Nordea Bank Abp (NDAFI) Earnings Call Transcript & Summary

Good morning, and welcome to Nordea's Second Quarter 2023 Result Presentation. Here in Helsinki, we have our CEO, Frank Vang-Jensen; Our CFO, Ian Smith; and my name is Matti Ahokas from Investor Relations. As usual, we'll start with a presentation by Frank, and after that, you will have a chance to ask questions. To ask a question, please remember to dial into the teleconference. With those words, I leave the floor to our CEO, Frank Vang-Jensen.

Good morning. Today we have published our half-year and second quarter results for 2023. During the first half of the year, the geopolitical landscape has remained fragile. Moreover, macroeconomic uncertainty and persistently high inflation have put pressure on both private individuals and corporates. We have also seen turbulence in the financial markets. In this challenging environment, banks are expected to be solid and trustworthy corporate citizens in society. Nordea is one of the most stable and profitable banks in Europe. Our role and aim are the same as always. We're here to support our customers, while delivering stable and predictable financial performance. Our franchise is resilient. We are the only Nordic Bank with a very well-diversified pan-Nordic business model, and we have a sound financial risk position and a strong balance sheet. On top of that, the Nordic region is a very stable and profitable banking market. All this gives us a unique position and makes us a safe and strong partner for customers, shareholders, and broader society. Over the past 4 years, we have consistently improved our performance and are pleased to report yet another strong set of results in the second quarter. We continue to drive high levels of customer activity and strong results. This led to our return on equity of 18.4%. Let me go through some other highlights in Q2. Total income increased by 22%, mainly driven by a 40% increase in net interest income, despite significant negative effects from the weaker Norwegian and Swedish currencies. Net fee and commission income decreased by 6% mainly due to subdued capital markets activity and lower savings income. Net fair value result and net insurance result were up 14% and 28% respectively. Costs are developing according to plan and the cost-to-income ratio improved to 40% from 46%. Operating profit was up 26% year-on-year. The economic slowdown and interest rate increases have had a negative impact on business volumes, mainly on mortgages, which were stable year-on-year. Corporate lending was up 4% and continues to be the main lending growth driver of 2023. Retail deposits grew by 1% year-on-year and corporate deposit decreased due to seasonal effects from dividend payouts and the normalization of deposit levels in some sectors such as the energy sector. Asset under management were up 2%. All 4 of our divisions and all the 18 of our business units delivered a good performance and positive jaws. The overall performance shows the strength of our franchise. It is evident that the backbone of our business is strong. Our credit quality ran solid with low net loan losses. Also, our capital position continues to be among the best in Europe. Building on our current performance and assessing the business development for the rest of the year, we have upgraded our outlook for the full year. We're expecting return on equity to be comfortable, above 15% this year compared with the earlier outlook of above 13%. I will get back to the target updates at the end of the presentation. Let's now look at the second quarter results in more detail, starting with the income lines. Net interest income was the main growth driver in the second quarter. The NII result reflects both the macroeconomic development and changes in customer behavior. Net interest income increased by 40% year-on-year. Monetary policy rate hikes are resulting in improved deposit margins across business areas and countries, creating a tailwind for net interest income. Retail deposit grew by 1% and corporate deposit decreased by 7% year-on-year. While the deposit margins are supporting the result, it is clear that the economic slowdown and interest rate increases have had a negative impact on business volumes. Higher living costs and lower consumer confidence have been reflected in lower demand for housing loans and investment products. Mortgage lending remained stable year-on-year. Despite the economic slowdown, our corporate lending volumes have continued to grow, particularly in Norway and Sweden. Corporate lending grew by 4% and continues to be the main lending growth driver of 2023. Lending margins have come down, mainly driven by lower mortgage margins, particular in Sweden. It is also worth noting that the weaker Norwegian and Swedish currencies had an impact of approximately EUR 145 million on our net interest income. Rising rates are understandable, putting pressure on our customers. However, I am glad to see that our customers have in general adapted well to the new interest rate environment. We have maintained proactive support for our customers and have delivered relevant advice and services. We have also further developed our deposit offering for both retail and corporate customers. The picture for net fee and commission income was mixed during the first half of the year. Net fee and commission income was down 6% year-on-year. Payment and card