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

Good morning, and a warm welcome to Swedbank's Investor Day in 2022. My name is Jens Henriksson, and I'm the President and CEO of Swedbank. For the next 2.5 hours, we will share our plan on how we will reach a sustainable return on equity of 15% in 2025. A plan that outlines how we will grow income and control costs while maintaining low credit losses through strong asset quality and ensure that we don't hold more capital than necessary. And guiding us throughout the day is our moderator and Head of Investor Relations, Annie Ho.

Thank you, Jens. This is the event that we have all been waiting for, and I hope that you are as excited as I am. Let's look at the agenda. We start off with Jens, who will share his plan for Swedbank 15/25. And also outline the highlights of the road to 15% return on equity. Then Mikael Bjorknert, Head of Swedish Banking; Pal Bergstrom, Head of Large Corporates & Institutions; and Jon Lidefelt, Head of Baltic Banking, will present the business priorities for the private and corporate segments in our 4 home markets. We will then take a 10-minute break. Before handing over to Kerstin Winlof, Head of Group Products and Advice, who will talk about the enablers of the business priorities. Then Anders Karlsson, our CFO, will go into the details of the financial plan and outline the development for income, costs, credit impairments and capital. For your convenience, we have also uploaded the presentation slides on to the website. And after that, Jens will conclude. At around 11:50 CET, we will start the Q&A session, where you will have the opportunity to ask questions to our presenters and our CRO, Rolf Marquardt. And you will be able to do this via the chat function in English or in Swedish or via video. The event is expected to end at around 12:30 CET. Jens?

Thank you, Annie. But before we will present to you where we're going, we will show you who we are and where we come from. [Presentation]

We meet in truly turbulent times. A war rages in Europe, we have the lingering pandemic and a cost of living crisis, tightening financial conditions and a broad-based economic slowdown. In times like this, it is of utmost importance that we have sustainable and thus profitable banks. Because by being profitable, we contribute to financially sound and sustainable society. By being profitable, we can support our customers, distribute dividends to our shareholders and continue to develop the bank and contribute to financial stability for our customers and society at large. Our target is, therefore, to reach a 15% return on equity. I will start by going through some of our key strengths, talk about the work we have done to make us ready for the next phase and then present how we're going to reach a sustainable level of return on equity of 15% in 2025 and beyond. I will then hand over to my team to give you some more colors. A warm welcome to Swedbank 15/25. Swedbank has a strong platform, providing excellent scale benefits. Our own distribution network extensively covers Sweden, Estonia, Latvia and Lithuania. In these markets, we are proud to serve more than 7 million people and 550,000 companies as our customers, and another 2 million private customers and numerous corporate clients throughout our partnership with 58 savings banks in Sweden. This means that we bank around 50% of the combined population, enabling strong scale benefits. The distribution capabilities from our partnership with the local savings banks in Sweden also provide operating leverage in the form of shared IT costs. We have the best full service offering to our customers. And we offer a wide range of products and services, originated by Swedbank Hypotek, which is Sweden's largest mortgage institution. Swedbank Robur, which is the Sweden's oldest and largest mutual fund manager, and our insurance companies promoting health and financial security as well as the payment franchise, which captures around half of the transactions in Sweden and in the Baltics. We are a digital bank with physical presence through the mobile app, the Internet bank, customer centers and branches. We are available to our customers 24 hours a day. On the back of our role in society and responsibility for financial stability, Swedbank is a low-risk bank with a conservative positioning on capital, liquidity and asset quality. We have a high-quality deposit base. And over the last few years, we have executed on our strategy to attract sticky deposits and reduced the loan-to-deposit ratio to 140%, now paying off with lower funding costs. But we also fund ourselves in the capital markets through covered bonds and other instruments. And last quarter, we were the first bank in the Nordics to expand the scope of our sustainability funding framework to social activities. Our purpose is firmly anchored in our 200-year heritage. And since the start of the savings bank's movement, we have believed in everyone's opportunity to improve their financial situation. And we have the same purpose today where we believe that providing the right advice, services and products to the many customers in our home markets every day. We will have a positive impact on their lives and society at large. When I became the CEO a little more than 3 years ago, one of the first things I did was to engage the whole bank in formulating our strategic direction. The result was a revised vision and purpose, a new customer promise while our values remained and we define our common foundation. Within the bank, that strategic direction is our guiding star. The last 3 years, we have had a strong focus on strengthening the fundamentals. Thereby, we have laid the foundation for an increased focus on the business going forward, the road to 15% return on equity. We have strengthened our AML capabilities, introduced a new governance model as well as legal structure in the Baltics, bolstered IT stability and resilience improved our culture and reviewed our risk management processes. Based on our strategic direction, we have effectively anchored and cascaded clear targets and strategies throughout our organization for execution. And our profit sharing program is geared solely towards a sustainable 15% return on equity. In July this year, we received a rating upgrade from Fitch, reflecting the broad-based transformation of our corporate culture, regulatory compliance, organization and risk control. We have a clear strategic target that Swedbank shall be at the forefront in the fight against financial crime. We are committed to effective and efficient processes to fight financial crime and shall strive for international best practices. During the last 3 years, this has required a buildup of staff to manage the KYC backlog and create processes to manage these flows. With this soon fully in place, we can now slowly start shifting our focus. Efficiency is strategically important for Swedbank. And during the next 3 years, we will, through improved data management increased digitalization and standardization, increase the level of automation, thus making us more efficient and effective. Consequently, we will see fewer people doing manual work in the coming years. We've also seen an increase in administrative functions in general, while the number and share of frontline employees has decreed as you can see on the slide. Our intention is to change this, both to manage cost headwinds and to increase customer focus. So what are we then shifting our focus to Well, we have clear business priorities for the coming 3 years. Firstly, we will leverage our proven business model and pricing strategy, mainly relevant for the private segment in Sweden, Estonia, Latvia and Lithuania, where we have strong market shares and large back books. Secondly, we will grow share of wallet for existing customers, both by making our product portfolio more relevant and by offering it to a larger share of our customer base. The third priority is about growing business across the bank in prioritized segments through improved service and advice. Our fourth and last priority is continued investments to improve availability and operational excellence. This includes reducing lead times, decreasing time spent on administration, while increasing time spent on customer service and advice. These 4 business priorities support an overall strategic focus on our core business. As you heard me say a few times, we have 4 home markets: Sweden, Estonia, Latvia and Lithuania. But even our smallest corporate customers are or at least want to become international, Therefore, we need strong offerings also outside our home markets to help our customers grow their business. And during the year, we have made a strategic review of our international presence to make it sharper and more focused through partnerships in the same way as we work with the savings banks in Sweden. And you all know that in Q2 this year, we announced a strategic partnership with Norway's largest savings bank, SR-Bank to focus on our core business and strengthen our Nordic banking offering to midsize customers. In Denmark, we will close our business and work with Sydbank as a partner for our corporate customers. The review of the Finnish business concluded that is rightly sized for our strategic purposes. Our operation in New York will continue as is, and our small office in Shanghai in China will also remain, but our small rep office in South Africa will close. We have also concluded the strategic review of our merchant payment business. The market is characterized by increased competition, disruption and fast-moving technological development. We will continue to develop the profitable Baltic merchant payment business. But for the Nordic businesses, we have improved our customer offerings, and now our focus is on making the business profitable. We will continue reviewing and rightsizing our organization to deliver shareholder value and make it possible for us to invest in the future. Swedbank's vision is a financially sound and sustainable society, where we empower the many people and businesses to create a better future. Sustainability is a part of our everyday business where we, for a long time, have had and continue to have societal commitments and sustainable targets. Our efforts to improve the financial health of our customers is deeply rooted in our 200-year history and heritage. And we advise our customers based on their personal needs finding the right balance between savings and borrowings, spending today and planning for the future. But it's also about financial literacy. Therefore, we are engaged in several initiatives to improve the knowledge in our home markets. And some example is via Lyckoslanten and Ung Ekonomi Uneconomy in Sweden and Mokonomika in Lithuania, and we educate young people through our partnerships with Ung Företagsamhet in Sweden and Ready for life in Latvia. And not to forget, our economists are out there daily and actively guiding society and our customers. We have an ambitious climate agenda, and we are steadily reducing our own energy consumption and emissions through activities that contribute to our climate targets and commitments. But as a bank, our biggest influence and contribution is through our customers. Being the largest mortgage and real estate lender in our home markets, we see great potential in supporting our customers and our societies as they invest in energy efficiency, local energy production and storage. And here, we play an important role in the sustainable transition and have the capacity to do more. To show our commitment, we have just launched new ambitious climate targets for our lending portfolio, reflecting our journey to sustainable future and being externally validated by the science-based target initiative as we speak. I have now talked about the work we've done to strengthening fundamentals and also how we plan to increase the business focus. Now let's turn to the highlights of the financial plan. Today, we present our plan to increase and reach a sustainable level of 15% return on equity as we believe our business model is in line with the best managed banks. And we reiterate the target despite new taxes and levies. And as you all know, and you heard me say that many times, there are 4 main levers on how to achieve this: growing revenues, controlling costs, maintaining a strong asset quality and recalibrating our equity base. We expect to achieve strong income growth over the next few years. Both from capturing the opportunity from normalizing rates and by growing -- lending volumes, commissions and other income, as outlined in our business priorities. We strive to have market-leading cost efficiency and will therefore continue with strict cost control. Inflation has already started to have an effect on our cost base but some of these headwinds shall be offset by efficiency gains from automating internal processes and structural cost reductions, while we continue to invest in our availability and the customer experience. Strong income growth and maintained cost control means that we will focus on growing income 3 percentage points faster than cost on average basis. To that end, the return on equity target of 15% is supported by a cost/income ratio of 0.40. While we maintain the CET1 management buffer range of 100 to 300 basis points above the regulatory requirement, we aim for a CET1 buffer of 200 basis points in 2025 and onwards. We maintain our annual dividend payout ratio of 50%, with more clarity on capital needs, we will distribute any excess capital to the benefit of our shareholders, the savings banks pension funds, foundations, asset managers, ordinary retail savers and other investors. And as our current capital generation capacity is higher than our dividend policy, we also see a potential for reassessing the 50% payout ratio within the time frame of Swedbank 15/25. Now I would like to invite my colleagues who will tell you about the business priorities and the financial plan supporting Swedbank 15/25. And let me do a quick round of introduction. First, we have Mikael Bjorknert with over 30 years of experience, have done everything in banking, and I would say, is a specialist in retail banking. Then we have Pal Bergstrom, who is the Head of LC&I and has a long experience investment banks and the governments and all the cool positions. And then we have Jon Lidefelt, has a background in risk control. But the last 10 years, you've been in and out of in the Baltic region, and you're responsible for the Baltic business area. And then we have Kerstin Winlof, who has a long experience of making sure that we run an efficient and tight operation and deliver business values for our customers. And then we have Anders Karlsson who has 100 years experience of being the CFO. And Rolf, I don't see Rolf. He might come up later. But Mikael, the floor is yours.

