Swedbank AB (publ) (SWEDA) Earnings Call Transcript & Summary

Hello and welcome to the call. My name is Annie Ho, Head of Investor Relations here at Swedbank. And in the room with me today is our CEO, Jens Henriksson; and CFO, Anders Karlsson; and our CRO, Rolf Marquardt. As per usual, we will start with the presentation. And for the Q&A section, if I may ask callers to pose a maximum of 2 questions each in order to facilitate the call to end at 9:30. And with that, I'll hand over to Jens to begin the presentation, please.

Thank you, Annie, and a warm welcome everybody to the presentation of Swedbank's result for the first quarter of 2022. We have a devastating aggressive war in Ukraine in Europe. It has an impact on our customers and it has an impact on us. In these turbulent times, Swedbank stands strong. We are there for our customers and we do business. In our daily work, we contributed to free, open and democratic societies. And we continue to focus on the long term and to be sustainable to provide stability and growth in our 4 home markets Estonia, Latvia, Lithuania and Sweden. 4 major topics effects U.S. all, geopolitics, climate change, the pandemic and inflation, and they are all interconnected. During the weekend, IMF said that global economic prospects have worsened significantly since January. But despite the pandemic and the war, growth is still positive in our home markets. The transformation of the energy market due to both geopolitics and climate change brings both threats and opportunity. The pandemic is still there, but focus has changed since February 24 and inflation is rising in the shadow of the war. Several central banks have responded by raising rates and that will be positive for the bank, since we currently are subject to negative Central Bank rates for excess liquidity. At the same time, businesses and households will have to live with higher financing costs and lower purchasing power. Thanks to high household savings, there is large buffers. The result in the quarter was SEK4.6 billion in line with the fourth quarter, excluding the bank tax. That means a profit of SEK4.10 per share. NII was up a tad, mainly due to higher volumes, mortgages increased by SEK10 million and corporate lending grew by a strong SEK32 billion, where of the large bulk came in towards the end of the quarter. Net provisions decreased due to seasonally-lower card commissions, less activity in the capital markets and lower equity prices. Net gains and losses declined due to the turbulence in the financial markets and other income increased due to the result in insurance company and Entercard. Cost was seasonally lower and came in according to plan. The cost cap for 2022 remains at SEK20.5 billion excluding the costs related to U.S. investigations. Return on equity was as usually in the first quarter, weighed down by the capital held for upcoming dividends and was 11.4%. Our target of a 15% return on equity remains unchanged and before the end of the year, we will present our plan on how we can reach the target. Swedbank is a profitable bank with strong capacity to generate capital. It gives us the strength to support our customers in turbulent times just as we did during the pandemic. Swedbank's capital and liquidity position is strong. We have a buffer relative to the Swedish FSA's capital requirement of 4.6 percentage point. Credit quality remains good, and for the quarter, provisions amounted to SEK158 million. Model effects due to weaker macroeconomic development explains it, and we have still a buffer of SEK1.7 billion to handle indirect effect of both geopolitical situation and the pandemic. As you all know dividend to shareholders is important to us in Swedbank. During the quarter, a dividend of SEK11.25 was decided and later paid out. We are proud of that. Swedbank stands strong. We have control of our risks. We are managing sanctions, cyber risk and AML with high attention. Our focus and my focus in recent years on governance and control has strengthened our capacity to handle the challenges of today. 4 U.S. authorities and 1 Estonian authority are still investigating us and we have no information on when they could be finished or the size of any possible fines. Our diligent work with a stable and resilient IT system is paying off and availability increased during the quarter. For quite some time, the Baltic markets have re-oriented their economies away from Russia and towards the European Union. The invasion of Crimea accelerated this. Their export of goods of national region to Russia accounts for 3% to 4% of their exports. Lithuania imports its natural gas through LNG terminal. In Estonia, Latvia, the transformation away from Russian gas is ongoing and we participate with financing. Inflation is high in all countries, but they are strong indication that it will slow down next year, both due to -- both due to base effects and reduced demand. The business in Estonia, Latvia and Lithuania is resilient and important to us at Swedbank. It stands for 20% of our income and we remain the market leader in all 3 countries. We are the biggest in mortgages, we're #1 for corporates in Estonia, and we are competing for the same position in Latvia and Lithuania. Swedbank does not have any operations in Russia, Belarus, or Ukraine. Our direct exposure to Russia is now below SEK10 million and we've practically stopped doing transactions with Russia. As war and sanctions redraw the math of oil and gas markets, the argument to quickly reduce our dependencies on fossil fuels are only getting stronger and to us, this means growing business opportunities. Sustainability is the strategy of the bank, not because we are environmentalist, but because it has proved to be profitable for 200 years. In the annual report, we have provided an initial calculation of Swedbank's financed emissions. Well, that is the climate impact from our customers with the focus on the real estate sector, a sector where we had a strong position and participate in financing the transformation. We see that our diligent origination standards contributed to a strong credit quality, our real estate clients have a low loan-to-value ratios, healthy cash flows and focus to improve their energy efficiency. The mortgage market in Sweden continues to grow. We are the market leader with the back book market share of 23% and in the top in new lending. And during recent months, our front book market share has been around 17%. We've continued to work hard and provide our customers fast service and feedback as well as competitive pricing. Customers that digitally apply for an increase of the mortgage can now track their loan applications and receive updates digitally, and we remain proactive with customers and we have the market's best overall effort -- offer. We are a bank that focuses on advice for financial health. We can be reached through the app whenever and wherever our customers want. We have launched new tools, so that our advisors can work more efficiently with savings and pensions. The number of digital advisory session is going up at visits to our digital guidance for better financial health increased in the quarter by 20%. And when the personal meeting is part of that advice, we see customer satisfaction and sales volumes rise. During the quarter, a new concept was launched at our branches to guide customers to the right channels for day-to-day banking. This frees up time for personal device. So, when inflation rises and interest rates follow suits, Swedbank is there for our customers and help them to plan financially in uncertain times. The demand from our corporate customers has been high and we are providing advice on their financing mix and we are in close dialog with our agricultural customers. We have developed solutions for those struggling with liquidity. During a dark quarter, Swedbank has been there and supported our customers. In Estonia, Latvia and Lithuania, Swedbank is the most loved brand. In Sweden, we are not that strong, but we had a quickest climber and were named by Yougov Sweden as a star brand and we are closing in on our customer satisfaction targets that is positive, but challenges remain. Customer satisfaction in Sweden is below our target and work is being done. We are improving response time in the customer center with supporting customers who use the app, so they can bank simply and conveniently. We're listening to our customers to deliver on our own customer promise and to provide ultimate value to our shareholders. And who better to give us the number to show us just that, our CFO, Anders Karlsson. The floor is yours. Anders.

