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Good day, and thank you for standing by. Welcome to the SEB Financial Results Q1 2024 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Johan Torgeby, President and CEO. Please go ahead, sir.
Thank you very much, and good morning to our Q1 2024 quarterly results. As normal, we will refer to the pages that we posted on our website.Starting with the highlights of Q1, we've seen a clear shift in tonality, probably over the last 6 months around the macroeconomic outlook for Sweden. We have, of course, pointed to several times that we've had a pretty rough ride when it comes to the picture of Sweden, and that has clearly had a change in this quarter, and this was partly reflected in improved market sentiment amongst our clients.Asset quality remained robust and net expected credit losses are almost nonexistent in this quarter. Return on equity of 17.2%, and that's on a capital ratio of 18.9%, which equates to a 420 basis points buffer above our minimum regulatory requirements. And we continue and reiterate our cost target, but also our progress towards our capital target of being in the range of 100 to 300 basis points by year-end 2024.On Page 3, we just double click with a few data points on this change in tonality, particularly regarding Sweden. We have had a tailwind coming now from the expectations of lower interest rates. The previous headwind of having such a large proportion of the Swedish mortgage book, 89% in floating rate notes, clearly is negative when rates go up, as it immediately hits and it is quite invasive in anyone's personal economy to have that fast and dramatic interest rate increases. This has now, of course, in expectations turned that if rates were to come down, which is broadly expected, this would also have now a positive effect for households and corporates who have a large proportion of floating rate exposure.This monetary policy, which is accommodative, can also be very well supported by fiscal stimulus. The Swedish government has a very strong position, and we can see also that the government debt [ to ] GDP is very low, and therefore, there are room for -- in addition to monetary stimulus get fiscal stimulus in the budgets coming in the near future.Looking at business confidence, the PMIs, we have, for the last 8 months, had a better position when it comes to these surveys than Europe on average. And as you might remember, we had one of the lowest expected GDP growth rates in Europe up until now, where we now can see consensus forming of a pretty positive development for 2025, where I would characterize 2024 a year of transportation into '25. But clearly, expectations are more constructive on the activity level in the economy going forward.On Page 4, a few events and developments during this quarter. First, the customer satisfaction surveys that we follow with surgical precision, and it was very encouraging to come out again as the #1 choice for our customers when it comes to sustainability advice. Beneath this Nordic overall score, we actually had a grand slam and #1 position, both in Norway, Denmark, Finland and Sweden.In fixed income, we came out at #2. During this quarter, we've also had a credit outlook change by Moody's, where we are Aa3, where we have had a change to a positive outlook going forward. And we continue to develop new anti-fraud features in our different products, particularly on accounts. And this, if you haven't noticed, it's a major seam in Sweden right now, where fraud has increased and we, as an important sector needs to develop other capabilities to mitigate this very sad development.Once a year, on Page 5, we look through the international network of SEB. And first, I'll just point out that we are a very well geographically diversified bank. This is large corporate and financial institutions. So, retail banking is not relevant on this slide. Our home markets include the Nordics, Baltics, Germany and the UK. We can also follow the decision to modestly grow our international footprint since 2009. And we just concluded that this has served us very well, where the international contribution with new clients coming into the bank over the last decade and a bit has grown in 2023 by 16.2% as a contribution to income, clearly above the average of the group should we have not entered into new geographies.On the next page, we look at from where what countries did this growth from new clients come and to your upper left-hand quadrant, you can see there are Germany in top, then Denmark, Norway, et cetera. Beneath you also see at what capital efficiency, return on equity, have we been able to do this growth. And on average, the international expansion must be deemed to be successful, and it is clearly higher than the Swedish on its own with good contributing cost efficiency and now there is a quite significant number of staff.Big picture since 2010 to 2023, you can clearly see the geographical expansion working in our favor. As we last year booked the 50% being Swedish, we're now at 48% coming from Sweden on a SEK 29.9 billion client income and just about -- just a bit more than half coming from international sites.On the next page, we will look at how this growth, which is, of course, also included a balance sheet expansion has been conducted. This is the non-retail corporates, both for Sweden and for the international expansion that we've had. And in both aspects, this has actually been a growing balance sheet size at a falling average credit risk, namely, we have increased the proportion of investment-grade lending, and we've decreased non-investment grade and let's call it, special credit type of exposure, which are particularly troublesome. So this has been a very prudent or actually derisking of the average risk of the balance sheet exercise accompanied by growth.On Page 8, we look at the credit portfolios in the bank, and I will be very short, I'd say the muted demand following the elevated interest rate levels continues. And also this quarter, adjusted for FX, we more or less experiencing a sideline movement. There are, of course, some light at the end of the tunnel, where the improved business sentiment clearly points to the activity level going up in the economy. And therefore, the activity-based banking services we provide may develop more positively than the balance sheet, the beta, the interest rate dependent part of the bank, which we will come back to. It is, however, too early to say, if this will actually crystallize in the near term into tangible revenues and income.With that, I will hand over to our CFO, Masih.