Thank you, Jens. And let me set the Swedish private banking business into context of business growth, cost efficiency and long-term profitability. And I will start with the question, why are we considering ourselves as a leading retail bank? For us, the answer is clear. We have the best full customer offering. We are market leaders in mortgage, deposits and mutual funds. We have millions of customers that consider us as the main bank and where almost all of those are digital active. We are cost efficient, we are profitable, and we reinvest into improved customer experience. We are leading, and we will continue to lead the retail development in Sweden. Kerstin and I will describe the business priorities together. And later, Kerstin will describe how our large investments in omnichannel, end-to-end processes and advisory platform will contribute to both cost efficiency and business growth. I will focus on 3 important income priorities. Firstly, how we leverage our business model and pricing capabilities. Then I will move into how we grow share of wallet through higher activation, not at least digitally. I will point out that these 2 capabilities are recently implemented and will increasingly contribute to income growth. Then we will talk about focus on key segments, affluent customers, homeowners, young customers. This is our DNA. It has always been our DNA. But with the more simplified and digital service model, we will create more room for advisory and through that, that will contribute to our income generation as well. We have a business model geared for the many customers. And therefore, it's naturally that we attract new deposit and lending volumes at low acquisition cost. Together with our pricing capabilities, we continue to grow net interest income. But what are we actually doing to growing the NII? The challenge with retail banking pricing is to strike a balance between a price, providing customer value while maintaining market shares and meeting profitability targets. In our business model, we have established a favorable balance between lending and deposits, not at least in the composition of products and how these are priced. Since a large share is administratively priced, we can manage prices in times of interest rate volatility. And since almost all our customers are digital active, we can both give offers and price volumes through models that are always on, and this can be compared to it was just a few years ago when almost all volumes were priced manually by an adviser. So let us look at pricing of loans. Here is all about understanding each customer's needs and preferences. And we also need to understanding market and funding dynamics as well as monitoring our own and competitors' flows and prices. Based on this, data-driven models suggest a price that is unique for each customer and carefully monitored by our centralized pricing team. Pricing dynamics on deposits is quite different. That's because basically all our customers have deposits, while a much smaller portions have loans, and that translates into different price elasticities. That is why we let the customers choose deposit products based on their individual preferences, albeit with product constraints in volumes and terms. Historically, this strategy has been proven successful and the mixed offered of transaction accounts, easy to open savings accounts and more individualized fixed-term deposits have continuously attracted stable deposit volumes. These combined pricing strategies means that we are well positioned. We set a price, providing customer value and meet our profitability targets. So let's move on to how we grow share of wallet. Serving or advising millions of customers proactively, with just a few thousand advisers has always been a challenge for retail banks until now. Nowadays, customers increasingly wants to be served through easy, convenient digital solutions. This has allowed us to move towards a more simplified service model where we both grow and create business opportunities with our customers digitally. This will allow us to reach out and meet them where most customers want to meet us and through that, get more active and satisfied customers. We have geared up our investments and now have a platform ready for proactive and personalized communication, and a good starting point since our customers log into our digital channels in average 20x per month. But how will this contribute to growth in share of wallet? We have invested a lot to gather, structure and store customer knowledge. We have built the capability to act on this information, and we proactively offer unique recommendation based on each customer's specific needs, all coordinated in real time across digital and assisted channels. This enable us to serve and drive sales in a scalable way. And we know that when we are more proactive towards our customers, we do more business. And we are convinced that we will increase sales conversion with at least 10%. To support each individual customer even further, we are gearing up our advisory capabilities. We want our customers to be in control of their economy and to be able to improve their financial health. This is why we have launched the new advisory platform that scales up our ability to meet our customers, both in the digital channels and in the traditional advisory meetings. We have just launched the new advisory flows, focused on savings and pensions. And so far, we see promising results. And since we grow with our customers digitally, we foresee a large increase in the number of digital advisory sessions. And we have a stretch goal to reach 1 million advisory meetings. The new advisory flows also create another advantage, sales efficiency. Through that, we can scale up our physical advisory meetings with 50% for customers that have more complex personal finances. Kerstin will later give you more details about our new advisory platform and its advantages, and I will move into the next section. So how will we continue to grow in the customer segments where all our competitors fight hardest? The answer is increased number of advisory meetings. We know that once again that when we are more proactive towards our customers, we do more business. And to increase our relevance and support our fantastic and competent advisers, we will release new service concepts with focus on the segments you see on the slide. Let's say a few words on each of the segments, starting with homeowners. We are a market leader in home -- in mortgage and we plan to keep that position. So what is our key levers? For the 750,000 homeowners that hold a mortgage with us, we will cherish loyalty and leverage cross sales opportunities. To keep this customer base satisfied, we will also prevent churn. The new potential comes with a 1 million homeowners that do not hold a mortgage with us and the potential for winning them are worth fighting for. To succeed, we will continue to develop our availability and service in combination with personal offerings and advice. We have no other ambition than being in the forefront. High net worth individual and affluent customers typically have more complex needs. We are market leaders in deposits and mutual funds. And we, once again, want to keep that position. So what is our key levers? During the year, we have established local, regional premium organizations for our affluent customers. And since midyear, we have established a national private banking organization for our high net worth individual customers. It's early, but we already see a clear result about increased satisfaction, supporting our ambition to grow with the larger share of each customer's economy. The new potential comes through attracting higher share of existing Swedbank's customers into our premium and private banking concept. Since concepts customers are significantly more satisfied with the bank. With more tailor-made competence and improved and more efficient advisory process and not at least increased numbers of advisers, we will further grow the business in this segment. And then we have the future, the youth. All our young customers are digital active and are especially happy about our digital services and personalized communication. The lifetime value is high, and over time, we will find the new homeowners and affluent customers in this group. By focusing on these 3 segments, we are convinced that we will grow our business today and in the future. To sum up, we will strive to enhance the private customer experience and make our customers' financial life easier. We have developed our pricing capabilities. We have enhanced our customer communication and we have a new advisory platform that will give our customers full control of the personal finances and simultaneously give us more time to spend on where it matters the most. We will simply have the best full customer offering, and we will be more proactive than ever. In short, we will continue to leverage our business model of being the bank for the many customers. Now I will hand over to you, Pal. Welcome, and you will give us everything about the corporate segment in Sweden.