Thank you, Jens. Now, let's go into the details of the quarterly results, beginning with lending and deposits. The total loan portfolio increased by SEK42 billion this quarter, excluding a positive FX impact of SEK4 billion. Corporate lending performed well, having contributed SEK32 billion to this increase. LC&I originated SEK30 billion of this, mainly in the end of the quarter. Half of the increase was traditional bank financing and half are event-driven transactions and short-term lending, which are expected to be repaid over the course of this year. Swedish mortgages grew by SEK8 billion and we continue to capture market leading front book market shares. Baltic Banking lending volumes grew by SEK2 billion, supported by continuously robust new lending in private mortgages. Year-over-year corporate lending increased by 8% and private lending by 6%. Customer deposit inflows continued this quarter, increasing by SEK18 billion, excluding a positive FX effect of SEK5 billion. This was mainly driven by SEK25 billion increase in deposits in large corporate and institutions, of which SEK10 billion is for a temporary nature. Deposits in Baltic Banking decreased by SEK12 billion corresponding to seasonal patterns. Year-over-year private deposits, which tend to be more sticky, increased by 10% and overall lending outpaced deposits this quarter. Now looking at the revenue lines, starting off with net interest income, which increased slightly. The underlying NII increased by SEK30 million, as higher average lending volumes offset slightly lower lending margins. NII from private mortgages in Swedish banking was flat, as higher average volumes mitigated decreased margins. Deposit margins were neutral on a group level. And FX benefit of SEK52 million, partially offset a negative day count effect of SEK70 million. Regarding the ECB liquidity facility, we booked the third part of the income this quarter, while the first 2 parts were booked last quarter. The fourth and final instalment will be booked in Q2. Reminding you that the fourth quarter also included a negative one-off effect in the leasing business. For a number of quarters, we have had a muted development in our NII despite strong lending growth. One key driver is that the large inflow of deposits has outpaced lending growth. In a negative rate environment and over the last 2 years, deposits have grown by SEK271 billion, while lending has grown by SEK93 billion. In addition, we have seen pressure on mortgage margins in Sweden from high competition and mix shifts in an environment with the negatively sloping list price curve during most of last year. However, this composition of our balance sheet in terms of lending and deposits, puts us in a beneficial position in an environment with increasing rates. When it comes to NII sensitivity to interest rate movements, we will benefit from higher rates over time. The magnitude of the positive NII impact is highly dependent on the pass through to administratively priced lending and deposits where deposits in general are less rate sensitive. Let me illustrate potential outcomes by giving you 2 examples of what could happen, if we had a parallel shift of 50 basis points, along the term structures in all our 4 home markets. The first example gives plus SEK0.5 billion on an annual basis. And assumes that we have 0 pass through to administratively priced lending and deposits. Thus the effect comes from the fact that we have more [ Euribor ] priced assets than liabilities and that the residual is financed with equity. The second example gives approximately plus SEK3 billion. In this case, we assume full pass through to administratively priced lending and deposits, except for transaction accounts. Before I move on to MCI, just a quick word about the new line in the P&L, which represent after credit impairments. We have moved the resolution fund fee from NII to this line, with the new bank tax will also be reported. Consequently, we have restated historical NII in our disclosure. Over to net commission income, which has indeed been impacted by global events this quarter. Card commissions were seasonally lower, income from asset management decreased by SEK176 million from a high level last quarter due to market development, day count effects of minus SEK40 million and performance fees of SEK34 million from last quarter. Corporate advisory fees declined compared to very strong last quarter as deals were postponed on the back of geopolitical uncertainties. MCI year-over-year has developed well, having increased by 7% while assets under management increased by 6% on the back of an overall improvement in consumption levels and market conditions compared to time when we were in the midst of the pandemic. Turning to net gains and losses, fixed income trading improved compared to last quarter, even though market conditions have been difficult as customer activity in general was good. The result from Group Treasury was lower, derivative valuations related to the bank's funding activities were impacted negatively by significantly increasing market rates in the quarter. The liquidity portfolio in Group Treasury and the bond inventory in LC&I were impacted negatively by widening credit spreads. Other income increased by SEK80 million from a combination of higher income in net insurance and the Entercard, as well as the provision release in net insurance. A few words on expenses before I hand over to Rolf. Expenses were lower quarter-on-quarter and according to plan, due mainly to seasonality of staff, IT and marketing costs. AML investigation costs for the quarter was SEK55 million. While the FX development has been positive for EPS, benefiting our income lines and overall profit, it has impacted expenses negatively by SEK60 million this quarter. Nevertheless, our SEK20.5 billion cost cap and estimate of SEK0.5 billion for AML investigation costs for 2022 still stand. Any excess FX volatility over the year would not cause us to deviate from our business and investment strategy. I will now hand over to Rolf to talk about asset quality and credit impairments.

