Svenska Handelsbanken AB (publ)

Ulf Riese - CFO Mikael Hallaker - Head, IR

Omar Keenan - Deutsche Bank Heiner Luz - Goldman Sachs & Co Anton Kryachok - UBS Johan Ekblom - Bank of America Merrill Lynch Daniel Do-Thoi - JPMorgan Geoff Dawes - Societe Generale

Good morning everyone and welcome to this conference call for the third quarter 2015, joining me today I’ve Mikael Hallaker, Head of IR, Lars Hoglunds, Head, Debt IR and Jorgen Olander, Group Head of Accounting. And the slides used for my presentation are as usual available at handlesbanken.com.

First of all on slide number 3 you see the value creation of the bank and this quarter was against stable from a value creation point of view and equity per share including dividends has continued its steady growth of 15% per year. This was achieved in a very challenging quarter, interest rates even more negative, stock market down which affected assets under management and a widening of trade spreads and on top of that corporate loan demand in Sweden continue to be weak also this quarter.

Over time as the slide shows, one can take comfort in saying that our business model handles challenges like we have seen a robust way. Then on slide number four, you can see the profit and loss for the first nine months.

Operating profit was more or less flat with only a marginal increase. The third quarter was challenging and operating profit fell by 10% mainly due to falling interest rates and the seasonal effects.

Net interest income improved 2% year-on-year driven by growth in the UK, the Netherlands and Denmark by a 33%, 14% and 6% respectively and in Sweden, Norway and Finland net interest income declined somewhat. Over this period reduced end [ph] for market funding, compensated to some extent for the sharp decline in deposit margins.

Compared to the second quarter net interest income dropped by 3% , net commission income rose by 10% year-on-year, higher asset management fees as well as higher advisory and payment fees were the main drivers. Quarter-on-quarter, net commission income declined by 2% due to lower fund management fees and lower equity commission income as a result of the stock market downturn.

Net gains and losses on financial transactions dropped 4% year-on-year excluding extraordinary gains doing the same period in 2014, all-in-all revenues increased by 2% in the first nine months. On the cost side, Personnel costs increased by 6% compared to the same period of 2014, half of the increase was due to the currency effects and two percentage points were attributable to the IS [ph] pension impact.

The underlying growth in personnel costs was 2% and is mainly explained by annual salary increases and the growth in the UK and Netherlands. Total cost increased by 5% year-on-year but excluding currency effects the interest was just under 2%.

Loan losses, were up 4% year on year and loan loss level was eight basis points for the nine month period and 10 basis points for the quarter. Collective provisions increased somewhat on the back of the annual update of the estimates and excluding debt loan losses actually declined 3% year on year.

The credit quality remains stable rating migration in the quarter was neutral and it had loans level was actually down to 22 basis points compared to 24 basis points at the end of the second quarter. All-in-all net results for the period was unchanged compared to the same period 2014, return on equity for the group was 13.1% for the first nine months and 12.7% for the third quarter.

And then moving on to slide 19, you can see here the development of net interest income in the third quarter all-in-all decline of KR185 million compared to the second quarter. Deposit margins and net interest income related to the equity of this quarter dropped another KR60 million.

Deposit volumes have continued to increase for the bank, but with the current interest rate level that actually gave a negative impact in Sweden all the KR9 million. Total lending margins declined by KR70 million in spite of the fact that the mortgage margins in Sweden increased one basis points because in Sweden this was more than offset by a reduction in corporate margins.

Both in Denmark and Norway margins declined. Increased lending volumes improved net interest income by KR89 million with 4 million to 8 million of that coming from outside Sweden.

Some of the other effects in the quarter were negative benchmark effect and a positive day effect. More than 2/3rds of the other negative effects that you can see were attributable to the higher costs for replacing cash in central banks in Sweden due to interest rates turning even more negative in the quarter.

Going back to slide number five, this shows the impact that negative interest rates in Sweden has had on deposit margins and on the yield, on assets financed by the banks equity. The average cyber rate in Sweden dropped another eight basis points to minus 27 basis points in the quarter, only a small share of the Swedish deposits now carry some interest.

And as you can see from the slide the current impact from the negative rates in Sweden amounts to KR6.6 billion on an annualized analyze basis compared to the interest rate peak back in 2011. On the back of the further decline of the [indiscernible] rate impact as you can see was even stronger in the third quarter than in the second.