Yes, thank you, Mikael. For Swedbank, the corporate business is a cornerstone. Over the years, we have built strong and long-lasting relationships across the country. Today, we are the bank with the largest corporate customer base in Sweden, and together with the savings banks, we serve more than 400,000 Swedish corporates. But looking at our share of wallet and our customer satisfaction, there is need for improvement. And our large corporate business is not profitable enough. The question is, hence, in which segments can we achieve profitable growth and how can we improve cost efficiency? If we can help our current small and midsized corporates to grow in a sustainable way, increasing the share of wallet, I see a clear opportunity to profitable growth while retaining our low-risk appetite. But in order to do that, we must increase customer satisfaction. So what do these customers ask from us? Listening to them, I hear 3 things. Firstly, we need to be more proactive and actively interested in their businesses. Secondly, we must bring the right adviser in front of the customer at the right time. And third, we have to have decision power close to the customer. So how can we achieve this? How can we steer our resources, competencies and efforts to increase customer satisfaction and to drive profitable growth? For LC&I and Swedish Banking, Mikael and I have jointly set 3 priorities for the corporate business to address this: we will focus on midsized corporates by joining forces across divisions in Sweden; we will improve our product offerings through partnerships; and we will simplify our processes to free up time for advisory. So let me go through these priorities one by one and start with a focus on midsized corporates. LC&I and Swedish Banking will jointly prioritize midsized customers to achieve profitable growth, combining our specialist, advisory and service capabilities. And we have the ambition to grow our current market share of 13% to 16%, which is equivalent to growing the business volume in this segment by about 25% until 2025. And we have recently reorganized LC&I and Swedish Banking to enable focus on these customer groups. We are convinced that we can differentiate by being accessible and having the right specialist competence, but also by strengthening and leveraging our strategic partnership with the savings banks. For the small corporates, we are improving the digital and remote advisory capabilities, supported in investments in advisory per se. So basically, everything that Mikael told you about, our digital offering for private customers will be valid for our smaller corporate customers as well. In addition, our focus on midsized corporates will improve our ability to retain the small customers as they grow, as we help them to grow in a sustainable way. But where does this leave our large corporate business? To enable the focus on midsized corporates and shift focus, we're optimizing the large corporate portfolio to focus on profitability rather than growth, and therefore, deselecting less profitable business. This will free up advisory capabilities and capital for the midsized business in some industries. For example, real estate. We have a strong and profitable position, as well as close customer relationships. And combining our high ambition to support the energy transition with our strong standing and expertise in the real estate area, I'm very certain that we will play an even more important role going forward. And looking further at our strength, we have a broad customer base, a wide geographical coverage and strong local relationships, but we have not yet fully combined with our relevant expertise and specialists. Therefore, I would claim that we have a clear opportunity to grow our share of wallet in the midsized segment. Our institutional business is also important, not least to support the corporate customers to find capital market financing and managing the risks. Hence, our institutional business is being refocused to increasingly support the midsized corporate business. Given all of this, we believe that profitable growth can be achieved maintaining both strong cost control and equally strong credit origination standards. The key driver is increased customer satisfaction, not increased risk appetite. So what about improving our product offering? To begin with, we cannot and should not develop all products and services ourselves. In our corporate business, we must differentiate through our customer focus and strong relationships rather than being leaders in product development. Financial products is typically about achieving sufficient scale. For some core products such as lending, we do achieve sufficient scale. But if we can't, we have to stop our own production and work with partners instead. And we do have a strong track record in forming strong partnerships. Apart from our long-standing partnerships with Folksam and the savings banks, I would mention our cooperation with Kepler Cheuvreaux on the equity side and State Street for our custody business. And as Jens mentioned, earlier this year, we formed a strategic partnership with SR-Bank in Norway, and this will strengthen our Norwegian offering to midsized corporates in our home markets in a cost-efficient way. And it will also help growing the cross-border Swedish Norwegian business, where we have a particular focus on sustainability and renewable energy. And as you learn today, we have formed yet another partnership with Sydbank in Denmark. And just as with SR-Bank in Norway, this will strengthen our offering to corporates in our home market in a cost-efficient way. So together with our partners, we already have a lot of good products on our shelves. But how can we be better to bring this offering to our customers? A key to all of this is to free up time for our advisers and specialists, and that leads me to the last part of my presentation. We must simplify our processes to free up time for advisory. Today, our frontline staff spend about 30% of their time on interacting and advising our corporate clients, and this must change. By moving administrative tasks to specialist functions, reallocating customers with less complex needs to digital channels, and automating the KYC, the credit and the lending processes, we will free up time, time to spend on advisory and sales to up and above 50%; time together with our customers; time to care for our customers; and time to look for new opportunities, and this will increase our ability to grow the business and share of wallet in a cost-efficient way. So to summarize, we are confident that we can grow the corporate business by focusing on midsized corporates, joining forces in Sweden, by improving our offering through partnerships and by simplifying our processes to free up time for proactive advisory. And when we're successful in this, we will become more proactive, have the right specialists in front of the customers and have decision power close to the client. And this strategy will increase our customer satisfaction, build a stronger corporate business in Swedbank and grow the business volume by 25% in the midsized segment until 2025. And that will be a key contribution to Swedbank 15/25. And no doubt, there are lots of good opportunities in the Baltics in the corporate market as well. But who is better placed to tell you all about that, and my colleague and friend, Jon Lidefelt, who will tell you everything about that and everything you need to know about the Baltics.

