Swedbank AB (publ)

Good morning, and thank you for joining our presentation of Swedbank's first quarter 2023 results. My name is Annie Ho, Head of Investor Relations, and in the room with me today is our CEO, Jens Henriksson, our CFO, Anders Karlsson, and our CRO, Rolf Markvart. Let's begin, as usual, with our presentation, and then follow up with a Q&A session. And with that, I hand over straight to Jens.

Thank you, Annie. And a warm welcome to this presentation of Swedbank's result for the first quarter of 2023. And it's a very strong result in uncertain times. The quarter was defined by the war in Ukraine, slower economic development, rising interest rates, and turbulence in parts of the banking sector. In this, Swedbank stands strong. Our liquidity is strong. Our capital situation is strong, our credit quality is good, and our proven business model delivers. Swedbank is a sustainable bank, and a sustainable bank is a profitable bank. A few weeks ago, the world's central bank governors and finance ministers met at the annual spring meetings in Washington, D.C. And the IMF is forecasting global growth below 3 percent this year. But the uncertainty is unusually high. The rapid transition from a long period of low rates to high interest rates is creating problems and vulnerabilities. The growth in Estonia, Latvia, Lithuania is fluctuating around zero. And in Sweden, our economies expect a drop in GDP of 1%. Inflation has begun to fall in all our home markets, but from very high levels. As a result, real wage growth was sharply negative in 2022 and will continue to fall in Sweden 2023. In Sweden, employers and industrial unions nevertheless reached a two-year collective bargaining agreement with annual wage increases of 3.7%. And this is a major success for the Swedish wage formation. And with very strong public finances and competitive industry, Sweden will be in a strong position when the economy turns around next year. And in these uncertain times, Swedbank delivers a strong quarterly profit of 7.6 billion kronor and a return of equity of 17% with a cost-income ratio of 0.37%. Compared with last quarter, net interest income increased by 9%. The margin on deposits continued to rise, but at a significantly slower pace. The margin on mortgages in Sweden continues to fall during the quarter by 14 basis points. Net commission income increased by just over 200 million. Net gains and losses was again strong, and other income was up. Expenses decreased by 80 million due to continued cost control. On the other hand, we reported an administrative fine from the Swedish financial supervisory authorities of 850 million kronor in the quarter due to a mistake during an IT change in one system a year ago. In addition, we have reserved 40 million as we now can assess the financial consequences of our discussions with the U.S. Office of Foreign Assets Control, which have been ongoing since 2019. Swedbank's capital position is strong, and we have a buffer of 390 basis points relative to the capital requirement. During the quarter, the annual general meeting decided upon a dividend of 9 kroner and 75 euro to our owners, savings banks, insurance companies, mutual funds, other investors, individual savers and foundations that in turn distribute funds to projects that makes our societies stronger. Half of our return is reserved for our owners and the other half is used to develop our business. Our credit quality remains good due to our thorough and conservative origination standards. And the provisions for individual exposures amounted to 10 million kronor in the quarter. But due to the worsening macroeconomic outlook, we have credit impairments of around 800 million in the quarter. And beyond what the model tells us, our export adjustment has been raised by 200 million. As a result, this extra reserve now totals close to 2 billion kroner. And our exposure to anything property-related is in line with the bank's strategy and risk appetite. Our customers have taken, and continue to take, measures to handle a worsening of the economic conditions. Cyber threats continue to be an important issue in society, and we are well prepared. Investments and hard work with our IT systems have produced results. The bank's digital availability is above target. Digital fraud is a societal problem that hit many customers. And that is the reason we, together with other Swedish banks, have launched the campaign Svårlurad, or Hard to be Scammed. The work to reach a sustainable return on equity of 15% by 2025 is underway. One way will be through helping our small and mid-sized corporate customers to grow sustainable. And to better meet their needs, we have reorganized the bank's corporate services. Consequently, large corporate and institutions, LC&I, is now changing name to Corporates and Institutions C&I. During the quarter, corporate activity varied by country and sector. In Sweden, corporate lending increased slightly while it decreased in Norway due to a drop in utilization of revolving credit facilities and our Norwegian oil portfolio. Also, we had a client transfer to our strategic partner, SR Bank. And this is in line with what we communicated in our 1525 plan. In the Baltics, the demand for business loans is stable. We are focusing on existing customers and are there for them while maintaining a thorough and conservative lending origination standard. Corporate deposits increased slightly on a seasonal basis, while deposits from private customers decreased. Savings accounts with interest rates are attractive for our customers. In Sweden, on-demand savings accounts pay 1.1%, while you, for instance, can get an 18-month fixed-term deposit that pays more than 3.5%. That's a strong offer in tough competition. And we are keeping pace with the market and, as always, are committed to having the best full service offering. We are proud of our extensive savings options and have been given renewed vote of confidence by the ITP Occupational Collective Pension Plan. And there we can now provide new customers with advice on a broad range of topics. The mortgage market in Sweden is essentially at standstill, while mortgage volumes are still growing slightly in Estonia, Latvia and Lithuania. The competition is tough in all our four home markets, but we are maintaining our leading positions and pricing strategy. And in a shrinking mortgage market, we focus on our existing customers. During the quarter, we have seen an increase of amortizations, extra amortizations. And as a bank firmly rooted in the Swedish savings banks movement, we embrace this. And we are certain that it will benefit us in the long term. Our customer promise is to always provide customer guidance on their terms. As you know, sustainable personal finances are always based on knowledge. At the same time, our financial health index shows that many people are feeling financially constrained or vulnerable. And we would like to see more people becoming financially stronger by balancing their expenses, building a savings buffer, adding insurance protection, and saving for retirement. We have therefore set as a target that we at Swedbank by 2030 want to enable one million people in Estonia, Latvia, Lithuania and Sweden to strengthen their financial health. And we will reach that target by meeting more customers face to face and greatly increasing the number of digital advisory sessions with practical advice. That work is already underway, according to 1525, and we are providing easier access to more advice and digital channels on savings, pensions and insurance. And our investment in a new cloud-based communication platform now delivers results, with shorter telephone queues and stability in Latvia. And that platform will now be rolled out in all our home markets during the year. Swedbank's climate position is clear and fully aligned with the Paris Agreement's 1.5 degree goal. And as a financial player, we have a responsibility and also great opportunities to contribute to climate transition. We have studied the potential to improve energy efficiency of properties in our home markets. And this would contribute both to European energy security and reaching the EU's climate targets. In February, I had the privilege, together with the Executive Director of IEA, to inspire and discuss with all the EU's energy ministers at their informal meeting in Stockholm. I pointed out that with investments it will be possible to forcefully reduce energy consumption for buildings in our four home markets. And here, we at Swedbank can make a difference. In Estonia, we are working with the university to offer our corporate customers the opportunity to train sustainability specialists. In Latvia, we have the business council focused on sustainability. In Lithuania, the focus on sustainable innovation in a program we launched together with Rocket. And in Sweden, we have established a collaboration with HEMA to enable more households to buy solar panels or a sustainable heat pump. During the quarter, we have also facilitated the payments of the government's electricity support to nearly 4.3 million households in Sweden. And our award-winning virtual assistant has handled half a million customer queries relating to the payments of the government's electricity support, resulting in quick responses and efficient processes for both customers and the bank. Swedbank fulfilled the assignment quickly. securely and according to plan, and we are now preparing for the next payment. Of this I am very proud, as I am of the quarterly result, and that means that it is time to give the floor to our CFO. Anders Karlsson, the floor is yours.

