Svenska Handelsbanken AB (publ) (OTCPK:SVNLF) Q2 2022 Earnings Convention Name July 15, 2022 3:00 AM ET
Firm Contributors
Carina Åkerström – President and CEO
Carl Cederschiöld – CFO
Peter Grabe – Head of IR
Convention Name Contributors
Magnus Andersson – ABG Sundal Collier
Maths Liljedahl – SEB
Andreas Hakansson – Danske Financial institution
Nicolas McBeath – DNB Markets
Omar Keenan – Credit score Suisse
Namita Samtani – Barclays
Rickard Strand – Nordea
Sofie Peterzens – JPMorgan
Riccardo Rovere – Mediobanca
Jacob Kruse – Autonomous
Robin Rane – Kepler Cheuvreux
Jens Hallen – Carnegie
Maria Semikhatova – Citibank
Piers Brown – HSBC
Operator
Good morning, and welcome to the Handelsbanken Q2 Report for the Second Quarter 2022. We will start by listening to our President and CEO, Carina Åkerström presenting the Q2 figures, along with the CFO of the corporate, Carl Cederschiöld. After that, we could have a brief break. After which we could have a Q&A session over a telephone convention service, not subsequently broadcast on this channel. You could find data on how you go surfing to the Q&A session at handelsbanken.com beneath the part IR, and data was additionally included within the press launch that was revealed along with the invitation.
This presentation, the Q&A session somewhat might be held in English, presentation [ph] in English. You are able to do so by logging into the phone convention service the place it will likely be concurrently translated. And you discover the knowledge on how to go online to that on handelsbanken.com beneath Investor Relations.
Now let’s start with the presentation. Carina, over to you.
Carina Åkerström
Thanks, Louise, thanks. And as soon as once more, good morning. A heat welcome to you all for this Q2 report from Handelsbanken.
We’ve got a very good first quarter to report, the primary six — good six months with a file robust state of affairs of managed value growth and nearly nonexistent credit score losses. And the capital state of affairs is powerful. Handelsbanken subsequently, is nicely positioned to proceed to develop in a profitable method and with revenue in funding, deposits and asset administration. Should you look extra from a enterprise focus perspective on the numbers, an image is painted of a financial institution which could be very well-positioned and standing robust within the new international state of affairs, and the brand new market we’re now at present working in.
We’re rising in lending and deposits. We will see this within the web curiosity revenue, which reached the very best stage up to now ever recorded. It is rising, as could be anticipated, in a financial institution like ours when market rates of interest go up. And in a market with a decline within the inventory exchanges, the Handelsbanken efficiency is above and past these of many different gamers in web charges and commissions. The online stream out from the financial institution have been marginal and we have seen main actions available in the market total. Credit score losses are nearly nonexistent.
So our asset portfolio is continuous to be at a really top quality stage. Capital state of affairs stays comfortably robust and secure. And the prices are at present at a stage which we’re pleased with. They’re going up however in the correct locations. All-in-all, the soundness over the quarter signifies that the C/I ratios proceed to drop. And maybe probably the most rewarding level of all is the most important adjustments we’re witnessing within the UK. After a few years of intensive work, UK is now delivering a really robust efficiency.
Let’s take a look at and sum up the primary quarter in comparison with — the primary six months, in comparison with the final 12 months. So that is January to June. Working revenue by percentages to C/I ratio dropping at 46%, revenue up by 2%, prices up by 1%. Revenue is pushed by a file robust web curiosity revenue and web charges and fee for the six months holding up nicely.
Once we see a drop within the inventory exchanges, that is to some extent, counteracted by the adverse valuation results which could be seen on the NFT line. So value bills going up by 1%, adjusted for nonrecurring objects, and on the identical time, we’re stepping up the tempo in our growth. And also needs to add while the general inflation usually seems to be dashing up throughout the first six months, credit score high quality — asset high quality remained robust and credit score losses, as I discussed, are nearly nonexistent.
Let’s take a look at this quarter, in comparison with — 2022, we see web curiosity revenue up by 5% between the primary two quarters, enhance in enterprise volumes and a constructive influence of the rising market rates of interest. Internet charges and commissions are dropping considerably, however it’s nonetheless holding up. NFT has an influence right here as nicely. So all-in-all the revenue is down by 2% from the earlier quarter. Bills unchanged adjusted for Oktogonen and forex results have elevated by 1% which could be defined by regular seasonal patterns.
The working revenue is a change of 5%. And that is excluding the valuation results I discussed on the NTF. The C/I ratio amounted to 46.6% and underlying credit score losses is in reality consisting of web recoveries, however we’re making common reserves because of the present international state of affairs. Let’s proceed and take a look at our lending. We develop and we see a superb progress in all of our markets. On the family lending facet, we see a secure enhance to the tune of 5%.
Taking a look at company lending, we see a very good growth, 11% in comparison with earlier 12 months. And for the primary 5 months of this 12 months, Handelsbanken was the most important web lending participant in Sweden by way of lending to corporates. It’s a well-diversified enterprise between property lending and working firms. And if we have a look at deposits, we see a superb progress right here as nicely, by as a lot as 11% on the personal facet. And on the company facet, we additionally see good growth. It is an necessary element within the financial institution’s enterprise. And within the present rate of interest state of affairs, it is necessary. For SEK1 of SEK4 invested in Sweden deposit went to Handelsbanken.
Let us take a look at financial savings regularly. We see a continued good growth. The energy and the robustness we have managed to attain and achieve over a very long time, with web inflows into the financial institution, as you see to the correct of this slide. In actual fact, over greater than 10 years now, a median of 25% of the online inflows available in the market ended up in Handelsbanken. And steadily, we have elevated our market share. We’re now at a market share of 12.2%.
The market share of the online influx from the previous 12 months has been simply over 40%. So the financial savings enterprise is working nicely given the present macro economical state of affairs. The market sees outflows, however the financial institution web flows have solely been impacted marginally. Now let’s attempt to sum this up. The place we’re at present in a session the place revenue is rising extra quickly than bills. C/I ratios trending downwards and our expectations, in fact, is for this to proceed.
Let’s take a look at our belongings and our asset high quality. As I discussed beforehand, credit score losses are nearly at zero with a secure portfolio, low-risk portfolio and as anticipated, no credit score losses. And this has been the state of affairs over the previous few years. The provisions we’re making linked to the reserves, partially associated to the pandemic, but additionally in fact, as a result of there’s quite a few uncertainties on the planet round us. So along with sturdy credit score course of, expert folks working within the financial institution, and the reason above and past that’s defined by the precise identification of the portfolio.
