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Risk Management and Capital Adequacy Report
Pillar 3 – 2014
2
Table of contents
Introduction
Swedbank in brief
Economic environment
CRO’s statement
3
3
4
5
1. Risk governance
Risk profile
Enterprise Risk Management Policy
Three lines of defence
Risk appetite and framework
6
6
7
7
7
2. Capital requirements
Highlights 2014
Capital requirements
Capital planning
Regulatory environment – impact on Swedbank
10
10
10
12
13
3. Credit risks
Highlights 2014
Credit risk exposures
Capital requirements for credit risk
Credit risk exposures – by business segment
Credit risk exposures – by sector
Management of credit risk
Measurement of credit risk
Counterparty risk
17
17
18
23
25
31
39
43
48
4. Market risks
Highlights 2014
Market risk exposures
Management of market risks
Measurement of market risk
Capital requirements for market risks
51
51
51
54
55
56
5. Liquidity risks
Highlights 2014
Funding and liquidity strategy
Management of liquidity risk
Measurement of liquidity risk
57
57
57
60
61
6. Operational risks
Highlights 2014
Management of operational risk
Capital requirements for operational risk
63
63
64
66
7. Group-wide stress tests
Highlights 2014
Internal Capital Adequacy Assessment Process – Pillar 2
The adverse ICAAP scenario
Impact on Swedbank – simulation results
REA and capital assessment results
Management interventions
The European Banking Authority’s pan-European stress test
The European Central Bank’s stress test
Externally performed stress tests
69
69
70
71
72
73
73
74
74
74
Swedbank Consolidated Situation: Appendix
Definitions
76
112
Subsidiaries: Appendices
Swedbank Estonia Consolidated Situation
Swedbank Latvia Consolidated Situation
Swedbank Lithuania Consolidated Situation
Swedbank Mortgage AB
Appendix Estonia CS 1
Appendix Latvia CS 1
Appendix Lithuania CS 1
Appendix Swedbank Mortgage 1
SWEDBANK
Risk Management and Capital Adequacy Report – Pillar 3 - 2014
3
Introduction
This Risk Management and Capital Adequacy Report 2014 (Pillar 3 report) provides
information on Swedbank’s capital adequacy and risk management. The report is based on
regulatory disclosure requirements set out in the Capital Requirements Regulation (Regulation
(EU) 575/2013) and the SFSA regulation FFFS 2014:12.
Information in this report pertains to conditions as of 31 December 2014 for Swedbank
Consolidated Situation (see Definitions table in Appendix) if not otherwise stated.
Furthermore, this report includes information for significant subsidiaries (Estonia, Latvia,
Lithuania on consolidated basis as well as Swedbank Mortgage) in accordance with Article 13
in the Capital Requirements Regulation.
The report is part of the capital adequacy framework that builds on three pillars:
•
Pillar 1 provides rules for how to calculate minimum capital requirements for credit risk,
market risk and operational risks. The calculation can either be done using prescribed
standardised risk measures or based on the bank’s own internally used risk measures.
Swedbank must fulfil certain requirements in order to use its own internally used risk
measures and must seek approval from the SFSA and local supervisors in other countries
where it operates.
•
Pillar 2 requires institutions to prepare and document their own internal capital
adequacy assessment process (ICAAP). All relevant sources of risk must be taken into
account, that is, not only those already included when calculating the minimum capital
requirement for credit, market and operational risks. In cooperation with local supervisors,
the SFSA will make an assessment of the banks’ ICAAP and may impose additional capital
requirements for “Pillar 2 risks”, meaning risks not covered by the Pillar 1 calculation.
•
Pillar 3 requires institutions to disclose comprehensive information about their risks, risk
management and associated capital. For Swedbank this is done in the form of this report.
Information about the Swedbank corporate governance structure and measures undertaken to
manage operations in the consolidated situation is presented in the Swedbank Corporate
Governance Report. Information about the Swedbank Board of Directors including
directorships and recruitment policy is also disclosed in the Swedbank Corporate Governance
Report. Information about risk implications of the remuneration process (and aggregate as
well as granular quantitative information on remuneration) is disclosed in the document
“Information about remuneration in Swedbank 2014” which is published in conjunction with
the Annual General Shareholders Meeting. All documents mentioned above, as well as the
policy on diversity, are available on www.swedbank.com.
This report is submitted by Swedbank AB, a public limited liability company with registration
number 502017-7753. This document has not been audited and does not form part of
Swedbank AB’s audited financial statements.
Swedbank in brief
Swedbank is a full-service bank available to all households and businesses in its region. With
over 8 million private customers and more than 600,000 corporate and organisational
customers across its operations, Swedbank is the largest bank in Sweden based on number of
customers. The customers are served by 470 branches in 11 countries. Swedbank has four
home markets – Sweden, Estonia, Latvia and Lithuania – and a presence in neighbouring
markets such as Denmark, Finland and Norway to support our client base in these markets.
Swedbank also operates in key financial hubs such as the U.S., China and Luxembourg.
SWEDBANK
4
Swedbank is discontinuing operations in Russia.
Swedbank consists of four main business segments: (i) Swedish Banking, (ii) Baltic Banking (iii),
Large Corporates & Institutions, and (iv) Group Functions & Other. Swedish Banking is divided
into six business areas which are: (i) the North Region, (ii) the Central Region, (iii) the
Stockholm Region, (iv) the Eastern Region, (v) the Western Region and (vi) the South Region.
Economic environment
The recovery in the global economy decelerated during 2014, but with significant differences
between countries and regions. The US and UK performed well, while growth in the euro area
was weaker than expected. Growth rates in emerging markets also slowed down. Falling
commodity prices and a low utilisation rate led to low global inflation, contributing to record
low interest rates. A sharp fall in oil prices and continued decline in inflation expectations has
been a growing challenge for monetary policy. In the US, the Fed finished quantity-easing
programs in October, while in the euro area the European Central Bank (ECB) started to
introduce unconventional monetary policy actions to avoid a deflationary trend. Similar
actions have been taken in other economies with low or no inflation, such as Japan.
The Swedish economy was surprisingly resilient during 2014, although the global recovery
was weak. It was largely driven by a robust growth in private consumption and investments in
housing, while Swedish exports were to some extent negatively affected by weak demand
from the euro area. In Q3, Sweden’s GDP increased by 2.1% compared with the corresponding
period in 2013. In Q4, the inflation rate in Sweden continued to decline and in December, the
inflation rate was -0.3%, largely driven by lower energy prices. The Swedish labour market
had a strong performance, with new jobs created primarily in the private service sector. In
December, the Riksbank decided that the repo rate needed to remain at 0% and the Riksbank
also announced that further measures might be necessary.
The Baltic economies managed the weaker external demand and impacts from the geopolitical
crisis in Russia relatively well. In Q3, the annualised growth rate was 2.2% in Estonia, 2.4% in
Latvia and 2.7% in Lithuania. Higher wage increases and rising employment supported a
robust private consumption. On 1 January 2015, Lithuania became a member of the EMU,
which means that all the Baltic countries are now members of the monetary union.
SWEDBANK
5
Low risk and strong capital base in a challenging
environment
“2014 was another strong year for Swedbank. Our capital base continued to strengthen on
the back of stable profit generation and solid asset quality, as we continued to decrease risk in
our balance sheet. The asset quality in the credit portfolio has shown strong resilience during the
year with low loan losses. Impaired loans have also continued to decrease as we have now
disposed almost all legacy portfolios from the financial crisis.
In 2014, Swedbank received the awaited approval from the SFSA to use the advanced IRB
approach for corporate exposures in Sweden and Norway, which contributed to increasing our
CET1 capital ratio. We are now one of the highest capitalised banks in Europe. Our strong capital
position is confirmed by both the ICAAP stress test and stress tests conducted by the EBA, the
Riksbank and the SFSA. Our liquidity position is also strong, thanks to proactive funding
activities and solid investor demand for our bond issuances offerings. In a hypothetical scenario
of closed capital markets, our survival horizon stretches far beyond 12 months.
From the risk control perspective, our focus in 2014 has been to support responsible
business growth. This has been done through further embedding a strong business and risk
culture, but also by preventing undesired risks through e.g. further development of steering
tools and risk limit framework and through the use of a more sophisticated monitoring and
control structure. We have also focused on further improving prudent risk management during
operational changes. Another focus area has been the regulatory landscape and implementation
of new legislations, which is a key challenge for the whole industry.
Looking into 2015, we face several challenges in the external environment such as the
macroeconomic situation within the euro area showing slow growth and low interest rates. We
will need to handle a potential scenario with negative interest rates as well as effects from
quantitative easing actions. Geopolitical uncertainties such as the conflicts in Russia/Ukraine, the
Middle East and the relationship between Greece and the rest of the EU are other factors we are
taking into account. We are closely monitoring the low oil price and its impact on certain
industries, although a lower oil price is neutral or beneficial for most of our customers. We are
also allocating significant resources to managing the scope of new regulatory requirements
which continue to be a key challenge going forward.
Our operating environment thus presents us with a variety of factors to manage. However,
our solid capitalisation with one of the strongest CET1 capital ratios among European peers and
strong liquidity situation combined with our focus on low-risk assets puts us in a good position
to meet these challenges.
With this report, we aim to provide readers with an open and clear view of how we work
with risk management at Swedbank and how we continue to ensure our low risk and strong
capital base.”
Anders Karlsson
Chief Risk Officer
SWEDBANK
1. Risk governance
The embedded risk culture and clear risk ownership in
business operations together with Swedbank’s
independent risk organisation secures professional risk
management and protects us from unintentional and
unnecessary risk-taking.
Risk profile
Swedbank defines risk as a potentially negative impact on the Group’s value which can arise
due to ongoing internal processes or future internal or external events. The concept of risk
includes the probability that an event will occur and the impact it could have on the Group’s
results, equity or value.
Swedbank’s strategy aims to create sustainable value for our customers, society, shareholders
and employees. The Enterprise Risk Management (ERM) Policy, decided by the Board, states
that our strategy is to maintain our low risk which is further concretised by the risk appetite
(see Enterprise Risk Management Policy, and Risk Appetite and Framework).
Swedbank’s customer base, which mainly consists of private individuals and small and
medium-sized companies in Sweden and in the Baltic countries, is the foundation for a credit
risk – Swedbank’s predominant risk – that is low. Our low-risk profile is confirmed by low
losses and a low level of impaired loans (0.41%), despite the challenging external environment
during 2014. Market risks were kept on a low level throughout the year in spite of volatile
markets. In terms of operational risks, no single large loss event occurred, and the accumulated
losses were again at low levels. Both our internal as well as external stress tests (performed
by the EBA, the Riksbank and the SFSA) confirm our low-risk profile. The CET1 capital ratio
(21.2%) is among the highest compared to European peers, and our survival horizon stretches
far beyond 12 months (See Chapter 5, Liquidity Risks, for further information).
