Swedbank AB (publ)

Good morning everybody and welcome to Swedbank's first quarter 2024 results presentation. My name is Annie Ho from Investor Relations and with me in the room today is Jens Henriksson, Anders Garsson and Rolf Marquardt, our CEO, CFO and CRO. We'll start as usual with our presentation and follow up with Q&A. With that I hand over to you Jens.

Thank you Annie. Swedbank has again delivered a strong and sustainable result and our profit increased compared to both the previous quarter and year. Despite geopolitical uncertainties with war in Europe, turbulence in the Middle East and climate change, I still feel somewhat optimistic for the economic development. The global economy remains remarkably resilient, with growth holding steady as inflation returns to target. In the US, inflation remained high while dropping in the Eurozone. In Latvia and Lithuania, the recovery has been rapid and inflation has fallen to normal and low levels. Estonia is on its way out of the recession. In Sweden, the recovery is in sight, and the Riksbank left the policy rate unchanged. The view that inflation is heading lower was reaffirmed, and the first rate cut could happen in the second quarter. At the same time, interest rates will remain high for longer. Despite difficult economic times, the Swedish economy has shown more resilience than expected. Consumer purchasing power remained under pressure, but there is a positive outlook. There is fiscal space in all our home markets, especially comparing with the rest of Europe. Our economies expect that growth in Sweden, Estonia, Latvia and Lithuania next year will be among the highest in Europe. In these times, Swedbank delivered a strong result of 8.4 billion krona for the first quarter. Net interest income decreased by 5%, half of which were business-driven. Continued increases in equity prices positively impacted commission income, which was up by 6%. Costs have fallen compared to last quarter as planned, and our cost-to-income ratio was unchanged from the previous quarter at 0.34%. As we announced last quarter, Our high profitability enabled us to strengthen and accelerate investments to fight fraud and improve data processing, not the least for the IRB overhaul. At the same time, the number of employees has continued to increase due to lower turnover than we had forecasted. We have therefore implemented a temporary hiring freeze with exceptions for business-critical positions. As you know, we have strong ambitions regarding the fight against financial crime. We want Swedbank to be on the forefront. Five years ago, the group function Anti-Financial Crime, AFC, was created. Now, we take the next step on our maturity journey and consolidate AFC within group products and advice, to enable greater efficiency by integrating operations in the product and service offering with a focus on digitization. And the group executive committee thereby shrinks with one member. Summing up, we delivered a return on equity of 16.9% and an earnings per share of 7 kronor and 47 öre for the first quarter. A sustainable bank is a profitable bank. And it's worth reiterating that our dividend for 2023 is now being put to use by the savings banks, insurance companies, pension funds, funds, retail investors, and foundations. The dividend goes back to and benefits society. Swedbank has a conservative and thorough lending process, and our credit quality is solid. Credit impairments for the first quarter amounted to 144 million kronor. We have a strong ability to generate capital and a strong capital position with a buffer of 4.2%. Our liquidity position is strong and our digital availability was stable at high levels in the quarter. And Swedbank is an important part of our society's infrastructure. Every day we assess risk and ensure that we are resilient to withstand cyber threats. But alone is not strong. We therefore have a good collaboration with both the private and the public sector. Our customer promise is to make our customers' financial life easier. During the quarter, we changed our organization in Sweden based on how private and corporate customers meet us. In this way, we can even better customize services and adapt our offering to our customers' needs. We shall be proactive and make the right competence available to the right customer at the right time. And these are actions that are important for customer satisfaction. Swedish banking has retail customers and micro-corporate customers, and the business area plays a key part in increasing availability and is an engine for the entire Swedish market. Retail customers with more complex needs receive dedicated service throughout the country from our specialists and advisors in the new business area, premium and private banking. and our extensive knowledge of the local market is a strength. Corporate customers who need specialized expertise are brought together under the business area, corporate and institutions, with access to our entire product offering. And as you know, this reorganization is a part of our Plan 1525. Swedbank is the leader in mortgages in our four home markets, and during the quarter, our lending increased. In Sweden, the housing market remained sluggish, but during the quarter, we saw an increase in housing prices. At the same time, housing investments continue to be slow. We have the best full service offering in our home markets and are ready with financing for our customers when they want to move. During the last six months, we have grown our mortgage portfolio every month through our own channels. And during the quarter, our market share rose. In the Baltic markets, activity was high and we have a strong homeowners insurance offering in connection with the home buying process. The savings business is keeping pace with the market and we offer competitive rates in tough competition in all our home markets. Deposits were stable and in Sweden, the high cost of living continued to squeeze households. We are the leading bank in Estonia, Latvia and Lithuania. And that is a responsibility that we are happy to take, not the least by building a savings culture. In 2019, we established a savings strategy. Five years later, we can see the results. Our robo-fonds have become a popular investment alternative, and more than 60,000 customers have chosen to invest in them. In the quarter, more than 500 million kroner was invested in the three Baltic countries. This is three times more than in the first quarter last year. Our corporate customers remain cautious in all our home markets. The central bank's tightening has had an effect, and we see that there is less money in the system. Our corporate lending was stable in the Baltic markets, but decreased slightly in Sweden during the quarter. At the end of the quarter, however, we saw a slight increase in business activity in Sweden due to expectations of rate cuts. Swedbank contribute to a better and more sustainable society, and we're doing it together with our customers. And sustainability is at the core of our business strategy. we continuously find ways to give our customers better advice in the area of sustainability in cooperation with partners such as Hemma, Rambol and Agronod. Swedbank's customers can find help and support to implement a green and smart energy transition. Our Green Zero Margin loan was a success in Estonia and Latvia in 2023. We are now launching a new green offering in all our Baltic home markets, and we see a continuing strength demand. And with that, I give the floor to Anders Karlsson, who will deep dive into the financials.