Then going to slide number six, this shows the group's fee and commission income. The accumulated growth here for the first nine months was 10% and in the third quarter, you could see a decline of 2%.

The banks efforts within the mutual fund business is certainly paying off the market share for a new net savings in mutual funds in Sweden for the first nine months was 42%. The fee income from the mutual fund business in the group increased 24% year on year in spite of the fact that lower markets values put some pressure on assets under management in the third quarter.

Adding all this in the bank from mutual funds, [indiscernible] management and insurance, the improvement this quarter compared to the third quarter in 2012 is 61% as compared to 2012 is 61% as we can see from the shot to the right. Then on slide number 11, we show the result of these full customer service surveys made by independent institutes of SKI and [indiscernible] perhaps the most satisfied and loyal customers is of highest importance for Handelsbanken and as you can see we're significantly above the industry average in all our home markets.

This is true for private customers as well as corporate customers. In many countries, we're above average with a very broad margin especially in the UK and Netherlands but it's also true in Sweden and for Danish and Finish private customers.

The customers trust is crucial for the long term profitability and is of course a starting point for our branches every day when they saw their customers. And I'm convinced that this is one important reason among others behind a very strong development in the inflows to our mutual fund in Sweden we see as I described earlier.

It is much more natural for a satisfied customer to decide to do more business with Handelsbanken and also to entrust us with a larger share of their business. Then going to slide number 10 we here show the return on equity for the first nine months in our different home markets.

UK is the most profitable market for us with 17% return on equity in spite of the big investments that we have made during the last quarters. Sweden was at 15% that is in a period when interest rates have fallen sharply, loan demand from ordinary corporates this week and equity market has fallen affecting add value of assets under management.

Finland and Norway which are two countries where the economies in general are struggling were both at 14% and Denmark was at 14% before loan losses but here reported 11% due to increased loan loss provisioning on the single exposure in the quarter. In the Netherlands, we have opened up three branches this year taking the total number to 23.

The product offering in the Netherlands is being developed in order for us to become even more interesting for our customers and the underlying profitability of the Dutch business is strong but of course with the investments that we have done this effect and the reported return on equity for the period amounted to 6%. Slide number eight shows the financial position of the bank which again has continued to strengthen.

Core Tier 1 ratio increased to 21.4% up from 21.3% at the end of the second quarter and 20.7% one year ago. This was in spite of the fact that [indiscernible] for pensions had a negative impact of half a percent in the quarter.

Retained earnings and positive volume migration added 0.4 percentage points and the net increased business volumes and some other effects was 0.2 percentage points if you take that net. Total capital adequacy ratio was 27.4% up from 25.6% one year ago, but down from 28.4% at the end of the second quarter, the decline here is explained by Tier 1 instruments maturing during the quarter.

The Swedish FSA [ph] concluded in their annual capital asset of the bank recently and so-called [indiscernible] and the bank issued at the end of 2015 have core equity Tier 1 ratio of 18.1%. The current 21.4% that we reported is according to the current rules which means that it's calculated based on the same payout ratio as for the full year 2014.

During 2016 the counter cyclical buffering in Sweden will be raised again and also there is still some uncertainty regarding the final capital requirement for banks in general in Sweden and our current assessment is therefore that the bank is within it's long term target range. Slide number 12 is by now very familiar to you showing the strong development we have in the UK, with the big investments that they have done during the last quarters, we believe that we have a strong platform for continued growth in the UK.

Including appointed branch managers for new branches the bank has now announced its branch number 200 in the UK, eight new branches were opened in the third quarter and another five branch managers have been appointed for future branch openings. The operating profit in UK rose by 37% in the first nine months of the year.

Slide number 13, you can see the development for net fees and commissions in the UK. The current profitability in the UK 17% is still very much accrues from a lending business which is quite capital intensive.

However as you can see the fee and commission generating business is quickly becoming a larger contributor, it up from 3.3% share of total revenues in 2012 to 8.5% in the third quarter. As the right slide shows, growth has been 276% in three years for fees and commissions in UK and you can hear or so clearly see the important impact Heartwood has made that development really starting off from the third quarter 2013 which was the first full quarter with Heartwood as part of the Handelsbanken banking group.

Here I would also like to point to the fact that the integration of Heartwood into the banks business is indeed still quite at early stage. This development is of course in total a very promising, when we think about the profitability prospects for the UK going forward.