To continuously secure a low risk, our operations are based on a foundation of professional
risk management and control. The risk framework has been developed to secure solid risk
awareness and business acumen within all parts of the bank. It originates from the Group’s
strategy and business planning process, in which risk-based planning is an integrated part.
Internal regulations and guidelines are developed to secure strong risk control and steering.
The Group’s risk tolerance framework includes risk limits applied for individual risk disciplines
from the Board further down to business areas for appropriate steering (See Risk Appetite and
Framework). The risk framework also includes well-developed origination standards for
prudent credit lending. Furthermore, an essential tool in the Group steering is the risk-adjusted
profitability which is followed up from the business area level down to individual customers
and contracts.
7
Risk arises in all financial operations, and managing it well is central for success. A strong
common risk culture within Swedbank, with decision-making and responsibility kept close to
the customer, serves as the foundation for efficient risk management and, consequently, a
strong risk-adjusted return.
The Board has the ultimate responsibility for Swedbank Group’s risk-taking and capital
assessment. Through the Enterprise Risk Management (ERM) Policy, the Board provides
guidelines for the CEO on risk management and risk control, and how these functions should
support the business strategy. The ERM Policy specifies the risk appetite, the concept of three
lines of defence, the fundamental principles of risk management, and roles and responsibilities.
The Board has also established the Risk and Capital Committee (RCC), the Audit Committee
(AC) and the Remuneration Committee (RC) as support in matters related to risk management,
governance, capital requirements and remuneration respectively. For further information on
these committees, duties, reporting to committees and number of meetings during 2014, see
the Swedbank Corporate Governance Report available on www.swedbank.com.
Three lines of defence
Successful risk management requires a strong risk culture and a common approach that
permeates the entire Group. Swedbank builds its approach to risk management on the concept
of three lines of defence, signifying a clear division of responsibilities between the risk owner
(the business units), the control functions (Group Risk) and the Internal Audit.
Swedbank’s risk management
Risk appetite and framework
The ERM Policy states that Swedbank Group is to maintain a low risk profile, in terms of both
capital and liquidity. The long-term risk profile is to be managed so that a severely stressed
scenario, as defined in the annual Internal Capital Adequacy Assessment Process (ICAAP),
should not have a significant negative impact on the CET1 capital ratio. If the impact exceeds
the level established by the risk appetite, preventive measures must be taken to reduce the
risk.
The Board establishes the main principles for the Group’s risk management and decides on the
overall risk appetite. In order to ensure and improve risk approach in different operations, the
Board has also formulated risk appetites for each main risk type (see below). The risk appetites
SWEDBANK
8
are further concretised by limits set by the CEO and complemented by CRO limits aimed at
identifying any potential limit breaches at an early stage. Business area limits, constituting the
last level in the risk limit framework, are decided by business area heads. The risk appetite and
limits are designed to secure that the Group sustains its low-risk profile, taking into account
the Group’s business operations. The risk limit framework structure includes clear escalation
principles in the event of any breaches of the risk appetite or limits.
The Group Risk organisation is tasked with ensuring that each key risk faced by the Group is
identified and properly managed by the relevant business owners, that decisions made on the
aggregated level are in line with the Group’s risk appetite, and that a holistic view on all
relevant risks is submitted to the Board as well as the CEO. The Risk organisation is also
responsible for providing the business organisation with operational guidance and support, in
part by developing and maintaining internal rules and guidelines in each risk category.
The CEO has established a special committee on Group level, the Group Risk and Compliance
Committee (GRCC), to assist him in matters related to all categories of risk and compliance. The
committee meets normally on a monthly basis (11 meetings in 2014) to review, monitor and
challenge the Group risk profile in terms of significant exposures, risk trends, stress tests,
losses, management actions and performance versus risk appetite, including compliance with
the risk limit framework. The GRCC also reviews and monitors the management of findings by
Compliance, Risk units, Internal Audit and External Audit to secure that these are appropriately
implemented. To further strengthen risk management arrangements in local business areas,
GRCC is supported by local Business Area Risk and Compliance Committees (BARCCs).
Individual BARCCs are established in all business areas and have the same setup on local level
as the GRCC for the Group. Clear escalation routines are implemented from the BARCCs to
GRCC to secure strong and effective risk management.
Credit risk
Swedbank maintains a well-diversified credit portfolio with a low risk profile. All credit
activities strive towards a long-term customer relationship and rest on sound business
acumen to achieve solid profitability and avoid credit expansion that may endanger long-term
stability.
A basic principle in Swedbank’s lending operations is that each business unit bears full
responsibility for its transactions and its associated credit risks. Each business unit develops
and maintains a balanced credit risk, which is achieved by lending to customers with a high
debt-service coverage ratio, by maintaining a strong collateral position and by having a
diversification within and between sectors and regions.
Counterparty risk arises as a result of hedging of own market risk and from customer-related
trading activities. The Group has a conservative approach when choosing interbank
counterparts, and ISDA agreements allowing netting and usage of credit support annexes
(CSAs) are almost always established. In the derivatives business, ISDA (or similar) agreements
are in general established with our customers. Furthermore, the Group restricts the extent of
its counterparty risk exposure through several actions such as setting counterparty limits and
FX settlement limits.
Market risk
The Group’s primary objective in financial markets is to satisfy the long-term needs of its
customers, and its secondary objective is to generate a return by means of position-taking.
Risk must always be weighed against expected return. Positions shall only be taken in
products or markets where the market risks are properly understood. No positions shall be
taken that could be deemed unethical or that could jeopardise the Group's reputation.
Liquidity and funding risk
Swedbank will maintain a conservative risk profile with resilience to both short-term and longterm external stress and will maintain an adequate buffer of highly liquid assets to enable it to
withstand a prolonged period of liquidity stress without relying on forced asset sales or
SWEDBANK
9
government intervention. Swedbank shall have a long-term, stable, well-diversified funding
and investor base with a wholesale funding that is well diversified across markets,
instruments and currencies. Furthermore, it shall strive to avoid maturity mismatch risk in
assets funded by unsecured funding. All non-liquid assets, not eligible for covered bond
issuance, shall be funded either through customer deposits or through wholesale funding with
a maturity, to the largest extent, matching or exceeding that of the assets.
In this context, management of liquidity risks is an integral part of Swedbank’s business
operation. Liquidity risk is measured, forecasted and analysed continuously, using various time
horizons, to ensure that the Group has adequate cash or cash-equivalents to meet its
obligations in a timely manner, without incurring substantially higher costs. The responsibility
for managing the Group’s liquidity lies with Group Treasury. Group Risk works independently
to identify all relevant aspects of liquidity risks, and is responsible for control, measurement,
monitoring and reporting liquidity risk exposure across the Group.
Operational risk
Swedbank shall not experience operational risk-related losses or incidents that have materially
negative impact on the Group’s funding, capitalisation and third-party credit rating. The
maximum level of operational risk is further defined in the risk limits by a stated level of
unexpected financial loss, tolerable errors in the financial statement and as specific qualitative
statements which relate directly to the operations of the Group.
Operational risks are to be kept at the lowest possible level taking into account business
strategy, market sentiment, regulatory requirements, rating ambitions and the capacity to
absorb losses through earnings and capital. They shall be considered in business decisions and,
as far as possible, in the pricing of products and services. Managers shall ensure that the
operational risks inherent in their respective areas are identified, assessed and properly
managed in the day-to-day operations.
ALM and capital management
In addition to the ERM Policy, Swedbank’s Asset, Liability and Liquidity Policy sets out the
fundamental principles that apply for the Group’s processes and structures to identify and
manage the Group’s assets and liabilities to build an optimal balance-sheet structure, in order
to meet liabilities, absorb losses, safeguard shareholder returns and maintain public
confidence. The Group’s capital, funding and liquidity shall be managed in a way that does not
create disproportionate constraints on the governance or management of the Group.
The CEO has established a special committee on Group level, the Group Asset Allocation
Committee (GAAC), to assist him in issues related to the management of assets, liabilities and
the balance sheet structure. He has also established a central Treasury department in the
Group to operationally manage issues related to capital, liquidity and funding. Treasury works
as an internal bank and provides funding to the business areas, retains capital at Group level
or, as directed by shareholders or the Board, returns it to shareholders. To ensure that
Treasury can act as an internal bank, an adequate framework comprising principles and
instructions for capital allocation and internal fund-transfer pricing is maintained.
SWEDBANK
2. Capital requirements
In 2014, Swedbank’s capitalisation continued to
strengthen for the seventh consecutive year. Swedbank’s
CET1 capital ratio is among the highest compared to
European peers. Our capitalisation makes us resilient
under the current regulatory framework and ensures that
we are well prepared for the future and able to support
our customers going forward.
Highlights 2014
Thanks to a stable earnings generation, combined with reduced risk exposure amount,
Swedbank’s already strong capitalisation has further improved. In June, Swedbank received the
awaited approval from the SFSA to use the advanced IRB approach for corporate exposures in
Sweden and Norway, which contributed to a decreased capital requirement and thereby an
increased Common Equity Tier 1 (CET1) capital ratio. Swedbank’s CET1 capital ratio was
21.2% as of year-end, which makes the Group well-positioned to meet both current and future
capital requirements. Internal stress tests also show that Swedbank remains resilient to crises,
not least the ICAAP with adverse scenarios more severe than any of the Swedish recessions in
modern times. Results from recent stress tests conducted by the European Banking Authority
(EBA), the Riksbank and the Swedish Financial Supervisory Authority (SFSA) also confirm
Swedbank’s strong risk and capital position.
Capital adequacy rules express the legal requirement as to how much capital a credit
institution (such as a bank) must have in relation to the risk the institution faces. When
assessing its capital needs, Swedbank takes into consideration its current and future risk
profile, internal risk measurement and assessment of the risk capital needed. In addition to
capital requirements for credit, market and operational risk (i.e. Pillar 1), all other risks, such as
concentration risks, pension risks, earnings volatility risk and strategic risk, must be taken into
account when assessing the total capital need (i.e. as part of the Pillar 2 assessment).
Under the EU Capital Requirements Regulation (EU Regulation No 575/2013, CRR), a bank’s
total capital must be equivalent to at least the sum of the capital requirements for credit,
market and operational risks, including capital buffers and potential Pillar 2 add-ons. Banks
using the IRB approach shall, at all times, also hold own funds which equal or exceed 80% of
the total minimum amount of own funds that the institution would be required to hold under
Basel 1 rules (“Basel 1 floor”). Swedbank fulfils these requirements; see Appendix, section 2.
Other laws and regulations also apply; for example, the Swedish Banking and Finance Business
Act requires a minimum initial capital of EUR 5m. Considering the size of Swedbank’s capital, it
also complies with these regulations. Furthermore, Swedbank complies with the rules in the
CRR regarding large exposures, i.e. the limitation of exposures to individual customers or
groups of customers in relation to its total capital.
11
In brief, the total capital is the sum of CET1 capital, Additional Tier 1 capital and Tier 2 capital.