Thank you, Anders. In the first quarter, we have seen continued growth in all our home markets, but the recovery from COVID has been subdued by geopolitical crisis and the related economic impact. In this situation, our credit quality remains strong. During the quarter, different credit risk indicators like past due loans for different sectors, and geographies, credit migrations, watchlist exposures and impairments, continued to be stable and at the same level as in previous quarters. The total credit impairments ended at SEK158 million with impairments in Swedish banking and large corporates and institutions of SEK162 million and recoveries of SEK11 million in Baltic Banking. Going into the details, updated macroeconomic forecasts increased provisions by SEK250 million. As you can see here, the export portfolio adjustment was reduced by SEK107 million. Behind this, we have 2 counteracting factors. Even though some customer segments are still impacted by COVID, the recovery has continued, reducing the need for an export portfolio adjustment, but then we have the war in Ukraine and the related impact on energy prices, commodities prices, supply chain disturbances, Russian trade, et cetera. These changes are expected to affect credit quality in some segments. The impact though has not yet fully filtered through in our customers' income statements and rating migrations. We have therefore assessed that an export portfolio adjustment is needed. This has been allocated to some of the sectors previously impacted by COVID like transportation, retail, hospitality sector and manufacturing, but also to agriculture and construction. In total, the export portfolio adjustment has been reduced from SEK1.8 billion to SEK1.7 billion in the first quarter. Individual assessments ended at SEK28 million, migrations increased provisions by SEK45 million and other factors reduced provisions by SEK58 million. Now a few words on Swedbank's and the 3 Baltic countries exposure to Russia. In our operations in the 3 Baltic countries, we have customers with some ties to Russia and to a certain degree, Belarus and Ukraine. Over time, the magnitude of this has been gradually reduced and when looking at the macro level, you can see that there has been a major change during the last decade. Exports to Russia has decreased and now accounts for 5% to 10% of total exports. If you look at the export of goods produced in the Baltic countries of national region, the figure is instead around 3% to 4%. The pattern is the same regarding imports, which to large degree consists of energy and commodities. This also explains why our exposure to Russia, Belarus and Ukraine is limited. Our direct exposure to counterparties from these countries is less than SEK10 million. We have looked out our indirect exposure via our corporate customers that have business connections to Russia, Belarus and Ukraine. Our indirect exposure is less than SEK8 billion to customers that have exports to or imports from these countries that exceed 20% of their income or cost. The majority of these customers have strong credit quality. We are monitoring more closely, a small number of customers with an elevated risk that have a total exposure of SEK1.5 billion, where we so far have seen no need for Stage 3 provisions. With that, I'd like to conclude where I started our credit quality remains strong. And back to you, Anders.