So to summarize equity per share, including dividends continue to grow 15% per year was when we had quite challenging third quarter. Operating profit for the first nine months increased marginally, net interest income increased by 2% for the period but dropped 3% quarter-on-quarter, even lower interest rates combined with some lending margin pressures were the main reasons here.

Fees and commissions increased by 10% year-over-year but declined 2% quarter on quarter due to the stock market downturn that affected assets under management and equity commissions. The development for the bank in the mutual fund business is nevertheless structurally very interesting, we captured 42% of all new net savings in mutual funds in Sweden.

Return on equity on group level was 13.1% with UK in top 17% followed by Sweden with 15% and that is in a negative interest rate environment for most of the nine month period. In the third quarter operating profits fell by 10% compared to the second quarter mainly due to falling interest rates and seasonal effects.

Core equity Tier 1 ratio at the end of the quarter increased 21.4% with upcoming increase in the counter cyclical buffer and further uncertainty regarding final capital requirements in Sweden, our current assessment is that the bank is within it's long term capital target range. And with that I conclude my presentation and open up for questions.

Thank you.

I had two questions one on net interest income and the second one on capital fee, please. Firstly, on net interest income, I wonder if you can elaborate a little bit more on the competitive dynamics that led to the decline in corporate lending margins.

Was there any particular product area and do you see this trend continuing into the fourth quarter and then secondly a mortgage margins. I can see it's up only one basis points which seems to be a very divergent trend from your peers that have reported so far so I can wonder if you can also elaborate on why the mortgage margin was only up one basis point and then my question on capital, we've have had a lot of noise from the regulator on plans to increase internal model corporate risk rates in 2016 and it seems like a key plank of that will be to change the way that the M factor, the maturity is calculated from a contractual basis to a behavioral basis.

So I was wondering do you know what your corporate risk rates would look like if they were all calculated based on behavioral maturities rather than contractual maturities. Thank you.

First on NII, when it comes to margins and we look at the corporate margins in Sweden, indeed, as you can see from the material, they have deteriorated in the quarter. And I would say it's, first of all, the general competitive pressure.

As you know, from ordinary companies there is a very flat, at best, loan demand, actually a diminishing loan demand. And then there is the segment that we're not participating in, the high-risk leverage commercial real estate deals.

There, I've heard it's not so much of a pressure but, again, we're not in that segment. You can see from the statistics that there are, certainly one player that are very large in that.

Also, the corporate lending in Sweden is affected of those kind of deals where they are linked to STIBOR and, of course, the negative STIBOR effect that you can see here. Regarding mortgages, as you know, we're a price follower.

Our market share in mortgages in Sweden is extremely stable. We follow the market price and as you can see, it was 1 basis point up.

But we have no ambition to steer that from a central point of view, so we just add up all the deals that the branches are doing here. On capital, yes, I think you gave a very good presentation of the current situation.

We don't know anything more than you've already said. We know that the authorities are looking into the M factor published in the EBA paper, stating that Pillar 1 it should, indeed, be the contractor length.

But in Pillar 2, as you know the authorities can do whatever they like in changing that. So for instance, you can think of rules saying that regardless of the actual maturity, you should use a minimum of two years or three years or four years or five years or whatever.

And as you do that, of course, since the M factor in the formula, the ratio formula, has some sort of impact, you will, of course, then increase the need for capital and the risk weights, by the risk weights for corporates going up. But it's very hard and we have no information on what kind of calibration they are looking at.

And then you asked on any sort of anticipation and so on. I think the main theme here, as I hear it from the authorities in the general public debate, is that they say that it's not a matter really of expected M factor or contractual.

It's more that if you're a big bank, then it's not regardless of what you have in the contract you cannot get rid of all of your stock in there. It's just since the big banks are such a large portion of the whole society, so to say, so it's more of that kind of reasoning that's behind this.

Okay. No, understood.

So have you, I guess, just to ask the question, have you that sensitivity? And do you know what the corporate risk weight would look like under those conditions?

I don't know if you know now or would you rather not say?

We have done a lot of calculations ourselves, but I think it's meaningless to give you any sort of numbers here. I haven't got a clear view of, in the relevant game, if we would be a net benefit or a benefit or not in relationship to other banks.