Let’s zoom out to some extent and take a look at our house markets and the state of affairs for the primary six months of the 12 months. Let’s start by taking a look at Norway. We proceed the great progress. We have achieved an all-time excessive on web curiosity revenue, up by as a lot as 6% over the primary six months. Internet charges and commissions in Norway up by 5% regardless of the market turbulence there. And all-in-all, revenue is up by 6%. C/I ratio slightly below 38% and we’ve got a superb enterprise the place we’re additionally rising our growth focus to strengthen buyer conferences on the family and personal facet specifically.
After which Holland and Netherlands, we proceed to see glorious progress right here as nicely. Lending, up by as a lot as 21% in comparison with final 12 months and revenue up by 16%. The C/I ratio continues to maneuver steadily downwards.
Let’s take a look extra intently on the markets in Sweden and the UK. In Sweden, our largest market, right here, we proceed to see a secure enterprise growth with good key ratios, secure growth additionally in web curiosity revenue. Households, mortgages, secure progress, 5%. Company lending, rising by 10%, and with a superb combine, as I discussed earlier, between property and working firms.
Internet charges and commissions, impacted by the event on the inventory exchanges, however we’re holding on to our place and we’re constantly gaining market shares, as I discussed earlier.
The UK, nicely right here the most important pattern — change is maybe to be discovered there. We have had a protracted interval the place we have invested a substantial amount of time and effort, however we have seen a transparent momentum within the enterprise. And the tide seems to have turned. Revenue is up, prices are down and bills nonetheless quickly dropping. C/I ratio, which ended up at 57% in comparison with 73% a 12 months in the past. Working revenue within the UK is on the highest stage ever for the partial 12 months, 43%. And return on fairness as a lot as 14%.
We additionally see a quantity growth within the UK. It is starting to be increasingly more seen. On the company lending facet, volumes are up. What we’re additionally doing within the UK and been doing for a interval is that among the company lending has been — I imply it’s type of hiding the final growth in lending. We strengthened our portfolio, in reality, by off-boarding to some extent. So all-in-all, we see glorious growth in all our house markets, specifically contemplating the present macroeconomic state of affairs. We’re rising enterprise volumes. We see improved margin and maintaining bills at a very good stage.
Let’s take a look at our capital. Then I discussed initially that the capital state of affairs is superb. CET1 ratio, 18.7%, 480 foundation factors above the regulatory requirement and 180 foundation factors over the financial institution’s goal vary. All-in-all we see robust growth in our enterprise to have the capability to satisfy the demand of our clients thus inserting the financial institution in a superb place. We’re nicely positioned within the new present state of affairs on the planet globally and available in the market, and we give attention to continued progress sooner or later. Over to you, Carl.
Carl Cederschiöld
Nicely, thanks, Carina. Then we will have a look at the event of the online curiosity revenue and we’ll begin with evaluating quarters, 2021 and 2022. And you’ll see that web curiosity revenue is up 5%, additionally adjusted 5%. And in the event you have a look at the slide, you see the completely different elements. And we see that we’ve got a powerful quantity progress in our web curiosity revenue, 2% up is what we see.
And we are able to be aware that beforehand when we’ve got had good numbers, we’ve got had about SEK100 million in contribution to quantity progress and now it is SEK145 million. So very robust progress throughout the quarter. Margins are up as nicely with the adjustments in curiosity however that is primarily from deposits and that is one thing that we see in all our markets. So we’ve got a powerful growth right here as nicely.
And the liquidity portfolio additionally provides SEK65 million to web curiosity revenue. We’ve got one other merchandise, and that’s NFT compared. And that’s one thing that’s related as nicely. However different objects are kind of negligible. And the event is powerful over the quarter. Over six months interval, it is even stronger, up at 9%, adjusted at 7% and also you see the amount contribution 3% and margins 2% up, which signifies that we’re in a really robust momentum on this respect.
FX, currencies contributes to web curiosity as nicely, evaluating the 2 years, and that’s additionally what we see the distinction between headline and the adjusted stage, 9% up. So robust growth on the subject of web curiosity revenue usually talking. And if we disregard growth within the UK, that is what we really feel is a very robust element of our report.
Then taking a look at web price and the fee revenue, extra usually talking, we all know that the inventory trade growth has an influence, and that’s what we see right here, that we’ve got a sturdy state of affairs in web price and fee revenue, with a rise over the primary six months in spite the inventory exchanges. And right here as nicely, you see the completely different elements. Financial savings representing about 70% and our financial savings commissions over the quarter are down 16%.
However you’ll be able to see within the slide that if we examine six months durations, we’ve got a powerful growth. And underlying this, we’ve got our capital beneath administration that’s declining lower than the markets. So we see much less of an influence from securities and we’ve got flows which can be increased than available in the market.
Beneath fee charges, that’s what you see within the center, and right here, we see these days a constructive growth. And we additionally see that we’re shifting away from the COVID pandemic, and that is one thing that’s trending upwards, so which is sweet. And different charges and fee, kind of flat.
After which bills, if we have a look at the event, we’ll begin with the six months interval, evaluating the primary six months to final 12 months, and we see prices up 3%. But when we glance to the left at these completely different steps, we see that we’ve got FX results up at 2%, which signifies that — nicely that brings us to 1%. That must be defined. After which we’ve got the Oktogonen, eradicating 1%. After which we’ve got 2%. And we see that we right here have a powerful growth on the subject of growth bills, which is the place we’re investing sooner or later.
And on the identical time, we’re making underlying companies extra environment friendly. And that is one thing that we like. We wish to allow investments sooner or later concurrently we grow to be extra environment friendly. If we have a look at the quarter, it is even much less of a change. And right here as nicely, we are able to alter for FX and the Oktogonen. We see underlying bills up 1%. Underlying bills are up 1%, with differences due to the season, that is simply pure and it’s a very low enhance in bills. And nothing dramatical in anyway, on the subject of bills. We proceed to take a position for the long run and we make our enterprise extra environment friendly.
And with that being stated, nicely, I hand again over to Carina.
Carina Åkerström
Nicely, thanks, Carl, after which if we’re to summarize, we’ve got a very good first six months in 2022. We’ve got good progress in our enterprise. The financial institution is well-positioned for the state of affairs that we’re in. NII file excessive, capital state of affairs is excessive and credit score losses nonexistent. So I’ve to say that we’re robust, secure and that this can be a very good feeling.
And with that being stated, nicely, I hand again over to Louis. After which we’re to conclude this broadcast and there might be a brief break. After which in a few minutes, we’re going to have our Peter Grabe, Head of Investor Relations that can begin the phone convention. And details about how one can log in, you’ll discover beneath handelsbanken.com Investor Relations. So welcome to the Q&A session that might be in English. Thanks.
