Nordea Bank's (NRDEF) Management on Q2 2016 Results - Earnings Call Transcript

| About: Nordea Bank (NRDEF)

Nordea Bank AB. (OTC:NRDEF) Q2 2016 Results Earnings Conference Call July 20, 2016 8:30 AM ET

Executives

Rodney Alfven - Head of IR

Torsten Hagen Jorgensen - Deputy CEO & Group COO

Ari Kaperi - CRO & Head of Group Risk Management

Analysts

Willis Palermo - Goldman Sachs

Matti Ahokas - Danske Bank

Anton Kryachok - UBS

Jan Wolter - Credit Suisse

Omar Keenan - Deutsche Bank

Johan Ekblom - Bank of America

Adrian Cighi - RBC

Jacob Kruse - Autonomous Research

Chris Manners - Morgan Stanley

Daniel Do-Thoi - JPMorgan

Rodney Alfven

Good day and welcome to the Q2, 2016 Nordea Bank AB International telephone conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to Rodney Alfven. Please go ahead sir.

Rodney Alfven

Thank you, operator. I think that was my cue. Rod Alfven here from Nordea welcome all of you who have called in to this International telephone conference. With me in the room we have Torsten Hagen Jorgensen, Chief Operating Officer and Ari Kaperi, Chief Risk Officer and also Andreas and Pawel from the IR team. So we would like to start with the short introduction by Torsten and Ari and I will open up for questions. So Torsten, please.

Torsten Hagen Jorgensen

Thank you. And I will now go through the slides. I’m sure you have seen them in the investor presentation, but let me just make a few reflections on the result and obviously the situation currently. So first of all I think it’s positive to highlight that our repricing efforts starts improving to work. I think we have moved pretty swiftly on the market side, and we still trust that what we have said for a while that we see a quick potential in our SME portfolio across all the Nordic countries but mainly in starting Denmark and REA [ph].

And I think much of this is something we can control and so it’s somewhat independent on the macro picture and basically also through a certain degree the competitive situation. So that makes us relatively certain that we have had this soft turning curve on the NII and the two way inflection point in Q4 while I think we will start seeing a year-over-year positive growth in NII.

So I this is one quarter observation, the other one is that we have talked quite a about our reliance and investments in some of our strong product franchises and our strong distribution on these products, and I think developments seen on the asset management side, the corporate advisory side, the risk management product side is a proof of concept of that these investments are now paying off, and they make a strong foundation in the NCI line.

I think also that Q2 which is another reflection of the fact that we are managing cost, at the same time as we are investing for the long. We have good projects and performance related service of $60 million from Q1 to Q2 and this will have cost going significantly the one including inflation etcetera and I think it’s know its due to our efficiency, lower running efficiency measures so again I could picture there.

And in relation to this as I have said I think it’s a sign of strength that at the same time as we have the environment we have, we are making significant investments not euro wise but of course also effort wise in turning the long term foundation for further strong growth and sufficient operations. Heavy investments in technologies and simplifying the bank, the products, the processes the systems and heavy investments in compliance and I think we should also look on the current performance in light of that this as close to peaking now all these efforts and of course many of them will not have their full pay pack before some years but just staying in that. We are delivering the current financial performance on the back of all these efforts also taking place.

And finally on eluding the business through the capital discussion I think we – I can also see that our strategies and our principle of -- we have a strong principle that we should not generate excess capital, it’s a principle view, excess capitals have in history proven dangerous for having around management risk at a risk of gaining too risk happy if there is structural excess capital.

So we will continue to have the view that excess capital should be tax rated, we will continue to go for enhancing ROE, management to retain ROE and not so much else, and I think that what we are doing on all of the above mentioned factors is exactly what we should do as management and we should feel confident that we are having, generating a lot of strong profit and we are managing our balance sheet in a very careful way and so through the point of also saying that we are very confident apparently on that we will be able to meet also the updated capital requirements over here.

So that will be my opening remarks and then I know Ari you will say a little on our asset quality.

Ari Kaperi

Yes thanks. Our loan losses in this quarter were reductively at a stable level compared to previous quarters so that we have had these levels of losses now in eight, nine consecutive quarters, which is still within this long term average level of 16 basis points.