CET1 capital mainly comprises shareholder equity after various adjustments, while Additional
Tier 1 capital and Tier 2 capital are mainly made up of subordinated debt. A reconciliation of
shareholders’ equity (according to IFRS) and the regulatory total capital is presented below.
Link between shareholders’ equity and total capital
SEK bn
120
115
110
105
100
95
90
85
80
75
70
117.2
12.7
105.6
-12.5
-14.1
Shareholders'
equity
Proposed
dividend
Goodwill &
intangible
assets
5.0
87.9
-2.6
Other
adjustments
CET1 capital
Increase
92.9
Total CET1 Additional Tier Total Tier 1
Capital
1 capital
Capital
Tier 2 capital Total capital
Decrease
Development during 2014
At year-end 2014, CET1 capital ratio according to Basel 3 (fully phased-in), i.e. the CET1
capital in relation to the risk exposure amount, was 21.2% (31 December 2013: 18.3%). The
SFSA’s approval for Swedbank to use the advanced IRB (A-IRB) approach for corporate
exposures in Sweden and Norway affected the CET1 capital ratio positively by 3.8 percentage
points calculated as of 30 June. In Q2 2014, the acquisition of Sparbanken Öresund was
finalised, which reduced the CET1 capital ratio by 0.8 percentage points.
CET1 capital increased by SEK 7.1bn, to SEK 87.9bn. The change is mainly attributable to
earnings, net of proposed dividend. The change in the accounting for employee benefits (IAS
19), which came into force in 2013, creates volatility in the estimated pension liabilities and
increased the CET1 capital by approximately SEK 0.4bn during 2014. Subordinated debt
included in the total capital increased by SEK 7.5bn, mainly as a result of Swedbank’s issuance
of EUR 750m in a Tier 2 instrument in mid-February.
CET1 capital Basel 3, SEK bn - changes during 2014, Swedbank Consolidated Situation
SEKbn
100
17.8
90
80.8
0.4
1.5
IAS 19
Other CET1 changes
87.9
-12.5
80
70
60
50
40
Q4 2013
Profit (CS)
Anticipated dividend
Q4 2014
The risk exposure amount (REA) decreased during the year to SEK 414.2bn (31 December
2013: SEK 440.6bn). The SFSA’s approval allowing Swedbank to use A-IRB for corporate
exposures reduced the REA by SEK 72.9bn, while the acquisition of Sparbanken Öresund and
investments in Sparbanken Skåne increased the REA by SEK 16.3bn (of which SEK 14.9bn
affected REA for credit risks and SEK 1.4bn affected REA for operational risks).
Credit risk REA decreased by SEK 34.3bn during the year. Excluding the abovementioned oneoff effects, REA increased by SEK 23.8bn. Increased exposures, mainly to mortgage loans and
SWEDBANK
12
corporate customers in Swedish Banking and LC&I, caused credit risk REA to rise, while
positive rating migrations, both in PD and LGD-dimension, reduced REA. Fluctuations in
exchange rates, mainly attributable to the Baltic credit portfolio, increased the REA for credit
risks due to the depreciation of the Swedish krona against the euro.
The REA for credit valuation adjustment (CVA risk) was essentially unchanged. The REA for
market risks increased by SEK 2bn, due to higher interest rate risk and volatilities. The REA for
operational risks increased by SEK 4bn (excluding effects from the acquisition of Sparbanken
Öresund) compared with the previous year-end, mainly due to Swedbank’s revenue being
higher in 2013 than in 2010. This affects the capital requirement for operational risks, which
is calculated based on a rolling three-year average of revenues.
REA Basel 3, SEK bn - changes during 2014, Swedbank Consolidated Situation
450
440
430
420
410
400
390
380
370
360
440.6
33.6
5.3
-8.5
2.0
0.3
4.0
414.2
-0.5
-6.1
16.3
-72.9
Q4 2013
Advanced
IRB
Spb
Öresund
and Spb
Skåne
Exposure
change
Rating
migration
(PD)
LGD
changes
Increase
Credit risk Other credit CVA risk
FX effects
risk
Market risk Operational Q4 2014
risk (excl
Spb
Öresund)
Decrease
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
%
22
20
18
16
14
12
10
8
6
4
2
0
%
24
22
20
18
16
14
12
10
8
6
4
2
0
%
26
24
22
20
18
16
14
12
10
8
6
4
2
0
Basel 2**
Basel 3***
Basel 2**
Basel 3***
Basel 2**
Basel 3***
* Incl. rights issue
**As the new capital regulations came into force in January 2014, Swedbank's capital adequacy reporting under Basel 2
ceased from that date.
***2011-2013 according to Swedbank's calculation based on the proposed regulations
Capital planning
All banks are affected by macroeconomic changes that cannot be fully mitigated by a strong
risk culture and risk management. To ensure a going concern even under adverse conditions,
Swedbank maintains an extra capital buffer on top of what is legally required. Swedbank
conducts stress tests to identify the potential effects of possible, though unlikely, negative
scenarios and to assess whether the capital buffer is satisfactory at any given point in time.
Capital planning and efforts to sustain satisfactory capitalisation are critical for Swedbank’s
ability to maintain the market’s confidence, and consequently to retain access to cost-efficient
funding in the capital market, thus making us able to support our customers.
SWEDBANK
13
The financial crisis dramatically changed the way regulators, rating agencies and debt
investors perceive banks' capitalisation. A large number of regulatory changes have been
implemented in recent years, or are about to be implemented, collectively aimed at increasing
both the size and quality of the banks' total capital. Stable earnings and strong capitalisation
mean that Swedbank is well positioned today and for the future. Swedbank’s CET1 capital
ratio is among the highest compared to European peers. Recent reports from the SFSA, the
Riksbank, as well as the wide stress test done by all major banks in the EU reported by the EBA
at the end of October, confirm Swedbank's strong capital position. For further information
regarding Group-wide stress tests and outcome of these tests, see Chapter 7.
In 2014, the SFSA clarified the majority of the capital requirements for Swedish banks. In
2015, it is expected to clarify its view on the capital requirements for Pillar 2 risks, and thus on
the level of Swedish banks’ total capital requirements. Swedbank’s objective is to uphold an
effective total capital which, by its size and structure, ensures a high return on shareholder
equity. At the same time, the total capital must ensure that, at all times, Swedbank meets the
capital requirements and maintains access to cost-efficient funding in the capital markets,
even under adverse market conditions.
Swedbank Group, as well as legal entities within the Group, must be adequately capitalised. In
case of a potential shortfall, a capital injection or other measures to reduce risk exposure
amount may be performed. In addition to injection of equity capital, the total capital in a
subsidiary may also be strengthened through subordinated loans from within the Group. To
the extent that non-restricted equity is available in subsidiaries, funds can be transferred back
to the parent company as dividends. Swedbank regularly reviews the capitalisation of the
entire Group and the individual legal entities. The outcome of such reviews may trigger
adjustments deemed necessary to ensure compliance with regulatory requirements and an
efficient capital management within the Group. Swedbank assesses that the Group as well as
the parent company and its subsidiaries are adequately capitalised. Further, there are no
current or foreseen material practical or legal impediments to the prompt transfer of own
funds or repayment of liabilities among the parent company and its subsidiaries.
Adequate and comprehensive capital allocation is an essential tool in measuring profitability,
from the level of the business area and all the way through to each customer. At Swedbank,
shareholder value is seen as an excess return over the cost of capital and is measured by
economic profit and risk-adjusted return on capital (RAROC). The principles of capital allocation
reflect Swedbank's risk tolerance and capital strategy. Consolidated shareholders' equity is
allocated to each business area based not only on regulatory requirements, but also on an
internal assessment of risk in individual transactions. It aims to provide an adequate risk
differentiation, consistent with Swedbank's ICAAP (internal stress test) methodology. In the
operating segment report (see Swedbank Annual Report, note G5), the allocated capital to
business areas and the key ratios based on the capital allocation are presented.
Regulatory environment – impact on Swedbank
The regulation of banks is changing rapidly as a consequence of the recent crisis. These efforts
are coordinated worldwide by the Financial Stability Board (FSB) and the Basel Committee. In
Europe, this is accentuated by a push to harmonise regulations and supervision practices
through the development of a single rulebook and the introduction of pan-European
supervisory institutions. Starting from November 2014, the ECB began directly supervising
the largest banks in the euro area; national supervisors will continue to monitor the remaining
banks. As of 1 January 2015, the ECB’s supervision includes Swedbank in Estonia, Latvia and
Lithuania. An additional feature that has recently emerged is that the European capital
adequacy legislation includes a framework for macro prudential supervision, aimed at
detecting and containing systemic risks. As a consequence, the banks’ capital requirements
may in future be shifted quite frequently by the national authorities, when deemed necessary
to contain systemic risk.
SWEDBANK
14
Swedish capital requirements
The majority of the Basel 3 capital adequacy rules were introduced within the EU on 1 January
2014, when CRR entered into force and became binding regulation. Other parts of the Basel 3
framework, e.g. capital buffers, were introduced through EU Directive CRD IV, which required
Swedish legislation and did not take effect until August 2014. In early September, the SFSA
decided which capital requirements would apply to Swedish banks beyond the minimum level
of 7% CET 1 capital in accordance with the EU rules. The SFSA’s requirements can be
summarised as follows:
•
As of 1 January 2015, the four major Swedish banks are assigned a systemic risk buffer of
3% in CET 1 capital within the framework of Pillar 1 and a further 2% within the
framework of Pillar 2.
•
The risk weight floor for Swedish mortgages was raised in September 2014 from 15% to
25% within the framework of Pillar 2.
•
The countercyclical buffer will be 1% from 13 September 2015.
The SFSA also stated that it did not intend to make a formal decision on the capital
requirement for individual institutions in Pillar 2. As long as a formal decision not has been
made, the capital requirement under Pillar 2 does not affect the level at which automatic
restrictions on dividend and coupon payments take effect (due to a breach of the combined
buffer requirements).
Due to the increase in the risk weight floor for the Swedish mortgage portfolio from 15% to
25% and the addition of a countercyclical buffer as of September 2015, Swedbank has to
maintain additional CET 1 capital of SEK 21bn for Swedish mortgages within the framework
of Pillar 2, corresponding to 5.1 percentage points of the CET 1 ratio according to Pillar 1. In its
internal steering, Swedbank allocates capital to its mortgage business equivalent to a 25%
risk weight floor as from Q4 2014.
In December 2014, the SFSA published a memorandum describing proposed methods for
assessing the capital requirements within the framework of Pillar 2 for three different types
of risk: credit-related concentration risk, interest rate risk in the banking book, and pension
risk. The SFSA intends to use the methods described in the memorandum, after they have
been referred for consultation and finalised, in the overall supervisory capital assessment in
the course of the supervisory review and evaluation process in 2015. The SFSA’s view on the
capital requirements for Pillar 2 risks is expected to be clarified during 2015, and thus the level
of Swedish banks' total capital requirements will also be clarified.