Query-and-Reply Session
A – Peter Grabe
Whats up, and welcome again, everybody. We are actually prepared to start out the Q&A session. So operator, might we please have the primary query?
Operator
Thanks. And the primary query comes from the road of Magnus Andersson from ABG. Please go forward.
Magnus Andersson
Sure. Good morning. Beginning with NII, on margins and volumes there. Initially, once I have a look at this Slide 22, the place you may have the quarterly breakdown, the quarterly NII Bridge, I used to be simply questioning in the event you might break down the SEK195 million there, web impact on margins, funding prices and residential markets by market. It appears to be like like it’s a fairly massive share on the UK. However in the event you could possibly be a bit extra particular there. After which secondly, simply in the event you might affirm that the minus SEK95 million you took in your liquidity portfolio from shifting it from Finland to the Netherlands, that it is included within the minus SEK19 million there in different.
Secondly on volumes, simply questioning in the event you might say one thing in regards to the sustainability of the robust company mortgage progress in Sweden. And secondly, you repeatedly talked in regards to the robust quantity progress and good quantity progress within the UK. It is the second quarter in a row, however I do not actually see it on Slide 18, at the very least within the Truth E-book. So I see the margin impact, I see the associated fee impact within the UK driving earnings, however I do not actually see volumes there. Should you might say one thing has are available in in the direction of on the finish of the quarter or the way you say that?
Lastly, simply on a extra strategic be aware, I noticed you took a provision within the Finnish operations for potential future bills associated to the looming divestment there. Ought to we learn something into that in any respect? Why are you doing it this quarter? That is all for me.
Carl Cederschiöld
Okay. Thanks, Magnus. I will begin, after which I believe I will want some assist from Peter in a sec. However let’s begin then with the NII. What I can say in regards to the margin growth within the NII is that if we break it down on a common perspective, to begin with, within the markets, you’ll be able to say that the Norwegian market, we nonetheless have not actually thorough follow-through in margins, and that is as a result of we’ve got discover durations in Norwegian. In UK, as you say, we’ve got a powerful margin growth pushed by the deposit margins primarily.
In Sweden, we even have a reasonably good margin growth, under no circumstances within the magnitude as we do in UK, however however. And in Netherlands, we nonetheless do not see a margin enlargement, and that is clearly as a result of ECB being a bit afterward within the cycle vis-à-vis the opposite ones. However I will need to ask Peter to dig into the elements of the SEK195 million, which you have been asking for.
After which the liquidity portfolio impact, sure, the SEK95 million is within the different margin, the adverse SEK19 million. And what you’ll be able to say about that’s that if we see ECB mountaineering charges and go into constructive surroundings that SEK95 million will almost certainly flip into constructive over time.
Then as you say, in quantity phrases, sure, we see robust quantity in Sweden. And searching forward there, I imply, I believe there’s loads of pure tendencies, clearly, round proper now. However what we are able to say is that there are clearly a motive to be — motive to — there’s a threat that we see a bit much less of a credit score enlargement occurring, clearly sooner or later. However having stated that, I believe that on the company facet, clearly, they’ve a reasonably difficult market in funding themselves by way of the bond markets.
So we deem that we’re a financial institution who can help positively our core purchasers and we might be there — we’ll attempt to be there for them. And that is a very good state of affairs to be in. So I do suppose that we enter a part of the market the place we might, in relative phrases, take good market shares on the subject of the company markets. As you say in UK, no, we do not see quantity progress as of but in a very good magnitude. We nonetheless wrestle on the family lending there. However on the company facet, as Carina additionally alluded to within the press convention, is that we’ve got exited some volumes from an AML perspective. So you do not actually see the underlying pattern of the company lending progress there.
So we’ve got a powerful pipeline and we really see some first rate progress there as nicely on a gross stage. The provisioning in Finland, no, you should not learn any long-term penalties out of that one. That is simply one-offs, which we — after we know that one-offs will come, we provision for them instantly. So no long run penalties.
Peter Grabe
After which simply to get again to your first query in regards to the margins and funding results per nation, we write explicitly within the report within the respective segments the magnitude, so you’ll be able to simply discover the figures there.
Magnus Andersson
Sure, okay. Thanks very a lot.
Operator
And the subsequent query comes from the road of Maths Liljedahl from SEB. Please go forward.
Maths Liljedahl
Sure, good morning. My follow-up there a bit of bit on NII. We now see a steep price hike. When do you imagine that you’ll really want to offer one thing to the shopper right here by way of deposits, i.e., when the speed impact abates? And I suppose there’s just one price hike within the present numbers. Then sure, we might follow-up on the buying and selling losses. I simply see that there is loads of fairly massive enhance in derivatives within the quarter, as much as SEK55 billion. Is that in any means linked to hedges? Or ought to I learn something into that? We will begin there.
Carl Cederschiöld
Thanks, Maths. I believe clearly, there’s a lot shifting components proper now within the NII on the subject of margins. And as you say, sure, within the early mountaineering season we give pretty little to the purchasers. However I do suppose it is very, very arduous to reply that query simply purely on the magnitude, the worth we give to the purchasers on the deposits.
I do imagine that on the subject of the general margin perspective, on each lending and deposit facet, as I say, we have seen some enhance now from a couple of years of truly gradual downward stress which I believe is just not — it is positively not an outlier. It has up to now come by way of elevated deposit margins. However the way in which it would play out sooner or later, I believe it will likely be a matter of the aggressive panorama, each in lending and in deposit phrases.
We clearly monitor fairly a little bit of deposits. So from simply demand and provide issue, one might argue if we have to hike it. However over time, we’ll play within the aggressive sphere. So we’ll alter to the degrees which we see. However my major conclusion is that it isn’t that on a margin stage we do not see — it isn’t that we see excessive ranges of margins right here. However I do suppose you’ll be able to’t choose the deposit and the lending individually.
The NFT, no, you should not learn something within the elevated by-product volumes there. Fairly, as we have stated, is that we see — we somewhat — we divide the NFT into three elements, kind of. And you’ll see it on the Slide 25 within the pack that, to begin with, we clearly have a kind of markets and funding banking enterprise mannequin which is client-driven. And on the inexperienced bars on Slide 25, you’ll be able to see that they moved down a contact this quarter, however no dramatic there.
Then second of all, we clearly have — to begin with, we provision for the life pension for the assured pension system. And that is included within the gentle blue bars. And secondly, in these gentle blue bars as nicely, it is included all of the hedging we do for all of the short-term lending, et cetera. And with the actions you’ve got seen within the currencies now which does not transfer utterly in tandem, that impacts that negatively this quarter.