And it has to do a little bit about the technical, how you do you it technically, if you do it more granularly on different portfolios or if you do it one-size-fits-all, all sorts of corporates. But, in effect, you can say it's in the hands of the authorities, the toolbox, to do what they want.

Having said that, I must stress that we see the Swedish authorities as being very, very serious about these kind of things and do it in a way that could be perceived by everyone as being fair and so on. So I think you have to see this as part of the toolbox where the Swedish finish 5%, also the minimum risk weight of mortgages and so on, in that kind of framework.

But they're putting in some more things and this time it has to do with risk weights on corporates. I wouldn't anticipate anything extremely dramatic.

And perhaps, could I just ask a quick follow-up on mortgage margins? You said that Handelsbanken is a price follower as far as pricing of mortgages is concerned, but kind of 50% of the mortgage stock out there, we've had one peer, two peers have increased back booked margins 6 bps in one quarter.

So it's not a matter of being a price leader, but it's just such a wide divergence so I think it's just a bit difficult to understand why mortgage margins can't go up more than that in the near term?

I think, if you want to analyze it more in depth, you have to realize that the Swedish mortgage market consists of many, many different parts. Some of our competitors have a on and off strategy and if they are on, having taken the strategic decision they want to be larger, they're doing campaign prices and as soon as those campaign prices mature, they lose market share again.

And they go up and down, so if you look at the market share development of different institutions, you will find this pattern. And then, from a consumer point of view, there are people that have this life interest of chasing the last basis points in mortgages and they move along and you can see the volume moving along.

There, you have one sort of price sensitivity. If you go long-term client relationship, it's not so volatile as in the highly moving segment.

So the total fees you see from banks is a combination also this mix effect, while in Handelsbanken we have a very stable client base. But we're very fair to our clients; we charge them the market price and follow the market price all along.

I've got two questions. The first one would be on the pension impact on capital; so we're seeing a broader range of the assumptions underneath, so if you can just remind us of the discount rate you're using and the inflation expectation, particularly given you seem to have a negative impact while it was more positive some of the other peers?

And why would you have not adjusted it differently this quarter? And same thing would be, going through your divisional disclosure, you again have a bigger loss in Denmark and I think we've seen that already last year.

So is there something that seems to be recurring, can give you some detail there; it just might be coincidental but it seems to be Denmark again and again. Is there any sector that you misjudged from your low risk perspective or if you can give us some idea there?

Thanks.

The pension cost or sorry the pension, how it affects capitalization, that is a quarterly question where you calculate what is the pension liabilities and what is the pension assets that we have. And there is a large portion of equities in our pension assets and what has happened in the quarter is that asset prices, as you know, stock market prices have gone down so, therefore, you have a negative capital effect.

This capital effect comes in on a quarterly basis where you do this calculation and it goes through the OCI. So if you see other comprehensive income, so if you look at other comprehensive income, you will see the exact figures for this and also the tax effect of that change.

There is no change of discount rate in the quarter, so it's total effect on the asset side in this quarter. Coming to Denmark, the loss in Denmark, yes, we have said that it's an on old existing exposure that we have and why we have taken more credit losses.

That is the explanation in Denmark. When you look at other part of the portfolio, disregarding this item, there is no sign of deterioration or migration or anything like that.

So it's not a matter of that we see any systematic development in Denmark.

Just on the pension, could you give us some idea where your discount rate sits, particularly given some of your peers are giving it and they basically seem to go for increasing the discount rates, therefore reducing the liabilities and what would be your reason to keep it stable compared to them?

Yes, the system here is that you should use the long-term corporate bond rates that are in the markets. The problem is that there is no such long-term bond rate in the Swedish money market or Swedish bond market.

So you have to have a model for deciding how do you fix this interest rate and then this is done in different ways in different banks. Each year, in our Annual Report, we go through how we do it and how the interest rate is.

And, as I say, in this quarter it's very undramatic and I again reveal that there's no change in the discount rate from Q2.

\ I have two questions, please. The first one on the net interest income; if I look at the divisional performance, Sweden and Norway q-on-q saw a decline in NII but then, at the same time, your other operations saw an increase in net interest income q-on-q.

And I was wondering whether there have been some change in how you allocate interest expense or interest income, internally that drove this increase in other operations NII? The first question, please.

