plan that you communicated at the investor day is – is going to drive improved financial performance over the next three years to 2025, or is this basically as good as it gets from a financial performance point of view? How do you think about that?

Well, I think the key point is let's not focus on one quarter. We want to reach a sustainable 15% return on equity. And the way we do that, we were very clear in the investor day when we talked about how we will grow our income, by working with our customers to increase the share of wallet, use with prioritized customers to have the best full service offering and then keep control of cost, making sure that we have low credit losses and not keep more capital necessary. And that is something that I said at the end of the investor call. I said that we will get back roughly a year from we had it in December, roughly a year later, and we will report on that. But now we're executing on that strategy. And that is what you saw during the quarter.

Okay, thank you.

The next question comes from the line of Riccardo Rovere with Mediabanca. Please go ahead.

Thanks for taking my questions. One clarification, couple of clarifications. Do I understand correctly that in the Baltics, on the transaction account, which I, if I understand it correctly, is about 330 billions, you paid nothing and a quarter Just want to be sure I understood it correctly. And if this is the case, do you still pay nothing on transaction accounts in Sweden too, if that is the case? That's a clarification. The question I have is, when I look at your fact book, when you provide the breakdown of NII, I note there is around 600 million SEC contribution from derivatives in the liability side in a quarter. I was wondering whether that is somehow a one-off of sustainable or what's driving that. And the other clarification I wanted to have, if I may, is the Article 3, the 36 billion SEC, I understand correctly when I say that this should absorb the impact of the IRB models overall currently under the scrutiny of the Swedish FSA. Do I get it right? Thanks.

Thank you, Riccardo. When it comes to your first question, we are paying zero on transaction accounts in the Baltics and in Sweden currently. On your second question, I don't have that on the top of my head, Ricardo, so I need to get back on that specific one. Maybe Annie has something, otherwise I will hand over to Rolf to answer your IRB overhaul question.

Yes, it's correct, as you stated. It's our best assumption today of the full impact of that approval process.

Thanks. Very, very clear. Thank you.

Sorry, just on the risk exposure amount, that is.

Operator, could we do one more question? Because we were a bit lengthy, especially me. So let's do one more, and then we'll wrap this thing up.

Sure. The next and last question comes from the line of Omar Heenan with Credit Suisse. Please go ahead.

Good morning, everybody. Congratulations on a good set of numbers. I just had a couple of questions also on net interest income trends. I thought it was quite interesting that Swedbank's NRI trends are up 31% Q on Q, significantly up 9% Q on Q. And I wonder whether you can comment on whether you think your particular business and customer cohorts mix was benefiting you more than peers in the current environment. And I wonder whether that is the case in terms of households versus corporates, but also specifically how you think your customer cohort exposures in households might allow you to extract more deposit margin than peers. And on a related question, your peer also commented last week that The idea that interest rates won't go up on transaction accounts can't be taken for granted anymore. Would you agree with that? Or do you think that given your particular business mix, that dynamic could stay favorable for some time? Thank you.

Thank you, Omar. You have probably to remind me if I forget some of your questions. But if we start with your first one, if you look at our balance sheet, and that was a point that I was trying to make during the investor day, we have... um very little relatively when it comes to deposit 300 billion out of 1 300 billion is market rate connected which is typically with larger corporations and the other are transaction deposits or savings deposits if you look at the baltic banking balance sheet it is even more dynamic than the Swedish since we have an automatic repricing on the asset side while we are still setting the price on the liability side. I think that if you look at the balance sheet composition of Swedbank and compare that to the competitor that you are relating to, you will find the answer to your question. On the second one, We have said that we have no plans at this point to pay on transaction accounts. But what I also said is that when we're looking forward, it becomes increasingly difficult for us to keep up the differential in pass-through between lending and deposits. So one should never say never, but at this point we do not have a plan to pay up on that. And did you have a third question? I don't remember that one, so then you need to repeat it.

No, those were great answers. Thank you very much. I think the last element was, you know, even after accounting for... mixed differences in terms of the corporate deposit pricing, for example, that you highlighted. I think even if we look at the household saving rates in Sweden, it looks like a like-for-like product mix versus SEB. And I was wondering whether, you know, what were the drivers of that? Do you think, you know, your particular customer cohorts within the retail bank have different behaviors, for example, than your peers?

That was a difficult one. I wouldn't go that far. There might be differences in our customer base, but I think, again, that when you look at the delta in Q4, half of the delta is related to the Baltic balance sheet, where we have the largest balance sheet of all banks in that region.

Thank you Anders and thank you everybody for listening to this call and thank you all for being shareholders in Swedbank. We are extremely proud of that and as you can see on the slide I think we've really underlined that a sustainable bank is a profitable bank and in 2023 We will take Swedbank forward in the strategic direction towards Swedbank 1525. Looking forward to speaking with you in conjunction with the quarterly reports and other times. Thank you all. Bye-bye.