Swedbank investor presentation October 2014
Table of contents 1. Quarterly financial update 3 2. Capital considerations 9 3. Liquidity and funding 21 4. Cover pool data 31 5. Swedish economy 37 6. Swedish housing and mortgage market 41 7. Appendix 49 2
1. Quarterly financial update 3
Quarterly update - Group results Strong result • Volume growth SEKm Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Net interest income 5 829 5 521 308 430 • Mixed margins Net commission 2 816 2 813 3 889 income • Strong commission income Net gains and losses 799 773 26 894 Other income 706 1 348 -642 426 • Treasury income supported by lower Total income 10 150 10 455 -305 2 639 market rates Total expenses 4 164 4 919 -755 1 145 Profit before • Cost 5 986 5 536 450 1 494 impairments - Meeting cost target 2014 Credit impairments 235 30 205 73 Other impairments 19 70 -51 -328 - Ambition to lower total expenses towards SEK 16bn by 2016 Tax 1 164 1 063 101 414 Profit from continuing 4 562 4 369 193 1 330 operations ROE continuing 16.6 16.6 operations, % Cost/income ratio 0.41 0.47 CET1 capital ratio, % 20.7 20.9 Source: Swedbank Sep 2014 4
Quarterly update - Swedish Banking Strong loan volumes • Lower deposit margins SEKm Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Net interest income 3 372 3 362 10 -124 • Expanding mortgage margins Net commission income 1 746 1 790 -44 470 • Loan volume growth both in private and Other income 449 1 077 -628 687 SME segments Total income 5 567 6 229 -662 1 033 Total expenses 2 581 3 192 -611 1 048 • Continued market activity supports Profit before commission income 2 986 3 037 -51 -15 impairments Credit impairments 43 25 18 -99 • Sparbanken Öresund financial result fully included ROE, % 25.9 29.7 C/I ratio 0.46 0.51 Volumes, SEKbn Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Loans 1 005 987 18 80 Deposits 402 401 1 24 Source: Swedbank Sep 2014 5
Quarterly update - Large Corporates & Institutions Good underlying development • Volume growth SEKm Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Net interest income 876 846 30 91 • Mixed corporate activity Net commission income 561 496 65 277 – Corporate finance and DCM Net gains and losses 354 575 -221 25 – Lending Other income 36 28 8 -18 • Weaker trading activity Total income 1 827 1 945 -118 375 • Single exposure caused credit Total expenses 835 804 31 141 Profit before impairment 992 1 141 -149 234 impairments Credit impairments 270 21 249 86 ROE, % 13.8 23.1 C/I ratio 0.46 0.41 Volumes, SEKbn Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Loans 161 157 4 13 Deposits 104 98 6 33 Source: Swedbank Sep 2014 6
Quarterly update - Baltic Banking Stable result • No financial impact from the geopolitical SEKm Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y situation in Russia and Ukraine Net interest income 865 894 -29 321 Net commission income 500 522 -22 172 • Lower market rates Other income 148 180 -32 -32 • Solid credit quality Total income 1 513 1 596 -83 461 • Good cost efficiency Total expenses 615 621 -6 51 Profit before 898 975 -77 410 impairments Credit impairments -59 -16 -43 84 ROE, % 15.7 15.6 C/I ratio 0.41 0.39 Volumes, SEKbn Q3 14 Q2 14 ▲ Q/Q ▲ Y/Y Loans 121 122 -1 4 Deposits 125 122 3 15 Source: Swedbank Sep 2014 7
Quarterly update - Capital Increased REA following credit growth • REA net increase of SEK 2.9bn during the quarter • CET1 capital negatively impacted by SEK 0.9bn (IAS19) • No regulatory excess capital SEKbn 430 Swedbank REA development CET1 capital ratio 12 420 -0.1 409.6 -6.0 410 24% 406.7 -3.0 22% 20.9% 20.7% 400 20% 390 18% 16% 380 14% 370 12% 10% 360 Q2 2014 Q3 2014 Q2 2014 Exposure change Risk grade migration Other credit risk CVA and market risk Q3 2014 (PD and LGD) Increase Decrease Source: Swedbank Sep 2014 8
Quarterly update - Asset quality Strong asset quality • Continued low loan losses in all Credit impairments, Q3 14 Q2 14 business segments SEKm Swedish Banking 43 25 • No asset quality impact from the Large Corporates & 270 21 geopolitical situation in Russia and Institutions Ukraine Baltic Banking -59 -16 • Single exposure caused credit Group Functions & Other -19 0 impairment within LC&I Swedbank Group 235 30 • Total impaired loans remain low Source: Swedbank Sep 2014 9
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2. Capital considerations 11