Now they ended up at a level of 16 basis points. So I mean in that way no big surprises and I think surprises, not positive surprises either in this quarter. One issue which made raise some potential risk to impaired loans they were up 4% roughly $225 million in absolute terms in this quarter. The reason for this is three individual customers and the fact that all these customers are quite well collateralized for example the biggest one of these which is representing half of the increase 100 -- is grafted by ECA, Export Credit Agency. That means that our individual loan losses for this new impaired loss were relatively small and thereby our provisioning level at a group level is somewhat down. We are highlighting this quarter that what we had said even earlier that their strategy and we see clearly increased risk levels in oil and offshore side and we are giving some information on this quarter and on those portfolios.

The overall size of our oil and gas plus coal services plus offshore portfolio is roughly $7 million, 75% is still consider as healthy, but 25% is bit higher risk. We anticipate that from this portfolio we see increased losses both in individual level as well as collective provisioning level, but nevertheless, the biggest relative size of this portfolio in Nordea context is relatively small, so its only 1.5% and it should not so significant or have significant impact [Indiscernible].

The size of these portfolios in terms – I'm still in offshore and oil services and size of those portfolios in terms of customer, the amount is relatively small, I think that I have mentioned this even in the previous discussion so that, for example, in offshore segment we have 30 customers, in oil segment we have 40 customers. So that we are very able to manage this customer by customer basis and working very closely with these customers, quite many of these offshore customers are now going through refinancing or restructuring.

In other parts of the portfolio the risk level are stable or even down, so that for example, out from this EUR127 million loan losses we booked in Q2 more than half close to two-thirds are coming from oil-related customers, so that, that means, the rest of the [Indiscernible] is very healthy and of good quality. I will stop here.

Rodney Alfven

Thank you, Torsten Hagen. Operator, we will now open up for questions from the audience. Please go ahead.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We have our first question from Willis Palermo from Goldman Sachs. Please go ahead. Your line is open.

Willis Palermo

Hi, good morning. Thanks for the introduction. I have two questions, the first one on capital. So, Nordea is now above the SREP, new SREP requirement of 17%. Thanks to these 40 bps coming from a transaction that you plan to close out. A quick question on this transaction. What is it exactly? Is there a risk to lose earnings related to that?

And going forward you mentioned a number of initiatives on top of earning generation to continue to build your capital. What areas of business you are thinking about or what regions would you think about non-core being able to dispose?

And the second question is on NII. I understood that the guidance is still to see NII at best being flat year on year in 2016. What in your view are the main drivers from which region would come the increase? And secondly, what is in your mind that NII could look at worse with this year compared to last year? Thank you.

Torsten Hagen Jorgensen

Yes. I think that on the specific concession period we are about to do. I think we have said that the P&L impact will be in the level of EU13 million net. And I think at the webcast we said that this will be shown up on NII. This is actually not the case. We will – the structure will work in way that it will all be, you can say, circulated via net fair value. So I mean, if the structure mean that we should have a payment than it will show up as a close [ph] and on the other around it’s a net premium to be paid, it will show up as a [Indiscernible] on the net fair value. So that's the way it will work.

And then we alluded to a number of other initiatives that has been started long before this and its part of our, you can say normal ongoing ROE [ph] enhancement efforts i.e. identifying customers, segments, business lines that are not profitable and where we think it will structurally bit difficult to or organically will be difficult to list [ph] out the necessary profitability. So we can be further risk protection deals not significantly risk transporters like this one, I don't think you should expect that near term, but it might be other type of risk protection deals, it might be divestment of certain non-core assets.

And they would typically not sit in the geographical dimensions. They will sit in a business lines type of dimension. And the fact that we have this plus you can say the underlying strategy we are pursuing of especially in our SME portfolio is why we feel confident that we can deliver also the current higher capital requirement. And on NII I mean the drivers are mainly the repricing on the lending side, it pertains at least to improve already having improved quite significantly margins on Swedish mortgages. We have stopped the forward of mortgages spreads in Norway. We have a relatively stable situation for now in Denmark, but we have announced price increases that probably kick in Q4.

And in Finland there is still a small potential. And on the corporate side we have said in connection with SME strategy that we will do significant repricing on the lending side and we start seeing that works roughly in Sweden and Norway. And finally we are also not least in the SME segment, we are also on deposits side working which charging more and more customers with the negative rates, so that's the key drivers and some of flavours on the geography.

Willis Palermo

Thank you very much.

Operator

Thank you. We'll take our next question from Matti Ahokas from Danske Bank. Please go ahead. Your line is open.