Thank you, Rolf. Turning to capital, our capital position remains strong, with the CET1 capital ratio of 18.3%. The capital target range of 100 basis points to 300 basis points still stands. The capital buffer ended at around 460 basis points above the minimum regulatory requirements and the risk exposure amount increased by SEK16.7 billion to SEK724 billion in the quarter. Regarding the expected future capital requirements, there are no further updates to what I mentioned in my speech last quarter. We are still awaiting approvals for our updated IRB models from our regulators. And with that, I hand over to you, Jens to conclude.

Thank you, Anders. Let me now summarize a turbulent quarter, we have during the last years focused on governance and control with strength and stability and resilience in our IT systems. We strengthen our work on AML and tariffs financing. We have reduced our business with Russia to next nothing. At the same time, we have slowly, but steadily regained trust. We contributed to the transformation and have strengthen our sustainability profile. Our credit quality is good, our capital position is strong and we are profitable. Despite the weak and volatile develop in the capital markets, Swedbank is delivering profit at the same level as last quarter. We are a bank that continues to do business and we empower the many people and businesses to create a better future. Looking ahead, it is with special joy we see that our campaign talked about money with kids has gained great impact and appreciation in Sweden. During the quarter, we have also educated close to 20,000 youngsters in young economy, financial literacy among the young is critical to a financially sound and sustainable society. Thinking about it, it isn't that difficult. We standby young people, refugees, pensioners, entrepreneurs, unicorns, farmers and shareholders in Sweden, in Estonia, in Latvia, and in Lithuania. Our customers' future, that is our focus. And with that, I hand it back to you Annie.

Thank you very much everybody. Operator, could we please open the lines for questions?

[Operator Instructions] Our first question comes from the line of Magnus Andersson with ABG.

Yes. I have my first question is on NII and rate sensitivity. Anders, I guess when you gave us those 2 scenarios, I guess that your second scenario is what we see on Page 76 there in the fact book, i.e., a positive net annual effect of SEK3.1 billion for 50 bps higher rates. I was wondering, if you could split that into the Swedish effect, i.e. the Riksbank going from 0 to 50 and the Euribor going from minus 50 to 0, and in -- related to that, if you could tell us how much of your lending in the Baltics that is floored at 0? So that's #1. And the second one is on costs. Just to get the feeling here, I see that your headcount continuous up quarter-on-quarter, if you could give us some flavor there on the outlook for the rest of the year. And secondly on IT within costs, I note that you capitalized slightly less this quarter than you have done previously, whether we should still expect total capitalized investments to increase by around SEK120 million per annum, as you said after Q4 or whether there will -- we will see a change from here?