Thank you Jens. And this has indeed been another good quarter This has indeed been another good quarter, with a return on equity of 17%, or 19% if we exclude the fine, and earnings per share growth of 11%. So let's go into the financials in more detail, starting with deposits and lending. Customer deposits were stable and there was a positive FX impact of 6 billion. Volumes in private savings accounts were stable in Swedish banking, while transaction accounts decreased by 7 billion. This was driven by increased cost of living and extra amortizations compared to last quarter, as well as net inflows into equities and funds on the back of a positive stock market development. We continue to see migration from on-demand savings accounts to term savings, and in this quarter it amounted to 11 billion. Deposits in Baltic banking decreased by 6 billion, excluding FX, due to seasonality. In Q4... We saw large increase from salary bonus payments and distribution of government funds. In the corporate segment, deposits were up with an increase in short-term deposits of 23 billion in large corporate and institutions and a decrease of 10 billion in Swedish banking due to higher OPEX and financing costs. The total loan portfolio decreased by 10 billion, excluding a positive FX impact of 3 billion. In Swedish banking, 4 out of the 7 billion decrease was from private mortgage lending. The trends from last quarter continue, where new mortgage market volumes are very limited, and extra amortizations by our customers have been on a higher level than usual. In Baltic banking, mortgage lending increased by 1 billion, excluding FX, while corporate lending was stable. In large corporate and institution, the decrease of 4 billion, excluding FX, is driven by Norway, with repayments of RCFs in the property management sector, client transfers to SR Bank, and a small reduction of the oil portfolio. In Sweden, corporate lending in LC&I increased slightly. Now looking at the revenue lines, which were all higher quarter on quarter. Net interest income increased by one billion quarter on quarter. driven by a continued expansion of net interest margin as a result of higher deposit margins in Swedish and Baltic banking. Overall, lending margins were lower for private and slightly higher for corporates. The factors impacting NII are similar to those seen over the last couple of quarters, increasing market rates and the level of pass-through we can maintain on our lending and deposits. In terms of outlook, our macro research team forecasts further rate hikes in the first half of the year from the ECB and the Riksbank, even after the one we saw yesterday. Let me reiterate our belief that the NIM expansion is expected to narrow the higher the policy rates go. In this context, we will continue with our pricing strategy and strive 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 all key commission lines were higher. Card commissions were higher thanks to MasterCard discount of 100 million during the quarter. Asset management performed well on the back of higher average stock market levels. In Sweden, Swedbank Rober saw inflows of 5 billion, which mostly went into equity funds. And over the quarter, Rober increased its total asset under management market share from 21 to 21.5%. Securities and corporate finance improved due to higher ECM and DCM activity. Turning to net gains and losses, which was strong? Fixed income and FX sales and trading performed well on the back of high client activity, and within Treasury the key positive component came from revaluation effects of funding-related swaps. Other income increased by 32 million, primarily driven by a revaluation effect resulting in a higher net insurance in Baltic banking. Total expenses ended at 6.4 billion, excluding the fines that Jens mentioned. Expenses were 5.5 billion, which is 80 million lower quarter on quarter. Our underlying cost development is as expected. We have strict cost discipline. We have an investment plan. And inflation has been the key headwind. You can see, if you compare this quarter with the first quarter 2022, an increase of cost of 12%. But stripping out a couple of items affecting that comparability, such as the Baltic winter allowance, which was 90 million, ending in March, FX, which amounted to around 110 million, and restructuring costs related to paychecks around 60%. The reasons for the increase were higher salaries, IT maintenance and IT depreciation. This is in accordance with what we communicated previously. The cost-income ratio went from 0.35 to 0.37 or 0.32 if you exclude the fines quarter over quarter. Now over to you, Rolf, to talk about asset quality and credit impairments.