Thank you, Jens. Good morning, everyone. Let's start with lending and deposits. The underlying total loan portfolio decreased slightly, excluding a positive FX impact of 12 billion. In Sweden, total private mortgage lending was stable, and Swedbank's own channels continue to deliver consistent mortgage inflows, and we are attracting more volumes from other banks on a net basis. But the outflows to the savings banks continued. Mortgage volumes are still low, but house prices have started to increase, and transaction volumes year over year have improved somewhat. Total corporate lending in Sweden decreased by 6 billion. Lending to property management increased, while other sectors such as Public sector and utilities, professional services and shipping saw large individual repayments. In Baltic banking, both private and corporate lending increased by 1 billion each. Customer deposits increased by 19 billion, excluding a 16 billion positive FX impact. In Sweden, private deposits were stable, and corporate deposits increased by 15 billion in money market deposits. In Baltic banking, both private and corporate deposits were stable. Turning to the revenue lines, beginning with net interest income, which decreased by 5% quarter on quarter, but is 663 million higher compared to Q1 2023. Half of the quarter-on-quarter decrease was due to non-business-driven items, FX and day count, as well as Q4 adjustments for the deposit guarantee fee and CNI's origination fees. The other half came from known headwinds, such as lower average lending volumes in CNI, lower deposit margins due to mixed shifts, and proactive wholesale funding costs, both 81 and senior non-preferred issuance. We have, for the last two years, seen the effects of QT, primarily impacting corporate deposit volumes in higher margin accounts. And in both Swedish and Baltic banking, we continue to see mix shifts to fixed-term accounts but at the lower level. Looking ahead in terms of NII drivers, our macro research team predict that the Riksbank will make the first rate cut in May, which could be followed by three more cuts at the end of the year. The outlook for the economies in our home markets is positive. and this will provide an opportunity for lending demand to return. Going forward, we will continue with our proven pricing strategy and actively work with our administratively priced core products on both sides of the balance sheet. Over to net commission income, which increased by $222 million, mainly driven by stock market performance and net sales in asset management, but also debt capital markets within securities and corporate finance performed well. Net gains and losses ended at a good level. Fixed income and FX sales and trading performed well, contributing 590 million to NGL, There were negative revaluations from funding-related swaps and the 137 million in other was mainly due to equity investments revaluations The quarter-over-quarter decrease was mainly due to high positive revaluation impact within Treasury last quarter Other income decreased by 270 million While underlying net insurance income improved, revaluation effects accounted for essentially all of the Q-on-Q change. Income from partly owned companies were slightly higher. Total expenses came at 6.2 billion in the quarter, which is in line with our full year guidance, and to a large extent, a result of us speeding up the temporary investments that we communicated last quarter. Underlying costs increased due to salary reviews in Sweden and third-party contracts that continue to reprice at higher levels. Now over to you, Rolf, to talk about asset quality and credit impairments.