income increased by 2% in local currencies year-on-year due to higher customer activity. Brokerage and advisory fee income was impacted by lower customer activity in a subdued market and was flat. However, we are seeing signs of recovery in this area. As the management fee income slightly improved quarter-on-quarter, total net flows stood positive in Q2 with a continued strong inflow from internal channels. Also, we have seen a positive development with regard to our pension offering as such products are being prioritized in these rather volatile markets. Net fair value results were supported by continued high levels of customer activity. We continue to support our Nordic customers in meeting their financing and risk management needs in a volatile environment. FX and interest rate hedging products remained in solid demand. Market making operations were up during the quarter and treasury result supported their NFV development. Overall, net fair value result increased by 14%. The high inflation continues to affect our customers and society in general. Our cost increased by 7% year-on-year as we continue to manage strong inflationary pressure, while at the same time making further additional investments. These investments are related to protecting us and our customers against financial crime, strengthening cybersecurity, and enhancing our technological capabilities even further. All this is in line with our plan. In the second quarter, we improved our cost-to-income ratio to 40% from 46%. Our risk position is strong and credit quality remains solid. Our pan-Nordic loan portfolio is well diversified and spread evenly across the Nordic region and across different sectors. This is a unique structural advantage which enables us to avoid larger concentrations. We see no signs of stress in any parts of our portfolio. For instance, in the commercial real estate segment, we have a high-quality portfolio with relatively low levels of risk exposure and no concentration in any specific country. Naturally, we're following the impact of macro developments on all our customers very closely. In the second quarter, individual net loan losses remained low at EUR 25 million or 3 basis points despite the Nordic economies slowing. Overall, net loan losses and similar net result for the second quarter was EUR 32 million or 4 basis points. The increase compared with previous quarters is explained by lower reversals rather than increasing new provisions. We have kept our management judgement buffer unchanged in local currencies, which translates to EUR 572 million. In this way, we continue to ensure a strong reserve to cover potential future loan losses in the continued uncertain environment. Our capital position is among the best in Europe, and we continue to deliver market-leading returns for our shareholders. Our CET1 ratio increased to 16% from 15.7% during the quarter. This is 4 percentage points higher than the current regulatory requirement. Our capital position demonstrates our strong capacities to support customers and society. We also remain focused on capital excellency in accordance with our strategy. As a part of this, we launched our fourth share buyback program of EUR 1 billion at the end of April. Let's now move on to our business area results. During first half of the year, in all our divisions, income grew faster than costs and our aim is to continue to deliver positive jaws. In personal banking, we grew our business volumes in line with the market and continued to build strong digital relationships with our customers. We are clearly being impacted by the economic slowdown and rate increases, mainly in terms of mortgage business volumes. Mortgage volume growth follow the slowing housing markets. Total lending volumes were stable in local currencies year-on-year, while deposit volumes increased by 1% due to savings deposit growth across the countries. Customer investment activity and demand for new loan promises remained lower than 1 year ago. We continue to see increased interest in deposits and further expanded our deposit product offering across the markets. For example, customers in Sweden can now make recurring transfers into both savings deposits and investment funds through digital channels. Meeting activity and traffic to our customer advisors remained at high levels, driven by high customer demand for advice related to personal finances. Digital customer activity further increased with private mobile app users up 7% and logins up 9% year-on-year. In Sweden, we drove a 21% year-on-year increase in digitally generated leads for mortgage and savings advisors, supporting our continued market share growth. By consistently adding new products and services and increasing our use of data analytics and automation, we have attracted 1.2 billion logins to our mobile bank in the past year alone. We also continued to expand our sustainability product offering. The ESG share of gross inflows into funds remained high at 31%. Total income was up 29%, driven by strong NII growth. Return on capital at risk improved to 27% and the cost-to-income ratio improved to 45% from 51%. In Business Banking, we maintained the solid business momentum and continued to grow our volumes. Total income was up 25%. Lending volumes increased by 4% in local currencies year-on-year. We grew our SME lending volumes, especially in Norway and Sweden. This clearly demonstrates our