Thank you, Anders. Economic development is increasingly impacted by inflation and interest rates. This is putting pressure on many households and is weighing on consumption as well as the wider economy. In this situation, Swedbank's asset quality is solid. In the quarter, credit risk indicators were stable, reflecting that our customers generally have a good ability to manage the changing conditions. When looking at payment behavior, past-due loans increased somewhat for private customers in Sweden, but were at very low levels, while they were stable in the Baltic countries. Past-due loans for corporate exposures were stable in all home markets. It is reasonable to expect that some customers gradually will find it more difficult because of this worsened macro situation. which may lead to individual credit losses. This is what is embedded in the provisions we have made in this quarter and previous quarters. In the first quarter, impairments were once more almost exclusively related to the updated macro forecasts. Credit impairments ended at 777 million, out of which updated macro forecasts made up 348 million. Credit migrations and stage transfers added 278 million. Out of this, Swedish banking accounted for 170 million. This was mainly explained by migrations in construction and retail. We also saw migrations in private predominantly with very low risk. Large corporate institutions added 86 million and Baltic banking 21 million. Credit migrations were also impacted by the macro update, which caused some Stage 2 transfers. Moving to individual assessments, which ended at 10 million. The expert portfolio adjustment was increased by 198 million to 1937 million. The overlay relating to property management was increased by 310 million. This is a cautious move to reflect the potential sector implications from the macro development. At the same time, smaller reductions were made in various sectors. Our strategy in property management is to focus on companies with strong cash flows and collateralized lending. The average LTV for the property management portfolio was 53%. The sector has continued to do well in 2022 and early 2023. Vacancy rates have been stable and rents have been increased. But there are also challenges in this sector. Interest rates and inflation have started to feed through into the interest coverage ratios, but they are still at solid levels. Companies are managing their liquidity and balance sheets. to adapt to the new conditions. This includes divestment of properties, capital injections, bond buybacks, cancelled dividends and capex reductions. Taking all this into account, we are comfortable. I would also like to briefly cover our mortgage portfolio. As you know, this is a truly low-risk portfolio. On Swedish mortgages, we have lost in total 1.8 billion over the last 40 years, the Swedish banking crisis included. The average LTV is 57%. The distribution is also sound, with less than 4% of the lending volume with an LTV exceeding 70%. As I initially mentioned, we have seen a slight uptick in overdue payments, but they are at very low levels. This is also in line with past experience when interest rates have increased without causing credit losses. Overall, we are comfortable with our asset quality. And with that, back to you, Anders.