Thank you, Johan, and good morning, everyone, on the call. I'm on Page 10 in the presentation. So in the quarter, we have an income level of SEK 20.7 billion, which is the second highest we've achieved in the bank. As you can see, net interest income is coming down for the second quarter in a row, but it's still up compared to Q1 last year. At the same time, fee growth is accelerating, up 9% compared to the same quarter last year.I'll comment on some of the other lines here before I move into the more specific slides. On net expected credit losses, as Johan said previously, almost nonexisting at 1 basis point. We, as always, have a couple or a few and new reserves, but we always have a few releases from previous quarters as well. What's happening now is that, we are in our macro forecast more and more rolling into the more positive development we expect our economies expect for 2025. And as this happens, this leads to some reserves being released, driven by how the IFRS 9 models work. In this quarter, we've had a release of about SEK 120 million, driven by that. And if estimates for 2025 stay where they are, and as we move more into using the 2025 forecast in our expected credit loss assessment, this tailwind should continue for the coming quarters.On the imposed levies, we have a new high level of more than SEK 1.1 billion. We said in the previous quarter that this year imposed levies should on average per quarter to be in line with the Q4 level. As you can see in the numbers now, they're slightly up, but that forecast still stands. We expect imposed levies to start to come down from the current levels and mainly driven by the fact that imposed levies in Lithuania should drift downwards. And we expect the levies on average for the remainder of the year to be around SEK 1 billion, a bit higher than that in Q2 and a bit less than that in Q4, still be a downward trend when it comes to the Lithuanian solidarity contribution.And then finally, on income tax expense. It's a bit elevated again in Q1 at almost 23% compared to the normal level of around 20%, and that's mainly due to dividends being paid out of our Estonian subsidiary in the quarter.I move to the next slide, Slide 11. We can look at the operating leverage we've achieved in the bank since 2011. As you can see on this slide, our income level is up by about 120% since 2011. At the same time, as the cost level is up by only 20%. And combined, this has led to the profit pre-credit losses and imposed levies almost tripling over the same period of time.So moving to net interest income, up 4% year-on-year, but down in the quarter. We have a couple of technical effects. Q1 is a shorter quarter. The day effect is about SEK 100 million negative. And we also have some FX headwinds in the quarter as the Swedish krona on average in the quarter was stronger than other currencies. We do have an underlying negative development as well, driven by the fact that deposits on transaction accounts are slightly lower in the quarter, as well as some customer behavior that continues with people moving money from low-yielding accounts to high-yielding accounts.At the bottom of the slide, you can see that when it comes to the interest income we've received from -- in our lending book that is flat Q-on-Q, whereas deposit from the public and the interest expense related to that is up by SEK 400 million. Now, this is not completely driven by changed customer behavior. A large part of it is coming from the fact that in Q4, we have less financial corporate deposits as the balance sheet is a bit more optimized. And now the volumes of financial corporate deposits have gone up in Q1, which has led to higher interest expense. That money is typically placed in credit institutions, which is outside of the interest expense on deposits. If you look at the interest expense on deposits from households, the increase Q-on-Q is only around SEK 50 million. So the negative effects of changed customer behavior, is not as large as this number could suggest.If I move to Slide 13, the net fee and commission income development, up 9% year-on-year, very much driven by asset management-related fees, largely due to the fact that equity prices have gone up in the last year or so. We do have good development on lending fees as well, both driven by the fact that we have a larger balance sheet today than we had a year ago, but also that a lot of the new business we've conducted has been in areas where you typically have higher lending fees, such as infrastructure investments, structural finance and so forth. Payments and card fees are running at a pretty flat level as inflation has compensated the fact that consumption is a bit lower now than it was about a year ago.On net financial income on Slide 14, it was a strong quarter at SEK 3.2 billion, up 35% from Q1 last year. We had a strong underlying development within our business, mainly within fixed income, but also continued good activity within FX. In addition to that, we have positive XVA effect as credit spreads have narrowed