Matti Ahokas

Yes. Good afternoon. It's Matti Ahokas here from Danske Bank. Two questions, please. Firstly on this PD inspection and the SREP outcome, how much would it impact your core Tier 1 ratio if you would have to use the exposure with the PDs? I am sure you have done a lot of calculations. Some kind of sensitivity on that would be extremely helpful.

The second question is on this risky part of the oil and offshore portfolio. Ari mentioned EUR1.8 billion. What kind of loss levels do you foresee in this portfolio?

Torsten Hagen Jorgensen

Yes. If is should start on the – I don't think a structure we can refer to a PD inspection. We are – we have a equipped dialogue with Swedish at this stage relating to the clear statement that Swedish FSA has gone [Indiscernible] level that want to, and they think that corporate risk weights of Swedish bank should go up. And I think it's also fair to say that this will happen in different way from the different banks. And it also show that they had – if we look aside from the [Indiscernible] its true that they are having a number of questions relating to our PDs and ADFs, and they are making a number of calculations and we are providing a number of numbers.

And they have made as we have said, the first type of initial assessments included in the add-on that has now been done. And then they will reverts end of September with their final conclusion on corporate risk rates including PD, the PD issue.

Ari Kaperi

And we expect loss levels from this risky or part of the oil offshore -- oil portfolio. It's very difficult to give on – actually impossible to give any kind of precise estimate. What we have done of course already now with that we don't have for example in our offshore portfolio, we don't have any individual mostly so far. We don't have any impaired customers so far, what we have done is that we have build up our collective provisions for this portfolio.

Currently, we have around 90 million of collective provisions just to cover increased risk for individual losses in this portfolio. Also we have taken some or increased some or collective provinces also in some other parts of other bank for example in REIT and Norway be increased by 10 million of our provisions because there are some smaller oil service related clients.

So that I think that the loss level we saw this quarter which was in this offshore was 27 million of this collective provision increase then we have a few individual losses in other parts of the portfolio mainly related to oil services clients in land based areas, and as I said that they are roughly half or more than half of our Q3 losses, are deriving from these riskier segment.

And then I would say that, that’s my best estimate around the level for the coming quarter so that it maybe – so that we are – if there are no individual provisions coming shortly then we continue to increase our collective provisions just in case before these increased levels if we start to see more and more individual hits in these segments then perhaps there is no so much need in the short-term to increase the collective provisions. But putting this all together as we have said that, that’s somewhat higher level of losses from these levels are now during the second half of this year and then also it looks like that will continue during the first half of 2017. By the time more precise and outlook guidance will be the key back then at this point.

Matti Ahokas

Great. Very helpful, thanks.

Operator

Thank you. [Operator Instructions] Our next question is from Anton Kryachok from UBS. Please go ahead. Your line is open.

Anton Kryachok

Good afternoon and thank you for the presentation. Just two questions please. Firstly, I just wanted to clarify your point on corporate PD reviews. Did I hear you correctly that part of the increase in SRAP requirements already comes from the review of probability of default and actual default rates in your corporate book? That is the first question please.

And the second question, on the strength of net interest income in Norway can you please share a little bit more color on what drove that and how sustainable the strength is? Thank you so much.

Torsten Hagen Jorgensen

No I think but the way we can phrase it that, as part of our draft SRAP is with [indiscernible] and on the corporate risk we have issued Sweden have made an initial assessment on our corporate risk wage that they should increase with 3% at this point. And that assessment includes you can say all currently available information you can say. And they had not specified anything detail on PD as part of that but they have said that this includes what they know as of today, but they have also said that they have now concluded on their review on our PD ADF issues. So it might mean that at the end of September that means that there will be no additional capital requirement or there might be a higher capital requirement, we don’t know.

The NII in Norway is improving by of course or – but we expect it to improve is as I said that the very intense price competition we have had on the weekend mortgages seem to have stabilized so we now have a lower level than earlier but we have a stabilization on margins, on mortgages. We have improvement of deposit margins in Norway and finally we see that the price increases we did and have been doing in Norway on the SME portfolio which starts to show up as improved corpus margins in Norway. And we think there are potential to continue to reprice

So that’s the basis for this. I think the NII will also improve and we also still have some volume growth in Norway region that which comes slightly down I think.