Thank you, Rolf. Turning to liquidity and capital. Swedbank's liquidity position is strong. We have a liquidity reserve of around 700 billion Swedish krona, of which 52% is in cash deposited at central banks, while a further 38% are invested into one-week Riksbank certificates. In addition, we have an over-collateralization in our covered pool of 206%, equivalent to additional issuance of around 720 billion. I refer you to slide 24 in the appendix for more details. Our CT1 capital ratio stands at 18.3%, while the buffer above the minimum regulatory requirements are around 390 basis points. Regarding expected future capital requirements, the counter-cyclical buffer in Sweden will be raised by another 1 percentage point in the second quarter this year. The capital target range of 100 to 300 basis points remains, and our capital positions continue to be strong. I now hand over to you, Jens, to conclude.

Thank you, Anders. And I understand that somehow there were some technical difficulties in hearing everything. I apologize for that. But I'll summarize it very neatly. So Swedbank stands strong in uncertain times. And we delivered a strong profit with a return on equity of 17% and a cost-to-income ratio of 0.37%. Our liquidity and capital position is strong. Our credit quality is good. Our proven business model is delivering as promised. A sustainable bank is a profitable bank. You all know that our vision is a financially sound and sustainable society. And during the quarter we've taken two clear initiatives. We give our customers the opportunity to strengthen their financial health through an ambitious target for advisory services. And we contribute in the fight against global warming by financing investments through energy efficient properties. to once again summarize the quarter in two sentences. A sustainable bank is a profitable bank, and our customers' future is our focus. Thank you. And with that, I give the floor back to you, Annie.

Thank you very much. Let's open the floor for Q&A. I'll hand over to the operator.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-to-telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. In the interest of time, we kindly ask you to limit your questions to two each. Anyone who has a question may press star and one at this time. The first question comes from Andreas Hakanson from Danske Bank. Please go ahead.

Thank you, and good morning, everyone. Starting with us, the quality, since I think that's been the focus of some people this morning, and you stand out having taken more provisions than some of your peers. When I look at your development in Stage 2 and Stage 3, I mean, Stage 3 didn't move, but Stage 2, we saw quite a big increase Not at all on commercial real estate actually fell, but on retail banking. Could you tell us what drove that increase and how much provision in need do you really see against that increase? That's the first question.