during the quarter, and we have a positive development within the group's treasury business, as well as the treasury business in the Baltics. And as always, we say that our best guidance for this line is in line with the average we've achieved over the last few quarters. And as you can see, for the last 16 quarters, the average is about SEK 2.2 billion.On Slide 15, we'll look at the development of the capital buffer. It's down 20 basis points compared to year-end. We continue to generate good profit, adding 57 basis points post 50% of the profit being reserved for dividends. But we have a large headwind from FX in the quarter. So despite the fact that the krona was stronger on average during the quarter, it was weaker at quarter end compared to quarter end in Q4, which is leading to this headwind on capital. And then post the optimization of the balance sheet at year-end, you have a rebalancing of the balance sheet, leading to the risk exposure amount driven by asset size, also leading to some headwinds in this quarter.On Slide 16, looking at a few key ratios, Deposits up significantly in the quarter, this is again driven by the year-end effect that that's been normalized in the quarter. So a lot of this increase is coming from financial corporate, but we also see an increased deposit level from large corporates as well. Liquidity ratios all look very good. And the total capital ratio is up in the quarter as we've issued a Tier 2 instrument.Finally, reiterating our financial targets, dividend payout of 50%, around 50% of earnings per share, capital buffer of 100 to 300 basis points and on return on equity that's competitive with peers. Obviously, we're at 17.2% in the quarter. We have a long-term aspiration of 15%. We still continue to believe that we have everything in place when it comes to our franchise and business mix to achieve this long-term aspiration, even if rates are a bit lower than they are today.With that, we end our presentation and can open up for Q&A.
Thank you. [Operator Instructions] We will now go to our first question. One moment please. And your first question comes from the line of Rickard Strand from Nordea.
Can you hear me?
We can hear you well.
Yes. So starting off with a question on loan demand. We've seen natural statistics pointing to a decreasing demand for corporate lending. Still, your large corporate book grew quite handsomely in the quarter. Can you talk about, if there is any temporary effects here or if you see sort of a pickup in demand from your clients?
Yes. No. We've noted the same data point. There is no temporary effects. So there's not a single event or anything like that, that has explained this. I do want to remind you that the top line is driven to the [ 0.334% ] on FX, so that could explain something. But the underlying is still flat to up 5% or so, and that is definitely us maintaining relevance in the marketplace on the margin. I think these are quite small.
If I just add, Rickard, as Johan showed in one of his slides, only 48% of our corporate exposure is today in Sweden. So we're doing 50% -- 52% of the exposure in other countries. So the statistics Sweden numbers on corporate lending is obviously becoming less and less relevant when it comes to [indiscernible].
Particularly [indiscernible].
Yes. And then one of your peers this morning commented that there's been an increased demand from their clients to raise deposit rates. Do you see the same pressure? Or -- and how do you prioritize between volumes and margins ahead here into 2024 when rates are expected to be lowered.
Yes. I mean we have clearly increased deposit rates way more than we have increased our lending rates on retail factories. We're now talking about C&PC in particular. We have not seen any major change this quarter. So as Masih pointed to, there's been somewhat of a continuation of low-yielding accounts, losing some of the volumes to higher-yielding accounts, but it's been less pronounced in Sweden during this quarter. However, it's been a slow moving, but a bit more pronounced in the Baltics. So both of those two, but it's not really pricing changes or anything like that. And it's been quite stable -- the deposit volumes. Yeah.
Yeah. And then a final one on the -- your loan loss buffer, loan losses remain very low. What do you need to see to do larger releases from the buffer? And how should we see the timing of this into 2024 and potentially 2025?
Yeah. What I'd like to see is just a better world. So geopolitical risk is coming down, uncertainty coming down that we have a soft landing as we think and that the companies and the households that we bank continue to pay their bills. On timing, I don't have any particular -- I don't have any particular guidance other than, if you were to look at our economists projections, of course, all these reserves will -- just because of the macro assumptions and the model, -- and the model how it works, of course, of course it would be a tailwind for us going forward should this materialize, but uncertainties are still significant.