Thank you, Magnus. The answer to your first question is, yes, it's in the fact book on Page 76. I can't on the top of my head split it between Sweden and Baltics, but as you know in the Baltics, most of the lending, the majority of the lending and deposits are floored. So, the effect that you will see from a 50 basis point hike in ECB is more of a cost avoidance, when it comes to excess liquidity, but we can dig into the details and come back to you, Magnus. And on the FTE development, yes, we are recruiting, we are continuously needing to recruit competence in primarily IT and data. It will continue, at the same time, Magnus the attrition rate, if you remember when we talked about that during the pandemic, it was down to 4%, the attrition rate now is up to 12%. So, it is becoming increasingly difficult to fill up with FTEs as far as I'm concerned. When it comes to the capitalization, yes, as you know we have usually a fairly intensive development in Q4 that is coming down a bit in the beginning of the year, but the forecast I gave you last quarter is still relevant.

Okay. On to Anders, the NII sensitivity, do you know if it -- would it be net negative going from minus SEK50 million up to 0 or will you come back on that whole?

It will be -- what I meant is if you look at the balance sheet in euro, we have much more deposits than we have lending. So if you assume that we place the excess liquidity at minus SEK50 million, if ECB is increasing rates, we will place the excess liquidity at less than minus SEK50 million.

The next question comes from the line of Maths Liljedahl with SEB.

Perhaps continuing on this NII Sensitivity and thank you a lot for the scenarios. Anders, perhaps a little bit philosophical. But if we assume here we have a different situation than historical rate hikes because we have tons of excess liquidity in the systems, also deposits and you have a lot of newcomers in the mortgage market that are not deposit funded and perhaps will suffer more. What do you see here going forward? Do you think it will be easier than in previous rate hike cycles to push pricing on to customers or have you heard anything when you're out talking to clients and when you have all your tentacles out? Just curious.

Well, I think that if you look at what banks, including us, have been doing since November, which has been quite aggressively hiking prices in mortgages in particular, usually that is a heated debate in the whole society. It has not been the case. We have no intention of changing our pricing strategy on mortgages on the back of your second sort of philosophical question. And then to your point about excess liquidity, which I assume implies that what you're asking is whether the competition on savings and deposits will be less with so massive amounts of money in the system, I think that it's too early to talk. I mean you will see a gradual tapering, but that will take time. You will also see what Jens alluded to the fact that people are getting less purchasing power, it becomes more expensive to live. So there are a lot of dynamics out there that has not been seen yet so I think it is too early to say. What is clear though is that we have been subsidizing deposits for a number of years for our customers. Now we have bank tax resolution fees, we have the deposit guarantee fees coming our way. So we will be very hesitant to aggressively price on the deposit side that's for sure.

Okay. Then combining, I guess into -- 2 questions into one since I only have one left. Looking at corporate loan growth and the ROE plan and you say that you have roughly 50% of corporate loan growth is traditional funding and half is transaction driven. How do you see this going forward? Do you think it will still be -- I mean are you focusing to tilt more towards long-term term funding rather than transaction driven? And then is this included in your future ROE plan that will be disclosed later this year?

Well, as you know, we're not going to guide on individual lines. What we were saying is that we've seen an increased demand for corporate lending and we're up 32%. And when it comes to the plan, you have to wait a while. We said that we will come back with our plan before the end of the year and that stands.

The next question comes from the line of Andreas Hakansson with Danske Bank.

So I'm afraid I have to go back to NII sensitivity. I think that's what matters today. We've gone through the details. But Jens, let me ask you like this. I mean you had an 11.5% return on equity in the quarter. In a fairly normal quarter to get to 15% if I had SEK6 billion, which is rate sensitivity to over 100 bps, you get almost to 15%. But don't you feel pressure that you really need to improve the margins on the back of the rate hikes in order to deliver on your profitability target or do you really see any other ways of getting out to the current quite low profitability?