The total capital requirement for Swedbank, calculated as per 31 December 2014 based on
current information and assuming that Swedbank's capital requirement for Pillar 2 risks are in
line with SFSA's standard value for Swedish banks (1.5%), is equivalent to a CET1 capital ratio
of 19.3% and a total capital requirement amounting to 24.6%. These figures take into
consideration the introduction of the systemic risk buffer (in January 2015) and the
countercyclical buffer (forthcoming in September 2015).
SWEDBANK
15
Capital requirements (incl. fully implemented buffers and Pillar 2 requirements)
Pillar 1
CET1
Minimum CET1 requirement
AT1 capital
T2 capital
Systemic buffer (P1)
Capital conservation buffer (CCoB)
Countercyclical buffer (CCyB)
4.5%
Mortgage floor
Systemic buffer (P2)
Other P2
5.1%
2.0%
1.5%
3.0%
2.5%
0.7%
Total capital
10.7%
4.5%
1.5%
2.0%
3.0%
2.5%
0.7%
14.2%
Pillar 2
8.6%
19.3%
6.4%
2.0%
2.0%
10.4%
24.6%
At end-2014, Swedbank’s actual CET1 capital ratio and total capital ratio were 21.2% and
25.5%, respectively. This means that there is already an adequate buffer above the fully
implemented capital requirement to manage volatilities in capital and REA.
Leverage ratio
During the year, regulators and other stakeholders continued to discuss the leverage ratio,
including how this measure can be used to ensure a minimum level of capital relative to the
size of the balance sheet. Since 2014, banks have been required to report their leverage ratio
to regulators, and a formal disclosure requirement is to be introduced in Q1 2015. According to
the EU’s regulations, the measure will be evaluated by the authorities prior to the possible
introduction of a minimum requirement in 2018. Swedbank’s leverage ratio was 4.5% on
31 December 2014.
Basel Committee’s upcoming review of capital requirements
The Basel Committee is currently working on a review of the standardised approaches of the
capital requirement framework for credit risk and market risks as well as for operational risks.
In December 2014, the Basel Committee issued a consultative document on revisions to the
standardised approach for credit risk. The document proposes, among other things, reducing
reliance on external credit ratings, increasing risk sensitivity, and reducing national discretions.
In March 2014, the Basel Committee issued final regulatory text for a new standardised
approach for measuring counterparty credit risk exposures, which will become effective on
1 January 2017. The Basel Committee is also working on a comprehensive revision of the
capital adequacy standards for market risk and for operational risks.
The Basel Committee is also working on strengthening the link between internal models and
the standardised approaches, and enhancing comparability of capital requirements across
banks. In December 2014, the Basel Committee issued a consultative document on the design
of a capital floor framework, based on the proposed revised standardised approaches, to limit
the risk that capital requirements are too low due to the use of internal models. This
framework will replace the current capital floor for banks using internal models, which is based
on the Basel 1 standard. The consultation covers design issues related to a capital floor
framework, but the calibration of the floor is outside the scope of this consultation. The Basel
Committee will consider the calibration when finalising the revised standardised approaches.
A common theme in these revisions is to reduce the potential for undue variation in the capital
required for banks. There is a high degree of uncertainty with regards to the Basel
Committee’s final calibration of the proposed new frameworks, and subsequently how and
when this will be implemented in the EU. It is thus too early to draw firm conclusions regarding
the impact of the potential future capital requirements.
The proposals from the Basel Committee are further described in the Credit risk, Market risk
and Operational risk sections of this report.
SWEDBANK
16
Bank Recovery and Resolution Directive
The Bank Recovery and Resolution Directive, which will allow the authorities to deal with
banks in distress, was established in the EU at the beginning of the year. The directive is
intended to be implemented nationally starting in 2015. However, the Swedish
implementation has been delayed and will take place no earlier than mid-2015. The crisis
management framework is intended to prevent crisis situations and improve the ability to deal
with crises that may arise. The aim is to reduce the risk that taxpayers will have to bear the
cost in the event of a banking crisis. This will be accomplished through the option of what is
known as bail-in, which means that shareholders and creditors bear the costs to a greater
extent. As a consequence, banks will need to hold a minimum level of own funds and eligible
liabilities (MREL). Parallel to this, the FSB has issued a proposal on Total Loss Absorbing Capital
(TLAC), which sets corresponding requirements for globally systemically important banks. The
proposal on TLAC is ultimately assumed to influence how the MREL requirement is determined
in the EU. The FSB proposes a lag before implementation of TLAC (not before 1 January 2019),
whereas the requirement to set MREL applies from the date of national implementation of
Article 45 of the directive (i.e. 1 January 2016 at the latest).
Although uncertainties exist regarding the configuration and level of the MREL requirement,
Swedbank is deemed likely to meet the requirements. As part of the crisis management
framework, financial institutions need to submit recovery plans annually to their regulators.
Swedbank submitted its initial plan to the SFSA in December 2013, and submitted an updated
plan at the end of 2014.
SWEDBANK
3. Credit risks
Swedbank has a low-risk loan portfolio, as indicated by
five consecutive years of decreasing impaired loans, low
inflow of new impaired loans and low credit impairments.
Hence, Swedbank’s credit portfolio has shown high
resilience in the turbulent economic environment.
Highlights 2014
Swedbank’s credit portfolio is focused on stable low-risk segments such as private mortgage
and real estate corporates in our four home markets. That focus has once again been proven
successful as we continued to decrease our impaired loans and only had a 0.03% loan loss
ratio in 2014 - despite the turmoil in the global economy. The low risk is also confirmed by
external as well as internal stress tests. During 2014, our credit portfolio growth was in
segments that experienced economic growth, such as private mortgage and property
management in the major cities in Sweden. Our stable progression during the year is also due
to the fact that, in relation to our total portfolio, exposures to more volatile segments such as
shipping and offshore and construction are limited. Furthermore, exposures towards the
agriculture sector in Sweden are to segments which have had low levels of loan losses.
In 2014, Europe continued to face low GDP growth. In Sweden, the inflation rate is lower than
the Riksbank’s long-term target of 2%, and market interest rates are at historical low levels. In
the short term, low interest rates are mainly beneficial for both private and corporate
customers, but also for the economy as a whole; the Swedish economy has been supported by
increased private consumption partly as a consequence of low interest rates. In the long term,
customers’ repayment abilities may be affected when interest rates are normalised, although
it is more likely that a normalisation would result in a drop in private consumption and thus a
negative impact on GDP growth. To prevent any risks of decreased repayment ability,
Swedbank’s credit process is not only adapted for the special conditions entailed by the
current low-interest rate environment, through measures such as adequate amortisations, but
also takes into account repayment capability in times of considerably higher interest rates.
The political tensions in Russia and Ukraine have had only a limited impact on our credit
quality. Exports from the Baltic countries to Russia decreased in 2014, but since only a small
part of the Baltics’ export to Russia is produced in the Baltic countries, the effect has been
limited. Hence, the effects of the Russian trade embargo were generally limited to sectors
such as agriculture, food production and transport services. Furthermore, the tourism sector
has been affected, but primarily because the rouble has declined in value. Swedbank has
limited exposures to all four of these segments in the Baltic countries. Most Swedbank
customers with business relations to Russia have adapted well to the changed conditions,
having found alternative markets for their products and adjusted their production to current
market demand. Swedbank’s direct credit exposure to Russia is limited, and continued to
decrease during 2014. As of year-end, loans net amounted to SEK 0.5bn. Swedbank has no
direct credit exposures to Ukraine.
Since the financial crisis in 2009, Swedbank’s Baltic customers have built up safety buffers and
reduced their risks and indebtedness levels, making them more prepared and resilient to
18
stressed situations. Since the crisis, our Baltic customers have shown good financial stability
and an ability to be agile and competitive. Successful management of the crisis has also led to
the Baltic countries experiencing stronger economic development than most European
countries – in spite of the uncertainties in Russia and the EU, which are the largest export
markets for the Baltic countries. Despite solid GDP growth, demand for new loans is relatively
low, as willingness among private individuals and corporates to increase their debts is quite
moderate. To prevent future risks, Swedbank will continue to discuss possible measures with
customers who have business connections in Russia and Ukraine and who could be affected if
the conflict continues.
In recent months, the price of oil has decreased severely. For most of Swedbank’s private and
corporate customers, a lower oil price is neutral or beneficial. However, it has tended to have a
negative impact for 60% of the shipping and offshore exposures, and a neutral or positive
impact for the remaining 40%. Our shipping and offshore exposures are largely denominated
in USD, and have been stable around USD 5.0 to 5.5bn (equaling loans net of USD 3.5 to 4bn)
since 2010. Hence, the stronger USD is the main reason that exposures increased to SEK 8bn
during 2014. To mitigate risks, Swedbank maintains a close dialogue with the affected
corporates. Loan conditions have been reviewed and adjusted to the new circumstances, and
Swedbank performs stress tests on individual customer level. However, a substantial
proportion of Swedbank’s offshore customers comprises stable, listed customers whose
resilience to a negative oil-price trend is deemed better than the average in the sector.
In 2014, the Swedish Financial Supervisory Authority (SFSA) granted Swedbank approval to
use Advanced IRB (A-IRB) for the Swedish and Norwegian Corporate portfolio, enabling the
use of Swedbank’s own internal estimates for measurement of the LGD, M and CCF risk
parameters when calculating capital requirements. This caused REA to decline by SEK 72.9bn.
The use of A-IRB improves Swedbank’s ability to compete and enhances comparability
between banks in Sweden, since all four major Swedish banks now use A-IRB.
The low risk and robustness in our credit portfolio, in combination with our strong capital
situation, gives Swedbank a strong position for continued sound credit granting and the
capability to meet our customers’ needs.
Credit risk exposures
Credit risk is by far the single most important risk discipline for Swedbank. Our credit lending
knowledge and strong local presence, in conjunction with our low-risk strategy, has resulted in
low loan losses, despite the external challenges around us. In parallel, we have been able to
continue our growth in more low-risk segments. The total credit risk exposure for Swedbank
as of 31 December 2014 was SEK 1,892bn. Total exposures increased during the year by
SEK 171bn or 10%. The rise was primarily due to increased central government exposures, but
also by increased retail mortgage exposures in Swedish Banking and corporate exposures in
Swedish Banking and LC&I. The purchase of Sparbanken Öresund increased the exposures by
SEK 17bn. Our portfolio risk is well diversified by having a wide customer base of private
households and corporates in many different sectors, with a focus on the four home markets.
Furthermore, the portfolio is well collateralised; of total loans net, 76% is collateralised with
real estate and 14% with other collateral.
The overall risk profile of Swedbank’s portfolio continued to improve during 2014. Average
probability of default, including regulator-required margins and through-the-cycle adjustment
for all performing credit exposures, decreased from 0.65% to 0.62%. This was mainly driven
by reduced risk levels in Baltic Banking.