Thank you, Anders. Credit quality is solid. Our customers show continued resilience and the credit impairment ratio in the quarter was three basis points. In Sweden, we continue to see an impact from the economic downturn and interest rates. Past due loans for Swedish households were at very low levels but increased slightly. We note that the inflow of foreborn exposures has started to decline and sentiment is improving. For Swedish corporates and in Baltic banking, past due loans and other risk indicators were stable. In the first quarter, credit impairments ended at 144 million. The updated macro forecast increased provisions by 25 million. Rating and stage migrations added 403 million. At the same time, 349 million of the post-mold adjustment was released on the back of credit migrations in property management, but also in the construction and retail sectors. The remaining post-mold adjustment is now 1 billion. Individual assessments were 302 million, while net repayments reduced impairments by 313. The Swedish property management sector continued to have a stable development during the quarter, and sentiment in the bond market improved. The reported vacancy rates increased slightly, and rental levels were largely unchanged. Looking at reported Q4 financials of the 20 largest customers, the debt service tolerance ratio, that is the break-even interest rate, increased to 8.4%. The average interest coverage ratios declined to 2.5, and we note that the decline leveled off during 2023. So, to conclude, we are comfortable with our credit quality. Back to you, Anders.

Thank you, Rolf. Turning to capital, our capital position continues to be strong with the CET1 capital ratio of 19.3% and the buffer to the requirements of around 420 basis points. The capital target range of 100 to 300 basis points remains. Risk exposure amount increased to 859 billion, mainly from a 14 billion increase in credit risk, of which 7 billion comes from FX. I now hand over to you, Jens.

Thank you, Anders. As you all know, and I take every chance to talk about, I am very proud of our customers' societal engagement. Because together we make a difference. Our investors in Swedbank Humanfond has donated 55 million kronor to charity. And during the quarter, that money was distributed among 73 different organizations. Now, let me sum up the quarter. In these difficult geopolitical times, I feel somewhat optimistic for the economic development. And there are many indicators that Sweden, Estonia, Latvia and Lithuania will be at the top of the growth list of the EU countries next year. In these times, Swedbanks continue to stand strong. Our profit increased compared to both the previous quarter and year. Our return on equity amounts to 16.9% for the quarter, Our cost-to-income ratio remains at 0.34. Our credit impairments continue to be low. And, as undershown, we have a strong capital position with a buffer of 4.2%. A sustainable bank is a profitable bank. And with an even stronger organization... I look forward to, together with all the people in Swedbank, continue to deliver more benefits to our customers and taking further steps towards Swedbank 1525. Because our customers' focus is our focus. And with that, I give the floor back to you, Annie.

Thank you very much. Let's begin our Q&A session. And before I hand over to the operator, can I remind everybody to keep to two questions per turn. Shari, handing over to you.

The first question comes from the line of Magnus Andersson, ABG. Please go ahead.

Yes, good morning. First one on costs. right that you keep your 2024 cost outlook unchanged. I was just wondering related to that, in conjunction with the Q4 report, you mentioned, also mentioned a potential net headwind drift of some 7-800 million for 2025, in addition to the 1 billion in 2024, whether that still stands. And also on this hiring freeze, I'm just wondering a bit how temporary it is, whether you have an FDI target or not That's the cost question. And secondly, just on NIR and migration, there was a bit of conflicting messages yesterday. And you seem to be more like SEB when I look at your numbers. Still, Anders, you talk about lower deposit margins due to mixed shifts, but we don't really see much in your numbers, much migration on page 38 in the fact books. If you could elaborate a bit more on that. Thanks.