Capital considerations Composition of Swedbank’s CET1 requirement 24.3% 2.0% Systemic risk in Pillar 2 19.0% 19.0% Corrective Measures 25% REA Mortgage Systemic Risk in 2.0% Floor 6.3% Pillar 2 Individual Pillar 2 25% REA 8.5% charge Mortgage Floor 5.0% 2.0% Capital conservation Individual Pillar 2 buffer charge 2.5% Pillar 2 CET1 Requirements 1.5% MDA 0.6% restrictions Capital Countercyclical Conservation buffer 2.5% Buffer 3.0% Pillar 1 CET1 Requirements 0.6% Countercyclical Systemic risk buffer Restrictive Measures Buffer 10.6% 3.0% 3.5% Systemic Risk Min additional T1 Buffer and T2 capital Minimum CET1 4.5% 4.5% Minimum CET1 Requirement Requirement Swedbank CET1 Requirements Swedbank CET1 Requirements Swedbank Total Capital Requirements Estimated CET1 Capital Requirement based upon the Swedish FSA’s Memorandum (08/09/2014),. This will likely be adjusted in the future, in particular as under the SFSA’s Memorandum the CET1 capital requirement is calculated utilising a standardised 1.5% charge for individual Pillar 2 requirements excluding mortgage and systemic risk, and this will likely vary between the above institutions 12
Capital considerations No automatic sanctions for breaching the Pillar 2 capital requirements • "Third, it ought to be positive for financial stability that a firm has the possibility, using rapid and resolute measures, as agreed with FI, to restore its capital without the firm necessarily becoming subject to priory specified and automatic legal restrictions. In other words, firms are hence given the possibility of re-establishing their capital in a strained situation without automatic restrictions on distributions or…" • “Hence, in such a situation, a firm may freely choose, in the framework of other applicable regulations and under FI’s review, the most suitable way of restoring the capital in that specific situation. For example, the firm is not obliged to halt or limit dividends or interest payments on Tier 1 capital contributions , if the firm can identify other and more appropriate ways of restoring the capital sufficiently quickly. (This applies as long as there is no shortfall from the combined buffer requirement under the Pillar 1 rules, i.e. excluding the specific own funds requirement).” Source: Swedish FSA Memorandum: ”Capital requirements for Swedish banks” – 8 Sep 2014 13
Capital considerations Swedbank’s capitalisation ensures a strong buffer for investors (fully loaded Basel III) Swedish banks’ current CET1 capital ratios CET1 Capital Ratio per Q214 Estimated CET1 Capital Requirement Anticipated AT1 Trigger level 20.7% 20.1%* 1.7% 2.6% 16.0%* 15.2%* 0.6% 0.5% 11.0% 9.5% 7.4% 6.7% Anticipated AT1 Trigger level 8.0% 8.0% 8.0% 8.0% Swedbank Handelsbanken SEB Nordea * As per Q2 2014 Estimated CET1 Capital Requirement based upon the Swedish FSA’s Memorandum (08/09/2014),. This will likely be adjusted in the future, in particular as under the SFSA’s Memorandum the CET1 capital requirement is calculated utilising a standardised 1.5% charge for individual Pillar 2 requirements excluding mortgage and systemic risk, and this will likely vary between the above institutions 14
Capital considerations Swedbank’s capital composition ensures a strong buffer to MDA limitations Buffer to Combined Buffer Requirement based on Regulatory Minimum Pillar 2 charge 19.0% Combined buffer requirement 17.5% Minimum CET1 Requirement 15.4% 14.7% 8.5% 7.1% 5.1% 4.6% MDA restriction 6.1% 6.0% 5.8% 5.7% 4.5% 4.5% 4.5% 4.5% Swedbank Handelsbanken SEB Nordea Note: Assumes that AT1 and T2 capital requirements are fulfilled with subordinated capital Source: Swedbank Sep 2014 15
Capital considerations Significant equity buffer to absorb losses Equity cushion towards MDA restrictions and trigger level (SEK bn) 22.2 • Dividend policy of 75% 6.4 34.8 25.0 MDA restrictions 18.4 Pillar 1 min Pillar 1 buffers Pillar 2 Current buffer Pre-provision requirements earnings* Source: Swedbank Sep 2014 *YTD Q3 pre-provision earnings annualised 16
Asset quality Asset portfolios – low risk Sweden The Group, total SEK 1 287bn The Group Hotels and restaurants, Retail 7% Shipping and offshore, Transportation Manufacturing Latvian lending 2% Lithuanian lending 3% 36% Other corporate lending 6% Private 4% Estonian lending Corporate 64% Other property management 13% Residential properties Agriculture and forestry Baltic Banking Swedish household loans 64% (90% mortgages) Private 49% 51% Corporate Tenant owner associations Source: Swedbank, Sep 30, 2014 17
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