Thank you. We will now go to our next question. And your next question comes from the line of Bettina Thurner from BNP Paribas.
Yeah. And I had a question on capital. So you said that you're planning to or reiterated that you're planning to get within your target range by the end of the year. Could you just remind us what capital headwinds you are seeing until that time? So how much or even beyond that -- so how much of the current capital base needs to be reserved for those headwinds to come, please?
Yeah. I'll take that. We don't really see any capital headwinds over the course of this year. There are no regulatory changes to our knowledge that will impact the capital this year. We have the closing of the acquisition of AirPlus that has now been changed to sometime during the second half of the year that will consume some capital, but obviously not related to any regulation. There is probably a decision taken on Basel IV, this afternoon in EU, but that's being implemented on the 1st of January 2025, which is the most likely date. But that's obviously beyond this year. So that's a potential headwind, but that's coming into the numbers next year. So it doesn't impact the development this year.
Okay. So just to clarify, so there are 300 basis points target range should be reached in numbers, so not excluding then any headwinds that will take place beyond that timeframe?
I would say, including any headwinds. So it's -- regardless of what happens, it's the 300.
Thank you. We will now go to the next question. And your next question comes from the line of Magnus Andersson from ABG Sundal Collier.
Yes. Good morning. The first one is on operating leverage. Since you were appointed CEO, Johan, total income is up around SEK 35 billion from 17 million to 23 million, while costs are up only SEK 5.5 billion, cost-to-income ratio down from SEK 48 million to SEK 34 million. With this in mind, if income growth would stall or even turn negative, let's say, from SEK 25 million or so with lower short-term interest rates, would you consider taking short-term efficiency in housing in measures to offset this? Or would you take a longer-term view and stick with your investment and cost plans until 2030. That's the first one.
I think the answer is both. I don't know exactly, but you -- first, I would like to say that when you get beta and not alpha. So beta, in my book is things you cannot control, working for you or working against you, you as a business leader needs to be careful, so you don't do a mistake. You can over-invest or you can under-invest, but it's outside your control. Alpha is kind of where you run your firm towards and how many bankable clients do you add? What geographies do you work in? And what products do you support in developing and further into your clients. That's really what we want to do.We want to reinvest in SEB that is unchanged. But obviously, that's the strategy. Tactically, you need to adapt to whatever gets in your way. And now we will have -- but I think about it like this, we've had a couple of years here now where no one could dream of that up-tick, elevated level of income coming through NII, because we had this very dramatic shift in interest rates. Now we're going to normalize that. It doesn't change our picture strategically on where we want to take SEB. But obviously, if you don't have income supporting an expansive strategy, we will, of course, look at that in the future, should it be required to try to adapt the cost base as well. But for 2024, we reiterate the cost target, which has a meaningful reinvestment in the bank unit and take all the information we get during this year before we come back for '25. So both of them are legitimate questions and areas one needs to adapt.
Okay. And the second one, just on deposit migration. Perhaps you're right about it in the report. I haven't had time to read everything yet. But if you could tell us about geographies there, it looks like your NII is down quite significantly quarter-on-quarter in the Baltics, while it's fairly flat in the other business areas, slightly down in large corporates. So is it primarily the Baltics we're talking about there in terms of migration that has impacted the quarter? Yeah, that's my question.
Yeah, Magnus, I'll take that. There are a few different factors. You should have in mind that the day effect and the FX effect, is larger in the Baltics than in the other division. So that is having a more negative effect in the Baltics than elsewhere. When it comes to the Baltics, it is -- there is some migration happening. It's not a massive amount, but there is some, still in the quarter. It's also the case that in Q4, we introduced interest rates on transaction accounts in the Baltics. And in Q1, you have the full quarter effect of that happening. So that part is obviously not related to migration, but rather related to the fact that we increased deposit rates in Q4, and now have a full quarter effect.In the C&PC division, you don't see much more migration to term deposits on private accounts. But what's happening this quarter is that we have fairly large outflows on corporate deposits in the C&PC division. That's very much a seasonal effect related to tax payments by these corporates. Typically, Q2 is a pretty good deposit quarter both from SMEs as well as private households. So we do expect some of this to come back in Q2. So it's -- the migration effect is less and less pronounced. And it's more about sort of other factors right now. Then obviously, if we do get rate cuts now in Q2 as the market expects, then there's sort of -- we'll see what happens to deposit pricing, driven by competition as well as obviously on the lending side, especially mortgages and what competition will do with margins there.