You're right that return on equity in the quarter landed at 11.4%. That is below our target. But let me also remind you that it was an unprecedented quarter with pandemic and war, which affected both NGL and NCI and on top of this, we have the new bank tax and accrued dividends waiting to be paid out. We think we can reach the 15% and we will present our plan before the year-end and I've talked about the levers to meet the 15% target. Cost control, we met our cost target last year and we will do it this year as well. Impairments, Rolf showed you clearly we have a strong credit portfolio. Capital, we have no wish to keep more capital than we need. And revenues and when it comes to revenues, I talked about 4 things. Mortgages, we are the leading mortgage bank in all our 4 home markets. Advice, we have a large customer base and are working with many new things, last quarter I talked about FSZ. Third, sustainability, it's in our genes and has been there for 200 years, big opportunities there. Fourth, maybe this is not the right quarter to talk about it, but Estonia, Latvia, Lithuania; 3 countries that will grow more than Sweden and we are the leading bank there. So will it be difficult to reach it? Yes. Can we do it? Yes. Remember that the last 3 years we worked hard with governance, internal controls, AML, stability, resilience, credit quality. Sounds a bit boring, but it sure feels good to have your house in order in times like this. And finally, if rates go up as Anders talked about, we'll see an improved NII.

Okay. Yes, I just hope you keep the discipline on the NII because all the other points you mentioned, I think it's quite hard to see what's actually going to be improving. And this SEK6 billion that sits in there and basically you decide how you want to price it, but let's come back in the fall to see what you're saying.

Well, I can just say to follow up on that we are disciplined. We follow the market on every day and as you know, we have a clear pricing strategy. We will be not be the cheapest nor the most expensive, but I'm really confident that we have the best full service offering in our home markets.

The next question comes from the line of Antonio Reale with Morgan Stanley.

It's Antonio from Morgan Stanley. Two questions from me, please. The first one on the outlook for volumes and secondly, on costs. So what we talked about rate sensitivity. How do you see the outlook for higher rate affect demand for loans especially, I guess, in the corporate and mortgage space? I mean when I look at Sweden more than other regions, we've seen corporates disintermediate the bank channel and issue in the market directly. To what extent could we see some of this come back? And similarly in the mortgage market, we've seen challenges benefit essentially from the same funding cost as the market leaders. Do you think that could change the competitive dynamics? That's my first question. And the second question is on costs. Costs were on track. With your full year guidance, you reiterated it this quarter. I guess when we look at cost inflation, it's running significantly higher than any of us expected both in the Nordics while even more so in the Baltics. You seem to have built quite some buffers in the AML-related costs, which have been running below budget for at least the last 5 years -- 5 quarters, sorry. So how should we think about the moving parts there and with respect to your cost base going forward?

I will -- you have to help me if I missed your combination of questions into one. But if I start with the outlook for demands for loans, I think what you clearly saw in this quarter were 2 things. One is that you had a fairly large disturbance in the capital markets in conjunction with the war breakout and some of the corporates, therefore buffered up liquidity. You also saw that some of our clients that were on the verge of issuing bonds in the capital markets postponed that. So that is something I would expect to continue as long as the uncertainty continues even though the capital markets have opened up a bit, but at much higher prices. Then we have which we haven't seen yet, but what you could expect is that you could see an improved demand for loans within the corporate sector when it comes to sort of building storage capacity, making sure that you do not have disturbances in your production or manufacturing, but it's a little bit too early to say. What is -- what you need to remember is that the largest issuers when it comes to bonds in the corporate markets are the commercial real estate business and there are 2 sort of counteracting dynamics here. Banks have, as you know, in Sweden, risk weight floors on commercial real estate. So they have increased the capital consumption for banks at the same time as you have seen central banks pushing down the spreads by buying those bonds. That will ultimately change, but exactly when we will meet that inflection point is difficult for me to say. Then you had a question on the mortgage market, which was a bit slower in this quarter compared to the last 2 quarters. I think that is seasonally the way it usually looks. I think it is a bit difficult to have any forecast on the development on the mortgage market for the remaining part of the year. On one hand, you see that it becomes more expensive and consequently, I would assume that it will sort of gradually slow down. On the other hand, there is a subdued demand for housing, especially if you take in the refugee situation from Ukraine. So I think it is a mixed picture. When it comes to cost and inflationary pressure, we have said that SEK20.5 billion stands for this year. We will come back to you with 2023 when it's time for that. As far as the AML investigation cost comes, the reason for -- that's the best estimate we can give you. We have been wrong. First time we were wrong, we said [ 5 ] it became SEK1.8 billion. We didn't want to do that mistake again. And then it has been a little bit lower than the SEK500 million for a couple of years. It's extremely difficult to say. It depends on how the investigations are developing.