relevance and strengthened position in the SME segment across the Nordics. Net interest income was up 41%, driven by lending volumes and higher deposit margins. The quality of the loan book is sound. Net loan losses of EUR 37 million were driven by a small number of customers, mainly in the construction and retail sectors. Customer satisfaction improved during the quarter. We increased our proactive support for customers to help them tackle the current macroeconomic challenges to support our aim to be the leading digital bank for SMEs. We continued to develop the Nordea Business net bank and mobile app. The digital customer experience is getting a positive response from our customers. For example, customer feedback on the net bank improved, and mobile bank ratings averaged above 4.4 out of 5 for the quarter. We are committed to accelerating the transition to a more sustainable economy. In May, we introduced the new sustainable -- sustainability guarantee which makes it easier for customers to obtain financing for sustainable investments such as solar panels and energy renovations. Return on capital at risk in Business Banking increased to 23% compared with 19% a year ago, and the cost-to-income ratio improved to 37% from 43%. In Large Corporates & Institutions, we made further progress with our strategy execution. We grew lending volumes by 3% year-on-year, excluding FX impacts. We are seeing solid demand for credit among Large Corporates' customers, and with our strong balance sheet, we are able to meet the demand. Deposits returned to more normal levels following the dividend season and the exceptional events in the first quarter. In Debt Capital Markets, the activity level normalized, but in Equity Capital Markets and Mergers & Acquisitions, the uncertainty remained. However, activity levels somewhat improved and our deal pipeline strengthened during the quarter. Credit quality continued to be very strong and we saw net reversals during the quarter. Global Finance Magazine named us the best bank for sustainable finance in Denmark, in Finland, and in Norway. We remain a leading platform for sustainable advisory services and are on track to facilitate EUR 200 billion in sustainable financing by '25. Return on capital at risk increased to 19% in the quarter. In Asset & Wealth Management, we were able to remain on the growth track even in challenging markets. Total income was up 14% year-on-year. We maintained strong momentum in Private Banking and continued to support our customers with high-quality investment advice. In line with our growth plans, we attracted further new customers and secured positive net flows of EUR 1.8 billion. In Life & Pension, we continued to execute our growth plans. Gross written premium in the quarter amounted to EUR 2.2 billion, up from EUR 1.4 billion 1 year ago. The strength of our franchise is visible in the positive net flows of EUR 2.6 billion from our internal channels. Assets under management were up 2% year-on-year. The net total inflow was also slightly positive during the quarter. Our long-standing focus on ESG was recognized by the 2023 Responsible Investment Brand Index, which awarded us a top ranking in the Nordics. To support our strategic objective to be a digital leader, we launched several enhanced functionalities for savings and investments in the mobile app. We also introduced features to facilitate closer customer-advisor interaction and reduce time-to-market. Return on capital at risk was 60% and the cost-to-income ratio improved to 39% from 40%. To sum up, the first half of the year has been strong for Nordea. The second quarter was actually the 10th quarter in a row for which we were able to grow our analyzed operating profit. Since we launched the repositioning of the bank in 2019, we have consistently improved our business performance in different economic circumstances. We have established a new sustainable, higher level of profitability and are now among the best-performing banks in Europe. And let me emphasize that all our 4 business areas across the countries are performing very well and contributing to the strong group result. With a unique business mix, we are running 18 well-performing business units, and we will continue to improve on this journey. Our pan-Nordic business model is resilient and enable us to support and advise our customers and perform well in the current macroeconomic uncertainty and volatile financial markets. Our assessment is that we will continue in this direction during the second half of the year. To reflect this, we have upgraded our outlook for the full year. We expect return on equity to be comfortable above 15% in 2023. In addition, we are reassessing our long-term financial target for 2025. We will provide a target update in connection with the release of our fourth quarter report. Building a successful business is a marathon rather than a sprint. That is also our mindset. We are happy with the progress made so far, but at the same time, we are consistently striving to improve our performance further. We remain committed to delivering the best omnichannel customer experience, driving focused and profitable growth, improving operational and capital efficiency, and maintaining positive jaws. Most importantly, we aim for nothing less than to serve our customers to the best of our ability and be the preferred partner for them now and in the future. Thank you.