And I would add one more, and that's also dividend season. So a typical corporate bank will see a buildup of cash in January. And then dividends will start also push SMEs to February, March, April, that's the typical dividend season. So you see that outtake and then that comes back in late in Q2.
Okay. This is interesting. As the other bank reporting this morning, quoted significant migration as a reason for the weak NII quarter-on-quarter. But you are saying you are not really seeing competition picking up significantly in Sweden quarter-on-quarter, which has triggered any [ weaker ].
I think competition has been really high on deposits for the last 18 months or so. So I think we've seen most of that increase in competition already happening. If you look at how migrations to term deposits have developed since Q1 2022, you've seen a dramatic change. So I wouldn't say that competition is picking up. Competition is continued to be high. But to the extent that people want to optimize how they save their money in different types of deposits, a lot of that shift has already happened.
And Magnus, I get a very good pointer from IR here that we have a new disclosure on Page 5 in the IR -- sorry, Page 30 in the fact book where you can see it more specifically by account, how things have moved around in C&PC.
Yes. I see that.
We will now go to the next question. And your next question comes from the line of Sofie Peterzens from JPMorgan.
Yes. So just with net interest income, could you maybe talk about how we should -- or what your rate expectations are for kind of freight costs in Sweden? And how we should think about the potential impact on SEB's net interest income from lower rates? What are the kind of key drivers are for net interest income growth going forward? And especially in the Baltics, should we expect kind of low rates mean basically [ a symmetrical ] decline in NII compared to what we have seen run rates went up. That will be my first question. And then my second question would be on your below SEK 29 billion gross target that you gave with the fourth quarter results, you say that it still holds. But could you just remind us, what FX adjusted cost number now is?
I can start. Our economists believe that the first policy rate cut in Sweden will come in May and then they have a couple of more cuts. They're doing a revision of their estimates as we speak. So we'll see exactly how they come out. But I think they have rates going down to around 2% or just higher than 2% by the year FY'20 -- by end of 2025. As we've said previously, we don't dictate how competition evolves. So therefore, it's difficult to say exactly what the sensitivity on NII is. If I reason around it, the immediate effect will be on the fact that we have more assets on our balance sheet and liabilities, i.e., we have our equity, which we don't pay an interest rate on. So there's going to be a negative effect on that. That's SEK 220 billion around or so of equity where you will see a negative effect from rate cuts.In addition to that, you have some deposits that are in transaction accounts where we typically pay low or 0 on those [ tenor ] deposits, and you'll have a negative effect there as well, as we will not be able to compensate for lower rates on the lending side with cutting those deposit rates as they are already close to 0.Then we have a couple of offsetting factors, potential offsetting factors. The main one is mortgages, where we know that margins are extremely depressed. And the question is, at what pace and when will mortgage margins start to improve. That's going to depend a lot on competition and a lot of demand. So if rate cuts do lead to higher demand, that's more likely to lead to a recovery of mortgage margins going forward.And then the second one I would mention is the card business. We've had about a SEK 1 billion of annual headwind on net interest income in the card business, as we haven't been able to increase the interest expense on the cards as much as rates have gone up. And when rates go down, we are likely to recover some of that. So, net-net, rate hikes was positive, rate cuts will likely be negative on the net interest income line. The question is obviously, to what extent and obviously, how many rate cuts you get. What we're hoping for at the same time is that the activity part of the bank, mainly fees and commission income will have a more positive development as the rates are up and the economy is having a higher activity level. We're seeing signs of that in Q1, but it's too early to say to what extent that will recover and what the pace that that will be.And then on your cost question, the FX adjusted target is still SEK 29 billion. So FX didn't change that much in Q1 this year, so it's still 29%. In Q1, the cost level is slightly elevated, mostly driven by technical factors related to fact that pension cost is going up as interest rates last year didn't continue to move up compared to the previous year at the same pace. It's a technical factor having effect on the accounted pension cost. And then we've had higher variable salaries to all employees in the bank decided in 2023, which has had a negative effect in Q1 '24, as well as the share price going up in Q1, which has had a negative effect on the variable cost in Q1. So it is a bit elevated. But if you look at -- if we look at how we invested, we are still at the trajectory of reaching our guidance for the full year. So we're not concerned about the cost level.
That's very clear.