And then the second question is on asset quality again, if I may? You've seen a very low level of loan losses in Finland and I was wondering if it's a reflection on structurally improving situation in the Finnish market or is it just a one-off write-back that has led to such a low level of loan losses in the quarter?

Thank you very much.

On the first question, no, it's exactly the same principle as we have had. We have a central treasury which are doing all of the internal Bank work, so whenever a branch takes a deposit, they leave it with it central treasury and they get an internal write-back and vice versa if they lend money.

And it's exactly the same principles. And as you see, over time, there is very little variation in what we call others, the part of the Group that is not a segment.

It could be smaller variations quarter to quarter; for instance, when we take up funding in the markets but it has not been used by the business yet. So when it's used then, of course, the internal rate for that particular amount of money comes into the profit and loss statement of the business segment.

So there is no change whatsoever. What you see in terms of change is in Sweden and Norway on net interest income is a reflection of the business.

In Norway, as you see, it's down 7% quarter on quarter, but bear in mind then that the Norwegian currency went down, so in local currency we're talking of 1%. But as we said, there is margin squeeze in Norway.

Finland loan losses; again, the country, the macro environment in Finland is not particularly good, as you know. My impression is that maybe, maybe we have come to the bottom; actually there was a small GDP increase as I understand, but it's very, very small.

But it's not that Finland is - the macro environment is improving, but maybe it has reached the bottom. Concerning loan losses, again also here we do not see any trends in terms of migration and so on.

If you look at Finland over time, you are seeing there have been quarters with a bit more of credit losses and that has not been the case in this quarter. And then you see more of the underlying ROE.

You can say exactly the same example with Denmark; the underlying ROE in Denmark is well over 14% but it's reporting 11% this quarter because of the credit loss we just discussed.

Just two things to follow up on. First, in terms of the weaker net interest income in the quarter, I understand that a lot of this is driven by a lower return on your excess liquidity.

To what extent is that now reflected in numbers or do you foresee a further headwind as you have to substitute fixed income instruments with direct central bank deposits in Q4 and maybe into next year? And then, secondly, if you could just comment a bit on the competitive outlook in the UK?

We're seeing, I guess, some slowdown in particular on the corporate side. Is that driven by increased competition?

And what does that do to your thinking around margin pressure for that unit?

On the first question, as you know as part of our liquidity planning and liquidity prudence, we have cash overnight with central banks. And what has happened in the quarter is that the central bank of Denmark has lowered the amount where we can put in money at 0% interest rates and other amounts it's a negative interest rate when it comes to central bank placement in Denmark.

You have also in Sweden got, of course, the change of the interest rate from the Swedish Riksbank, which is also a negative. And generally also in other currencies, the spread has come down in a negative way and we talk about this in the report.

Going forward, do I see any big changes? Well, then you have to tell me where the interest rates are going, but all things being equal, I don't see any changes but it's a matter, of course, of where the interest rates are going.

There are some possibilities, from time to time, to exchange what you have at central banks, for instance, to interest bearing bonds, state bonds and so on. We're not prepared to take any sort of credit risk with our liquidity portfolio.

UK competitive landscape, I think it's very fair to say that the British banks have, indeed, improved quite a lot in terms of financial stability and also in activity and so on. They are more active and so on.

Having said that, we're getting more and more special in the way we conduct our business, being a non-mass market and very bespoke service and so on. So actually, when we look at the margins in this quarter, they are not going down in the UK.

We have still a double of the margins we have in Sweden we receive in the UK and there's no deteriorations. There's actually a small increase in some segments.

And then, of course, the price competitiveness varies in different products. But when I ask our branch managers in the UK, they say that they never compete on price.

The price is never really a question. It's more about getting the trust of the client and really getting the relationship going.

That is what the constant energy is on. So we're not there on a price competition basis; it's not because of that that we're expanding.

Then you say that Q3 growth is not so great. But you should remember that, in spite of the British and Swedish weather, also Britons take vacation and it so happens it comes in Q3.

Maybe just a follow-up on the UK, the pace of branch openings that we've seen, should we expect that to continue at broadly the same pace? I think in the past you mentioned that, with 200 branches, you have a full national coverage.

Does that mean we should expect it to slow or is there more to do?

This is totally a local decision, let me say that, but as a general observation, as I said in my presentation, we have taken, as you've seen from the figures, extensive investments both in terms of new branches, but also in setting up the new regional head office in Leeds from yearend, computer systems, etc. So on that ground, of course, there is a big scope of expanding the business also within the current branch office network framework.