Thank you very much, Pal. So what is then the status and plans for our Baltic operations? Let me first conclude that we have an exceptionally strong position in Latvia, Lithuania and Estonia, both on the private and on the corporate side. We have market shares ranging mostly from 20% to 60%. We are the most loved brand, and we have high customer satisfaction. We have been consistent in building a balance sheet for a normalized rate environment with a loan-to-deposit ratio of around 65%. And during the years with negative rates, we have diligently reviewed pricing and margins for all types of products, and we have worked with efficiency throughout our operations. We have also increased product penetration in areas such as savings and insurance. As countries, Estonia, Latvia and Lithuania stand strong, the leverage is low, both on the private, corporate and on the public side. And in combination with a stronger GDP growth outlook, this forms a good basis for a strong continued credit growth. Hence, the combination of Swedbank's unique position, and the growth outlook for Estonia, Latvia and Lithuania forms strong growth opportunities. We will capture these opportunities by leveraging our unique market position on the growing mortgage market, growing share of wallet with existing customers as demand for savings and investments increases. Further to that, also develop our e-commerce and P&C insurance offering. Growing corporate lending via increased market shares in Latvia and Lithuania and by supporting the green transition in all 3 countries. Continuing to improve operational efficiency, availability and increased time spent on advisory. And let me elaborate a bit on how to achieve this? And starting off with the growing mortgage market. The demand for mortgages is increasing over time. The share of privately owned homes is high in the region following privatization reforms that took place as the countries regained their independence in the early '90s. However, the share of homes financed where the mortgage is low and increasing, as you can see from the slide. The mortgage growth is also supported by the continued need for modernization as the houses from the Soviet time make up around 70% of the stock. Swedbank is exceptionally well positioned to capture this growth. We are the largest lender in renovation programs and by far, the largest mortgage bank in all 3 countries. Given this, we have an information advantage that we will leverage to optimize volumes, market shares and profitability. Let me continue with how we aim to capture the growth in the savings and investment market. As you can see from the graph on the left-hand side, long-term savings is still underdeveloped in the region. Savings has mostly been in the form of deposits. But savings will grow fast as wealth is spreading in the countries. Swedbank is contributing strongly to this development by making savings outside of deposits available and affordable to retail customers. We aim to double the number of customers with long-term savings until 2030. This will be achieved through increased educational efforts enhanced digital offers and proactive advice. In addition, we have changed our service model to free up time for investment advice when meeting private banking and affluent customers. By this, we will grow share of wallet with existing customers. There are also great opportunities to grow share of wallet by improving our e-commerce and P&C insurance offering. With a market share of around 50% throughout the Baltic region in physical commerce, we have a strong customer base to leverage on. As we further develop our e-commerce offer and combine our own functionality with additional third-party solutions, we will be able to offer a competitive e-commerce solution with high income generation potential. Swedbank has a successful bancassurance model and insurance constitutes around 7% of our income. We aim to grow our property and casualty insurance business further. The demand is strong and increasing. And by developing our product offering, we will enable continued growth and increased penetration among our customer base. My next area is to talk about how we aim to grow corporate lending. Swedbank has a strong lending growth potential within the corporate sector and extra so in Latvia and Lithuania. As you can see from the slide, our market shares are almost 40% in Estonia and around 20% in Latvia and Lithuania. However, our market share for other corporate products, such as payments are substantially higher. This is an opportunity that we shall capture for increasing our lending. We are now increasing our full focus on corporate lending, aiming at growing our market share in Latvia and Lithuania to between 20% and 30% by 2030, while keeping the current levels in Estonia. This will be achieved by increased management focus, competence uplift and recruitments combined with simplified and digitalized processes. Further, we see high demand for financing the green transition in all 3 countries. As institutional capital is limited, the demand for bank financing will be high. We have a strong position here already today with several products for energy efficiency, solar, wind, et cetera. And we have increased our competence and capacity in this area. My last area is how we will further improve operational efficiency? We shall reduce time spent on administration, and increased time spent with customers from 25% to 40% by 2025. This will be achieved by simplify processes and further automation. Also from the customer's perspective, we need to continue to simplify processes, and make more of our existing products better suited for self-service, this to drive further sales in the digital channels. So to sum up, the Baltic economies are solid and expected to grow faster than the EU average for the coming years. Swedbank holds a unique position and we will leverage our position on the growing mortgage market. We will grow share of wallet with existing customers as demand for savings and insurance increases and further to that, develop our e-commerce offer. We will grow corporate lending, the increased market shares in Latvia and Lithuania and by supporting the green transition in all 3 countries. And we will continue to improve our operational efficiency, availability and increased time spent on advisory. And with that, I hand it back to you, Annie.

Thank you, Jon. Let's take a 10-minute break, just enough time to have a cinnamon bun before we continue with Kerstin Winlof. See you soon. [Break]

Welcome back. Kerstin Winlof is ready now and here to talk about how we will achieve a more seamless customer journey and gain operational efficiency. Please take it away, Kerstin.

Thank you, Annie. Before the break, we listen to our priorities from the 3 business areas. And to support this business growth, we will secure an efficient product and service delivery. So let me explain how. I will take you through 3 of our major investment areas: one being an omnichannel customer communication platform, investments in end-to-end processes and also in a new omnichannel advisory platform. The overall aim with those is to make it as simple as possible for customers to interact with us and for us to provide proactive advice. This improved availability in service will not only support customer satisfaction, but also sales and efficiency. So let me start with the omnichannel customer communication platform. This transformation will be completed in different phases during 2023 and 2025. The key investment is in an omnichannel platform that during '23 will be launched for telephony, connecting our branches and contact center. The overall purpose is to improve stability and to optimize our capacity planning and thereby shortening the response time for customers. During 2024, we will continue connecting more channels and media to develop a seamless customer experience across all our channels. For example, customers will be able to switch between remote meetings such as telephone, video, live chat and messaging or automated self-service through our virtual assistant. The mobile app and the virtual assistant will play an even more important role as first point of contact to capture customer intent, provide fast response to simple questions, as well as automated fulfillment of standard errands. And for more complex errands, customer will have options to seamlessly be routed to an experienced adviser in a remote meeting. For selected errands or customer segments, we will also provide functionality for booked physical meetings. So all in all, this will make customers' financial life easier and increase our business opportunities at the same time. The second investment area is about processes. As you heard from the business areas, we see a great potential to free up time. We invest in standardizing front to back-end processes from an end-to-end perspective. Many legacy processes were set up a long time ago when both customer behavior and our organization look different. The work to set up new processes is rather straightforward and consistent, including standardized way of working to resolve inconsistencies, standardized workflows where all errands can be treated in 1 single workflow and when those errands can be prioritized and routed to the right competence. It also includes simplified organization to eliminate the application of work. And last but not least, enhancing systems to support this transformation. And by 2025, we expect this work to generate increased customer value as streamlined processes will result in increased accessibility and shorter lead times. We also expect higher efficiency and reduced costs in primarily 2 processes. The credit origination process for both private and corporate customers is probably the one with the greatest potential, all the way from easy customer onboarding to quicker credit application approvals and with a higher degree of automation in administration. And with shorter time for credit approvals, we know we increase our win ratio. The AML-related processes such as know your customer and the ongoing due diligence process is another area where increased automation will lead to higher efficiency and effectiveness, replacing burdensome and manual steps. And the third area, we already announced last year in June. It is one of our largest investments in a digital infrastructure, including a new advisory platform. The platform is expected to be fully launched in Sweden during 2024 and a few years later in the Baltic countries. We know that there is a great need for advice. Service performed in Sweden shows that 65% of the general population consider it difficult to get an overview of their financial situation. They would like more guidance to get peace of mind. We also know that on a yearly basis, only 6% of the customer base in Sweden and 12% in the Baltic countries receive advice today. This is a big opportunity for us to meet customers even more and to activate them and thereby also grow the share of wallet. We also know that on average, customers in Sweden have 2.1 product with us and 2.3 product in the Baltic countries. And our full range of competitive products right off the shelf is much wider. We all understand by this, our big unfold potential. and we are ready to grasp it. The new platform is gradually rolled out in Sweden. It will create streamlined and compliant by design advisory processes, leading to almost no administration for advisers. This will free up time and significantly increase our capacity to have personal assisted advisory meetings. And so far, we have released the first versions of the advisory flows in Sweden, containing savings and investments, pension, insurance, as well as occupational pension advice for corporates. And even if we have just started, we see promising results. The release advisory flows have so far decreased the time for executing a physical meeting with at least 30%, which leads to an opportunity to grow the business without increasing costs. And as Mikael previously mentioned, we aim to go from 200,000 to 300,000 physically advisory meetings in Sweden in 2025. And to address the broader customer groups, we will be able to offer a digital self-service guidance online, supported by the financial health concept. This concept makes it easier for customers to get an overview of their financial situation, and it empowers them to as effortless as possible, improve their financial health by ensuring that they can plan their financial life as retirees are properly insured and can save for different purposes in a risk effective way. it also include how to handle expected events. And for this type of guidance, we have a stretched target to reach 1 million advisory meetings in Sweden in 2025. So let me summarize. Over the next 3 years, Swedbank's goal is to significantly increase our availability, to improve the customer experience in both digital and assisted channels and to make key processes more efficient to reduce lead time and costs. And this will be supported by our investments in an omnichannel customer communication platform, in end-to-end processes, as well as a new omnichannel advisory platform. And now I will hand over to Anders to share some more lights on the figures.