Ari Kaperi

I think that also you can say that if you look at the quarter on quarter terms you're absolutely right that it looks like it's very, very strong trend, but you should look at first quarter -- second quarter relation to the fourth quarter, it was a quite significant in that first quarter that was related to technical aspect of the NIBOR moving in an predictable way but not in a favorable way. The first quarter then we brought it back in the second quarter.

And then you can also have it in the third quarter as Torsten alluded to, we expect an improvement coming from the margin increases we have done in the second quarter. So the risk you can say is that there would be a rate cap in Norway in September which I believe is our economist's view and many other as well, so, if that rate capital come, then in September that will then partly take out the positives that you would see in the third quarter, but that will come in the fourth quarter. I hope I gave you a clear view about the trend in the coming quarters.

Anton Kryachok

Very clear. Thank you very much.

Operator

Thank you. We will take our next question from Jan Wolter from Credit Suisse. Please go ahead your line is open.

Jan Wolter

Yes. Hi. Jan Wolter here from Credit Suisse. Many thanks for taking the questions on the disclosure today. So, going back to the corporate risk weight again, are you saying that the 50 basis point increase in corporate risk weights, if we take out the maturity factor adjustment there which was 20 basis points, but the 50 basis point wrapped as the 3 percentage point increase in corporate risk weights.

But the bank does not know today whether or not that includes any change in the principle to how you calculate the PD; i.e., going from a PD which is weighted by the number of defaults and not the exposure weight at PD, that is my first question?

Torsten Hagen Jorgensen

I am not sure I fully understood your question on maturity, the maturity effect is 20 basis points, it's not included in the 50 basis points. So again the way it is articulated is that all inclusive the Swedish FSA currently assess that our corporate risk weights should increase to 3 percentage point all includes, all factors including. And they are then, however, saying that they make one disclaimer and that is that they have not fully concluded on the assessment of PD ADF situation i.e. we need to say that there is a risk that they will come back and say this was not enough. But they might also [Indiscernible] fine. So it is all inclusive assessment of how much our corporate risk weight should increase and I think it's also show that the issue is that they have clearly stated that they want corporate risk weight to go up and I think they had also indicated that they are different elements in play for the different Swedish banks, but that corporate risk weight for all the Swedish banks should go up and they have -- initially have set to 50, but uncertainty factor that is the PD level.

Jan Wolter

Okay. Many thanks for that and just two other questions. First, if there were to be meaningful RWA inflation from here for one reason or another would the bank then be willing and have the ability also to mitigate that meaningful RWA inflation or how do you think about that?

Torsten Hagen Jorgensen

No, but I think that we need to comment on what we know. We know now that the capital requirement is set to approximately 17% by the end of the year. We know that probably we have to fulfill i.e. at least 50 basis points and we think that as of now we think that we will be able to mitigate that and then we will wait and see what the result of the final SREP or any other development might be. So I don't think we can – we cannot speculate more on that for now.

Jan Wolter

Okay. Many thanks. And the final question on the disclosure today around the Panama papers, out of the 562 or so offshore structures in Luxemburg, do you know today how many of those are U.S. citizens in terms of the ultimate beneficial owners please.

Torsten Hagen Jorgensen

No I am not an expert in the Panama to give, I think it's two.

Jan Wolter

Yes, that was stated in the report but that was I read it out of the 161 or so which were investigated out of the 129 that one that were investigated or is that the two – or those used nationality of the total 529, sorry 562 offshore structures you are seeing?

Torsten Hagen Jorgensen

If I may, let me come back with an exact number, but the reason we only we didn't look into to all of these offshore structures and the reason is we only looked at what we perceive as high risk. We didn't go through the cost foundations which are low risk. So I would assume that, lets come back at that one, that's the nationality on the trusts and foundations are less sensitive, so we looked into the sensitive names and there were two.

Jan Wolter

Okay that makes sense. Many thanks.

Operator

Thank you…

Torsten Hagen Jorgensen

And sorry and just to add, sorry – the zeroes of those accounts have been blocked.

Jan Wolter

Yes. Thank you.

Operator

Thank you. We’ll take our next question from Omar Keenan from Deutsche Bank. Please go ahead your line is open

Omar Keenan

Hi, good afternoon. Thanks very much for taking the question. Thanks very much for taking the question. I have got a further question on capital and then a further question on the private bank investigation.