Thank you, Andreas. So, yes, correctly, the move in stage three was very limited, or it remained at the same level. This is a very technical reason, actually, because this is a stage migration from stage one to stage two in mortgage lending, and that is lending with very low level of risk. And the reason behind it is that when the probability of default levels, the point-in-time ones, get impacted by the macro update and come to a certain level, they would be pushed into stage two. And the impact from that was 23 billion in move, but that also led to an increase in provision of less than 20 million, and that shows you the underlying asset quality. And what is actually behind that is also that during COVID, when we had very low interest rates, a lot of new loans with low risk came in. And when the macro scenarios have been updated, and in particular when interest rates have been increased and interest rate forecasts have been hiked, then that has impacted the macro update and led to that migration. But the underlying credit quality is very strong.

And do you think there's any difference between you and the other banks, given that you have taken a bit more provisions, or are you just being prudent, or do you see some changes or differences in your loan portfolio?

Okay, so what I just commented was the stage migration in the mortgage portfolio. But then when then turning into the macro update and the macro impact on provision levels in this quarter or the impairments related to that, I'd like to start in the credit quality end when we look into the bank and what we see on individual exposures. And then we see a really solid situation where we have very limited changes or no changes when it comes to past due loans, when it comes to watch list exposures, when it comes to non-performing foreborn measures. So that is what we see when we look into the bank and what has happened so far. But then turning in another direction, which is how we are supposed to reflect changes in macro through IFRS 9 and how that feeds into potential future credit losses on a portfolio level. And then we find ourselves in a time where we have repeated changes changes in the macro forecasts. So we had one in Q3 when the situation or the forecast deteriorated, and then once more the same happened in Q4. It naturally led to additional provisions. Now, in the first quarter, this has been updated once more, and what has changed is actually the expectations we have on interest rates, so higher for longer, and that is what is behind this.

Okay, perfect. Then, Anders, just a quick question. You said on your NII outlook that when rates go up, the NIM will expand slower, right? But it's still going to expand. That's the message. But it's just going to be slower than what we saw in the first rate hikes, of course.

Correct, Andreas.

Thanks. That's it.

The next question comes from Magnus Andersson from ABG. Please go ahead.

Yes, good morning. First of all, kind of a follow-up on the NIM question and the situation we have. Given that deposits in Swedish banking continue to shrink, we had a peak there in June, if you have a situation where deposit margins now will flatten out and eventually start to shrink, do you think that you will be able to offset that with asset pricing? I'm thinking three-month mortgages, for example, where if I use the marginal funding cost, the margins are obviously unsustainably low. And secondly, I know that you have this corporate lending book also that is discretionary priced, if you could say something about that. That's the first question. And secondly, more of a broader base, we can all see, if I look at slide two in your presentation, that you expect rates, short-term interest rates, to be significantly higher than you did at your CMD in the beginning of December. And for example, you talked then about the 40% cost-income ratio you're now approaching 30, which is an underlying term, which is an all-time low. Does this change or how does this change your scenario? How do you think about that?

Thank you, Magnus. Two long questions. Let's see if I remember it. First, when you look at the balance sheet structure of Swedbank and you look into what's happening to the deposit side, it's been on the savings accounts side in Sweden, it's been stable. The migration we have seen within that part of the balance sheet has been from on-demand savings accounts to fixed-term. When you look at the transaction accounts, they are down for natural reasons. As I said, cost of living is increasing. We have seen extra amortizations. And just to remind you, We pay zero on those accounts. So as far as I'm concerned, whether it will be offset, we will always strive to have a profitable lending margin as well as a savings or deposit margin. But it becomes more difficult in an environment where market rates are becoming higher and competition will most likely heat up. Then you have Baltic banking, which is an entirely different story, where they have, by tradition, a large portion of their savings in transaction accounts. And as you are aware of, on the asset side, you have an automatic repricing effect since lending is connected to your RIBOR six months. And we actually get... a fair amount of money for the surplus liquidity that we place with ECB. So even if it becomes more difficult, there are still some potential for NIM expansion, primarily on the liability side. On your second question, I think we should be very clear on the fact that that is a cost income target through the cycle long term that we believe is a level you should be at if you have an ambition to have a sustainable return on equity of 15% or more. It will vary over time. Now we are in a position, as you know, Magnus, where income has increased significantly. For me, it's much more important to ensure that we have a strict cost discipline and that we invest into things that will support the 15-25 journey. Okay, thank you.