And thirdly the liquidity portfolio, which is the pink bars then, which we’ve got damaged out on the correct facet of the slide the place we embody the NII element in grey bars vis-à-vis the pink bars, the NFT element of the liquidity portfolio. And as you’ll be able to see at midnight blue line there’s that it hits us fairly negatively this quarter. However each the pink bars and likewise the sunshine blue bars, we expect there’s — positively they may come again over time, the vast majority of them. So we see pretty little long-term penalties from it.
I believe that on the subject of the derivatives, the amount will clearly be rather a lot affected from the market valuations. And when the actions grow to be as massive as they’re, they develop in dimension. So that you should not learn any long-term penalties into it.
Maths Liljedahl
Okay, thanks. Very clear.
Carl Cederschiöld
Thanks.
Operator
And the subsequent query comes from the road of Andreas Hakansson from Danske Financial institution. Please go forward.
Andreas Hakansson
Thanks and good morning, everybody. Simply going again a bit of bit to NII. We heard SEB yesterday speak about mortgage margins and the way in which they checked out it simply assume that every one mortgages have been funded with coated bonds. They stated that margins are taking place sharply. However clearly, that is not the case. And I suppose you may have some 45% of your mortgages funded with coated and the remaining are deposit funded. So might you inform us, in your precise funding value of mortgages, the place do you see that mortgage margins are going for the time being?
Carl Cederschiöld
Nicely, I can attempt to begin after which, Peter please fill in. I believe that for a few years now, we have clearly seen — to begin with, we have seen a second the place banks are being extra within the mortgage market. So kind of all of our greater banks are specializing in the mortgage markets now. Then we have seen the brand new disruptors coming in, which fund themselves — which kind of dropped [ph] mortgages they usually fund themselves by way of the pension funds then.
I do suppose that, to begin with, what we have seen recently now’s that the funding value for the disruptors are being extra — it will increase greater than it does to the banks and the bigger banks. So clearly, we fund ourselves by — to a excessive diploma, coated bonds, but additionally deposits in that market and clearly senior funding as nicely. So we do suppose that from a margin perspective, I see little structural motive to imagine that the margin stress should not abate, all else equal.
So I look pretty constructive really on the margin perspective on the subject of the mortgages. And I do suppose that it’ll, over time, the competitors ought to loosen a contact. And all else equal, the bigger banks ought to have a reasonably first rate place there. Then I have to go — allude to the reply to Magnus’ query earlier on that, what’s going to find yourself on the lending facet vis-à-vis the deposit facet? I do not know.
Andreas Hakansson
Sure, truthful sufficient. One other query. There’s been a lot noise within the final quarter about asset high quality, significantly associated to, I suppose, each family actual property in Sweden, however specifically business actual property. Because you’re one of many greatest participant in each fields, might you inform us what you see and what you really imagine is the right determine?
Carl Cederschiöld
Sure. I imply, to begin with, I believe we are able to go to the Slide 27 within the pack. We have tried to interrupt down our publicity now. Initially, clearly, we enter a tricky market now and I believe you actually should be humble in these situations, clearly. And what we have finished on Slide 27, we have damaged down the publicity we’ve got to the actual property. And clearly, sure, we’re an enormous financial institution on the subject of lend to the actual property market.
As you’ll be able to see there, we’re ranging from the underside. Roughly half of our lending is family mortgages. Then on prime of that one, we’ve got one other 11% vis-à-vis housing co-ops. So 60% of the lending base is in the direction of households. After which on prime of that one, we’ve got roughly 30%, which is lending to corporates in actual property. And half of that’s business actual property, half of that’s residential actual property. And the consequence of that is that we solely have 12% left in lending to different corporates. And one of many key pillars, which we have at all times guided on on the subject of our credit score coverage is that we love to do securitized lending.
And I do imagine that while you look into this, I believe that the markets will face challenges. If it involves family, it will likely be increased charges or increased inflation figures. So it will likely be strained. In terms of the CRE and residential actual property, it will likely be somewhat about falling valuations on their portfolio, and it could possibly be in regards to the rental ranges, the vacancies. What we’re extraordinarily agency on and what we have at all times stood agency on is that we like good purchasers with strong money flows. Should you clearly have strong money flows, you’re doubtless to have the ability to pay your debt.
We just like the robust homeowners. If their money flows transfer into drawback, we like them to have the ability to pitch in additional collateral. We love clearly low [indiscernible] ranges and that is why we’re populated in areas and we wish to lend to areas which we deem possible in that sense. After which clearly, we talked loads about securitized and low mortgage to worth. In order that’s actually the pillars of ours.
And I do suppose that what Carina was saying, the asset high quality we’ve got, we actually like this element. Clearly, you see that the actual property market are beneath pressure now. And you’ll clearly — it’s a matter of that the lending charges for them for the time being are beneath the yields of their portfolio. And this must discover a steadiness over time. And that might have an effect on, clearly, the valuations of the portfolios. I believe a financial institution like us with a powerful steadiness sheet we’ve got, with the purchasers we like, we’re in a very good state of affairs to really discover enterprise alternatives on this market. And we like — it’s these type of markets the place we usually have a tendency to really enhance within the relative house.
So I do not know if you wish to add one thing, Carina or Peter there.
Carina Åkerström
No, I believe that you simply summed it up fairly nicely really. And I imply, you stated every thing. Once we stress this portfolio, we are able to see that we do have clients with good margins. And from our perspective now, we won’t see any adjustments within the close to time really.
Andreas Hakansson
Okay, thanks. That’s it for me.
Operator
And the subsequent query comes from the road of Nicolas McBeath from DNB. Please go forward.
Nicolas McBeath
Thanks. First query on the company margins. Your friends yesterday made some upbeat feedback on the outlook for company lending margins given widening credit score spreads this 12 months. So do you share related optimism for company repricing? Sure, that is my first query, please.
Carl Cederschiöld
Hello, Nicolas. Thanks for the query. Sure, I imply, I believe on the company sector, the capital market has positively cooled off to fairly some extent. And I do suppose there is a threat, clearly, that you simply see the credit score demand as nicely cooling off on an absolute stage. However clearly, when the financing capabilities of the bond markets are going away, the relative demand on the financial institution financing are rising. And we’re in a very good state of affairs to help that.
We’ve got good capital state of affairs and liquidity state of affairs. So sure, I do imagine that there’s clearly good motive to imagine that the margins ought to enhance. As a result of clearly, in the event you look — and that is very true on the subject of the actual property market. Should you have a look at the financing value within the bond market vis-à-vis the financial institution market, I believe they’re at very, very excessive historic ranges. So that ought to, all else equal, clearly level to increased margins going ahead.