That's not saying that we will not continue to start branches and I don't want to go into the numbers. But as you can see, we have taken quite a lot of investments; we have a very good ground for expanding regardless of the number of branches.

I think it's very likely that you will see the number of branches vary quite a lot from quarter to quarter. This quarter it was a rather high number, one must say, eight new branches and so on.

Three questions from me; the first one on deposits and the two last ones on capital. Just on deposits, you reported quite a large decline on deposits quarter on quarter, both in absolute terms, but also rather to your peers.

I'm just wondering if there was anything behind this. Second on capital, just on slide 21 where you show the quarter-on-quarter progression in capital, could you just give us a bit more detail around the 40 basis points of other effects?

And then lastly, again on capital, you mentioned that you now feel that you're within your long-term range when it comes to capital levels. Does that mean that, for the time being, you see it as appropriate to be somewhat above the 100 to 300 basis points range, rather than being somewhere within it, given the amount of regulatory uncertainty?

That's it. Thank you very much.

Maybe I should start on capital. What we say on capital is that we have received the SREP and the Swedish FSA says 18.1% the revised number for yearend, so they make a forecast.

In that number, 18.1%, it's not included what they have already decided in terms of the countercyclical buffer increase, which will take effect on June 23 in Sweden, going from 1% to 1.5%. For us, then and this is only applying to the Swedish volumes, so for us that will be an effect of about 0.3%.

If you take 18.1%, add 0.3%, you're at 18.4%. We're at 21.4%.

Add to that the fact that the Swedish authorities has been very clear and transparent that they are currently working on the [indiscernible] models and also the question on corporate risk weights and we discussed the M factors one part of their Pillar 2 toolbox to do that. And they have said that something will come out in this respect, probably during the spring or something like that.

And that's why, therefore, we say that in our best judgment is that, with our 21.4%, we're, indeed, within the 1% to 3% which is our goal. So it's not that we think that we're above, we think that we're within that band.

On deposits you talked about the peer volumes and what's happening on deposits. As you can see, we have structurally a good inflow of deposits.

I'm talking about household deposits, SME ordinary companies. On top of that, there is a volatile part of the deposit market which has to do with, of course, financial institutions, we have not a lot of that, but also large corporates and that kind of, how should I put it, large corporate treasury departments' deposits.

And that's quite fluctuating and you can see that quarter by quarter that that's going up and down. You can see, for instance, in our branch office operation outside our home market, you can see rather dramatic turn.

You can also see it in Finland, for instance on the corporate side, but you have to look at different parts. So structurally, when it comes to do we take on new interesting clients with deposits, the answer is certainly yes and we have a nice development there.

On top of that, we have this fluctuation. It goes without saying that it can, indeed, even be a problem if you get a lot of these volatile deposits from large corporations because not only are they volatile, that's one thing, but other part is that you cannot use them for anything because LCR and the NSFR measurement is such that they take into account that they are volatile.

So it's only, if you have too much of them, it's only posing a problem because you have to put it into central banks and then you have this negative return on that.

And then just on the other movements within capital quarter on quarter, the 40 basis points?

It's Mikael here. It's a number of really on the second decimal things, but you have, for example, reduced capital requirement for market risk.

You have also a slightly smaller IRB deduction in the capital base. You have a small on the second decimal the impact on the LGD factors.

There are a number of ones. And when you just sum it up to with one decimal, it's actually 0.4%, slightly less actually because if you look at the second one, there's probably six, seven, eight, different small items with the biggest one being lower market risk and also partly a positive effect or the IRB reduction in the capital base.

And then just on the management buffer, in other words you see your current 100 to 300 basis points as appropriate going into next year and the potential increase or the likely increase, in Pillar 2 requirements, is that correct?

Yes. We think that the 100 to 300 basis points is, indeed, a good span when it comes to working within the capital framework.

And then we have to, of course, see what the authorities come up with here and adapt to that level. I think it's good to see, however, that in spite of our 15% growth and of the payout ratio that has already been deducted in the Core Tier 1 ratio, we're building capital.

So not only have we got this 15% growth in value, we have a 73% payout ratio in the calculation. And in spite of that, we're building capital.