Well, let me start with the cost question, FT question. First, we have guided on the 2024, but we have not guided on 2025. And as Anders frequently says and keep on saying, we stare the bank on costs, not on FT, and that stands. But when you look at the number of EFTs, it has increased more than we expected. And that is because fewer people leave the bank than forecasted. And it might have something to do with the economic development in Sweden. And in some areas, employee churn have more than halved. On one side, that is good because it means that we're a great place to work. but it also means that we need to slow down the inflow. And therefore, we have decided on a temporary external hiring freeze with, of course, the possibility to make business-critical exemptions. With that said, this increased possibilities for internal movements and personal development for our employees. And even though the bank has a cost-to-income ratio of 0.34%, Continued cost control is adamant so that we can deliver a sustainable return on equity of more than 15% in good times and bad times, in times with high rates and in times with low rates. Now, Anders, you need to go deeper into the NII.

Yes, I will try. Thank you, Magnus. And if I forgot some of your questions, I'm sure you will reiterate them. But as Jens said on cost, we are not guiding for 2025. I think you might have misunderstood what we communicated in Q4 because we said that we have a headwind underlying, which is around 1.7, but we will continuously work with efficiencies so the net headwind will be 1 billion. So that might be what you are alluding to. But 2025 is something we will come back to. On the NII migration, I think when you look in the fact book, you can see some migration continuing to term accounts. But what we also have seen during the past two years, as I alluded to and so did Jens, is that QT is biting in to the corporate deposits primarily. And you see that... most of the money has been flowing out on higher margin accounts. So when you see the decrease on corporate deposits over the last two years, the main reason is that higher margin accounts have decreased, which changed the mix composition.

Okay, so the comment there about mix shift is more longer term, not necessarily so much the quarter-on-quarter development.

Yes.

Okay, understood. Thank you.

The next question comes from the line of Richard Strand, Nordea. Please go ahead.

Hi and good morning. So first question on NII. You show also on the slide 12 that you have some headwind on funding and other. Can you give an indication what you expect here for the rest of 2024, given your current funding plan?

Thank you, Rickard. what we are planning for, but that is obviously dependent upon what's happening to the deposit volumes. But we are planning to issue around 160 billion. We have front-loaded, as I said, capital and MREL-related issuance, and we will continue to do that due to the fact that we are in a very sort of volatile, potentially volatile capital markets coming

our way and covered bonds will be the primary tool to cover for any changes in deposit volumes or uptick in lending volumes thanks and then follow up on costs also you flagged that for quite many quarters now that you see headwind from renegotiations of third-party contracts is it possible to comment on how you foresee this headwind to be in the coming quarters and years?

What I have been saying is actually giving you a heads up because we were protected essentially during 2022 and 2023 from inflationary pressures on the contracts. They started to be renegotiated last quarter, and they continue during this year. I don't have an exact date for those, but they are still to be renegotiated, some of them.

Okay, so more or less easing from next year then, it sounds like.

As I said, I don't have the exact maturity structure of it.

Okay, thank you very much.

The next question comes from the line of Gulnara Saitkulova, Morgan Stanley. Please go ahead.

Hi, good morning. It's Gulnara here. Thank you for taking my questions. So my first question is on capital. So we saw the increases in the risk-rated assets this quarter. Can you talk about your outlook on the capital for the coming quarters? What are the key tailwinds and the headwinds that we should take into consideration? And another question is on the U.S. investigation. So earlier we saw that Estonian money laundering probe closed without any charges for Swedbank. Would you consider this as a positive lead across for the outcome of the U.S. investigation? Any update there? Thank you.

Thank you.

So should I?

Yeah, please. Sorry. I leave the floor to you.