Nicolas McBeath
Thanks, after which one other query on mortgages and the NII. So trying on the reactions after the Riksbank’s April price hike, I believe your record costs have been elevated fairly rapidly. However then taking a look at negotiated charges that you simply revealed, they have been slower to extend. So what are you able to say in regards to the timing of the repricing in your mortgage ebook? How massive lag impact do you see from the speed hike? And do you anticipate continued tailwind to your Swedish web curiosity margin based mostly on the April price hike from maybe a delayed pass-through to mortgage debtors?
Carl Cederschiöld
I — please, Peter fill in, in the event you — I do not suppose — we cannot play this as a robotic. We are going to clearly at all times play it from a aggressive perspective. We are going to alter after we suppose it is possible to regulate and accordingly to the aggressive panorama. I do not — however having stated that, I imply, I believe that the general margin growth now in Sweden is kind of constructive. Sure, it is pushed by the deposit facet clearly and we nonetheless see downward stress from the mortgage facet. However as I stated earlier on, I do suppose that trying ahead, I do suppose it’s kind of extra constructive marginal panorama.
So I do not suppose — we won’t information how we’ll behave ourselves going ahead. We are going to somewhat adapt to the aggressive panorama.
Nicolas McBeath
Sure, positive. However I imply, not making an attempt to determine how you will behave going ahead, however simply in case your mortgage ebook can be at an analogous stage because it was by the top of the quarter, would that provide additional tailwinds to your NII? Or is the influence from the speed hike in April. I imply how a lot of that’s mirrored within the Q2 NII?
Carl Cederschiöld
It is really pretty tough to quantify that, so I am afraid we will need to go on that query and get again when we’ve got Q3, when we’ve got a full quarter after the beginning of price hikes in Sweden. Then we’ll most likely have a greater evaluation.
Nicolas McBeath
Okay, thanks.
Operator
The following query comes from the road of Omar Keenan from Credit score Suisse. Please go forward.
Omar Keenan
Good morning, everyone. Thanks for making the time. My first query was on capital planning, please. So that you made a remark about business actual property and the truth that rental yields are at present beneath funding prices which could result in asset worth falls. And I might definitely agree with that assertion. I hoped you can give a little bit of a sensitivity as to what the influence of score migration may be on the capital depth of the ebook.
So if I have a look at the property firm’s threat weight it is 16% as we speak, and it was 22% in 2018. And I perceive that there is some LGD flows within the ebook. However I hoped you can give us some sensitivities of what LGDs would possibly do. And in addition, extra usually, if we get some score migration, say, equal to a one notch downgrade on 20% of the ebook, are you able to give us some indication of what that does to RWAs? And simply on a associated level, is there something you’ll be able to inform us in regards to the IRB overhaul? Thanks.
Carl Cederschiöld
Thanks for the questions. Nicely, to begin with, let me begin with the capital state of affairs. Sure, as you say, we’re in a very robust state of affairs there. We predict that is actually, actually good to enter the markets the place the demand might enhance. And on the subject of the sensitivity on the capital, we have been making — we have been making an attempt to make a message to all of you for fairly a while now that our capital state of affairs is way, rather more secure than it has been previously. And the explanation for that one is, to begin with, clearly, pension system which we modified over the past years and with pretty good timing in really.
So with these fairness drops which we have seen, that might have been a headache had it been two years in the past. Then second of all, clearly, we’ve got now threat weight flooring or standardized fashions on roughly 70% of the portfolio. And that makes our common threat weightings on our portfolio a lot, a lot increased vis-à-vis our inner threat weights. So we might dwell with fairly excessive really threat migration or very excessive threat migration earlier than it actually hits on — earlier than it impacts the capital volatility.
And the IRB, we’re engaged on that one in UK positively. We work with a reasonably constrained PRA which is affecting the time schedule as nicely for it. So our greatest estimate is 2025 going into IRB. However as we have been highlighting as nicely, one should not anticipate us to go to a sophisticated IRB mannequin, somewhat a basis IRB. However having stated that then, I believe it is extraordinarily spectacular in UK phrases to run a enterprise mannequin now, which we’re posting this quarter now 14% ROE beneath the risk-weighted belongings calculated on the PRA methodology and the capital ranges on the Swedish FSA perspective.
In order that’s clearly a very good state of affairs to be.
Omar Keenan
Is there any coloration which you could give us by way of sensitivity within the business actual property ebook? If we’ve got a discount in asset costs, at what stage that influence value pushed [ph] defaults?
Carl Cederschiöld
No, I do not suppose we are able to information on that sensitivity, no.
Omar Keenan
Okay, thanks.
Operator
And the subsequent query comes from the road of Namita Samtani from Barclays. Please go forward.
Namita Samtani
Good morning. Thanks for the questions. I’ve bought two, please. Firstly, when can we anticipate to listen to about extra capital returns, as a result of appropriate me, if I am mistaken, however there is a important chunk of extra capital now, and the one headwind I can consider is the IRB mannequin adjustments, and there is really tailwinds such because the acquire from the Denmark gross sales? And secondly, trying on the department numbers, they solely declined by two within the quarter, which I suppose is loads lower than different quarters. So are we now finished with the vast majority of the department discount? Thanks.
Carl Cederschiöld
Thanks for the questions. Sure. Initially, clearly, sure, as you say, we’ve got a very good capital state of affairs, and we like that. We clearly enter fairly powerful markets now the place with fairly excessive uncertainty on the demand stage. So we actually wish to be nicely capitalized within the state of affairs we go into. We positively — we’re at all times a financial institution who wish to run with the very best confidence and the very best stability ranges. And we do suppose that the markets we enter if the timing the place we should always play is unquestionably protected.
So it is a good state of affairs to have capital to have the ability to help your core purchasers as nicely. The technicality is that, clearly, countercyclical buffers might be reinferred. And after they’re absolutely loaded, that can add roughly 1.9 proportion factors. It would add 1.7 proportion factors vis-à-vis a 12 months from now.
Then we’ve got on the constructive facet, clearly, sure, after we closed the Danish sale, we’ll get the money for that one, which is able to have an effect on it positively. And that can almost certainly be between SEK20 billion and SEK25 billion in risk-weighted belongings dropping away at the very least. After which we’ve got the structural results the place the discussions are ongoing with the Swedish FSA and that is roughly hitting our capital ranges as we speak by 0.6 proportion factors.
And so we’re nonetheless shifting in the direction of our goal vary. We wish to run the financial institution inside one to a few proportion factors beneath regular circumstances. However we actually do imagine that the particularly excessive demand ranges we have seen really previously now, it is a actually good state of affairs to be in them. And if we see as nicely UK shifting from contraction to enlargement, that is clearly going to be one thing as nicely being good to be nicely capitalized beneath.