Thank you, operator. We're now ready for the questions.

[Operator Instructions] The next question comes from Magnus Andersson from ABGSC.

First of all, on NII, since you are the only truly pan-Nordic bank, if you could tell us about the main differences now between the underlying NII dynamics in -- between the Nordic countries, primarily thinking about lending margins, deposit margins, but also perhaps migration from transaction to savings accounts and how you're thinking about paying a deposit rate on transaction accounts in Sweden? That's the first one.

So, of course, a bit difficult to exactly say how this will play out, but at least some flavor. So, looking at the mortgage market, which, of course, is a big driver, Denmark, stable. Norway, quite stable. Finland, a bit down, but we are holding up and don't see any reasons for why that should not happen also in the future and quite much pressure on the Swedish market. In total, it will lead to a pressure somewhat down on the mortgage margins. When it comes to corporate lending, there's no big signs of any sort of deterioration of the margins, and I should say that goes for all 4 countries. But of course, at the end of the day, it depends about how much growth there is in the market and the tendency always. If you see growth of a certain size, then it will support margins. If you really start to see very slow growth, then the competition will increase even further, and price will be a parameter. But there are no such signs at the moment. On deposit side, it's -- so I think all people, corporate societies are now starting to -- or starting. They are adjusting to positive rates, and we all are learning to live with new rates and that goes also on sort of like how to get the right offering in place, but also as customers how you sort of like use the offering that we offer the customers. And the trend is that the usage of savings account and time deposit is increasing, leading to a lower share of amount being on the -- or share being on the deposit or the transaction account. And then where that sort of will find this balance is difficult to say. There will always be a significant amount on transaction accounts as it's a very small numbers. For the individual it's very low. It doesn't mean anything. But of course, when you have 7 million customers, it will, of course, add on. So, I should say, that's where it is. All -- if you add it all together and then would ask the question, what would that mean to the NII, I would say that is very difficult to say. But it might be that it still will come up a bit, but very difficult to say.

If I might follow up then, you mentioned Swedish mortgages were -- obviously, we see quite fierce competitive pressure on the 3-month margin in particular. Do you think it will be possible to increase that margin by lowering the discount because it's pretty close to record-high levels from a historic perspective? And secondly, just if you could update us again on what share you have on transaction accounts now in your Personal Banking and Business Banking operations so that we can compare it to Q1?

I'll take the first one on the mortgage margins. You can always reduce sort of the discounts. The problem is why that is, and then you also sense a clear signal and you will defend something, but it will be -- you will be losing market share all the time. What happens now is -- we have seen this so many times before. So, the market is quite compressed when it comes to pricing. That's for sure. And the growth is very slow in the market. and we have chosen to be as active as we have been all the time. We're not using price as a lever. We are having a -- sort of a [ cake ], a little bit above average market price, I should say. But still, we are gaining market share. So, the recipe works. And as it is a commodity to some extent, then we -- our intention is just to keep up going. And then over time when the growth in the market will slowly start to come back, the prices will adjust, but it might take some time.

And transaction accounts in Sweden, are clients asking for it? Because I haven't seen you introducing a rate on those, at least not yet?

So they -- if we start with the offering, the key question is, do banks -- and we, as we -- as us we are talking about, do we have an offering that is attractive to our clients? And the answer is clearly, yes. So, if you were -- if you're choosing a savings account without any sort of binding, you will probably get 1.7% to 2.7% interest rate on your deposit. If you take it with 3 months sort of like binding, you'll get it about 3.5% and if you take 12 months, it's probably at around 3.9%, something in that area. So, you get a very, very good offering. And that is what we tell our customers, and we ask them to do. And then what is left on the transaction account is -- it's actually quite limited. And for most people, it meant absolutely nothing, whether that were an interest rate or not on that account. And our opinion is that there are so many costs related to having a transaction account, and the alternative would to -- be starting to get paid for the account as such. Remember, we have 3,000 people working with nothing else in transaction monitoring, for example, and that, of course, brings a lot of cost. Just an example. So, I don't think for -- it's very clear that the customers are not asking for it. The customers are asking for alternative that will enable them to have a good return, which we have. Over to you Ian, please.

So you asked about the proportion on savings versus transaction. On average, across our markets, it's around about 60% on savings deposits. Varies from country to country, a higher proportion of savings accounts in Sweden and Norway versus Finland and Denmark. And in terms of how that's moved over the last 12 months or so, probably a couple of percentage points tilted in favor of savings accounts, which is understandable, given, as Frank just outlined, the quality of the products on offer.