We will now go to the next question. And your next question comes from the line of Nicolas McBeath from DNB.
So starting with a couple of questions on the NII. If I look at the NII bridge quarter-on-quarter, I can't see the positive impact that I would have thought you got from reversal of the negative SEK 162 million on the NII from related to tax issues in Q4. So just to confirm, is that still a negative impact on NII in Q1? Or is it somewhere baked into the NII bridge that you provide?
Yes, Nicolas, I'll answer that. You are correct that we did flag a negative one-off effect on NII in Q4 of around SEK 160 million. That is correct. But in hindsight, looking at the numbers, we did also see that in Q4, we had a few smaller positive one-off effects that in total, was pretty much in line with the negative effect. So the reported number in Q4 was in line with the underlying number if you adjust for both the negative and positive one-off effects.
Okay. Could you comment anything on the NII outlook that you see for Q2, I guess, some tailwinds related to FX and the day count, but would you expect the underlying headwinds to subsume those? Or do you see potential for stabilizing NII in the near term?
It's a good question. Difficult to say. You're right that obviously going into -- I mean, Q1 was a bad combination of the krona being stronger on average, but weaker at quarter end, but that's weakening of the krona quarter end. If that stays where it is, that's going to feed into a tailwind on NII in Q2. And then typically, Q2, you have a better deposit development than in Q1. So that could be another tailwind. And throughout the course of the full year, we do expect some tailwinds on funding costs, as we are expected to do less funding during this year, especially short-term funding that was elevated last year. So we have a few tailwinds.And then we have the normal headwinds in terms of some migration and obviously, the big outstanding issue is, whether we see a rate cut in Sweden on the -- I think, 8th of May. And if that happens, that's obviously likely to lead to a headwind going into the second half of Q2. What this means all in all, it's very, very difficult to say. But surely, it's -- we have some tailwind going into the quarter. That's sort of what I can say for now. And then we'll see if that is enough to compensate for potential rate cuts.
All right. And then just a quick question on AirPlus. If you -- if there is any particular reason for the delay for the completion of the acquisition and if you have any updated assessment of financial impact that you could share, I'm thinking particularly on the P&L impact maybe for year 1 and 2, please?
Yes. The delay is mainly driven by the fact that we have a lot of milestones and things that need to be in place before we do a closing of the transactions. And there's been a slight delay in 1 or 2 of the milestones by a couple of months, which is, I guess, pretty normal these kind of transactions. So that is leading to the delay, and we're expecting it to be closed during the second half of the year.On the financial impact, we don't have any updates. We'll come back to all the financial impacts, as we announce the closing of the transaction.
We will now go to the next question. And your next question comes from the line of Markus Sandgren from Kepler Cheuvreux.
So I was just coming back to your mortgages. I agree on that it's a really compressed margin. But I saw one of your competitors lowered their mortgage rates the other week. What are you reading into this? And when it comes to the competition or and the landscape for the coming quarters?
Yeah. I haven't seen that. I'm assuming it's related to the fact that credit spreads have come down to some extent on [ cooperate ] bonds. So I don't know whether they've lowered the 3-months variable. Obviously, the 3-months variable mortgage is largely driven by the 3-months STIBOR, which is already pricing in, a large likelihood of a rate cut in May as it's a three-month forward-looking rate. So 3-months STIBOR is already down by 10, 15 basis points from the levels we saw a few months ago. So that is leading to lower funding costs on the 3-months variable mortgages and therefore, you can cut that. So I wouldn't see that as a signal of increased competition on mortgages. We'll see. I mean, mortgage margins are extremely depressed, which is largely driven by the fact that you have a lot of supplies. You have many banks offering mortgages. Banks are well capitalized. And there is -- and then in addition to that, there's been low demand.What is likely to happen with rate cuts is that demand goes up. You've seen very few transactions over the last 24 months. You should assume that there are many people out there that want to move into something that's more suitable for them. And they've postponed doing that, as they've been uncertain about the price levels. And now if that stabilizes, you should see more transactions. And therefore, higher mortgage lending growth going forward. And that typically should support the margin development if that happens. So more likely to see margin improvements on mortgages than further margin pressure on mortgages, I think is a base case scenario for us.
Okay. And have you said anything about how much of your mortgage book that is on 3-months and versus fixed?
It's around 70%. That's on 3-months. And if you look at the new mortgages that we did issued, it's clearly above 70%. It's 80%, 85%. So yeah, it's a large chunk of the book.