So just first on capital, I understand that today on a pro forma basis Nordea has 20 basis points of management buffer, shall we call it, before perhaps any incremental impact from any leftover PD investigation. So I guess conceptually in the second half there needs to be a build of 30 to 130 basis points of core Tier 1 to get to a 50 to 150 basis point management buffer.

Do you expect these measures will come through more in the third quarter or the fourth quarter? Also could you comment about whether we are thinking about the scale of capital build correctly, if there something we have not thought about?

And then my second question is on the private bank investigation. I guess the outstanding issue is if there is any fine. Can you give us a timeline on when we will hear from the Swedish and Luxembourg FSA? And I guess given the investigations that these were compliance and governance procedures of the lax compliance and governance procedures you found are they the same shortcomings that the SEK50 million fine that was paid last year is for? Thank you.

Torsten Hagen Jorgensen

Yeah. First of all on the draft SRAP, I mean no capital requirement well of course is not expected to be enforced before we have the final result. So, and now our of course we have a number of clarification and other discussions with Swedish FSA as part of the normal process. So on the exact, you can say on the exact numbers and the exact timing we will be wiser when we come closer through the final report and I don't think we can comment so much more.

We have as I said pending initiatives and we have a current cap rate on the pro forma number of around 30 basis points through the minimum capital requirement of 50 basis points. But again, it depends exactly on the phase in and exact timing on some of these new requirements.

And on the Panama case, I honestly don't know exactly. We know that both the Luxemburg authorities and Sweden will now initiate their own process, they have received of course all the material. And I think atleast as I have – Sweden will now start their own processing of reviewing all the material and then they will ultimately -- at some point in time but we don't know their timing on – the time they will need to conduct this all the exercises.

Ari Kaperi

I guess just add to the Luxemburg FSA is conducting their inspection right now so that their time table loss that they should have enclosed all is already at the same time as our own internal inspection that we have started later than planned and now it's ongoing. But it will be concluded quite soon and then of course we know – I think that we know what is happening in Luxemburg earlier than what is the Swedish as you say conclusions in due course.

Omar Keenan

Great. Thank you. If I could just push my luck and add one further question. Just on net interest income, I was surprised by the strength of the lending margin improvement. I think it was EUR16 million in the quarter. Now how much of the EUR100 million is specifically that EUR16 million? We talked about the EUR100 million annualized figure which is EUR25 million per quarter. Is this EUR16 million increase -- is most of that done or is there still more?

Torsten Hagen Jorgensen

I think you relate to some earlier indication we have given of the gross potential. So -- but of course that was a really estimate on I think we used to term that what some of the new actions would could be on top of the ongoing. So I think it's very difficult to reconcile. But I can say that the key drivers has been what I have mentioned and as we say there are both you can say the development. We have seen the fully effects and then other pending increases and we have indicated certain size following. But we reconciling with 100 I don't think we should try to do. It was an early estimate.

Ari Kaperi

Yeah I think it's better -- you know our guidance is that you know we will see sequential improvement from the third quarter and from the fourth quarter we expect a year-on-year improvement. If you just looked at the last year's fourth quarter it was 1203 also around the 1170. So you should not expect the sharp improvement, but there you will see that was still room for improvement.

Omar Keenan

Okay got it. Thank you very much.

Operator

Thank you. We will take our next question from Johan Ekblom from Bank of America. Please go ahead your line is open.

Johan Ekblom

Just two questions, if I may. First, if we can come back to the synthetic risk transfer, and just so I understand how this will impact the accounts. Is it right that the loans will get -- were recognized as a derivative instead as of Q3? But that you will continue to accrue interest on it and there will be a charge through the fair value line?

Ari Kaperi

Yeah. You can say the reference portfolio i.e. all the loans will stay on our balance sheet and then you can say the CDS we are basically buying from the SPV that will be accounted for as [Indiscernible].

Johan Ekblom

And you mentioned 30 million as to cost. Is that an annual cost or..?

Ari Kaperi

Yes that's an annual cost post tax.

Johan Ekblom

Okay. And then just to come back to the SREP process. My understanding has been that the PD changes would be a pillar one impact. And I guess you are now signalling that this will all be a pillar two impact. Is that something that has changed in how the regulator wants to implement this or is this your best guess as of today?

Torsten Hagen Jorgensen

We are not guessing. But what is going to happen is that ultimately of course it will be implemented as pillar one, but what Sweden had said is that as they are – they have still not fully decided that we should as you can say prudent measure we should already now start implementing as -- and as the pillar one measure its not ready it, we will have to do it as pillar two. So the 50 basis point pillar two an on annual basis will be at some point in time will be replaced by the pillar one measure.