So, first, during the quarter, the state prosecutor's office in Estonia closed their investigation into Swedbank AS since no crime was committed. And then we can leave that behind us. In the U.S., we are still under investigation by three U.S. authorities, the Department of Justice, the Securities and Exchange Commission, and the Department of Financial Services in New York. And as I've repeatedly said during this call, that when I was a new CEO, I phoned around and talked with colleagues that had been in similar situations. And they told me that the process like this usually takes three to five years. And I've now been the CEO for four and a half years. So in that sense, we are getting closer. But it's a timeline that is fully decided by the U.S. authorities. I do not know whether we will get any fines. And if we do get fines, I cannot estimate the size of those fines. And we have been as transparent as possible during this process. And when something material happens, we will continue to adhere to that principle. Now, Anders.

Thank you, Jens. And thanks for the question. This year, we don't see any regulatory capital headwinds. The only thing that will impact... The risk exposure amount, as far as I'm concerned, is volume growth and maybe continued migrations. If you look back to the investor day, I think we were disclosing potential headwinds, but they are mainly related to 2025. Thank you.

The next question comes from the line of Andreas Hankenson, SEB. Please go ahead.

Morning, everyone. So two questions on asset quality. I've heard there was some noise in the market this morning talking about your Stage 3 migration, and could you just confirm for me, given that the increase seems to be coming from retail mortgages and CREs, so all collateralized lending. So is the reason that your coverage ratio is falling, is that because you have good collateral and your LGD isn't really moving? That's my first question.

Yes, that's correct. And I could comment a bit on the migration we saw, particularly on the mortgage side. So to begin with, and that's basically what you are saying, I would really want to underscore that we have no worries whatsoever about the quality of our mortgage portfolio from a credit loss perspective. The migrations you saw are mainly explained by the classification of non-performing forborne exposures, which added 1.2 billion, but only 34 million in provisions due to the low level of risk. Most of these households are still paying interest on their loans, but forward-looking have a weak affordability, so that's the reason behind it. And this is something that concerns a very limited part of our portfolio. But just to repeat, so from a credit loss perspective, we have no worries about this.

Thanks. And then also on asset quality, your IFRS 9 model – Because when I look at your own macro assumptions, you expect a significantly higher GDP growth and lower interest rates in 2025 than what you had in 2024. And as those estimates now start to be drivers of the IFRS 9 model, should we really not be expecting quite large reversals from a model point of view? And if that takes place, will it not be harder to justify to your auditors to keep your model overlay provisions?

Yeah, you're correct. So when you look at the macro projections, they have been improving regarding GDP, interest rate projections, house prices, etc. So many of the factors that goes into that have been improving. But what is also contributing part to our macro forecast estimation is also credit cycle adjustments we make for different sectors. For several sectors like property management and households, this was positive. But for other sectors like manufacturing and some others, there are lingering effects from the downturn, which had a negative impact. This is also why the net effect has not yet turned into reversal.

But as you say, I mean, there will be a positive effect over the year, and if the macroeconomy is improving overall, isn't it actually more likely that loan loss provisions this year is going to be closer to zero than it's going to be closer to $2 billion or something where consensus is forecasting?

I don't want to make any forecasts, but obviously when macro figures improve and also when the credit cycle adjustments start to improve, you could expect, of course, this to reverse.

Yeah. Thank you.

The next question comes from the line of Marcus Sandgren . Please go ahead.

Morning, everyone. So I was just, if I could come back to capital. You said before that you will, as soon as the U.S. investigation is out, you will steer towards the 200, and now you're mentioning the range of 100 to 300. Does that steering towards 200 still stand? And then secondly, on NII, some of your peers have started to lower mortgage rates already on a product that is already too slim priced. What's your take on that, given the increased competition or lower margins on deposits? Thanks.

Well, let me start first with the mortgage rates. It's a tough competition out there. But as I said, we've increased our sales for our own channel the last six months every month. And we have a very competitive offering. And when interest rates start to go down, of course, interest rates will also go down from our side. Anders, do you want to follow up?