Thank you, Kerstin. My best buddy in streamlining processes and create cost efficiencies.

Thank you.

Being the CFO, this is the day of the year. Let us look at the details of the financial plan for the coming 3 years, where I will put the business priorities into context and set out how we will create shareholder value by reaching a sustainable return on equity of 15%. Here, you see the bridge that shows our financial path to Swedbank 15/25. And as a recap, our plan achieves a positive jaw growth of about 3% per year, securing earnings per share growth with income being driven by the priorities across our business areas. Costs face some inflationary headwinds, which we mitigate by reducing our structural cost base. Consequently, we introduced a cost-to-income ratio of 40% as a supporting KPI. As for the credit impairment ratio, we make an assumption of 7 basis points in 2025. And finally, regarding capital. We aim to repatriate any excess capital in order to reach a 200 basis point CET1 buffer in 2025. So what macroeconomic assumptions have been made in our plan? According to our economists, the Riksbank and ECB policy rates are predicted to peak during 2023 and then have a slight downward trajectory towards the end of 2024. In our financial plan, we have assumed a policy rate of 2% in Sweden and 1.25% in the Baltics in 2024 and 2025, which is more conservative. The economic uncertainty and increased financing costs could reduce lending volume growth. But if rates come down more quickly, we would expect some pressure on NII margins but also a pickup in lending volumes. Interest rate levels will be very dependent on CPI development and inflation will put pressure on our cost base, primarily through salary increases. As economies recover in Sweden, Estonia, Latvia and Lithuania, we expect an annual growth of about 3% to 4% for private lending and 1% to 2% for corporates. For the moment, we take a conservative stance on the corporate lending outlook as corporates are being more cautious with new investments. But we are ready to support existing and new clients that have strong cash flows should growth exceed our expectations. Net commission income will be driven by our business priorities via increased advisory meetings and by capturing growth in the Baltic savings and investment market. Another key assumption driving NCI is a 5% annual stock market return from end of Q3 2022 levels. So what does the income development look like? Income growth will be strong. The NII development from lending growth and margins will be the main income driver to get us to a 15% return on equity. Given the natural interplay between lending growth and interest rates, our efforts to increase lending volumes will contribute to our return on equity target of 15%. We have improved our net interest margin on the back of a normalized rate environment, and still see the positive NII development. But the positive differential in pass-through on lending and deposits is expected to narrow the higher policy rates go. You may have seen that we will raise Swedish savings accounts and administratively priced nonmortgage loans this week, following the Riksbank's hike of 75 basis points in November while the list price on 3-month mortgages was raised before the hike. We remain diligent in executing on our pricing strategy and strive to capture the opportunity from our well-positioned balance sheet. This means striking a balance between business opportunities given the economic outlook and the overall impact on profitability. Net commission income will continue to contribute positively. We plan to grow inflows in asset management by increasing the number of advisory meetings with our customers as presented by both Jon and Kerstin. For card commissions, we see some headwind near term as consumer spending are shifting from discretionary items to food and consumer staples. As inflation subsides, we expect this trend to reverse back towards higher margin goods. Let's now turn to our balance sheet, starting off by looking at deposits. We have succeeded in building up a large high-quality deposit base through active internal steering in a 0 or negative rate environment to position us for normalized rates. For the planning period, we assume an average annual deposit growth of around 5%. We believe that corporate deposit growth will slow as Central Bank tapering will reduce liquidity in the system, while inflation will increase needs for working capital. We, therefore, assume a growth rate slightly less than half of the last 5 years' average annual growth of about 10%. However, we believe private deposits will continue to grow as general cautiousness for the economic environment will lead to lower consumption and a greater desire to increase savings. Our large deposit base puts us in a favorable position. It has allowed us to reduce the share of wholesale funding, which has shielded us from some of the rising costs associated with higher market rates and spreads. And as Mikael mentioned, we monitor customer behavior in a much more sophisticated manner on a daily basis and act when appropriate in order to get the right balance between flows and pricing. So why is this important? We are geared for a higher rate environment. On this page, you can see a simplified version of our balance sheet. The left-hand chart shows the interest-bearing balances on a group level, and the right-hand chart shows the same but only for Estonia, Latvia and Lithuania. On group level, roughly 40% of our interest-bearing assets have administratively set rates, and the rest is driven by market base rates. Also on the liability side, about 40% consists of administratively priced deposits, and the rest are market-connected deposits and wholesale funding. In addition, equity constitutes roughly SEK 170 billion of noninterest-bearing funding. This implies that we have a strong ability to impact our NII growth through our pricing strategy. A 50 basis point interest rate increase with 100% pass-through on both lending and deposits, except for transaction accounts would have a SEK 3.6 billion positive NII impact. The point here is that I want to provide transparency on our NII sensitivity and give you a possibility to apply your own assumptions and simulate different potential outcomes. For the Baltic countries, the NII impact from 50 basis points interest rate increase is proportionally greater due to the liability side, primarily having administratively priced transaction deposits, whereas the asset side is entirely connected to market base rates. What will then happen to our cost development? We can split the main cost drivers into 3 categories. Costs that are driven by inflation, investments to improve the business, and cost efficiency improvements. Pressure from cost inflation is more than twice as high compared to the last few years, going from about SEK 0.5 billion to above SEK 1 billion per year. This mainly comes from expected salary increases, higher IT maintenance expenses and general inflation on premises. In terms of investments, we continue to invest in business growth to improve the customer experience and streamline our internal processes. Not least in freeing up time for frontline staff to be able to increase revenue-generating advice and hence handle larger business volume. The investments into business growth and efficiencies are central to our financial plan. In order to mitigate headwinds from inflation, the cost efficiency gains will mainly come from automation and streamlining our internal processes such as the lending process and customer onboarding processes for several products. We will also see improved cost efficiency from having fewer people working with administration in the coming years. Furthermore, we continue to pursue our strategy to focus on our core markets and core products with the recent partnerships in Norway and Denmark are 2 examples. By finding new distribution models outside our home markets, we can increase focus, reduce complexity and hence, costs. All this will provide a better position for an efficient cost management going forward. Our ambition is to preserve as much as possible of the upside from strong income generation to the bottom line. And we are therefore introducing a cost/income ratio of 40% as a supporting KPI to the 15% return on equity for the duration of the plan. I will now briefly talk about asset quality. Our lending portfolio has a low risk profile. Swedish mortgages make up more than 50% of all our lending. This remains a very secure asset due to a couple of key factors. First, we, as a lender, have full recourse with very limited possibility for debt forgiveness. Secondly, Sweden has a limited buy-to-let market. And thirdly, Swedbank has low average LTVs, a compulsory amortization framework, and conservative origination standards. Property management is our largest sector within corporate lending. Here, we have a strong focus on cash flows and collateral. Our origination criteria require net operating income to be sufficient to cover interest rates and amortizations of 6% to 8%. Average LTVs are 52% and 55% for commercial and residential properties, respectively. With the economic uncertainty in the near term, we expect credit impairments to be somewhat affected. That is the main reason for us keeping our SEK 1.7 billion management overlay. As you know, we do not and we cannot guide on credit losses. However, for forecasting purposes, we apply 7 basis points as credit impairment ratio in 2025. This equates to our 10-year historical average. If we exclude the oil and offshore portfolio, which was the main contributor to our past impairments and now in runoff, the 10-year average amount to 3 basis points. Now moving to capital. Starting by looking in detail at how the regulatory CET1 requirements is expected to develop as we head towards 2025. The Swedish countercyclical buffer will increase to 2% in Q2 2023, and we assume it will be further raised to 2.5% in mid-2024. Our estimated CET1 requirement also includes the announced increases in the countercyclical buffer in our other markets. The Pillar 2 requirement add-on will reduce the requirement following implementation of the IRB models. All in all, we expect Swedbank's regulatory CET1 requirement to increase to around 15% by 2025. Let's take a look at how this will impact our capital. While the countercyclical buffer will reduce the CET1 buffer by around 200 basis points, the combined effect of IRB overhaul, Basel IV and the revised Pillar 2 impact will -- the impact will be approximately 130 basis points based on our best estimates. At this point, our assessment is that the IRB overhaul process will last throughout 2023. Net profits during 2022 to 2025 after having paid out dividends of 50% are estimated to contribute with around 700 basis points, while volume growth is expected to consume around 300 basis points. With a capital buffer of 200 basis points in 2025, this implies that we will have roughly 300 basis points in excess capital after paying out ordinary dividends. The timing and quantum of extraordinary capital distributions as well as the reassessment of our dividend policy will be subject to the conclusion of the ongoing U.S. investigations. We intend to distribute any excess capital to our shareholders. Aside from a potential reassessment of our dividend policy, tools for capital distributions include extraordinary dividends and potentially share buybacks. To conclude the financial plan, we target ambitious income growth exceeding cost development with 3% on average. We continue to invest in our business with cost discipline. We will execute on cost efficiency measures, and we intend to distribute excess capital to our shareholders, subject to further clarity on our capital needs. And we are confident in our ability to deliver a sustainable return on equity of 15% in 2025 and onwards. And now I will hand over to you, Jens, to conclude.