The next question comes from the line of Rickard Strand with Nordea.

Two follow-ups on the cost side. If we start with the FTE development, could you say anything about the current growth there? A follow-up on the question you got before. But what do you expect that to be by year-end? Would you have stopped growing year-over-year or would you still see some continued growth by then in your forecast currently?

Okay. For the year, we have a limited or our ambition is to have a limited growth in FTEs, much smaller than you have seen in previous years. When it comes to this quarter, I don't have that on the top of my head, but it was like 65% or something.

I think it's currently growing at slightly below 2% year-over-year base. So you would expect that to be closer to 0 then by year-end or...?

As I said, we have an ambition to grow a little bit, but not as much as you have seen in the past.

Okay. And then sort of given the inflationary pressure we see and besides then using a reduced number of FTEs is one lever to reduce costs. Are there any other sort of main areas you would like to highlight in terms of sort of fighting the -- offsetting the inflation and keeping your costs flat for this year?

Well, I can answer that. And the key point is that we have a cost target. We believe that are -- I'm sort of really much in the view that having cost control is a strategic target.

The next question comes from the line of Riccardo Rovere with Mediobanca.

Two, maybe one for Jens. The robust loan growth that we are seeing today, I imagine Swedbank is not losing market share anymore. While that was a bit the case over the past few quarters since a while ago, should we assume now that Swedbank is going to grow in Sweden, I'm referring to Sweden, at least in line with the industry? And the second question, probably for Rolf. It's not clear to me -- when you mentioned the high risk Russian exposure of SEK1.5 billion, it's not clear to me whether you expected part of this or these to migrate to Stage 3? And if that is the case, should we assume normal Stage 3 coverage ratios? But again, I'm not sure I got it correctly. And still related to that, what do you think is going to happen to the COVID overlay you charged over the past quarters? Will be those reallocated, released and then reconstructed based on Ukraine, Russian tensions?

Well, thank you for 2 good questions. I'll let Rolf take the second one. As you know, a year ago I was pretty tough that we did not live up to the standards I wanted to see in the bank when it came to the mortgage market. But since that, we have been the market leader in Sweden every single month, June and onwards and the reason for that: hard work, proactive measures, increased availability and strengthening cooperation with Fastighetsbyra and we stick to our price policy not to be the most expensive nor the cheapest. We are still the market leader although at lower levels. In February we had a market share of 16.6% compared to a back book of SEK22.7 million. If you look in our own channels, some of it we get from the savings banks. In our own channels, market share was 14.3% compared to a back book of SEK18.3 million. In March, we expect our market share to be roughly the same as February reminding you that some banks only report the last month of each quarter. The competition is tough, but I'm confident we have the best full service offering, a 200-year legacy and we're active in the whole of Sweden. Rolf?

So regarding your first question about Stage 3 provisions. So what I said was that in -- among the customers that have an elevated risk as a consequence of trade with Russia or dependence on Russia, we have so far made no provisions in Stage 3 for those. You can of course not totally exclude that going forward, but this is the best assessment based on what we know today. And then a few words on the export portfolio adjustments we have made both related to COVID and also to the crisis in Ukraine. So first of all, keep in mind that SEK550 million out of that is related to oil and offshore so that's just sort of have to put aside. And then what we have done in this quarter is to release a fairly large part of the reserves related to COVID and that's because we have seen -- we see a reduced need for that. We see some customer segments that are still impacted, but less of a need. And then when it comes to the Ukraine situation, we have adjusted or updated our macro forecast and that has led to the SEK250 million increase in reserves. So that captures the underlying potential impact from the macro change. But then we have a sense that there might also be an additional impact, which actually could feed into credit migrations in the future as a consequence of what has happened and that's the background to that overlay.

The next question comes from the line of Johan Ekblom with UBS.