And then hopefully, at some stage, we come to the end of the capital discussion and know exactly what the authorities want us to have. Let me also be very clear, when I say 73% payout ratio, this is how the rules are working.

That is what you should deduct when you calculate the Core Tier 1 ratio. It's exactly the same payout ratio that we had last year, so there is no forward cost whatsoever in using that amount.

It's just a reflection of a mechanical calculation out of the regulation.

I think we've covered a lot of ground, so only two questions that are additional to what we've heard already. First of all, just on the Swedish business and more generally, you've obviously got a trend of net interest income falling back and probably the outlook is fairly bleak for that as well.

Loan losses are coming up. Are you able to offset that domestically with any of the other revenue items or costs?

Or are you looking towards the other divisions and international to offset that pressure in Sweden? The second question is a bit more of a clarification.

On the provision coverage and the absolute level of provisions, you've had quite a high jump quarter on quarter with about a 5 percentage point increase in the coverage ratio on pretty flat non-performing loans. Can you just outline what is driving that?

Is that specific credits going bad? Is it more generic provisions?

Can you just give us a bit more color there? Those are the two questions.

Thank you.

Yes, maybe there's some misunderstanding about credit losses and credit losses in Sweden. There is one credit and one credit that has been with the Bank for many, many years where we have decided to take more provisions than we have earlier done.

If you take that provision away, there is small amounts only of loan losses and there is certainly not, contrary to what you described, any sort of trend or increase in credit losses in Sweden. I don't want to do any sort of forecast, but I don't see any kind of information that should, at this point, point to an increase.

When you look about the credit losses that we have in the quarter, you're right that they have gone up if you look Q2 to Q3. But then you have to remember that there is this element of Group reserve which is a totally mechanical calculation, the general provision, Core Group reserve.

And that is calculated on the basis of PD values for credits that have a credit rating that is worse than normal. And what has happened this quarter is that clearly, there is a validation of PD values and the PD values in risk classes with rating that are rather bad has gone up slightly.

And, therefore, we have done an allocation of SEK70 million purely as a modeling thing in the Group provision. If you take that amount and look at the individual provisions, actually the numbers as you can see Q2 to Q3 is going down.

And then, again, we have already talked about the Danish case and I also now mentioned about the Swedish case. If you leave those two instances alone actually as you understand there is a general improvement if you look at the rest.

Swedish business, you asked about the environment here. Yes, the loan demand on the corporates side is very sluggish for normal companies.

They do not invest yet, because they want to see more of world demand, they are cash rich and they have good solvency. So I can't see any quick shift in terms of loan demands.

In terms of commitments, yes, there are some demands and that used to be an early indicator of coming loan demand, but I'm not so sure. I think we have to see more of uptick in world demand before we see more of investments.

And then you have these segments where we do not participate, the highly leveraged commercial real estate and private equity deals. So what will the money come from, if I understand your question right?

This is something that our branches think about daily, because our steering system puts out all these facts immediately on interest rates and so on, to our branch offices. And there are various ways.

Some branches work on the mortgage margins; if you are in a market where it could be happening, most or if not all, branches work more and more on the mutual fund side. And you've seen from the material that we're taking 42% of the new net savings in Sweden in mutual funds.

Insurance is another very interesting field for us. We're very small and we're now starting to get up a good product range, talk about unit-linked.

More usage of our credit and debit cards for our new clients and on top of that, the whole very interesting, of course, thing that is happening with increased efficiency, since the use of our mobile telephone apps and digitalization and so on is increasing constantly, which free up time in the Swedish branch offices. There is also work, as you may have seen when it comes to cash handling in the Swedish branch office operations.

Cash handling is very time consuming and also a very costly thing and there are various ways of increasing efficiency here. And so there is lots of things that could be done to counteract what you see and it's a daily task of everyone working in the Bank to do that.

Then we have our international expansion as well, the UK, the Netherlands and so on. On commissions, that's a general theme, not only in Sweden.

We're talking here in the material about the UK where we've gone from 3.3% of total income, when it comes to fees, to 8.5%. But 8.5% is still, if you compare it with our competitors of course, very, very small numbers.

So we have lots and lots of things to do, also of course, on fees and commission in the other Nordic countries, same thing. So, lots of things to do.

Any last question before we close the call? No, it doesn't seem so.

So thank you very much for participating and as usual, if you have any further questions, please don't hesitate to call us. Thank you very much.

Bye-bye.