Thank you, and thank you very much for that very engaged presentation. Before we go into the Q&A, let me summarize what you've heard here today. A sustainable bank is a profitable bank. By being profitable, we can support our customers, distribute dividends to our shareholders and continue to develop the bank and contribute to financial stability for our customers and society at large. We have set the strategic direction for the bank, effectively anchoring and cascading clear targets and strategies throughout the organization for execution. We have put large efforts into strengthening governance and compliance, and successfully moved away from historical issues in the past. We are now in a much better position to prioritize business growth and profitability, spending more time on giving advice to our customers and less time on administration and bureaucracy. Through focus of resources and new enhanced service concepts, we are supporting our customers' transition to a sustainable future. We are strengthening our focus on the core business. For example, via partnerships in countries outside our home markets and through a new strategy for the payments business. With clear business priorities, we will deliver a sustainable 15% return on equity by growing income faster than cost, maintaining a low risk profile and not hold more capital than necessary and thereby providing strong returns to our shareholders. Annie?

Excellent. Thank you, Jens. All right. So we've heard about the business priorities. We've heard about the enablers, and we've heard about the financial plan. Let's take a short break and reconvene at 11:50 CET for the Q&A session. [Break]

Welcome back. Let's start the Q&A session. We have all of our presenters here as well as Rolf Marquardt, our CRO. Let's start with a question from the chat function. What gives you the confidence in this uncertain environment that you will reach your targets? Will you take that one?

I am confident in the plan. We have spent the last 3 years on our fundamentals. And now we can pivot and have a much more focus on the business, and thereby increase income more than cost. We can maintain low credit losses and not keep more capital than necessary. And in simple terms, we can leverage on our proven business model, no matter the economic circumstance.

Great. Let's move on to Teams. May I remind you to please make sure that you have your video and your microphones turned on when it is your turn to speak. And please limit yourself to 2 questions per turn. The first question comes from Andreas Hakansson.

First question on your capital. You say that you expect to have 300 bps of excess capital then by 2025, but it's depending on when you settle the AML case. If for argument's sake, I would believe you settle in spring of 2023, would that then actually mean that you can reach a return on equity target already in 2024? Is that the way we should look at how the capital is impacting the target? That's my first question.

Should I start off? Well, Andreas, I think the key point is that we've set the target to reach 15% return on equity in 2025. If we will do that further -- sooner, nobody will be happier than I.

Fair enough. Then on your 3% cost income jaws. It's a little bit problematic because I look at the jaws either in 2022 and in 2023, that's averaging around 7.5%. So if we're going to get 3% up to 2025, that means that we're basically going to be a negative jaws in '24 and '25. But what you described here in the whole presentation is that you're going to make all kinds of efforts to actually grow your revenues. So is that the way we should look at it, that you will have negative jaws in '24 and '25, or will it be something that changes that?

Thank you, Andreas. Now when we talk about the 3%, we base it on 2021 to 2025, and that's when you get to the 3%. When you look at the income development, as you probably know, it will be a sharp increase primarily in 2023. But with pass-throughs narrowing, it will gradually flatten out a bit. So you need to take that into consideration...

Yes, but just to be clear, when you said, in your presentation somewhere, you said that you base your '25 NII on a 200 basis points interest rate. If we as a house, would have a house view that rates would stay at 300 basis points up to 2025, should we then change our assumption for the NII and therefore, the jaws?

I don't know what exact assumptions you have made with the 3% level, Andreas. What I'm saying is that the pass-through, particularly in Sweden, between lending and deposits will narrow the higher the policy rate goes. But what you have to keep in mind is that we have the Baltic balance sheet where the asset side is entirely market-based rates, which means 100% pass-through on lending. And then you could probably make another assumptions on the deposit side. And you have the equity base of SEK 170 billion of noninterest-bearing liabilities.

Thank you. The second question comes from Maths Liljedahl.

I could start with impairments, I mean, 7 basis points, that's impressive or 3 basis points if we exclude offshore. I mean, isn't that considering the environment you operate in and with SMEs, et cetera, isn't that too conservative? I mean shouldn't you take on or be willing to take on some more risk, let's say, we go for 10, 15 basis points credit losses, you should probably be able to reach a higher ROE target? Or how do you reason regarding a target of, yes, 3 basis points.

Thank you. It's not a target. I think I wanted to be very, very clear that it is for forecasting purposes that we use the 10-year average. We do not guide and cannot guide on credit losses.

Rolf, do you want to add anything?

Yes, maybe. I think, I mean, the origination standards we apply are as is, and that's important. So we are not increasing risk in order to increase the level of return. And I think that's important to underscore. So that sticks over time.

And then considering the cooperations here in Norway and Denmark, do you have any numbers on how much capital that frees up or assets that are released in those agreements?

Pal or -- do you want to start, Pal?

Thanks for the question, Maths. No, we haven't disclosed any numbers that it will free up. It's an ongoing process, in particular now in Norway. As you know, we are -- parts of the portfolio will be transferred toSR-Bank, and that has been subject to approval from the authorities. And it's also, of course, we have to contact customers. So that is in the process, but we have not stated any numbers in that. It's really about going forward, having a cost-efficient setup to support the midsized corporate business, particularly in Sweden. That is sort of the main driver of the cost efficiency stemming from that.

And Denmark, you have no details on that either?

It's a very small operation, Maths. So it's of significant importance from a capital perspective.

Next question comes from Riccardo Rovere. Riccardo? Let's move on to the next one. Magnus Andersson.