Sure, you are almost certainly appropriate, and we’re solely — that we’re dropping two branches this quarter. I really do not have the determine in my head. However as you say, you should not anticipate us to shut extra branches.
Carina Åkerström
And I believe that’s necessary to only add once more, I believe that could be a choice as nicely for the administration group in all our house markets as nicely. So what we’ve got finished with the discount of the branches is to make it possible for we’re positioned in these markets the place we are able to have a very good enterprise. So I believe that is what you must learn into this. And I imply Sweden is a very good instance for that.
Namita Samtani
Okay, sorry, simply going again to the surplus capital query. Are you going to offer us a time-frame of when you are going to come again by way of speaking to us when you are going to get again to your goal vary?
Carl Cederschiöld
Sure. I imply, clearly, after we shut the Danish deal, positively, then we get much more capital, you must anticipate us to get again then and speak about it.
Namita Samtani
Excellent. Thanks very a lot.
Operator
The following query comes from the road of Rickard Strand from Nordea. Please go forward.
Rickard Strand
Hello, good morning. First off, a query on prices. You beforehand talked in regards to the SEK3 billion of gross value financial savings that you’ve got focused. Should you might give us an replace the place you’re on these, how a lot continues to be within the making and what could possibly be left, so to say? And in addition, a follow-up on that one. You beforehand additionally talked in regards to the SEK1 billion of elevated IT spending over ’21 and ’22. We’re now within the second half of ’22, so in the event you might give any taste into what you anticipate there within the coming years as nicely.
Carl Cederschiöld
Certain. Let me begin, after which Carina would possibly fill in as nicely. I believe the general message which we have been saying is that we thought the financial institution was operating a bit inefficiently a couple of years in the past. So we wanted to regulate that and we did some hefty plans really which then — the consequence of that one was this system round SEK3 billion price. So we come fairly far in that one. We have come a bit greater than SEK2 billion in that one. And the remaining half continues to be the reviewing of the additional enterprise and it is also some components within the Swedish total operation.
What we have additionally guided on then is that now after we come fairly far within the turnaround of the financial institution, we actually just like the positioning we’ve got. We do imagine we’re in a agency state of affairs, each in Sweden, Norway, UK and Netherlands, and we actually wish to strengthen our perspective there. And that is the explanation why we have been highlighting that we would somewhat steer ourselves on value to revenue ranges. So we expect it is much less related to speak about all of the gross elements these days within the P&L. Fairly, you must see ourselves focusing on, strengthening our positioning in all of those house markets and likewise work on the effectivity half.
And sure, we clearly spent an SEK1 billion for 2021 and 2022. We are going to clearly come again when we’ve got additional steerage to offer on that one. However view us as steering in the direction of value to revenue and we wish to create much more effectivity within the financial institution as we run it as we speak, but additionally make investments for the long run.
Rickard Strand
Okay. Thanks. Then a query on Swedish business actual property, the place you grew SEK10 billion within the quarter, it appears to be like like. Simply wish to hear in the event you might say something in regards to the limitations by way of your threat urge for food framework right here, if there’s loads of head room forward, or if there are any limitations there that makes you type of cautious to take part in any future quantity progress there.
Carl Cederschiöld
As I stated earlier, I’ve observed that one in all our friends are guiding to strict limits within the publicity in varied elements. We like good purchasers with robust money flows. We like robust homeowners. We like positions the place you’ll be able to really discover low vacancies. We love to do securitized lending. And we love to do mortgage to values. So that is the credit score coverage we run. We do not steer ourselves on a portfolio composition or so. So we haven’t any type of mounted ceiling.
Rickard Strand
Okay, thanks.
Operator
The following query comes from the road of Sofie Peterzens from JPMorgan. Please go forward.
Sofie Peterzens
Sure, hello. Right here is Sofie from JPMorgan. So by way of your mortgage loss provision, they proceed to be very low, one foundation level. I used to be simply questioning how one can type of take into consideration the Stage 3 protection, which appears to type of be trending — proceed to pattern downwards and is now beneath 24%. And I additionally observed that the precise losses proceed to be a lot greater than the online credit score losses booked within the quarter and we’ve got seen this pattern now for a couple of quarters. So I imply, at what level do you suppose it’s good to type of enhance your provisions?
And the way a lot type of these overlay provisions do you continue to have which you could mainly take benefit to type of — sure, to attract on [ph] to cowl precise credit score losses. So that might be my first query. My second query can be across the Swedish FSA, IRB overhaul. Should you might type of give any impacts that you simply anticipate? Or are there any reclassifications of the portfolios that you simply’re anticipating and type of your ideas about after we ought to anticipate the influence and what magnitude. That will be my questions.
Carl Cederschiöld
Sure. Thanks, Sofie, for the questions. Initially, clearly, the mortgage loss, as you say, clearly, we’ve got a very low web Stage 3 perspective. However I believe it’s good to learn this within the context of, to begin with, we have been speaking fairly a very long time across the restructuring of the financial institution is pointing to a greater asset high quality. And we have been understanding various what we noticed earlier on as exposures with a bit of upper credit score threat in. So I believe we’ve got a structural pattern in the direction of a greater asset high quality.
Then clearly, the online credit score losses, they’ve a element of, to begin with, clearly, the Stage 3 elements. However additionally they have then the elements of write-offs and recoveries. And each quarter, we see each a couple of. And we have grown used to now — and I believe I have to say knock on wooden, however we’ve got grown used to for fairly some quarters now to see very, very low precise credit score losses. So clearly, then the write-offs and the recoveries are literally to increased absolute numbers. And we like that.
So I believe it is extraordinarily arduous to information on something. I do not suppose you — we see — we do not see something as we speak that are pointing to increased precise credit score losses. As Carina was saying, clearly, the macro local weather will almost certainly have a threat of reducing even additional. And we do clearly enhance the add-ons to some extent as nicely. And please, Peter add one thing if you wish to.
Peter Grabe
No, I am simply referring to your query in regards to the protection ratio in Stage 3, clearly, there are exposures shifting out and in of Stage 3. And relying on the collateral construction of that lending, the protection ratio varies over time.
Carl Cederschiöld
And to your second query, the IRB overhaul, sure, we haven’t any steerage to offer you there. We’re nonetheless ready on the Swedish FSA and we’re working with that one. So the consequence of that one, we do not see any main penalties from it.
Sofie Peterzens
Do you suppose IRB overhaul could have a really restricted influence on Handelsbanken?
Carl Cederschiöld
Agree.
Sofie Peterzens
Okay, that was very clear. Thanks.
Operator
The following query comes from the road of Riccardo Rovere from Mediobanca. Please go forward.