Thank you. [Operator Instructions] We will now go to our next question. And your next question comes from the line of Shrey Srivastava from Citi.
It's another one on the Baltic [ mix shift ]. So if you look at the disclosure, which you quite helpfully provided, the first quarter of 2009 saw savings [ with the ] private customers, constitute 60% of total deposits with transaction accounts contributing 40%. That's obviously changed significantly, but the proportion of savings accounts still significantly lags what it was 15 years ago. I'd like to ask, have there been any structural changes in the market that would justify this? Or is there by that analysis, a significant potential for continued mix shift in the Baltics going forward?
Yeah. It's a good point. We've looked at the numbers as well, when it comes to how much you had in different types of accounts, a long time ago, as we have to look a long time back to see positive rates last time. We can't -- we don't know to what extent this migration will happen. I would just say, in general, it's less competition on deposits in the Baltics than it is in Sweden. If you look at, for example, the loan depo ratio in the Baltics, it's clearly much lower. So you have clearly more deposits than lending. And we've continued to see deposit growth over the last couple of years in the Baltics. So competition is less in the Baltics. And it's not heating up to a large degree, I wouldn't say. And by saying that competition is less, I think the likelihood for being able to adjust deposit pricing downwards, when you get rate cuts from each of this is probably higher in the Baltics than it is in Sweden. What you don't have in the Baltic is that, you don't have as depressed mortgage margins. So it's been more difficult to compensate potentially lower rates by improving mortgage margins. But on the deposit side, competition is less fear than in Sweden.
No, that makes sense. And if I may quickly follow-up. How do you reconcile the deposits being less in the Baltics with the fact that mix shift is continuing there versus in your own words tailing off in Sweden?
I think it's mainly due to the fact that the flows of the migration to term the positive Baltics started later than in Sweden. So the adjustments in Sweden were made faster. I think maybe to some extent, related to more competition on deposit in Sweden, so more niche banks, smaller banks offering high term deposits. And maybe to some extent, to financial literacy, people adjusting a bit faster to the new environment.
Thank you. We will now take our final question for today. And your final question comes from the line of Riccardo Rovere from Mediobanca.
Three, if I may. On NII, the feeling is that when you look at -- in general, for Nordic banks, you got the feeling that the recent rate hikes not really brought any partial benefit to the margins. So Sweden, which is supposed to be not that competitive market, when you look at the number of banks operating in the country in respect of other countries proving much more competitive than Italy or Germany, which are supposed to be much more fragmented. So the question here is, when rates will start coming off, given that recent rate hikes has not brought any particular benefit or it seems to be. Is it fair to say that this could work exactly the other way around, at least for the first cuts, if operators behave rationally? That's the first question.The second question is, on trading revenues. Now this is -- you are first -- before anything else, you are a corporate and investment bank, you help your clients edging against movements in rates, [ affects ], whatever. So this is part of your day-by-day operations, and that is booked under the trading income line. Now your guidance here, Masih correct me, if I'm wrong, if I remember well, is a SEK 2 billions per quarter, excluding it's the XVA DVA cuts off. Now, when you look at the past 20 quarters, the number of quarters below SEK 2 billion or actually above SEK 2 billion are 70% to 80% of the quarters are well above SEK 2 billion. So I was wondering, does that guidance still stand? Or given that the business in the meantime has grown, got market share and blah, blah, blah, that guidance is a bit conservative, because SEK 2 billion never happens basically.And the very final question is, probably for Johan, rates one day will get down, and this is supposed to be a negative, for banks in general. In your mindset Johan, is capital management, gaining more-and-more relevance in an attempt to maintain or maybe improve the returns of the banks, when maybe revenues will suffer more than they are today.