Yes, 2 questions then. First, on Slide 48, there and your cost/income ratio of 40%. First of all, does the cost/income ratio target mean that you abandon absolute cost targets from now on? And also, we're seeing that you are already comfortably below 40% in Q3. And with the income trajectory we will see next year with interest rates continuing up, you should be below 40% then as well. So is the 40% kind of an average use during the period? Or should we see the 40% as a cap over this forecast period? And the second one is just on the business area. Have you broken down the ROE target at the business area level? And do you steer the bank on that even if you don't disclose it?

Well, let me take that question. I'll start with the last one, and that is that we have an overall target that is to reach 15% return on equity, and that's the whole bank. Then, of course, we work the bank and put targets in different parts of the firm. But that's not something we disclose publicly. And the second thing is, are we abandoning fixed? Yes, we are. And with that, I give the floor to you, Anders.

Yes, thank you, Jens. Magnus, you should -- we've been most likely be under 0.40 from time to time during this period. And the same goes for return on equity targets. We have been above. We have been on the target, and we have been below the target. So you should view it as our belief of a relevant long-term cost/income ratio for retail bank being efficient.

Okay, so kind of a long -- okay, so it's not necessarily a forecast for '23, '24, it sounds like?

It is a forecast.

It is below in both those years.

It is for '23, '24 and '25, primarily. But having said that, I firmly believe that it's a good indication of a cost-efficient retail bank going forward.

Next question comes from Rickard Strand.

Starting with a question on the LC&I lending portfolio, where you talked about the selection of business. I was just wondering if you could give an indication of what proportion of that portfolio that's currently not meeting your threshold in terms of profitability.

Thank you, Rickard. No, we are not saying anything about the proportion. This is a gradual optimization, which will free up room for focus on the midsized business. And of course, it's long term in nature since these are deals that are sort of struck over like 3, 4, 5 years. So what you will see is a gradual optimization and the freeing up of resources and capabilities for the midsized business.

Okay. And then second question then on capital and dividend. I understand that you will await further clarity on the U.S. AML case before sort of distributing the luxury proportion of the 300 basis points that you talked about this excess capital. But in 2022, you also did a 10% extra dividend on top of your 50% payout ratio. Should we read today's message as that's sort of unthinkable going forward until you get this clarity? Or should that still be an option to do sort of smaller extra dividend along the way until you get full clarity?

Anders, do you want to...

Yes. I mean, first of all, the 300 basis points are built up during the planning period. So it's not something that we have in our hands today. What we have been saying is that if you want to change your dividend payout ratio or dividend policy, that's something you should do not too often. And consequently, we need to await clarity to do a reassessment of the dividend policy. That is not ruling out if we feel that there is a possibility to pay out an extraordinary dividend, or for that matter, use share buybacks during this period. But there are 2 important things that needs clarity. One is the U.S. investigations. And the other one is to get the sort of answer from the Swedish FSA on our best estimate on IRB overhaul before we can do something of substance and something that we will be able to keep on for a longer period of time.

I see that Riccardo is back online. Riccardo, would you like to ask your question?

Sure, Annie. Just maybe a very quick follow-up on capital again. When you say, at the moment, you say that in 2025, your buffer is going to be 200 basis points. The range today is 100 to 300. Given the current, let's say, macro uncertainty, is it fair to assume that at least for the initial part of this business plan, 300 basis point buffer is going to be, let's say, more appropriate than 200 in 2025? Is that a fair comment?

That's a fair comment, Riccardo. We are quite clear that we assume that the economies in our home markets will recover in 2024 and 2025. So having a good buffer in those -- in these uncertain times is just feeling good. So that's a fair assumption of you.

Next question comes from Sofie Peterzens.

Sofie from JPMorgan. So I was wondering, I mean, your rate assumptions seem very conservative, 2% base rate in Sweden in 2024 to '25. If I look at the forward curve, it seems to imply a much higher rate, somewhere around 2.5%, 2.7%. Similar with the Euribor or the euro rates, it seems that the market is factoring in significantly higher interest rates. How do you think about -- I mean you mentioned quite a few times that the pass-through will diminish or narrow as rates move higher. But I mean, assuming the mortgage rates would be correct, where do you see your return on equity in '25?

First of all, Sofie, this is when you build a plan to reach a sustainable return on equity, you can't build it on 2 optimistic assumptions around the macroeconomic development. That goes for rates, that goes for stock market development. What we try to do is to build something which is actually not only built upon the current economic situation, but something that is more sustainable. Our aim is, and our plan is to reach 15% return on equity in 2025.

Okay. But in terms of maybe you could just give a little bit more clarity around how do you think about the kind of pass-through of higher interest rates, kind of how much decline should we be expecting in your net interest income sensitivity.

I will not -- I gave you the transparency for you to play around with. I think the important pieces for you to look at is how much is transaction accounts? Look at the balance sheet of the Baltic operation and keep the size of our equity base into your calculation. And then you need to actually apply your own assumptions when it comes to Swedish mortgages versus Swedish savings deposits.

Okay. And then my second question would be around the 300 basis points of excess capital buffer in 2025. I mean that's around SEK 22 billion or SEK 23 billion roughly. Would that 300 buffer also cover the potential U.S. fine?

Well, what we said today was that when we look into the business period, we will have 300 basis point in excess capital. Then we also said today that we have no new information on the U.S. authorities. We are in discussions with them, and we do not know whether we will get any fine or if we get any fine? We have no clue about the size of that. And that means that's an uncertainty and that you need to take into account when looking at the excess capital that we then will distribute to our shareholders.

The next question comes from Jens Hallen.

Anders, this is coming back to costs again. You talked about SEK 1 billion in annual cost inflation, which with the SEK 21 billion starting point would take cost in '25 to roughly SEK 25 billion. And then you have investments which looks to be taken out roughly by inflationary measures. Is that a correct way that how you model cost and cost/income, i.e., about just under SEK 25 billion in 2025?

I will not -- since we have moved from an absolute cost target to a cost/income ratio, I will not give you the details on that. But to be clear, we will continue to invest. We will have inflationary headwinds going into 2023, and it's actually more than SEK 1 billion. which is then in a sense, building into run rate. We are investing in improving our business. We are investing in streamlining our processes, and that will mitigate some of the headwinds, and it will also make us even more cost efficient. I will not give you any number for 2025.

Okay. And then second question on capital, and just to be clear what you built in into your 15% expected capital requirement 2025, I mean you say you include Stage 1 implementation of Basel IV. And what is in your assumption after that? Do you expect your internal cap generations to be sufficient to absorb the phasing after that, or will you already in 2025, need to sort of increase your buffer for a sort of potential cliff effect in '26, '27 or '28? What's your thinking there?

With the estimate on IRB overhaul process, we estimate the Basel IV impact to be very limited, actually. So there is no significant cliff effect from Basel IV as far as we can see.

Okay. So what do you expect, is that the 15%, that should then be a number that will stand for a while?

Yes. And what you also should keep in mind is that when we have been through the IRB overhaul and when we move into Basel IV, the volatility in risk exposure amount is decreasing. So it becomes much more stable, which you also should have in the back of your mind when you think about why are we talking about the 200 basis point buffer rather than something higher.

Could I just follow up on what Anders said? And the key point is not for us reaching 15% 2025. The key point is reaching a sustainable return on equity of 15% 2025 and onwards.

All right. Next question comes from Maria Semikhatova.

Two questions. First of all, on your cost projection. In your development plan, you assume that you will increase the share of frontline employees. Now when you estimated the needs across your different divisions, what do you think is an appropriate level? Should we go back to 2017 50-50 split? And given that cost of frontline employees is higher than the average, what kind of wage inflation, you think you can absorb in your plan? And if there is anything you can add on headcount outlook. And the second question, on [ REA ], on your Slide 52, your organic asset growth, I think, implies RWA around 4% to 5% versus the target loan growth of, let's say, 3% blended based on your composition. So I just wanted to check if you incorporate any additional [ REA ] inflation from credit migration or any other factors.