Swedbank uses a 23-grade scale to evaluate the PD risk, where 21 is lowest PD risk. The
distribution of exposures shows a portfolio concentration towards the risk grades with lowest
risk. Of the total IRB exposures with an assessed risk grade, 80% were in risk grades 13–21
(“investment grade or higher”), where the probability of default is considered low. Further,
SWEDBANK
19
45% of the exposures were assigned a risk grade of 18 or higher, corresponding to an A rating
or higher from the major rating agencies. The vast majority of both the private mortgage and
the credit institutions exposures are found in the risk grades with lowest risk, while corporate
exposures are more evenly distributed. For breakdowns of the portfolio data, including key
ratios, see Appendix section 3.
Share of total IRB exposures by risk grade
Share of total EAD
30
25
20
15
10
5
0
Def
0
1
2
3
4
5
6
7
8 9 10 11 12 13 14 15 16 17 18 19 20 21
2012 2013 2014
Swedbank risk grade
Growth in sectors with low historical and predicted forthcoming risk
During 2014, Swedbank’s credit portfolio grew mainly in segments such as private mortgage
loans, property management, tenant-owner associations, and credit institutions. Combined,
these segments comprise 69% of the total exposure. They accounted for most of the growth
in the Swedish economy in 2014. The outlook for these sectors is positive, characterised by
customers with good repayment capabilities and a high level of collateralisation. The historical
losses are on low levels, for example 0.01% in the Swedish mortgage portfolio, and they are
expected to remain low even in a severe situation.
Calculated expected loss and portfolio size
SEKbn
700
EL ratio, %
0.90
0.80
600
0.70
500
0.60
400
0.50
300
0.40
0.30
200
0.20
100
0.10
0.00
0
Private
mortgage
Property
management
Agriculture,
forestry and
fishing
Retail
Hotels and Transportation Shipping &
restaurants
offshore
EAD
Calculated expected loss ratio
Sectors that are considered to have higher risk – in terms of the higher historical loss ratios
and expected future losses – comprise 6% of Swedbank’s total portfolio. These sectors,
specifically retail, hotels & restaurants, transportation, and shipping and offshore, are more
volatile than the others in the portfolio and are more sensitive to economic downturns and
changes in commodity prices. On average, Swedbank’s customers in these higher-risk sectors
have a relatively low average PD with a high share of investment-grade risk or better rating.
Swedbank exercises caution when granting credit to corporates in these sectors, and only
conducts business with customers who have strong earning opportunities and high solvency.
Majority of credit exposures are towards the four home markets
The vast majority of Swedbank’s exposures, 75%, are made up of exposures to Swedish
customers. This ratio has decreased from 79% since year-end 2013, mainly due to the growth
of central government placements. Our four home markets (Sweden and the Baltic countries)
SWEDBANK
20
comprise about 85% of our total exposures. In the graph below, the “other” segment consists
of larger international banks, Norwegian shipping and offshore customers where the
corporates are registered in foreign countries, and other exposures. For further information on
the geographical split, see below in credit risk exposures by business segment and Appendix
table 3-23.
Geographical distribution of credit exposures
Other
USA
Finland
Denmark
Norway
Russia
Lithuania
Latvia
Estonia
Sweden
0
200
400
600
800
1,000
1,200
1,400
1,600
SEK bn
Low risk in Swedish mortgage loans
In 2014, Swedish mortgage loans totalled SEK 639bn, which represents 48% of Swedbank’s
total loans and 56% of Swedish exposures. This portfolio has historically had very low credit
impairments. One reason for this is Swedbank’s well-developed credit review process, where
the household’s ability to repay is a cornerstone. Before a new mortgage is approved, the
individual household must successfully undergo a cash-flow based affordability analysis,
which includes a stress test to determine whether, for example, the household can afford a
significant increase in interest rate and can afford to amortise. Furthermore, system
transparency, with credit agencies providing credit information about individuals, enables us
to conduct more extensive analysis. External factors contributing to the low risk in the
mortgage portfolio include the shortfall, compared to market demand, in new construction of
residential properties in the major cities.
Swedbank has historically been one of Sweden’s largest mortgage lenders and has built up a
high-quality backbook in which customers have high repayment capability and low average
loan-to-value (LTV) level. As of 31 December 2014, the average LTV ratio of Swedbank’s
mortgages in Sweden, based on property level, was 60.1% (year-end 2013: 62.2%). The
corresponding figure for new mortgages paid out in 2014 was 73.6%.
The average debt-to-income ratio of Swedish households may seem high in an international
perspective, but this ratio does not reflect the full picture. It fails to include factors such as
differences in social security systems which allow Swedish households to use a higher share
of their disposable income for living expenses. The strong social security system in Sweden
reduces the risk if, for example, a borrower becomes unemployed or goes on long-term sick
leave. Moreover, and in contrast to some other countries, owner-occupied housing is
increasing in Sweden while the share of people living in rented apartments is gradually
decreasing.
In 2010, the SFSA introduced an LTV cap entailing that new mortgages must have an LTV
ratio of equal to or below 85%. In December 2010, the Swedish Bankers’ Association
introduced a recommendation that new mortgages with an LTV ratio over 75% should be
amortised in 10-15 years until a 75% LTV is reached. As of July 2014, this recommendation
was extended to include new mortgages with an LTV ratio over 70%. During the past
12 months, 87% of all new mortgages granted by Swedbank in Sweden with an LTV ratio
over 70% were being amortised, and annual amortisations in the Swedbank’s Swedish
mortgage portfolio amounted to about SEK 10.1bn. In July 2014, the Swedish Bankers’
Association introduced a new recommendation stating that the banks should analyse newmortgage applicants and prepare individually assessed recommended amortisation plans for
SWEDBANK
21
each household, based on a lifetime perspective. In November 2014, the SFSA proposed a new
regulation stating that all new mortgage loans are to be amortised until a 50% LTV is reached,
by 2% annually down to 70% LTV and thereafter 1% annually down to 50% LTV. It is likely
that the combined effect of these actions will be a further decrease in credit risk in new
mortgage lending.
In recent decades, Sweden has faced significant increases in house prices. Looking ahead, it
can be questioned whether house prices will increase at the same rate as previously. However,
the risk of a significant drop in house-prices is lower because of the low supply of new
residential properties. In Sweden’s large urban areas, with strong long-term population
growth, the demand for housing far outstrips the supply and current construction plans for
new housing. The over-demand in urban areas will most likely continue, and even if residential
construction increases significantly, the time required to harmonise demand and supply will
most likely be relatively long, which will lower the risk of sudden price declines. Another factor
that reduces the risk in the Swedish housing market is the fact that the Swedish market has
few "buy to let" options. Hence, the element of speculation is very limited, reducing the risk for
a price bubble.
To secure our low-risk portfolio including mitigate risks in the event of sudden price drops,
Swedbank requires customers to follow appropriate amortisation schemes. New proposed
legislation (see above) will set additional minimum requirements for amortisation which will
further force customers to amortise on their loans. Moreover, credit risk in Swedbank’s
mortgage portfolio is kept on a low level due to Swedish legislation entailing that household
customers have extensive repayment responsibility. All of these factors make the risk low,
which is also demonstrated by the Swedbank’s very low historical losses.
In September, the SFSA decided to increase the risk weight floor for Swedish mortgages from
15% to 25% (see Chapter 2 of this report). This increased Swedbank’s capital adequacy
requirement by SEK 9.6bn. To mitigate Swedbank’s higher expenses for the increased capital
adequacy requirements for the Swedish mortgage portfolio, our margins were adjusted.
Legacy portfolio almost worked through
During the year, the number of loans past due by more than 60 days continued to decrease
within Baltic Banking – in spite of the slowdown in the GDP growth and difficulties resulting
from the Russian embargo. This demonstrates the high credit quality in the portfolio. The
share of loans past due by more than 60 days was 0.96% in Estonia (1.03%), 2.87% in Latvia
(5.52%) and 2.23% in Lithuania (3.77%). Within Swedish Banking, the number of private
mortgages and corporate loans past due by more than 60 days was stable on low levels.
Overall, Swedbank’s corporate customers within Swedish Banking and LC&I demonstrated
continued resilience; few customers had loans past due by more than 60 days, or other
financial problems.
Impaired loans decreased by SEK 1.2bn during 2014, to SEK 6.3bn. In Baltic Banking, impaired
loans continued to fall, amounting to SEK 4.0bn at year-end. Impaired loans peaked at
SEK 27bn in Q2 2010, and have gradually declined as the loans have been restructured,
amortised or written off, or due to improved quality in the loan portfolio. The share of impaired
mortgages in Baltic Banking decreased, with the largest decrease occurring in Latvia. Impaired
loans within Swedish Banking and LC&I remained unchanged on a low level during the period.
Impaired loans to private customers decreased during 2014.
SWEDBANK
22
Impaired loans Swedbank Group
SEK bn
45
40
35
30
25
20
15
10
5
0
Impaired loans gross
ratio, % 3.50
3.00
2.50
2.00
1.50
1.00
0.50
Swedish Banking
LC&I
Estonia
Latvia
Lithuania
Russia
Ukraine
Impaired loans gross, ratio
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
Q1-13
Q4-12
Q3-12
Q2-12
Q1-12
Q4-11
Q3-11
Q2-11
Q1-11
Q4-10
Q3-10
Q2-10
Q1-10
Q4-09
Q3-09
Q2-09
Q1-09
Q4-08
Q3-08
Q2-08
Q1-08
Q4-07
0.00
Properties repossessed by Ektornet
SEK bn
6
5
4
3
2
1
Sweden
USA
Estonia
Latvia
Lithuania
Norway
Finland
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
Q1-13
Q4-12
Q3-12
Q2-12
Q1-12
Q4-11
Q3-11
Q2-11
Q1-11
Q4-10
Q3-10
Q2-10
Q1-10
Q4-09
Q3-09
Q2-09
Q1-09
Q4-08
Q3-08
Q2-08
Q1-08
Q4-07
0
Ukraine
Repossessed assets amounted to SEK 933m at year-end, which is less than half the amount at
the beginning of the year. Ektornet accounted for SEK 778m of the repossessed assets.
Ektornet’s property values were written down by SEK 243m during the year, mainly related to
exposures in Ukraine and the US. In Q3 2014, the sale of the last remaining US asset in
Ektornet’s property portfolio was finalised. As of 31 December 2014, the remaining
repossessed properties in Ukraine had a book value of SEK 54m. Ektornet, which was founded
to acquire, manage and divest real estate taken over by Swedbank as a result of the financial
crisis, will continue the reduction of its portfolio during 2015.
Credit impairments for 2014 amounted to SEK 419m (2013: SEK 60m). Credit impairments in
Swedish Banking and LC&I remained low and were related to a few corporate commitments.
Recoveries in the Baltic countries continued, and related primarily to work-out loans resolved
during the year. For more on past due and impaired loans, see Appendix tables 3-37 and 3-38.