Okay, Riccardo, I'll start with your first two questions, and then Johan, can take the question point on that, attempt. You are right in the sense that it seems like the last couple of rates hikes didn't have a large positive effect on NII, whether that means that the first few cuts will have a less severe effect? Well, I think it's likely that the first cuts will have a less severe effect, just due to the fact that you have -- you have a lot of deposits on accounts, where you can adjust the rate when rates are cut.So if rates stay at above, I don't know, 2% or 3%, then the impact on -- from rate cut is likely to be less than if rates go down to where they were before as close to 0% as by that -- when you're at that level, you just don't have that much deposits to compensate with by cutting the rates on that. So yes, I agree with the first cut being less severe.On the trading revenues, we have -- as we showed in our slide pack, we've averaged SEK 2.2 billion over the last 16 quarters on average. We can't give you a better guidance than we should be able to achieve the same kind of average level going forward. Whether that's conservative enough, we do see that we've been a bit above that level in recent quarters, but it would also be volatile. What is conservative or not. And we've increased the guidance over the years. A few years ago, we did guide for 1.5% to 1.7%. And now we're seeing around SEK 2 billion or just north of that. So I think we have adjusted the guidance to also the fact that we have been taking market shares and have been growing our markets business.I'll just comment on one of the first things you said as well, you said that it feels like competition in Sweden is less. I think -- I don't think you should conflict profitable banks with less competition. I'm pretty certain that competition in Sweden is more severe than most other countries. You do have a few large banks, but you have a lot of smaller banks offering both mortgages, as well as saving accounts, and you have a very literate public sector, corporate sector, as well as household sector. So I think competition here is extremely fierce. But fortunately, we also have well-functioning banks up here.
Riccardo, then on your capital management question, I now speak not formally from SEB just personal reflection. I do think you're right. I do think, we do very, very well. And if you can have a little bit more capital than not and still generate a very healthy return on it, it gives you the benefits to be a little bit further away from the edge. So for me, capital is always this balance between surgical precision on having the exact capital you want to maximize return on equity, don't carry too much and do not have an inefficient balance sheet versus having a long distance away from running into a capital problem. You want to be the last bank in the queue when things go bad if you need to deploy it.When income is -- I mean, now that we have -- banking is always a tale of 2 stories. We've had one for 2 years, which has been low activity, strong financial performance. To me, this is the pivot in this quarter. I talked about it last quarter, that will have a tail of financial headwind and we have activity-based tailwind. And they are very -- that's banking, and they go up and down, and they are communicating with each other over the medium to long term always.When you go into this, capital, of course, does become more of an issue, but that is not to say that I foresee or guide that we will change our target. The core in this bank is, of course, to have ample capital to be the last bank that cannot service customers in really distressed scenarios. Thereafter, we have the minimum capital requirement, which you know better than me, is one of the highest in the world and a healthy buffer to that one. That's a regular choice. It's not a business consideration. It's just that we need also to have a good cushion with any potential problems with the regulator. And we will continue to triangulate these things when it comes to capital.I also just point out, which I think is beneath your question, it's been quite clear that there is a positive correlation between share prices and professional capital management, if I say it that way. And that is something of course, we take very seriously and into account when the Board and management discuss capital planning.
Very clear. And maybe a quick follow-up. Given that early 2025 is getting closer and closer, is that of course something we should be worried about. I'm not sure you have given a number for that, maybe not?
I'm not worrying about it. I'm actually thinking 2025, there could be a little bit of a good time for banking. And we will have, of course, the rates against us. So, I don't know exactly why would you worry?
And just wanted -- just referring to Basel IV, the implementation of Basel IV, if that is a problem or we should be worried about that.
Well, the main reflection is that, in our view, is incentivizing low risk taking and incentivizing high risk taking as you're standardizing risk [ weights ]. That's a more long-term concern with this regulation that low-risk banks like ourselves will be incentivized to conduct low-risk business. We'll continue to do that, but it's unfortunate that regulation goes in the other direction.
And then if I may add one point on NFI, you probably don't remember, because we have a lot of things to think about. But we did a graph some time ago, where we tried to look at how much of the total [ NFI ] trading generated in the relevant part of the world where we operate, as an accumulated number is out there and how has it developed and what's our proportion. So, I don't know about guidance. It's a very tricky thing to guide, but I can tell you that was very clearly concluding. That's the proportion of fixed income commodities, interest rate hedging, FX that we do compared to the overall NFI is increasing, which is the best data point I have that you can show that we've continued to be very committed to trading of securities and financial instruments and hedging and that this has been an area which has not been focused on for years. It's been so much NII, and we have, of course, a proportionately much larger share of our DNA in NFI, but also in [ fee in ] commission. So we might [indiscernible] that all for next quarter. Otherwise, I refer you to the one we showed some time ago.
Thank you. I will now hand the call back to Johan for closing remarks.
Thank you, everyone, for participating today, and I hope to see you soon. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.