Yes, Marcus, and just to be clear on what I've been saying all the time, we will stick to our pricing strategy where we are individualizing pricing on mortgages and actively work with that. On your capital question, the message that we sent on the investor day still stands. But again, be very clear on that we need to have the uncertainty from the U.S. investigations behind us. But the range of 1 to 300 is not in any way contradicting steering towards the mid of that range.

Okay. And just to clarify, did you say no headwinds from Basel IV?

I said that in 2024, we don't see any regulatory headwinds. They will most likely come in 2025 when Basel IV is implemented and we are further down the road and potentially on the IRB, very much in accordance with what we said on the investor day.

Okay, thanks.

The next question comes from the line of Trey Srivastava from Citi. Please go ahead.

Good morning, and thank you for taking my question. I'd like to actually dig a bit more into the beat on commission income. You obviously call that higher average stock market, but cards were off. Hello, can you hear me?

We can hear you good.

Yep. Sure. But cards were also seasonally lower, and this should come back with economic activity. Could you give us any more color on the various puts and takes going forward and how you see this developing in the next few quarters? And my second one is just another one on the deposit mix shift. I know you said this is a longer-term trend, but as you head closer to a presumed peak in the hiking cycle, How do you see customer behavior going into that? You would have thought that as rates peak, you would expect more customers to be trying to lock in higher rates on fixed-term products. So I'd be interested to hear any thoughts you have on that. Thanks very much.

Thank you. There were so many questions that I nearly forgot them, so I will start with your first one. When it comes to customer behavior, moving into fixed term primarily. As we have been saying, it was quite sort of dramatic in the beginning of the rate cycle and it has sort of diminished gradually because this is typically excess liquidity that we talk about. How people will behave when the economy is turning around is very difficult for me to forecast. We will continue with what we have been doing all the time, that is to work actively with our administratively priced products on both the asset and liability side. On your commission income question, you know that we are the largest asset manager in our home markets. We see positive net inflows, but more importantly, as you know, the stock market performance is the underlying driver. I will not forecast equity market development going forward, but that sort of has been successful in the quarter on the back of benign stock markets. When it comes to cards and payments, what you saw in the quarter was a slight uptick in payments, but a seasonal downtick on card acquiring. This is seasonal, so we expect card acquiring again to come up when consumption is coming up, and even further so when the economies might recover and go into a positive territory. Then we have debt capital markets and corporate finance, where we have seen markets being quite benign during the first quarter, And if that continues, we have a strong position there.

All right, that's very clear. Thank you very much.

The next question comes from the line of Madhav Rati, JP Morgan. Please go ahead.

Yeah, hi. Thanks for taking my question. So I have one on fees. So can you just elaborate what the line of other fees is? So there's about 100 million employment quarter on quarter. And also overall on fees, is there any performance-based fees or any front-loaded fees in this quarter? And then second would be on NII, just if you could guide on NII trajectory going forward for 2024.

Thank you. I will start with your first question while we are digging into your, or your second question while we're digging into your first question. We don't give you a guidance on NII. I think I gave you some of the parts, but again, to reiterate some of it, if you look at the updated NII sensitivity, it has come down compared to what we communicated in the investor day. On the back of the fact that what we have been talking about during this call, we have more capital market funding and more higher paying deposits. These volumes also have a higher beta to market rates. If rates are coming down, we will have some negative effects that we have talked about in the past. But there are also some tailwinds in terms of market-based funding costs coming down gradually. And nothing more than that. So I will not give you any guidance on NII. I think you have the bits and pieces to play around with. On your first question, I think I need to come back on that one. I don't have that on the top of my head. Sure. Thank you.

The next question comes from the line of Hag Morhead Berenberg. Please go ahead.

Hi. Good morning, and thanks for taking my question. Just another one on the potential for surplus capital distribution. I think you've previously suggested in the past that you'll wait as well as for the U.S. case to resolve. You'll also wait for your mortgage model review to be processed. Given you don't expect that to happen in 2024 by the sounds of things, is it fair to assume that even if you settled in the US, tomorrow say there would be no surplus distributions during 2024?