Riccardo Rovere
Good morning, everyone and thanks for taking my questions. I’ve a pair, if I could. On growth bills, they maintain — for example, are trending a bit of bit increased or at the very least remaining secure. Are we nearer to the height of those bills or these are alleged to proceed kind of as they’re for the foreseeable future? After which the second query I’ve is, once more, on credit score losses, if I could.
Earlier than you said that you simply see some pressure in the actual property market. However then again, you say you identified the LTVs in residential mortgages and in business actual property as being within the 50% area. Really a contact decrease, if I bear in mind accurately. Contemplating this, do you suppose we should always — the market ought to be involved about actual property market to you? As a result of a 50% LTV would mainly suggest you would wish a drop, a collapse in actual property market earlier than denting into your asset high quality. May you share — would you agree with that? Thanks.
Carl Cederschiöld
Nicely, to begin with, on the event expense, as you stated, sure, we have clearly — over the past 12 months and this 12 months, we’re clearly seeing the pattern of elevated growth spending rather a lot. So that’s shifting based on plan and that is what we have been guiding on. Going ahead then, clearly, the consequence on growth spend going ahead and into 2023, we might want to get again on. As a result of, clearly, as we are saying, we wish to spend money on strengthening the positions within the marketplaces we’re in. We just like the state of affairs we’re in. So — however we’ll get again to that one on different quarters.
In terms of the credit score losses, sure, as you say, we’ve got a slide, I believe it is Slide 28 maybe. Sure, slide 28. As you say, we present the LTV there on the business actual property and the residential actual property in all of our markets. And as you say, they’re 50%, a really, very low element is above 75%. So sure — and I maintain coming again to that, the credit score coverage we’ve got. I imply we like good purchasers with robust money flows. We like robust homeowners. We like securitized lending. And we like low LTV. And that is many pillars of safety.
So to begin with, if they can not pay their payments, then the homeowners in lots of occasions really do enter the image. And that was the consequence after we moved by means of the pandemic. Then clearly, if that does not maintain both, we have in very, only a few occasions, if any, misplaced actual cash and made actual credit score losses after we really took the collateral in hand.
So sure, I agree with you. Initially, the market ranges have to drop massively to ensure that the collateral to be decrease worth vis-à-vis the mortgage. However then then again, we’ve got ended up previously, clearly, with conditions the place we’ve got took the collateral and positioned packages as an organization or so and bought it off and regained all of the publicity or a bit extra really.
Riccardo Rovere
Okay. Thanks, very clear. And if I could follow-up on one other subject. On capital return, now you — sooner or later, you’ll be given regulatory approval for the sale of the Danish operations. Inform the market one thing about capital return. Will you wait to have accomplished, together with regulatory approvals, additionally the Finnish one or might finally give us a greater thought solely with Danish one?
Carl Cederschiöld
The best way we’ll deal with it’s that when we’ve got the money within the financial institution for a element, we might be clear the way in which we use the money. So we won’t speculate on the end result of Finland earlier than we’ve got any clear factor there. And clearly, I perceive you need the readability round when components of the element of the capital base. However I really do suppose we’re in such an unsure time as nicely on the subject of {the marketplace}.
So we do not discover it difficult that we’ll almost certainly shut, clearly, the Danish enterprise within the fourth quarter coming again then with a clear view how one can use the proceeds. And if we’re in a state of affairs as we speak, sure, in fact, we’re very nicely capitalized. However who is aware of the demand facet for bilateral lending for the subsequent six months in a market the place the capital markets are actually constrained really there. So we’re in a very good state of affairs, however we’ll come again as quickly as we are able to.
Riccardo Rovere
Thanks, particularly reasonable reply. Thanks.
Operator
And simply to make you conscious, as a result of closing dates please restrict your inquiries to one by one. And we’ve got a query from the road of Jacob Kruse from Autonomous. Please go forward.
Jacob Kruse
Hello, thanks. So only a fast one on the sale of the Danish enterprise. So Jyske couldn’t take the entire company ebook. So I simply puzzled how has that been handled in Q2. Do you may have a stream again of company lending into the core from discontinued? Or is it simply accounted because it was once and will we get any type of shift in Q3 or This fall? Thanks.
Carl Cederschiöld
No, they’re nonetheless accounted on being up on the market, that element. So no, that can work out over time, the way in which we’ll deal with it between us and Jyske.
Jacob Kruse
And the way a lot NII do you suppose that shifts from discontinued into continued?
Carl Cederschiöld
We must get again on that one. We do not know. I do not know the reply to that query.
Jacob Kruse
Thanks.
Operator
And the subsequent query comes from the road of Robin Rane from Kepler Cheuvreux. Please go forward.
Robin Rane
Sure. Good morning. So on the NGL losses therein and also you confirmed the slide the place you — so let me see the slide, slide 5, the acquire on the NII there with the counterpart of the loss on the NFT line, will the NII a part of that normalize as nicely, you suppose, over the subsequent couple of quarters?
Carl Cederschiöld
Sure. I imply the — what’s going to normalize on that image is almost certainly the blue line. If charges transfer up in an absolute time period, clearly, the constructive facet on the NII will enhance with that one. So the grey bar will transfer up. However the financing value of it would additionally transfer up in an absolute time period. So the pink bars will enhance in scale as nicely. However the blue line ought to revert in the direction of being barely adverse.
Robin Rane
Okay. However the absolute determine of NII this quarter, was that someway elevated by this, would you say?
Carl Cederschiöld
No.
Robin Rane
Okay, all proper, thanks.
Operator
And the subsequent query comes from the road of Jens Hallen from Carnegie. Please go forward.
Jens Hallen
Thanks, sure, and only a follow-up on the business actual property ebook. And I do know you present loads of information and collateral appears ample. One factor I ponder in the event you might share with us is a few type of liquidity stress to your largest clients. I imply, at what level does that service grow to be a pressure? Do you consider bond market closures when stressing these exposures? And the way do you view that on the danger facet, not on a credit score threat, however as a liquidity threat for the business?
Carl Cederschiöld
Initially, I believe, two methods, and I do not know if I’ll reply your query utterly now, however let’s attempt it out first. Initially, clearly, we clearly run a financial institution who play extraordinarily conservative on the subject of the liquidity. We’ve got in absolute phrases, we’ve got SEK1 billion — we’ve got SEK1,000 billion in liquidity reserves. And that is aside from non-encumbered belongings. So — and we actually like that. We predict there is a threat of liquidity proceed being strained available in the market. So we will certainly play it extraordinarily conservative right here.
Then on the subject of the utilization of RCF for ensures of that, we clearly noticed an enormous volatility in that within the first quarter, second quarter on the pandemic, the primary and second quarter of 2020. We do not in any respect see the magnitude as that as we speak. So we do not see any risky element really within the drawdowns of liquidity from the CRE. We won’t speak from a market common perspective there, I can solely speak from the Handelsbanken perspective there.