Johan Ekblom

Okay. Thank you.

Torsten Hagen Jorgensen

So it's as faster way you can say, to give us a equivalent to a 3 percentage point risk weight increase.

Johan Ekblom

Thank you.

Operator

Thank you. We will take our next question from Adrian Cighi from RBC. Please go ahead. Your line is open.

Adrian Cighi

Hi, Ari. This is Adrian Cighi from RBC. Thanks for taking my questions. Two follow-up questions on capital please. Positive credit risk migration contributed from 14 basis points your capital this quarter despite and deterioration in the energy portfolio. Can you give us any color as to which portfolio you are seeing this improvement? And do you expect a energy portfolio deterioration to impact your CET1 in the second half of the year?

And second question also related to the capital. You had no impact on capital from IAS19 this quarter. Can you please remind us what discount rate you use for pension liability and do see any potential impacts from this in the second half of the year? Thank you.

Torsten Hagen Jorgensen

Yes, I think both, yeah.

Ari Kaperi

I can start to comment on this credit quality and I'm directing my question impact of REA. So that we have seen negative rating migration and REA impact naturally in shipping offshore portfolios, energy portfolio and in some other selective areas but we can have big portfolios especially on the retail side, household as well as SME portfolios that we have been seeing overall healthy rate for migration.

It's very difficult to give estimation either in this area so that how the future look, but of course as said we will expect that the shipping offshore especially offshore ratings will go down and perhaps some other more selected parts of portfolios, but because the relative size still it's very difficult to see that couple of trend that all of the sudden our overall migration should start to pay negative REA.

And then it's not of course we have to also remember that that these are not static portfolios so that we are of course driving business more and more higher rated customers in all areas so that even if we show a customer rate being seen some areas will go down then they would expose us to the maturity of exposures are going more and more to this kind of high rated customers.

Adrian Cighi

Okay. Thank you.

Torsten Hagen Jorgensen

Okay. Sorry on the defined pension question, I think we had a negative impact of net EUR89 million in Q2.

Ari Kaperi

Well, the net OCI was basically zero plus five because we had positives on the characterization net of hedges. It was – those two items almost netted out each other, so its still very small level overall.

Adrian Cighi

Okay. Thank you.

Operator

Thank you. We will take our next question from Jacob Kruse from Autonomous Research. Please go ahead your line is open.

Jacob Kruse

Thank you. I just wanted to ask if you could give any discussions around what assets you might be looking to sell. And specifically would the Baltic business be still core or would you consider selling that? Or would this be more the kind of partially [Indiscernible] stakes that you would look to sell? Thank you.

Ari Kaperi

No, I don't think we can comment on it, but I think as I said before that the type of divestments of non-core activities we are looking at currently is you should more think about it in a you can say as it our business line dimension rather than geography dimension.

Torsten Hagen Jorgensen

Okay. When accounts with Baltic, I think we have been very clear now to go for the certain times that we are committed to the regions. We have no plans to leave that region.

Jacob Kruse

Yeah, okay. Great. Thank you.

Operator

Thank you. We will take our next question from Chris Manners from Morgan Stanley. Please go ahead your line is open.

Chris Manners

Good afternoon everyone. Two questions if I may. The first one is I guess you had a good bump in trading revenues in last week of the quarter and after the EU referendum in the U.K. I just wanted to see how your trading has continued and sort of client activity after the Brexit vote and whether it has maintained a decent pace or whether you've seen a tailing off?

And my second question was on the rollout of the new platform. And I guess that you have actually gone live with deposits for your employees and in Finland seem to be going very well in June. Just maybe if you could flesh out for us what the next steps are and how well it is going, that would be fantastic? Thanks.

Ari Kaperi

Yes. I don't think we should start commenting on the development in our trading, but I think we ended pretty strongly and if anything carried that into July, but on simplification, yes, we had a very successful pilot and the next step to roll this pilot into a real product for external customers. As you know that the current pilot is mainly with employees as customers and mixed phase in that is to make the pilot a full scale product which will have beginning for it half year, next year. And then of course from there to in-dept, you can say evaluation of that before we start accelerating the introduction of more products in more countries, but very positive according to plan on the [Indiscernible] platform project.

Chris Manners

That's encouraging, too. Thank you.