And just a second on asset quality, a brief. I mean, if you assume that there would be a severe recession or a significantly larger downturn that currently is in the consensus expectations, where do you think loan losses would come from? Because when I look at your Slide 20, it looks like it is -- like the CRE segment should be quite resilient.

And I agree. So, it's clearly not the household side. And then, of course, there will be sort of like individual corporates that will be exposed I should say, within different sectors, right? Right now, it's a construction sector that is getting a little bit headwind here and also some of the retail. But we do see no stress in our portfolio at all. So, when it comes to the commercial real estate, we could take that – we meet it, as you touched it. So, we have a very small portfolio, and I think that there is a lot of like confusion sort of like in the market about it in general, how big the different banks are. Our portfolio is a very well-diversified pan-Nordic portfolio. Of our total group lending, EUR 24 billion is for commercial real estate. That corresponds to less than 8% of the total group lending. Looking at the Swedish share, then its correspond to roughly a little bit less than EUR 8 billion, and that translates to 2% of our group lending. The 2% of our group lending is through Swedish commercial real estate. So, it's very small numbers compared to some of our peers and also compared to our size. I'm not concerned in any way of the exposure we have within the Swedish commercial real estate, and we do see no stress within our sort of like own portfolio right now. So of course, there will probably come some credit losses over time, as it always will, but it's nothing that can shake us in any way. That's for sure.

And what would be the trigger here to utilize -- You have EUR 572 million of management overlay. And you mentioned construction, that's less than 3% of your portfolio. So, I mean, how should we think about loan losses? They are close to 0 now. And moving into 2023 -- '24, if you look at the consensus GDP scenario, I mean, where should your net loan -- or should it be any net loan losses really with the huge reserve you already have in place?

So, I think it's just having learned from the past, right, and the different sort of like economic cycles. Then you will always face provisions and sometimes also realized loan losses, and it could come from different angles. It could come from sort of like all sectors, and we just need to be prepared for that, and I think we are well prepared, as you said. We have a management buffer of EUR 570 million. And then this quarter, actually, it is not sort of like -- we have a bit higher -- very small, but a bit higher than previous credit losses, and that is not due to higher gross losses. That is due to lower reversals. So, I think what is happening now is that it becomes more difficult to sort of like solve the weak cases. It becomes more difficult to sort of like find a new home for them, find a new bank. And that's probably going to continue to be the case for at least some quarters into the future, and let's see what will happen. But I'm quite sure that we will start to see more credit losses in general in the banking industry, but there's no signs of something very dramatic happening. That's for sure. But to get a bit higher number would be just very natural.

Magnus, just a follow-up in terms of -- you highlighted the conservative management judgement buffer that we carry.

Yes.

Those are really -- I mean in the same -- I guess there's an analogy to how we talked about it with COVID, which was where we would either expect to see losses come through, and we would deploy that buffer against those losses, or if we didn't see them coming through, we would release -- And I think we're in a similar position now. We do a number of stress tests that look at where things might turn out. If the world gets a little bit worse, we're very comfortable that we can handle the impact of those stresses with that buffer.

The next question comes from Nicolas McBeath from DNB.

So, a couple of questions on costs. So, we see now that cost growth is accelerating a bit and the FTEs are up, I think, 7% year-on-year. So, could you say something about if you expect FTEs to keep increasing at a similar pace over the next few quarters? And more broadly, if you view the improved revenue conditions as having changed your kind of cost budgeting, if you're willing to accept new projects and investments to a greater extent into the likes of tech and risk, as you mentioned, these were cost drivers in Q2?

So yes, you do see higher than historical cost growth. But partly that's because we're comparing with a lower run rate in the previous year. As you know, towards the end of last year, we stepped up our investment in IT and risk management. Our Q4 forecasts in 2022 were higher than you've seen before. So, that sort of accelerated growth you saw in the first half of this year will iron out over the course of the full year. The -- and so we remain committed to our guidance for the year of around 5% cost growth. In terms of FTE increases, there's 2 sources there. The first is, as I said, our investments in IT and risk management, means that we've hired people, and certainly, on the risk management side in the area of financial crime where we have to respond very quickly to changes in rules. The way we have to do that is to hire people in order to undertake more transaction monitoring before we can systematize or automate anything there. I would say that we got quite far ahead in the hiring cycle over the last few quarters. And so, you shouldn't expect to see substantial increases in FTE from here. In addition, one of the drivers of the FTE increase was the acquisition of Topdanmark that brought in around 400 people. But the key message you should take away is we don't expect to see big step-ups in FTE from here. And then in terms of the revenue environment being, I guess, more enabling of further investment, I think it's still quite delicate. I mean, our culture here, we've said quite often, is that it's a low -- it's a very high bar to spend money. That continues. I think in some of our areas, we -- as I said, in terms of things like IT, risk management, and new product development, we are investing. But I think we're quite cautious because of the uncertainty going forward.