Could I? Yes, so the key point in showing the number of frontline staff is to show you exactly that has gone down. And in the meantime, we've seen a buildup in bureaucracy and also in manual work. So what we'll do is that we'll scale that down and use that to be more effective and sort of more accessible to our customers. We've not put a specific number there because the key point is that Mikael and Jon and Pal and Kerstin showed you, the key point is that we should have a customer-friendly offering that's based on both digital and personal. We put up some targets which they all talked about, but we don't have a fixed number of people in the customer meeting segment that we want. We want to be accessible. We want to make business.

And on the capital side, we have not assumed any particular risk migration in that number.

And then maybe just to clarify on this elimination of manual labor. If you have any clarity on the time line, specifically, let's say, IML processes or other processes that are currently manual where you expect this positive impact from digitalization?

Well, we don't give out more than that we say, we will stick to a 40% cost-to-income ratio with, I would say, combining the 40% with a return on equity of 15%, it's a tough target. But I'm confident that we'll go there.

Good, next question comes from Christoffer Adams.

[Technical Difficulty]

Christoffer, you're cutting out a little bit. Could you -- just start again. Let's try that.

[Technical Difficulty]

No, I'm afraid, Christoffer, we can't really hear enough of your question. Let's go to the next one, and we can try again later, if that's okay. Next question comes from Nick Davey.

Two questions. The first one, as a senior management team, you're relatively poorly compensated, and you've got quite low share ownership of Swedbank stock by international comparisons. So your remuneration is not really at the moment, tied into the long-term performance of the bank. And I just wondered if there has been or will be any discussion amongst the board for that to change. The second question on the business division targets, I think you answered to Magnus already that there are more targets than we can see. But I'm just surprised that the ones that we can see are basically market share driven. And I think in the past, you've been quite balanced about market share versus profitability. So the question would be what are the drivers for increasing your market share in these units, corporate segments of Sweden, Latvia and Lithuania without sacrificing on price or profitability.

Well, let me start with the first one first. I'm always a bit hesitant in saying what the Board thinks because they in the end decide. But I have not heard such a discussion. We are fully committed to reaching a 15% return on equity target. If you look on people working within the bank, there is a profit-sharing scheme. That means that if we reach 15% sustainable return, it will give them share. That's not into us into for senior management. We don't have that. But I can promise you, I've invested a lot of my own money in the Swedbank equity. I believe in Swedbank, and I'm confident that we can reach a 15% return on equity. And then well, who takes the second question?

I can start. I think, I mean, first of all, I'd say I'm confident that we can reach this, we will not jeopardize credit quality or credit origination standards. The way to reach it, I think, first of all, you need to take a step back some years, we had higher market shares in all 3 Baltic countries actually going up until the financial crisis. Then we dropped as we did a lot of changes in origination standards, et cetera, et cetera. We managed to regain somewhat, mostly in Estonia. But then as Jens alluded to before, I mean, we have been focusing on our fundamentals for quite some years. So in that environment, I'm quite happy that we actually have managed to keep market shares. What we now do is that we increase focus from my time, from the country management's time, and we're also freeing up time from administration, so client managers can spend more time on being proactive with customers. And given the competence that we have in these sector teams, I feel confident that we, over time, can reach the target above 25%.

Pal, do you want to add anything? And Mikael may be later as well.

Yes. I think for the targets we have set on the corporate market in Sweden, it's all about getting the direction right. It's I mean it's a joint target between our 2 business divisions to make sure that we realign that we can gets aligned around a common target. So it's the direction really moving into the midsized segment and putting our resources and efforts in there. I mean, that's the main reason behind setting such a target.

Yes, and I think you can, yes, look, we have treated, for instance, the mortgages in the Swedish market that we have been, I would say, quite calm in -- when we have had 1 month or 2 months or even a quarter with a little bit lower market shares, we are confident that, we, long-term, will win this race.

Great, Jacob Kruse, would you like to go ahead?

Yes, thank you. I hope you can hear me. So I have 2 questions as well. Firstly, on the cost side, just looking at the slides, you talked about SEK 1 billion of cost inflation -- SEK 1 billion plus of cost inflation. Am I then right to say, by 2025, the efficiency gains outweigh the investment [indiscernible] certain level at that point? And should I think about the [indiscernible] couple of years as looking the other way that the investment spend is higher than the efficiency gains being realized in the P&L? And then as the second question, I just wanted to check. You talked about the deposit pricing in realization of deposit [Technical Difficulty]

Jacob, your second question was a bit lost in some of the white noise there. But should we take the first question first. And we can get you to repeat the second one.

Yes. Thank you, Jacob. I think that is a reasonable assumption to make, yes.

Can you repeat the second question, Jacob?

Yes. So the positive offers, you talked about individual deposit offers. Is that for the normal personal clients. So if I were to open up an account with Swedbank, the deposit offers that I see for savings and time deposits will be individualized to me or my cohort of people? Or is that a stretch too far?

Mikael?

But we have and -- the product set with different deposit products, everything from transaction accounts to more general savings accounts and then with type of constraints in time or volumes, all the way to fixed-term deposits. So each client decide themselves, of course. But with the capabilities we have built up in our analytics, we can, of course, see and advise our customers to move in some direction.

Right. But will you -- can you be actively giving me a better savings account if you feel like I'm trying to might leave on the basis of your data? Or is that not something you're doing?

But we have [ 4 ] different type of concepts. So if you actually are investing in better advisory in our premium more private banking concept, then you also have a little bit different product suite you also in the deposit side than the general customer.

Okay. But the list price is basically what the customer is facing. -- what I can see on your website is what people would see in the private individual...

Yes, that's correct.

All right. Another question from Andreas Hakansson.

Just more detailed follow-up. But on Page 42, you actually show a sign before your 15%. So it says equal or larger than -- so should we see 15% as a floor router. And the second thing goes on Page 48, where you say cost-to-income ratio is equal to below. So should we see 40% actually a ceiling.

Well, first, on the 15% return on equity, as I said before, nobody would be happier than I if we deliver more than 15%. But the sort of we want to be reach a 15% return on equity on a sustainable level. Do you want to say a few things on the cost.

And Andreas, I think the actual target is formulated as at least 15% to answer that question. When it comes to the cost/income ratio, -- it's not a ceiling. It's something we will strive for long-term. We will sometimes be below it and maybe sometimes slightly above. So you should see that more as a supporting KPI, ensuring that we are running a cost-efficient business.

All right. I think we probably have time for one more question here, which I think we'll take from the chat. Other than reaching the 15% return on equity, what does success look like to you?

Well, first, the 15% return on equity is a very important milestone to reach. So that we start by saying there and the 0.4 to keep below that because this is what a good bank looks like. Then of course, you could see other issues like you could see customer satisfaction, you could see employer net performance score. But in the end, I would say what is most important is that we contribute to the purpose of Swedbank. And that is to empower the many people and businesses to create a better future. When we work with the climate based -- the science-based, the climate target, it is important. And that is that we contribute and do good. So that's the combination of making money and doing good is a good combination.

Sounds great. All right. That's unfortunately all we have time for right now. So that concludes the Q&A session. But before we wrap up the Investor Day, Jens, would like to leave some closing remarks.

Thank you, Annie. And thank you for asking, as always, difficult questions. And thank you all for following us. And thank you for investing in Swedbank. We will deliver long-term shareholder value by reaching a sustainable return on equity of 15%. I look forward meeting you again in conjunction when we present the Q4 report, but this was so much fun that we will invite you a year from now, roughly a year from now, and give you an update on how we reach 15/25. Today, I have presented our plan on how to reach a sustainable 15% return on equity. That is a plan that we are fully committed to. The Board, me, the whole management team, everybody in the bank will do whatever we can to reach that target. And it's important to say that a sustainable bank is a profitable bank.