Ari Kaperi

Thank you.

Operator

Thank you. We will take our next question from Daniel Do-Thoi from JPMorgan. Please go ahead. Your line is open.

Daniel Do-Thoi

Hi, good afternoon. Just two quick questions, the first on capital, second one on provisions. On capital the 3 percentage point increase in corporate risk weights that you have now estimated, can you perhaps give us an idea of how proportionately that is distributed across the geographies and whether that is largely related to Swedish exposure?

And then secondly, on the provisions I think you've now mentioned that for the more -- for the offshore and also for the segment, but could you just give us an idea of what the provisions are for the entire oil and gas stock? So that is this EUR7 billion that you have on slide 14.

And then just related to that, the 75% in terms of health exposures, as you call them, does that correspond to internally investment-grade rated exposures? Thank you.

Torsten Hagen Jorgensen

If I may on the first one on capital just to make clear, it's not us that have made adjustments and come to the 3% risk rate increase. We have to be clear it's a number given by Swedish to say that and that is maybe back to be clear. They have made an easy initial assessment of what the total corporate risk weight would be from [Indiscernible] not only Swedish exposures.

They have said that as they have not fully concluded the PD arrears, they think that as date of as of now and what they know as of now, for Nordea that should lead for 3 percentage point increase in corporate risk weights [Indiscernible] so and they have been estimated the associated capital required for that and they are taking as pillar two and they will compare it with pillar one, so it's not our own assessment.

This is -- and it is a you can call it a top down approach for now by Swedish FSA, so that's all the --I think we can -- I understand all the questions and we also have the number of questions, but we will have to wait to see the final outcome of this. But at least for us it's a of course a clear indication of where we should be heading it at least. So yeah that is what we consider on it.

Ari Kaperi

In this oil segment if I understood your question correctly you asked what is our provision level in the oil segment? Currently we have made roughly $17 million of individual losses in that segment, so that there are some individual plans with provisions from debt loss with provisions but still the levels are fairly moderate. And we don't see that – that is perhaps the most risky segment is that of oil companies as such, then there almost small players which have been hit. Then this speak of a healthy and unhealthy portfolio is that they are the healthy portfolio, we have also included somewhat lower rate than this for my understood with system, our internal threshold for investment grade so that because we are talking about critical portfolio that is there already little bit below investment grade, so that we look in our measures, in our rating classes we are talking about rating classes three minus and lower

Daniel Do-Thoi

So, what’s the split in terms of investment given on that investment grade, please?

Ari Kaperi

No, they are actually I don't that split now in top of my head. About this breakdown I have to come back to that because I can't tell you right it's not on top of my head so what is then this for – in investment grade, because this is the way we now pull down this portfolio so I don't give some information.

Daniel Do-Thoi

Okay. Thank you very much.

Operator

Thank you. [Operator Instructions] and now we will take our next question from [Indiscernible]. Please go ahead your line is open.

Unidentified Analyst

Yes, thank you I think it’s a question for me maybe a little bit tweety, you are guiding all for an eye to improve in the second half, I heard that you previously talked about Danish commercial margins as a driver of the higher and I go into the second half is that correct then what size of height of loan, what sort of plans do you expect to be able to hike margins on this, is this company specific or is it something you are seeing overall in the margin, the Danish margins could be raised going into the second half?

Torsten Hagen Jorgensen

I think we have indicated that there are more to be done in Denmark on the commercial banking side, but we are talking about that a lot have been done but as we also alluded to for example we are charging more and more these customers negative rates so from 25% of the deposit charge negative rate to now 33%. And as we have also said before we have a long-long list of it’s the new customers in Denmark and it takes time. All this the bigger ones have been saying, so in Denmark, I mean we can say that the potential are getting smaller, but as there is more to be done what we are saying is that the potential now is bigger in terms of other countries and we are doing the same there and should expect bigger impacts in to it for example.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. As there are no further questions I would like to hand the call back over to our host. Thank you.

Rodney Alfven

Thank you operator and thank you all for calling in and showing interest in our bank and our results. We are now going to London, so if you want to call us please do within the next hour or after 7 PM CET. And if you like to meet us in London tomorrow please let us know and we will invite you. So thank you very much for now. We wish you all a very nice summer evening. Thank you.

Operator

Thank you ladies and gentlemen. That will conclude today's conference call. Thank you for your participation. You may now disconnect.

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