Credit impairment Swedbank Group breakdown 2014
SEKm
2,000
2,500
1,808
2,000
1,500
1,500
1,000
500
-821
249
0
-77
Reversals of
provisions
Portfolio
provisions
Established
losses
Increase
Decrease
Provisions
SWEDBANK
1,000
500
-344
-500
Individual
provisions,
gross
419
-396
0
Utilisation of
provisions
Recoveries
Total Credit
impairment
2014
Write-offs
23
Capital requirements for credit risk
Reduction in risk exposure amount in 2014
In 2014, Swedbank’s average risk weight declined considerably, mainly because of the
implementation of Advanced IRB for corporate exposures in Sweden and Norway. Credit risk
REA was reduced by SEK 34.3bn during 2014, reaching SEK 328.6bn at year-end. The main
changes were:
•
The SFSA granted Swedbank approval to use Advanced-IRB for calculating risk
parameters for the corporate exposure class in Sweden and Norway, which reduced REA
by SEK 72.9bn.
•
The acquisition of Sparbanken Öresund and investments in Sparbanken Skåne increased
REA for credit risk by SEK 14.9bn.
•
Increased corporate exposures in Swedish Banking and LC&I caused REA to rise by
SEK 33.6bn. The increased exposures in the private mortgage portfolio had only a minor
effect, SEK 2bn, due to the low Pillar 1 risk weight for these exposures.
•
Positive rating migrations decreased REA by a total of SEK 8.5bn. The largest effect,
SEK 4.8bn, occurred after Swedbank received FSA approval to use its own loss history to
calibrate the Baltic large corporate model. Furthermore, positive migrations were seen in
the corporate exposure class; these derived from improved financials and improved risk
assessment processes and methods.
•
Improved processes for handling collateral values, mainly for corporate customers in
Swedish Banking, reduced REA by SEK 9.8bn.
•
Latvia’s euro introduction on 1 January 2014 reduced the REA amount by SEK 1.4bn after
removing the add-on for loans in a different currency than the pledged collateral.
•
Changes in exchange rates, mainly attributable to the Baltic credit portfolio, increased
REA for credit risks by SEK 5.3bn due to depreciation of the Swedish krona vs. the euro.
Credit risk REA attribution 2014
SEKbn
370
360
362.8
350
33.6
340
330
-8.5
320
310
-6.1
-0.7
LGD
Defaults
0.1
5.3
328.5
Other
31-Dec-14
14.9
300
290
-72.9
280
31-Dec-13
Advance
IRB
Spb
Öresund &
Spb Skåne
Exposure
change
Rating
migration
(PD)
Increase
FX effects
Decrease
Upcoming regulatory changes
In December 2014, the Basel Committee on Banking Supervision issued a Consultative
Document on revisions to the standardised approach for credit risk. This document forms part
of the Committee’s broader work on reducing variability in the capital required for banks, and
the proposed revisions seek to improve the standardised approach in several ways (see also
Chapter 2).
One of the Committee’s aims is to reduce reliance on external credit ratings. In its consultation,
the Committee proposes that references to external ratings should be replaced with a number
of risk drivers which will vary depending on the type of exposure. The Committee also holds
the view that the standardised approach has an insufficient number of risk-weighted buckets
SWEDBANK
24
and that the risk weights no longer accurately reflect the risk of certain claims. To increase risk
sensitivity, the proposal enhances granularity of the risk weights and modifies the current risk
weights.
The proposal also aims to increase comparability of the capital requirements under the
standardised approach and the IRB approach, by aligning definitions and taxonomy. In
addition, it aims to increase comparability of capital requirements between banks using the
standardised approach, by reducing national discretions.
These proposed changes affect the risk weights for exposures to banks, corporates and retail,
as well as residential and commercial real estate. Revisions are also proposed for the capital
required for off-balance sheet exposures and in the credit risk mitigation framework.
It is too early to draw firm conclusions regarding the absolute level of the future capital
requirement, as the final calibration of the new standardised approach is uncertain. During the
consultation period, the Committee will conduct a quantitative impact study which will be
used to calibrate the final design of the standardised approach.
SWEDBANK
25
Credit risk exposures - by business segment
Swedish Banking business segment
Swedish Banking is Swedbank’s largest business segment and has SEK 1,105bn in total
exposure. Its main business is lending to private individuals (mainly mortgages) and lending to
small and mid-sized corporates in Sweden. Tenant-owner associations and residential
property management also make up substantial parts of the portfolio. All of these segments
have low volatility and have historically had low risk in terms of loan losses. The sensitivity of
the portfolio is mainly related to the Swedish economy in general.
The Swedish economy has been resilient to the recent weakening of external demand. In Q3,
GDP growth was 2.1% at annual rate, compared with less than 1% in the euro area. The
slower export growth has been compensated by a continued solid domestic demand, in
particular from household consumption and investment in housing. In October, due to falling
inflation and the threat of deflation, the Riksbank reduced the repo rate to zero and stated its
intention to keep rates low until inflation starts to rise. The Riksbank also stated that it would
not rule out the use of unconventional tools, if the measures already taken do not result in the
desired effect.
Aside from a further deterioration of euro-area growth prospects, the main risks to the
outlook relate to the effect that an increased interest rate could have on households and the
housing sector. Household debt levels remain elevated, at around 170% of disposable income.
Households are not deemed to be vulnerable to sudden reversals in housing prices (see Credit
exposures for more information), but if interest rates increase, consumption capacity will be
reduced, which could affect economic growth. The SFSA’s decision in November 2014 to
implement a requirement to amortise loans down to a 50% LTV will affect only new loans and
will most likely be implemented in 2015. Before the decision can be implemented, various
issues need to be resolved, such as the definition of new loans. The Riksbank has commented
that its decision may not be enough; it recommends additional measures to dampen household
indebtedness. However, policies aimed at reducing the risk for a housing price bubble could in
themselves pose a threat to economic growth in Sweden.
Swedish Banking business segment, credit exposure by segment
Other corporate lending
Professional services
Property management
Finance and insurance
Information and communication
Hotels and restaurants
Shipping and off-shore
Transportation
Retail
Construction
Public sector and utilities
Manufacturing
Agriculture, forestry, fishing
Tenant owner associations
Private other
Private mortgage
0
SWEDBANK
100
200
300
400
500
600
SEKbn
26
Swedish Banking business segment, credit exposure by risk grade
SEKbn
350
300
250
200
150
100
50
0
Def 0
1
2
3
4
5
6 7
Retail
8 9 10 11 12 13 14 15 16 17 18 19 20 21
Corporate
Institutions
Swedbank risk grade
Baltic Banking: Estonia
At end-2014, the Estonian part of Baltic Banking had SEK 71bn in total exposure, or 44% of all
Baltic Banking exposures. The exposure and sensitivity of this part of Swedbank’s portfolio is
related to the Estonian economy in general. The Estonian portfolio performed well, showing a
decreased share of problem loans and improved average ratings.
Estonia’s average GDP growth for the first three quarters of 2014 was 1.5%. In Q4, the
economic outlook for Swedbank’s main Estonian trading partners worsened somewhat. In
2014, Estonian export performance decelerated, mainly due to a sharp decline in demand from
Russia, which accounted for only 10% of Estonian exports during the year. In Finland, which is
Estonia’s second-largest export market after Sweden, the GDP growth has been almost flat.
To offset the lower demand from Russia and Finland, Estonia increased its exports to Sweden
and other European countries. The worsening economic situation in Russia, combined with
sanctions on certain agricultural and food products, will have an additional impact on Estonia’s
exports to eastern markets. Swedbank continuously discusses preventive measures with
customers who have business connections to Russia and who could be affected if the conflict
continues.
Weak demand and uncertainty have caused corporations to limit or postpone investment
decisions. However, we expect corporations to increase their investments in 2015 and 2016.
Tensions on the labour market will continue as the working-age population and the
unemployed population decrease further. This decline will push wages up even when the
general macroeconomic environment and export order books remain weak. The gap between
the growth rates of wages and productivity will narrow in 2015-2016, when economic
growth is expected to accelerate. Consumers will benefit from the wage increases and from
the substantial reduction in Estonian labour taxes in 2015. Private consumption will continue
to show robust growth and continue to contribute to economic growth. Consumer prices are
expected to remain flat in 2015.
The decrease in the value of the rouble has had a negative impact on Russian exports and the
spending power of Russian tourists. Dairy and swine farms are under pressure from the
decline in milk and pork prices. Swedbank is supporting customers who are experiencing
financial difficulty, and the Estonian state is paying extraordinary support to the agriculture
sector. Swedbank’s exposures to the affected segments are limited, about SEK 0.5bn. The
effects on other sectors are minor, as these corporates are more financially stable and have
shown an ability to rapidly adapt to new circumstances.
SWEDBANK
27
Baltic Banking Estonia, exposure by segment
Property management
Transportation
Retail
Construction
Manufacturing
Private customers
0
5
10
15
20
25
30
35
SEKbn
Baltic Banking Estonia, exposure by risk grade
SEKbn
12
10
8
6
4
2
0
Def
0
1
2
3
4
5
6
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Retail
Corporate
Institutions
Swedbank risk grade
Baltic Banking: Latvia
The Latvian part of Baltic Banking has SEK 41bn in total exposure, or 25% of total Baltic
Banking. It thus comprises Swedbank's smallest market in the Baltic business segment, and
makes up 2% of Swedbank’s total exposures. The portfolio decreased by SEK 5.7bn since yearend 2013, mainly from lower exposures to the central bank. Swedbank's exposure, as well as
the sensitivity of the portfolio, is linked to the Latvian economy in general.
Latvia’s average GDP growth for the first three quarters of 2014 was 2.5%. Higher wages and
low inflation supported household disposable income. Latvian export volumes remained highly
favourable during the year despite weaker-than-expected eurozone growth and poor demand
from Russia. Given the low-inflation environment (both lower commodity prices and the
impact of the Russian food product embargo), it has become more difficult to increase exports.
Exports to Russia are falling, but have been compensated by export growth to other markets
such as Hungary, Poland, Sweden, Turkey, and the UK as well as by reduced production. The
sectors affected the most in Latvia are agriculture, transit transportation, and manufacturing.
Swedbank continuously evaluates these customers, conducting a comprehensive risk
assessment which has resulted in relatively few of them now requiring assistance. Since the
crisis of 2007-2008, corporates have a higher solvency, are more risk-aware and are more
resilient to stressed situations.
Authorities worked hard to approve the 2015 government budget by year-end, motivated by
their aim to resolve most of their internal financial concerns before the Latvian Presidency of
the Council of the EU began in January 2015. Swedbank does not expect a serious reform
breakthrough in the near future; reforms will not be possible earlier than for the 2016 budget.
Swedbank is maintaining its 2.6% growth forecast for 2015 and 3.5% for 2016, anticipating
relatively moderate growth that is expected to rise gradually due to swifter growth of trading
partners (such as EU countries) and a stabilisation of the Russia-Ukraine conflict. While
household consumption will be the main growth driver in 2015, growth will gradually become
SWEDBANK
28
more balanced, with exports and investments speeding up. Risks remain skewed to the
downside, particularly globally.