The next question comes from . Please go ahead.

Yes, good morning. Thank you. Follow up a little bit more on NIM and behavior and if you focus on the Baltics, you mentioned there that there's still zero interest on deposits and still we see deposits relatively stable. Do you see any difference in behavior of people in the Baltics relative to Sweden, for instance, where people are initially starting to amortize more? That's the first question. And the second, if you could just update us, anything, how you're thinking of capital, because you're obviously very well capitalized, even though we are awaiting some more messages from the US, but we see that other banks are buying back shares now and continue to do so. How are you reasonable? Because you're obviously very well capitalized and that actually hampers ROE development as well. Thank you.

Thank you very much. If we start off with the first question, Baltics have, as I said, as a tradition, have traditional and historically been putting most of their savings into transaction accounts. The ones that can afford to put aside money are doing that, and they are moving into fixed-term deposits. When it comes to amortizations, the amortization is much more aggressive in the Baltic countries when it comes to mortgages compared to Sweden. So I do not expect extra amortizations on top of what you see. And on your second question, or at least we haven't seen that, on your second question, you are perfectly correct. We have a strong capital generation. and we will continue to have a strong capital generation. I think we were quite clear during the investor day that we have no ambition whatsoever to run the bank with excess capital if not needed. But as you rightly point out, we have one uncertainty still outstanding. And when that is behind us and the sky is clearer, we will definitely revert to you and the investors on what to do on the capital side.

Okay, thank you. Very clear.

The next question comes from Ricard Strand from Nordea. Please go ahead.

Hi and good morning. First question then on the asset quality in the Baltics. Long-loss provision remains very low in the Baltic operations still, but just I wanted to hear if, given the very high inflationary environment in the Baltic region, what could potentially change this picture and force you to take larger provisions here?

Thank you, Rickard. So when we look at the Baltic banking situation, it looks solid and we have seen very limited changes so far. These countries have been through a long period of very high inflation. And although income has been increasing, that has been outweighed by inflation. But what we see is still that customers have good margins to cope with this and have managed well. And the sentiment is fairly good. So the development is good. What you should also take into account is that the level of indebtedness is lower than we see in the Nordic countries and in Sweden. So they start from a good level. So far, we have no worries about that and see no signs.

Thanks. And then maybe it's too early, but I just want to hear if you have any sort of initial takes on what the potential windfall tax in Lithuania and Latvia could impact you?

Thank you for that question. Could I just say a few words about that? First, let me start with an important thing, that we are extremely proud to be the largest retail bank in Lithuania. And we have a long-term commitment to Lithuania as we have for Estonia and Latvia. And these are our home markets. During the last 15 years, we had an average return of equity of 10.2% in Lithuania. And during a time with negative interest rates, we have not charged our private customers for deposits. And we already have a banking tax in Lithuania. And on top of that, rush through a hefty investor tax when our prudent business model delivers. Certainly sends the wrong signals to everybody that invests in Lithuania. And I share the opinion of the ECB that the tax reduces the incentive to finance the real economy and will thus be negative for Lithuania, both in the short and long term. The only silver lining I can find is that the very construction... makes it hard to make it permanent. And we also got the promises from the government that it would only last two years. But since the final details are not done, I mean, they're discussing this in Parliament right now, it's too early to estimate the tax cost. And I will get back to you on that. And finally, we're also considering legal actions.

Okay, thank you. The next question comes from Maria Simicatura from Citibank. Please go ahead.

Hello. Thank you for the presentation. A couple of questions. First of all, if we could start about your property exposure. You continue to provision conservatively. You added to this expert portfolio adjustments over the quarter. Could you maybe comment how much of the overlay you have as of the end of the first quarter for property exposures? and maybe some general comments with this overlay, if this is for the largest borrowers, or you identified some vulnerable exposures, and anything you can say on scenarios. Maybe you looked at price declines or extra interest rate stress test. And then on the stress test that you included in your presentation for 20 exposures, just wanted to check how much this is in terms of your theory book. And then separately on margins, I appreciate your comments, but maybe specifically for the LCNI division, we see quite a flattish development quarter over quarter. I understand it's quite bulky exposures, but it's a different development relative to peer. Kind of if you see any reasons to expect some margin expansion given the hikes specifically in the LC&I segment, or this is mostly done. Thank you.