On the mortgage, you're referring to the P2R add-on, I assume, which is relating to our mortgage portfolio. As you know, we are rebuilding our models in accordance with regulators' expectations. The first, and we will do this sequentially, even though we are doing a lot of things parallelly, we will send them in gradually, and the mortgage application will be the first one. Then, as you know, the regulatory process starts, and there we do not have... either the knowledge or the possibility to influence that. But that is the first priority we have for this year to send in.

Okay, thank you. Sorry, is that a significant overhang in the same way that the U.S. case is from you reducing your surplus capital?

Yes, it's a locked-in add-on that will be released when the new models are approved, and it is of significant importance. I agree with that.

Okay, thank you.

As a reminder, to ask a question, please press star and 1. The next question comes from the line of Jakob Kruse, Autonomous. Please go ahead.

Hi. So, two questions. First, on the NII, could you just – you refer to this 340 million of margin pressure in the quarter. It sounds like it's not mixed change on the POS-SIVs, specifically the quarters. Could you just set out a little bit where which products this margin pressure is coming from? And secondly, just to follow up on the previous question here about the model approvals and your – capital distribution. Just to be clear, are you saying model approvals need to be done before you can start looking at excess capital distributions? Is that how I should read it? Thank you.

Thank you. On your first question, I think what is different in this quarter compared to some of the other quarters is that short-term rates have been quite stable. And that is what I tried to convey. And if you take the two-year horizon that I talked about, where corporate deposits on higher margin accounts have decreased gradually and been replaced by market funding, that is not something that appears in the quarter. It's more an effect of the fact that rates have been more or less stable. which is then obviously these things are surfacing and being more visible. So muted lending volumes and increased funding cost that has been gradually coming into the books is the underlying reason for this. And on your second question, I hand over to Rolf, who is the expert on model development and the process.

Thank you, Jacob. So when we communicated during the investor day December last year, we made an assessment about our capital situation. And when we did that, we knew about the approval process regarding IRB. And this is a gradual process. It will take time and we will get the approval step by step over the coming years. and we have not changed the assessment we made back then.

Okay, so can I just follow up slightly on these two? So in your NII bridge, funding cost is a separate item, and then you talk about margins coming down. I'd still struggle a little bit to understand which margin you're talking about driving this 311 million specifically on the margin side. And just on this capital thing, so I understand that there's an ongoing process, but could you say if this is or isn't a prerequisite before you can return to capital distribution? Thank you.

To be very clear, the main driver is deposit margins.

Deposit margins. because of pricing or because of mixed change?

Well, let me see if I can explain it. Anders, you have to kick me on my leg if I say something that's wrong. But as I said, it's a quarter of good results, but we see that our funding costs have increased. And that's a combination of factors. One is that we've done preemptive financing on the capital markets, as Anders talked about. the 81 and the senior non-preferred, so that's one issue. The other issue is that you see quantitative tightening happen in the markets, and that means that the amount of liquidity has decreased, and then what happens is that We need to finance that for mortgage-based securities more. And the other thing is that happens a mixed shift. So that means that when companies have less money in their accounts, they tend to use the money on accounts with lower interest rates. and then as Anders said that we see some still some movement so it's pretty stable and it has not gone up when customers move from lower account with lower interest rates to higher interest rates and that totally we advise our customers to do that when we meet I meet private customers I talked about have a little money on your transaction accounts had your savings on a savings account and we have great offers on the fixed terms.

On your second question, if you remember from the investor day, we were trying to take into consideration potential capital headwinds from Basel IV and IRB overhaul. We have no information that changes our communication during the investor day as of today.

Okay. Thank you very much.

Ladies and gentlemen, that was the last question.

So, I just want to thank you all again for calling in. And once again, I'm very proud to stand here and say that we delivered... A strong result with return on equity of 16.9%. And I look forward to seeing you in different meetings or then in, what is it, June. And then we hope that it looks like on this picture actually even a bit greener. Thank everybody for calling in and take care. Bye.

Goodbye.