In November, Latvia’s president approved a new private insolvency law which came into force
in January 2015. The legislation stipulates that recourse on loans to private individuals is
limited to the mortgaged real estate. Swedbank has taken the necessary action to secure its
low-risk portfolio in Latvia following the introduction of the new legislation.
Baltic Banking Latvia, exposure by segment
Property management
Transportation
Retail
Construction
Manufacturing
Private customers
0
5
10
15
20
SEKbn
Baltic Banking Latvia, exposure by risk grade
SEKbn
5
4
3
2
1
0
Def
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21
Retail Corporate Institutions
Swedbank risk grade
Baltic Banking: Lithuania
The Lithuanian part of Baltic Banking has a total exposure of SEK 31bn. Swedbank's exposure,
as well as the sensitivity of its portfolio in the country, is related to the Lithuanian economy in
general. The credit rating has improved following Lithuania’s accession to the euro area and
because of the lower ratio of general government foreign currency debt relative to total
general government debt.
Lithuania’s average GDP growth for the first three quarters of 2014 was 3.1%. The slowdown
was slightly larger than expected; the Russian embargo has resulted in difficulties associated
mainly with agriculture-related sectors. Some Lithuanian companies have managed to lessen
the impact of the Russian restrictions by starting to penetrate new markets. A survey
conducted by the Lithuanian Confederation of Industrialists shows that 63% of the companies
surveyed are looking for markets outside the EU and Commonwealth of Independent States
(CIS). To date, the negative impact of the Russian embargo on the Baltic economies has been
less than expected. Swedbank’s exposures to the agriculture sector are small: only SEK 0.6bn,
with almost no exposure to dairy farmers.
The positive trend in the Lithuanian labour market continues. In Q3 2014, the unemployment
rate was 9.1% (Q4 2013: 10.9%). This positive trend continued in November, when employers
registered 28,800 job vacancies (up 11.9% year-on-year). Wage growth is also unlikely to
dampen, as growth will most likely remain strong. In 2016, the growth is expected to
accelerate to 7.0%, particularly due to the expected hike in the Lithuanian minimum wage and
public sector wages. This will support continued growth in private consumption, which was
the major growth engine in the economy in 2014. Lower commodity prices, especially for oil
SWEDBANK
29
and food products, will also have a positive impact on Lithuanian households.
Public finances continued to improve in 2014, with tax revenues reaching higher-thanplanned levels. However, further progress has stalled. Swedbank expects the budget deficit to
remain unchanged in 2015, at 1.3% of GDP. In itself, the budget deficit is not a problem, as
some fiscal stimulus will do no harm in the context of larger geopolitical uncertainty and the
stagnating euro area.
Baltic Banking Lithuania, exposure by segment
Property management
Information and…
Transportation
Retail
Construction
Manufacturing
Agriculture, forestry &…
Private customers
0
5
10
15
20
25
SEKbn
Baltic Banking Lithuania, exposure by risk grade
SEKbn
7
6
5
4
3
2
1
0
Def
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21
Retail
Corporate
Institutions
Swedbank risk grade
Large Corporates & Institutions (LC&I) and Group Functions
Swedbank’s LC&I business segment has SEK 308bn in total exposure. This amount includes
lending, as well as dealing in financial instruments and products, to large Swedish,
international corporate and institutional customers, such as international banks or asset
managers. It also includes Swedbank’s advisory operations.
Exposures within Group Functions mainly consist of exposures within Group Treasury, as the
latter is responsible for the funding and management of Swedbank’s liquidity portfolio.
Exposures are credit exposures similar to those of LC&I, meaning exposures to international
banks and central banks. At end-2014, total credit risk exposures amounted to SEK 315bn.
Customers in LC&I and Group Treasury are highly affected by the global economic
development and macroeconomic trends. During autumn Q4, the macroeconomic picture was
mixed. The US economy appeared to have entered a recovery phase, with annualised growth
rates of more than 3% in Q2 and Q3 and a strengthened labour market, but medium-term
growth prospects remain uncertain. The euro area was again threatened by stalling economic
activity and deflation despite strong actions taken by the European Central Bank (ECB).
In 2014, the US dollar gained strength against most other major currencies. The US economy
has seen a significant and broad-based upswing in recent quarters, and momentum will most
likely remain strong in the short run. This, together with improved labour market indicators,
SWEDBANK
30
led the Federal Reserve to end bond purchases in October. The ECB is battling both the risk of
deflation and a currently malfunctioning credit transmission mechanism. It is too early to
assess the effects of the measures taken by the ECB, including subsidised loans to banks and
programs for buying asset-backed securities and covered bonds. If the ECB balance sheet does
not expand sufficiently, speculation about a government bond-buying program is likely to
increase.
Despite uncertainties in the global environment, LC&I’s customers performed well during the
year, which is demonstrated by the low level of credit losses within the LC&I business
segment, an average of 0.12% in the last three years. The Russian embargo has only
marginally affected LC&I’s customers. The recent sharp decrease in oil prices has had a
substantial effect on the offshore industry, but Swedbank’s exposure to the offshore sector is
limited. Swedbank has worked closely with customers to analyse and mitigate the potential
risks for the individual customer. (For more information regarding shipping and offshore, see
Highlights as well as Credit exposures – by sector).
LC&I and Group Functions, exposure by segment
Property management
Shipping and offshore
Transportation
Retail
Construction
Manufacturing
Private individuals
0
10
20
30
40
50
60
70
80
90
SEKbn
LC&I and Group Functions, exposure by risk grade
SEKbn
50
45
40
35
30
25
20
15
10
5
0
Def
0
SWEDBANK
1
2
3
4
5
6
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Retail
Corporate
Institutions
Swedbank risk grade
31
Credit risk exposures - by sector
This section provides additional information on Swedbank’s most important sectors measured
by size and risk. Together these sectors comprise two thirds of Swedbank’s total exposure to
private and corporate customers.
Exposure to the private mortgage sector
Private mortgage loans is Swedbank’s largest credit-risk segment. The portfolio, SEK 601bn, is
low-risk; the vast majority of exposures, 88%, have a risk grade of 13 or better. Almost two
thirds have a risk grade equaling a 0.03% probability of default within 12 months.
Exposure to private mortgage, risk profile
EAD, %
40
35
30
25
20
15
10
5
0
Def
0
1
2
3
4
5
6
7
Swedish Banking
8
9
10 11 12 13 14 15 16 17 18 19 20 21
Estonia
Latvia
Lithuania
LC&I
Swedbank risk grade
The vast majority, 91%, of the portfolio is to Swedish customers handled in the Swedish
Banking business segment.
Exposure to private mortgage, by country
Other
Lithuania
Latvia
Estonia
Sweden
0
100
200
300
400
500
600 SEKbn
In 2014, prices for single-family homes and apartments in Sweden continued to increase,
although there were regional differences. The amount of new housing construction remained
low, and housing shortages were noted mainly in urban areas.
Swedbank works to ensure that households carrying large debts amortise their mortgages;
this is an important part of ensuring that they can service their debt even during stressed
situations. In terms of all new lending in 2014, among households that had a loan-to-value
(LTV) ratio of over 70%, 87% were amortising. For the portfolio as a whole, among
households with a LTV ratio of over 70%, 71% were amortising.
Swedbank’s loan portfolio periodically undergoes stress tests. The results in the Swedish
portfolio indicate robust solvency among the mortgage customers and an average LTV ratio
that suggests a low risk of credit impairments. Furthermore, a close relationship to, and deep
understanding of, Swedbank's customers gained via Swedbank's large retail network has
helped Swedbank and the savings banks to maintain past-due loans at very low levels.
Historic losses have been very low, especially in Sweden. Swedish private individual losses
peaked during the Swedish real estate and financial crisis in the early 1990s, and have
thereafter been very low. The Baltic countries had a similar experience in their crisis, which
started in 2008; this explains the higher historical loan losses in Baltic Banking. The Baltic
economy is now recovering, although it will take some time before losses come down to longterm lower ratios. In Latvia, LTVs remain high and loss ratios are relatively high.
SWEDBANK
32
Swedbank’s historical losses on private individuals
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
1992
1994
1996
1998
2000
2002
Private Credit Impairment, %
2004
2006
2008
2010
2012
2014
of which Swedbank Mortgage – Private %
In 2014 there was a continuation of the slightly positive trend noted in 2012 and 2013 in
market prices and transaction activity in the Baltic countries – a trend mainly related to the
capital cities. Portfolio LTVs are improving due to regular amortisation, remaining work-out
procedures, increased collateral values and also due to new good-quality lending. Although
new lending volumes remain fairly moderate, the risk level is significantly lower, and therefore
the overall quality is slowly but continuously improving the overall quality of the private
mortgage portfolio. At end-2014, the average LTV in Estonia was 53.9%, in Latvia 108.2%
and in Lithuania 84.8%. The LTV ratios have decreased substantially since the crisis and are
expected to continue to decline as the macroeconomic environment continues to improve.
Private mortgage, average past-due loans and LTV by country, seven-year trend
% of gross volumes
Total LTV
180
14
160
12
140
10
120
8
100
6
80
60
4
40
2
20
0
0
07 08 09 10 11 12 13 14 07 08 09 10 11 12 13 14 07 08 09 10 11 12 13 14 07 08 09 10 11 12 13 14
Sweden
Estonia
Latvia
Lithuania
Total past due loans >60 days (% of gross loans volumes, lhs)
Total LTV (rhs)
Exposure to property management sector
At end-2014, Swedbank’s exposures to property management companies amounted to
SEK 233bn, of which SEK 186bn was to counterparties in Sweden.
Exposure to property management, risk profile
EAD, %
12
10
8
6
4
2
0
Def
0
SWEDBANK
1
2 3 4 5
Swedish Banking
6
7 8
Estonia
9
10 11 12 13 14 15 16 17 18 19 20 21
Latvia
Lithuania
LC&I
Swedbank risk grade
33
Property management companies are segmented at counterparty level into residential,
commercial, industrial & warehouse, and other properties, based on the focus of the company.
Exposure to property management, by type and country
SEKbn
90
80
70
60
50
40
30
20
10
0
Residential properties
Sweden
Commercial properties
Industrial properties
Other property
Estonia
Latvia
Lithuania
Norway
Finland management
The real estate market is expected to be stable in the short-term perspective (1 to 2 years),
and continued low interest rates will support market stability. Low inflation, low real interest
rates and increasing rents due to increased demand, being important drivers of the sector, are
the main explanations for the estimated yearly real estate market growth of around 3% for
2015-2016. The positive development will be stronger in growing local markets and weaker in
rural markets, where factors such as low population density are an obstacle.
Demand for residential properties remains high in most Swedish municipalities, and the
number of new residential buildings is likely to increase. For commercial properties, the trend is
for an increasing number of tenants to seek modern and flexible premises; relocations to
newly built or refurbished/converted premises may contribute to driving market rent increases
in 2015. For industrial properties, demand is expected to be weak, especially within
geographical markets lacking a relevant labour force. The low capacity utilisation in the
manufacturing industry and continued slow growth in exports is holding back investments
and demand for industrial properties.