Thank you. Let me start before I give the floor to Rolf so he can go into more details. But overall, we have property management exposure in the lending book of 239 billion kronor in Sweden. And that is the lowest among the three large banks in Sweden. Our exposure is in line with our strategy and risk appetite. And we have for a long time worked with conservative credit origination standards and a focus on the customer's debt service tolerance and cash flow. We follow our customers closely, and during the last years, they have taken measures to strengthen both liquidity and the balance sheet. And as Rolf said in his introduction, the average DST ratio for our 20 largest property management customers is above 7%. And on top of this, we have collateral with an average LTV of 53%. Looking forward, we are ready to support our core customers' future if it's in line with our strategy, risk appetite, and leads to well-balanced growth in line with the overall market.

And then on to the provisioning and a large part of the management overlay that is related to property management. So to begin with, we have a total provision for the sector of 1.4 billion. And that is to a very large extent related to taking account of the macro situation and the impact on a portfolio level, not related to individual exposures we have. The individual provisions we have is 200 million. The part of the management overlay that is related to property management is 720 million. And then regarding the stress test we have in the slide pack, that covers the 20 largest property management companies of ours, and they represent a total credit risk exposure that is 30% of the total CRE exposure.

And on your last question, when it comes to margin development in LC&I, as you know, the duration of the corporate loan book is much longer than our private, so it takes time. But what we see is that when a company takes a traditional bank term loan, we have increased the margins, but that will gradually come in over time.

Just maybe a quick follow-up because one of your peers mentioned that credit spread specifically on lending improved significantly in the quarter. Just maybe you could comment on your exposure if you are seeing the same increasing spread on CRE and other corporates.

But the point is that when I talk about the back book, the back book has a duration. New lending has been muted. So when something is up for repricing or we have new originations, we see margins coming up. That's my point. But if you look at the back book and the margin development there, it will take time before you see any large visible signs of it.

Then for LCNI book, what is the average duration, around two, three years?

Yes, with the exception of revolving credit facilities, I would guess it's around two and a half to three years.

The next question comes from Samtani Namita from Barclays. Please go ahead.

Hi, morning. I've got two questions, please. Firstly, how are you seeing Swedish mortgage applications trend compared to this time last year? How much of a decline are you seeing? And have you been tightening your lending criteria or does it still stay the same? And secondly, you spoke about transaction deposits in Sweden declining due to cost of living and extra amortizations, which is understandable, but Do you believe on savings accounts you may be losing deposits because you're not as competitive as peers on pricing? So, for example, if I look at a basic savings account, the rates, I think as a starting rate, Swedbank pays 110 bps versus SEB at 150 bps or Handelsbanken at 135 bps.

Okay, if I start with your second question first, and then we come back to your first question. What I said is that our savings accounts in Sweden has been stable. We have seen migration from on-demand to term, and that is a part of our strategy. The ones that have the ability and need for a higher yield. We will most try to put on to the fixed term, which is a very competitive one. We have not seen much of outflows from the savings accounts over the last six months, but we are closely watching the competition. When it comes to transaction accounts, as I said, just to give you a flavor of the change in cost of living related to extra amortizations and interest rate costs year over year, in our portfolio, the extra amortizations have increased by 3 billion compared to Q1 2022. And the cost increase has been 10 billion due to higher mortgage rates. So that's a fact. We watch the competition. And as I've said previously, we will act when we find it necessary.

And then on to your question on origination criteria. And then I would say, no, we have not changed our origination criteria. But what we have done is to update the affordability calculation that is an important part about the credit approval process. And then we have updated it to cater for increased inflation. cost of living. And then we also have the stress interest rate that we do apply. And then the rule is the higher of 6% or the five-year list price plus 2%, which today would represent approximately 6.5%. And that has implications for how much a person could actually borrow. Thank you very much.