Can we just maybe come back to the net interest income for a second. If I understand you correctly, you say that the large kind of step-up in corporate volumes was towards the end of the quarter. Can we assume that there is -- then that there is very little NII benefit from that? And I guess, given the mix that you alluded to, that should be pretty attractive margins. And then I guess the 2 follow-ups on NII is you saw a drop in deposits in the Baltics. Is that similarly towards the end of the quarter and drawdowns relating to increased uncertainty? I'm guessing that should also have a positive impact. And then finally, if you can just comment on the relatively large negative move quarter-on-quarter in the treasury result.

Let me see now. The first one was on the corporate loans in the quarter. Yes, bulk of it was -- the bulk of it was at the end of the quarter. Some of it is short term, some of it is longer term. The margins were not sort of out of the ordinary. So that was -- some of it will probably mature in the next quarter and some of it will remain and gradually decrease over the year. When it comes to the Baltic, it is actually a seasonal pattern that we have seen not during the COVID, but before that and that is very much related to a number of one-offs in particular in Lithuania in the fourth quarter where we have had a huge inflow of deposits in the Baltics and then you tend to get a bit of an outflow in the first quarter. So it's not related to any uncertainty on the back of the war. And then I actually forgot your last question, sorry. Oh NGL...

So in the NII, there is a treasury effect of SEK150 million or so.

Yes. But that's you need to -- since treasury is in between, we are pricing the money for deposits and for loans and you have seen a certain increase in deposit margins in the business areas and you see a corresponding decrease in treasury. So you need to put them together to understand the dynamics in NII.

So the fact that the NGL is even more negative this quarter. Does that mean that we'll see a negative impact in NII next quarter from [indiscernible] again?

No. But I don't think that these are related. What happened, it is in -- the NGL and treasury when it comes to the derivatives valuation is primarily related to the short-term funding operation that treasury is conducting in order to minimize the negative effect on NII from negative rates. And in this particular case the U.S. dollar short-term funding, which is then swapped into Swedish krona. The swap, if you look at the 3 months U.S. dollar rate, it increased with 100 basis point in the quarter. So this is a -- I would say that if I stop the clock now and we do not do any more deals in treasury and market rates are unchanged, this will turn to 0 at the end of the maturity.

The next question comes from the line of Catherine Peterson with JP Morgan.

I think they got my name wrong. It's Sofie Peterzens from JPMorgan. So my first question would be on the resolution fund fee. How do you think about that going forward? Do you expect that to kind of drop off from 2024 going onwards or how should we think about the resolution fund fee? And then my second question is it has been very helpful all the Russia exposure direct and indirect exposure you have. But also do you have any Russian deposits in the Baltic countries and if you do have, how are these treated? Do you treat them to stay way as the Swiss banks, i.e., any Russian can't access their deposits or savings with Swedbank?

So regarding the deposits in ruble, Sophie, we have nearly nothing left of ruble deposits in the Baltic countries from our customers.

But I mean if a Russian then has like a deposit in euros with Swedbank in, let's say, Latvia; will that Russian person still have access to the money?

To the extent that they are customers and residents in the Baltic countries, that could be the case. But we have no customers in Russia because we don't do business in Russia.

But then you have some nonresident customers?

We could have Russian people that live in the Baltic countries and that are residents in the Baltic countries that could be customers.

And Sophie, on the resolution fund fee, it will most likely continue for a while. I don't know. I haven't heard any change as far as that's concerned.

The next question comes from the line of Jens Hallen with Carnegie.

Two questions for me as well. First is just a follow-up on Rolf's answer to the management overlay. I mean you talked about SEK550 million to oil and offshore. Can you say how much you've sort of allocated to the Baltics out of that SEK1.7 billion?

That is approximately SEK400 million, slightly below.

Okay. Perfect. And then the second question is coming back to the rate sensitivity. We talked about the first 50 basis points. And then the second 50 basis points or the third 50 basis points, how does that then change the story? Presumably it's more positive in euro terms with the second 50 basis points, but how does it work? Is it -- do you assume it's linear or how would those numbers change if you go from 50 basis points to 100 basis points?

It's not perfectly linear, as you rightly point out. When you reach 0 in the euro area, you will have sort of a steeper development on that one. But again, the more -- the higher you assume that the rate comes, the more you need to elaborate around the pass-through on the different items.

Thank you, Anders. You rounded up perfectly because now we have to leave. Thank you all for calling in and looking forward to see you hopefully in real life. Bye.