And then another question related to costs. If you have any update to provide on when you expect to stop paying the resolution fund fee?

So, we've had a clear expectation that the 2024 resolution fund fee should be lower. Where that ends up, I think is, we're in the hands of the authorities. Nothing to suggest that we won't see a reduction next year. And I'm hoping that given that they have made good progress on filling the resolution fund, that it should be a good deal over next year.

The next question comes from Andreas Hakansson from Danske Bank.

Back a little bit to the NII and to the now famous Slide 17. You're talking now about the hedge, which is interesting, and you showed the sensitivity in the coming years. And I'm just wondering, could you tell us a little bit more about the hedge impact? I mean, we've seen now rates going from minus EUR 50 million to EUR 350 million. So, you have a lot of tailwind going into the next couple of years. So, could you tell us in a way, what's the accumulated impact that we should see from the hedge over the next couple of years if we start with that?

So what we tried to do with our disclosures now is give a sense of the combined impact, if you like, when we see rate increases. And especially about rate increases, I guess, it should also work in the other direction. So, what we've given this time, as you see, is, first of all, the dampening effect of the deposit hedge we have in place as rates rise. And then there are 2 components, and what we're trying to show here is that there is a sort of an enduring effect, I guess, from these interest rate dynamics in NII rather than there being a cliff edge. So, the first piece that we show is that we do have in our loan book, loans that reprice on a 3, 6 and 12-month basis. And so, we see a spillover of NII improvement in the year following because of those effects. And then, as you point out, as we then start to roll over our hedges, as we do every month with higher-priced hedges, the dampening effect reverses. And so, what we see in the second and subsequent year after the rate increase is the benefit of those higher hedges coming on -- those higher-rated hedges coming on stream. So, there's a couple of dynamics at play there, and we're trying to be helpful in just explaining almost like the sort of roll-through effects after the immediate impact of a rate rise.

That's interesting. And I was listening to JPMorgan conference call the other day, and Jamie was -- sounded like the net interest income in his view, it's going to be -- I can't remember if he said material or significantly lower in a couple of years out compared to today. Could you -- what's the outlook when you look at NII, let's say, 2025 compared to 2023 roughly, of course, not an exact guidance?

So, as we see rates plateau and then start to fall, which I think is the general expectation, I think just where the market's been struggling to predict is the timing of that. That -- we should expect to see something like that. But of course, a bank like Nordea that undertakes deposit hedging, will see the impact of those lower rates softened, I guess, because of the benefit of the hedges. So, I suspect that general pattern is reasonable to expect, but we'll see a bit of underpinning from the hedge impact that others that don't hedge won't benefit from.

And then just a question on Norway. We know that there's another Nordic bank that said they're going to sell its Norwegian retail business. And I think Frank, in the past you've been saying that retail Norway is something that you could be interested in adding to. Have you looked at what's the sale at the moment? Did you have any comments on that?

Not more than that we have a good franchise, a strong franchise in Norway, and our main focus is growing organically. But of course, if a target is for sale and the price is reasonable, and we feel that it will fit well, then we, of course, are interested in looking into it. But no further comments and nothing to the concrete target that you're talking about.

The next question comes from Namita Samtani from Barclays.

I've got 3, please. On the NII sensitivity, on Page 17, the deposit hedge, why don't you increase the size of the deposit hedge now if you're expecting rate cuts in 2024, or is that not possible? And is it safe to assume the hedge is sort of invested in a 5-year euro swap? Secondly, how does the LTV on real estate management lending stay flat at 53% over the year? We can see companies such as Entra and Castellum which you lend to, speaking about valuation declines of around 8.5% and 10% in that portfolio since peak levels. So, is there some sort of time lag effect for the LTV here? And lastly, just on the fees and commissions, I find it a tiny bit disappointing this quarter, especially related to asset management. Like net flows were flat quarter-on-quarter, grants are driven by wholesale distribution. But are we going to see any improvement here, or are the lack of inflows the new normal now?