The next question comes from Martin Laetke from Goldman Sachs. Please go ahead.

Yes, good morning. First of all, congratulations to the good set of numbers and many thanks for taking my questions. Just two follow-ups please on net interest income. I was just wondering, one of your peers flagged that some of the strength in net interest income progression might be temporary. as customers adjust to a higher rate environment and what I believe is meant with that, as customers might shift from transaction account into either savings or time or choose to amortize more of the loans. Was your flagging in earlier comments that you would expect a continuation of expansion in NIM from here? I was just wondering what's driving that. Is that an assumption that the deposit composition is likely to remain more stable within Swedbank. And then secondly, I just wanted to ask whether there is any considerations with regards to paying interest on transaction accounts. Thank you.

Could I start? First, we do not have an intention to put rates on transaction accounts. And then you can go there, Anders.

Yes, and thank you. Indeed, it was a good result. When we look at the – and I think I know who you refer to, but I will not do the mistake of mentioning them. But when I look at the deposit structure that you can find in the fact book, and we start off with Swedish banking – around 25% of the savings in the private side is transaction accounts. If I go back to the time when we had higher interest rates in 2006-2007, 35% of the savings were transaction accounts. So we do not foresee any major migration from transaction accounts to savings accounts in Sweden. But as I said, what we see is the ones who have the ability will migrate from on-demand savings accounts to term. When it comes to Baltic banking. Again, the tradition has been over the years to put the money into transaction accounts rather than savings accounts, but having said that, we have taken on the responsibility to develop those markets and to educate people in other types of savings, but that is a long-term goal, so I do not foresee any massive migration in the Baltics either from transaction to savings accounts and to remind you I think that the customer base composition is different between the different players in the market thank you very much ladies and gentlemen please be informed that the conference will conclude in five minutes the next question

comes from Alex Dimitriou from Credit Suisse. Please go ahead.

Hi, thanks for taking my question. Just two, please. So just on the property management, would you be able to just provide some more color in what you're seeing in terms of CRE, properties, prices, and the underlying assets of these customers? And just secondly, what events or triggers would you need to see to have more concerns over this portfolio? Thank you.

So regarding price development and what we see in transactions, we see that many of the transactions that have been carried out over the last six months are, and that is what is externally reported done at book value in most cases. But we also realize that there has been a price write-down of approximately 4%. That's what we have seen so far. When we talk to our internal research team covering the real estate sector, they expect price drops of 10% to 15% based on the changes we have seen so far in the conditions. So that is what we are seeing. So, so far, a quite calm development, I would say. And also... Of course, a diluted activity, but the activity is still there and has been important for the change that is ongoing and has gone on during the last six or 12 months. And I didn't really hear the second question well enough. So could you please repeat that?

Sure. So just what events or triggers would you need to see to have a bit more concerns over this portfolio? Yeah.

I mean, these companies have to deal with the situation and are dealing with the situation of sharply increased interest rates. But at the same time, they also have increased trends. Awakening rates are really solid so far and at stable levels. So what it would take to change this situation is, of course, if this continues for very long and we would have a deeper recession where you sort of have a macro impact that starts to really impact and feed through those numbers when it comes to net operating income, I would say, and cash flows.

Thank you very much.

The next question comes from Johan Ekblom from UBS. Please go ahead.

Thank you. I think we've covered quite a lot of ground, but just very quickly trying to understand the divisional trends in NAI. Are there any material changes in treasury allocations to FTP pricing that can explain, you know, maybe why we saw somewhat weaker NIM trends in large corporates, for example, or is that broadly unchanged from last quarter?

I don't think you should look too much into that. I think it was a correction in the quarter. But the underlying trend in large corporates is, as I said, when there is repricing or if there is new loans coming in, there is a certain margin expansion possible to do.

Perfect. Thank you.

And thank you, everybody. And as I said before, we stand strong in uncertain times, and our proven business model is delivering as promised. A sustainable bank is a profitable bank, and that's a good way to end the call. Thank you for all your questions, and looking forward to seeing you again in conjunction with next quarter. Until then, take care.