Sorry, did we drop you right here? Do you hear me nonetheless?
Operator
Jens dropped sadly, so perhaps he’ll dial again in. Within the meantime, we are able to simply perhaps go to the subsequent query, which is from the road of Maria Semikhatova from Citibank. Please go forward.
Maria Semikhatova
Hello, thanks. Only a fast query on as nicely, business actual property in Sweden. I see that your Stage 2 loans elevated by SEK3.8 billion over the quarter. It appears to be residential property firms in Sweden. Simply perhaps in the event you might present a bit extra coloration in your standards while you reclassify to Stage 2. If there’s something you’ll be able to say what induced this migration within the quarter.
Carl Cederschiöld
No. I imply Stage 1, Stage 2, to begin with, they’re model-driven. And clearly, that might — I believe we have to look into this and would possibly get again to you. However clearly, after we change the add-on as nicely for the geopolitical threat that may have a consequence right here. So we’ll look into your — please have a name with the IR folks and we’ll see if we can assist you, however I can not reply that query proper now at the very least.
Operator
And we simply have one follow-up from Andreas Hakansson from Danske Financial institution. Please go forward.
Andreas Hakansson
Sure, hello. With respect to business actual property, there’s been a lot dialogue round it. And also you talked in regards to the LTV that you’ve got of fifty% and the dangers associated to it. However in many of the CRE firms, you’d have loads of fairness, hybrid bonds after which the financial institution debt. May you inform us the place within the capital construction would you sit? And what must be while earlier than we begin to eat into the banks. And may you inform us a bit of bit about your positioning inside that?
Carl Cederschiöld
Nicely, Peter, please help me on this one. However I imply, and I believe that is fairly a — let me reply this query like this. I believe at present, you may have extra historical past within the markets than I do, so you’ll be able to maybe appropriate me, Andreas. However I do suppose the distinction between the financing value within the bond market now vis-à-vis the borrowing value from the financial institution system is almost certainly at very historic highs.
However you’ll be able to’t examine them as a result of they are a bit apple to pears, as a result of if we lend to an actual property firm, we do it collateralized. So it each it comes with a value to the money flows or a stamp responsibility in some sense. And in addition, clearly, they should publish collateral. And that might be a constraint on the score perspective on the bond applications. However on the subject of the capital construction, I suppose, we have to wipe out — clearly, you wipe out fairness, you wipe out the hybrids, you go down the senior after which we’ve got — then we have lent senior securitized.
So I suppose that is appropriate, however I am taking a look at my companions right here to help me. However that is the way in which I motive it.
Andreas Hakansson
Sure. So in the event you return to the early ’90s, which was earlier than all our time actually, I imply then there have been no bonds or hybrid something earlier than. Weren’t then the banks doing all their lending as much as LTVs that have been considerably above or is {that a} massive distinction now to then? Or how ought to we view it?
Carl Cederschiöld
No. I believe, clearly, to begin with, I really want to reveal that I wasn’t right here then. And I believe there’s been loads written about this, clearly. However I do suppose you may have some extent and I’ve seen it within the media as nicely, folks highlighting this. Clearly, at the moment being, while you opened up the banking sphere, while you de-monopolized the enterprise mannequin, clearly, the banks have been chasing progress. And clearly, they have been lending to very excessive LTV ranges, generally really increased than 100%.
I believe that we have grown loads. Initially, the financial institution’s grown used to, we do not wish to go above. However then second of all, clearly, the regulators have grown used to a banking system which is so massive now vis-à-vis the Swedish GDP and the society. So they should regulate it fairly powerful. And that is the explanation, clearly, that we’ve got each a lot decrease LTV, but additionally a a lot increased capital stage and every thing in place. So I do not suppose you’ll be able to examine the state of affairs as we speak in any respect with the ’90 disaster.
Andreas Hakansson
Okay, thanks very a lot.
Operator
And we simply had yet one more query coming in from Piers Brown from HSBC. Please go forward.
Piers Brown
Yeah, good morning, everyone. I am sorry for belaboring the purpose, however simply on property once more. I imply, are you able to inform us simply on a fundamental stage while you do your online business planning, what property worth assumptions are you utilizing for Sweden? I imply, do you assume reasonable declines from right here? Do you assume costs stay flat? And in the event you might share with us when you concentrate on draw back situations, tail dangers, I do know a few of your friends revealed their ICAP stress check assumptions. However might you inform us, while you do stress testing, what kind of draw back situations are you taking a look at for property costs within the home market? Thanks.
Carl Cederschiöld
We flip by means of the pages right here.
Peter Grabe
However the data — you discover details about the situations in reporting. And in the event you do not discover it, simply attain out and we’ll information you to it.
Carl Cederschiöld
And that is — and the explanation for that one is clearly that, to begin with, clearly, after we enter this, we enter this within the stress mannequin of the ECLs, clearly, each the bottom case and the upside and the downturn. After which we clearly calculate the ECLs. And as we have been saying all through the pandemic, we get pretty little correlation between macro elements and the end result of the ECL. And the explanation for that one is that we have gone by means of loads of cycles with very low correlation to the credit score losses. And that is the explanation why we do the add-ons. And in addition, that is the explanation that you simply would possibly really ask that in your query that after we plan for our enterprise going ahead.
So clearly, the way in which we worth then the housing and the collateral and every thing, that is an enormous element in our choice across the credit score choice. And final data, you discover it on Web page 34 within the report, all of those assumptions.
Piers Brown
Okay. That is useful. Simply — I am simply considering again to final 12 months, we clearly had the EBA stress checks which have been finished on, I believe, 40% drawdown in Swedish business property costs. And I believe in that check, you confirmed a 3-year impairment price of about 200 foundation factors. I imply, is that simply — ought to we simply utterly ignore that? Do you suppose it is simply not related to the present context?
Carl Cederschiöld
I believe the entire exterior stress checks finished on the financial institution do have a really excessive diploma of top-down perspective. And I can see the explanation why they should do this type of evaluation. However we clearly have been operating a enterprise mannequin and actually do run a enterprise mannequin the place we attempt to have little or no dependency between macro elements and credit score losses. So you’ll have to — I am not going to guage their end result of that one, however we see little or no rationality in that after we do our inner modeling.
Piers Brown
Okay, that’s very useful. Thanks loads.
Operator
I now hand the decision again to the audio system.
Carina Åkerström
Okay. If that’s the finish of all of the questions, I thanks very a lot for taking part throughout this phone convention, and have a good time, and thanks for as we speak.
Carl Cederschiöld
Thanks, everybody.