Should I take the last question first, then -- Ian, then you can take all the other ones, please? So, asset management, I actually think we have a strong quarter on inflow within the internal channels, and that is the main source of ours, as you know. I think it was EUR 2.8 billion in the quarter. That is not bad. Would we like it to be higher? Of course, but it's clearly progressing. So, that's one. Where we are struggling is within, as you said, wholesale. That's the business that is external to Nordea. That goes to other banks and similar partners outside the Nordics primarily. And the reason for why we have an outflow here is that we have had for 6 years or something like that a quite big product with this low duration covered bonds, and that has been attractive as we had no interest rates and even negative interest rates in the environment. Now the investors have plenty of options to park their money on deposits and whatnot. So, that's why we have -- that's the main reason for the outflow. So, what it's about is that the guys are coming up with new products that can fuel sort of like growth. And of course, we would like to do so and are working on it. But the core business of ours, which is internal channels, is actually looking quite good when it comes to the progress. Over to you, Ian.

Yes. So, on the NII sensitivity, I mean, we look at a number of things when you try to estimate behaviors in something like the deposits, and we then make a judgement about duration on hedging. And I think we prefer to focus on what we think the duration is, and manage the scope of it rather than be opportunistic in expanding the scope and scale of it. So, we have tweaked it a little bit over the last couple of quarters, but it isn't a sort of key area of focus for us. We think it's important to track the behavior of the customers there rather than thinking about being opportunistic, as I say. And in terms of what it's invested in, it's a range of durations from 3 to 7 years. The average is a bit over 3 because that reflects the risk in the portfolio. With the LTV flat point, I understand, intuitively you would think that you would expect to see those LTVs increase. But there's a bunch of different things in the portfolio. The average changes slowly because of those different moving parts, but we update each of the components quite regularly, and I think it just shows the diversification in the portfolio.

The next question comes from Sofie Peterzens from JPMorgan.

So, just a follow-up on the hedging, please. Would you be able to share with us what the size of your hedge is, and also kind of what the back book yields on this book is? And then, also if everything is invested in euros? And then my second question would be on the LC&I deposits. They fell 21% quarter-on-quarter. You said it was dividends and some exceptional items in Q1, but it looks quite broad-based across the countries apart from Sweden. If you could just elaborate a little bit more here? And then kind of just a follow-up question on the CRE. You mentioned that 2% of your CRE book is the -- kind of there is high-risk customers. How do you define high-risk without junk-rated -- contrary be defined as high-risk, or will it be defined as a low risk or something medium risk? So, if you could just elaborate on how you define high-risk? And then just a very quick final question. One of your Nordic peers had some Polish FX mortgages. Given that you used to have operations in Poland in the past, could you just confirm that you have no FX mortgages in Poland?

It's a big list you've got there. So, the easy one first. Nothing in Poland. On NII, we tried to be helpful with disclosure, particularly and how it impacts -- around the hedge, particularly, how it impacts the broader NII dynamics. I'm not going to give any more than we have at the moment here. So, I'm afraid I can't be more helpful to you there. LC&I deposits, I think we need to take a bit of a step back, and what we've seen in our Large Corporate business is, over the last few quarters, we saw some quite strong -- unusually strong growth in LC&I deposits, and that came particularly in Q3 and Q4 last year from companies in the energy sector. And it's a combination of both of those companies being more profitable, but also building stocks of liquidity. And what we're seeing now is that normalize. So, we've seen large energy companies have to meet big tax bills and pay large dividends, for example. And so, that is part of the dynamic that we see, particularly moving from Q1 into Q2, as those payments have been made. And so, nothing more than the -- I suppose, the reversal of what we saw in the second half of last year, and certainly nothing that indicates a secular trend. There are always at the margin some large corporates that are very price sensitive, and we do see some things move in and out with those large European corporates, depending on whether the treasurer is able to get best pricing, and that sometimes comes into play. But the main impact here is those energy companies and the reduction in deposits from them. And on a sort of broad basis, the LC&I deposit base is pretty stable.