In the Baltic countries, the residential market is growing fastest in Estonia, driven by low
supply of apartments which in turn increases the risk for overheating. However, prices and
transaction volumes remain significantly below the pre-crisis level. Growth rates in Latvia and
Lithuania are more sustainable, at 5-10% in 2014-2015. Most of the residential developers
are much better capitalised compared to pre-crisis level. New lending volume is expected to be
moderate.
In the Baltic countries, vacancy rates in commercial real estate market have returned to
optimal levels (about 5%). Moderate increases in rental rates are expected. The outlook for
2015 is expected to remain positive, as the market should absorb new supply comfortably.
Exposure to property management, by country
Other countries
USA
Finland
Norway
Lithuania
Latvia
Estonia
Sweden
0
20
40
60
80
100
120
140
160 SEKbn
Exposure to the agriculture, forestry and fishing sector
Swedbank’s exposures to customers in the agriculture, forestry and fishing sector amount to
SEK 72bn, of which SEK 68bn is to counterparties in Sweden. A large share, 43%, of this
industry sector comprises private investment customers who have invested either in forest
SWEDBANK
34
areas or in former agricultural properties now used only as residences.
Exposure to agriculture, forestry and fishing, risk profile
EAD, %
25
20
15
10
5
0
Def
0
1
2
3
4
5
6
7
Swedish Banking
8
9
10 11 12 13 14 15 16 17 18 19 20 21
Estonia
Latvia
Lithuania
LC&I
Swedbank risk grade
Corporate customers are segmented into growing of crops, dairy, and raising livestock.
Swedbank’s portfolio consists of many small customers included in the retail exposure class
with a high share of collateral. The average LTV in the total Swedish agriculture portfolio is
52.2%, and for the agriculture mortgage lending, it is 50.2%.
Exposure to agriculture, forestry and fishing, by type and country
SEKbn
20
15
10
5
0
Private
Private
residential investments
forestry
Growing
Milk
Sweden
Raising
Estonia
Latvia
Mixed
Other
agriculture
Lithuania
Hunting
Forestry
Fishing
Other countries
Exposure to agriculture, forestry and fishing, by country
Other countries
Lithuania
Latvia
Estonia
Sweden
0
10
20
30
40
50
60
70
80
SEKbn
The number of family farmers is declining in Sweden. There is a significant structural trend
towards fewer and specialised large farms with higher productivity and increasing investment
credit needs. Generally, farmers who invest in modern production facilities and systems have
been profitable during slower economic periods, if they are not overly leveraged.
Food prices rose early in the year, but later declined broadly because of increased food
production and favourable weather conditions. Grain prices have fallen 20% since the spring.
Russia's food embargo imposed in August in response to the EU sanctions has entailed further
downward pressure on food prices, mainly vegetables, pork, and dairy products. In Sweden,
milk producers will most likely face a strained economy in 2015 because of current low milk
prices. This is due to a global overproduction of milk. There is an increased demand for beef in
areas where slaughterhouses have low production, indicating stable prices in the next year.
The general outlook for Baltic agriculture is divided. Agricultural subsidies will rise. One risk
factor is the price dynamics of agricultural land; prices have increased extensively in the past
two years. Prices per hectare remain low compared to Finnish or Swedish levels. In the Baltics,
producers of milk and of meat are in a difficult situation. Price declines are occurring due to
factors such as overproduction and the Russian food embargo. Some Baltic countries and the
SWEDBANK
35
EU are paying extraordinary support to these sectors. The situation is causing consolidation in
the sector, but no surge in bankruptcies has occurred. Extraordinary losses are not expected.
Some milk producers with older farms are ending their dairy operations and will continue only
in grain production.
Swedish forestry contractors had a better season in 2014 than they did in 2013, with rising
prices and higher yields. They continue to face a difficult future, with fewer players and a
continuing need to streamline and rationalise to achieve acceptable profitability.
In the Baltic countries, neither sales nor log supply have a strong dependence on exports to
Russia. Forest ownership continues to consolidate as local and foreign companies continue to
buy smaller plots. Solid average price levels, supported by strong industrial demand, have
increased logging activity. For 2015, Swedbank expects prices and demand to remain roughly
on 2014 levels for two main reasons. First, industries will work to find new growth markets.
Second, on established export markets, companies will begin to feel increased competition
from Russian goods that are priced low because of the decline in the rouble exchange rate.
Exposure to the retail sector
Exposures to retail companies amounted to SEK 51bn, of which SEK 37bn was in Sweden.
Exposure to retail, risk profile
EAD in %
18
16
14
12
10
8
6
4
2
0
Def 0
1
2
3
4
5
6
Swedish Banking
7
8
9
Estonia
10 11 12 13 14 15 16 17 18 19 20 21
Latvia
Lithuania
LC&I Swedbank risk grade
The largest sub-segment in the Swedbank retail portfolio is non-durables (consumables or
groceries), which refers to goods that are consumed immediately or during a short period. This
sub-segment includes a wide range of retailers, from gas-station chains, convenience stores
and food retailers to pure e-commerce players. Historically, this sector has not been overly
dependent on the economic cycle, with an especially positive performance in the discount
segment.
Exposure to retail industry by type and country
SEKbn
14
12
10
8
6
4
2
0
Car
dealerships
Sweden
DIY
Estonia
Furniture
Clothing
Non-durables
Latvia
Lithuania
Norway
Home
Sport &
Other retail
electronics
Leisure
Finland
Other countries
In 2014, the overall growth in retail sales remained strong in Sweden, supported by the sound
economic conditions for consumers. Swedbank expects demand to remain stable but with
continued intense competition, especially from digitalisation and increased online sales of
goods such as clothing and electronics. Therefore, no significant changes in sales or margins
are seen in 2015. For durable goods, the market has been challenging, but the outlook is now
SWEDBANK
36
stable due to expected sound growth in private consumption and moderate consumer
confidence. For the consumer electronics and clothing sector, sales and margin development
are expected to be weak, but general saturation has also increased considerably in recent
years. E-commerce has also improved price transparency and opened up new purchasing
opportunities for consumers.
In the Baltic countries, the sentiment in the retail sector remains optimistic – sales are growing
about 3-6% YoY, and household consumer spending is rising due to decreased unemployment,
growing real wages and low deposit rates. The strongest growth has been observed in trade
of durable goods (textiles and household goods). Competition in the retail sector has been
tightened by new players who have put pressure on sales margins and are finding cost
efficiencies. Consumer sentiment is encouraging retailers to expand their business both in the
Baltics and outside of its borders.
In general, Swedbank expects pressure on profit margins in both the short and the long term
due to intense competition. Gradual changes in consumer spending are also seen, whereby
spending on services such as travel and restaurants will most likely increase – a change in
spending patterns that will tend to have a negative impact on retail sales.
Exposure to retail, by country
Other countries
Finland
Norway
Lithuania
Latvia
Estonia
Sweden
0
5
10
15
20
25
30
35
40 SEK bn
Exposure to the hotel and restaurant sector
Exposures to companies in the hotel and restaurants sector amounted to SEK 8bn, of which
about SEK 5bn to counterparties in Sweden. Almost two thirds of the portfolio is exposures to
hotels, with the remainder to restaurants and cafés. This is the smallest of the industry
sectors in Swedbank’s portfolio, comprising less than 0.5% of total exposures.
Exposure to hotels and restaurants, risk profile
EAD,
20
18
16
14
12
10
8
6
4
2
0
Def 0
1
2
3
4
5
6
7
Swedish Banking
8
9
Estonia
10 11 12 13 14 15 16 17 18 19 20 21
Latvia
Lithuania
LC&I
Business travel continued to decline, and the conference market continues to experience
significant difficulties. The Swedish conference market for locations outside of Stockholm and
Gothenburg is improving slightly, although it is difficult to achieve profitability in this
segment. In Sweden, two out of three guest nights were business-related. Private guests
continued to be more price-conscious. The industry continues to plan for a major expansion
despite the fact that growth in number of guest nights sold was relatively modest in
Stockholm, Gothenburg and Malmö in 2014.
SWEDBANK
37
In the Baltic countries, the hotel market is strongly focused on the capital cities. Tourism has
increased to record levels in recent years, attracting new players to the market. However, the
Russia/Ukraine conflict has caused the rouble to devalue, resulting in higher expenses for
Russian tourists, who are important for all three countries.
The long positive trend for restaurants continued in 2014, with cafés and fast-food
restaurants benefiting the most. The positive trend for the restaurant sector as a whole has
been unaffected by the prevailing economic uncertainty; the trend is expected to continue in
2015. Reduced restaurant VAT remains in effect, as the government budget proposal to raise
it was rejected. If restaurant VAT is increased it could, in combination with reduced consumer
spending, lead to a downturn in the segment.
For both hotels and restaurants, the long-term outlook is positive. One reason is that new
groups of people, such as seniors, now tend to travel and go to restaurants more often. For
hotels, some local markets may remain unbalanced during the next one or two years, but the
growth trend indicates that the balance will be restored in time. For example, planned
expansion (an additional 5,000 rooms in major cities in Sweden) in the next three years will
continue to put pressure on the hotel market locally. Unbalanced markets will lead to reduced
profitability even if more hotel nights are sold.
Exposure to hotels and restaurants, by country
Other countries
Lithuania
Latvia
Estonia
Sweden
0
1
2
3
4
5
6
SEK bn
Exposure to the transportation sector
Exposure to transportation companies amounted to SEK 14bn, of which SEK 8bn to
counterparties in Sweden. This equals less than 1% of the total exposures in Swedbank’s
portfolio.
Exposure to transportation, risk profile
EAD, %
12
10
8
6
4
2
0
Def
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21
Swedish Banking Estonia Latvia Lithuania LC&I
Swedbank risk grade
The transportation sector comprises all kinds of transport, freight and associated business,
except for shipping, which is reported separately. As a common denominator, the industry can
be seen as highly cyclical. In terms of revenue and profit, key drivers are economic growth,
high levels of competition, fuel prices, the balance of supply and demand for each industry, and
the proportion of fixed costs. The Swedish market has performed better than the European
market in general. In Sweden, demand for passenger transportation by bus and train is rising
with population growth over time. The only sub-sector in Sweden and Europe where
Swedbank sees high and profitable investment activity is within logistics operations backing
e-commerce.
SWEDBANK
38
Although the logistics sector, including freight forwarders, is cyclical in nature, profitability
can be defended in a variety of ways. Decent cost flexibility, growing e-commerce, the trend
towards outsourcing, increasing product differentiation, market consolidation, and economics
of scale are all factors that lift freight forwarders to a higher position in the value chain.
Demand for aviation is expected to continue to grow faster than world GDP in the long term,
but with the emergence of low-cost carriers (LCC), industry dynamics have changed
dramatically. Because LCC focus mainly on profitable point-to-point destinations, network
carriers have seen increased competition on their most profitable routes.
In the Baltic countries, recent developments regarding Russian import sanctions, rouble
devaluation and the Russia-Ukraine conflict have caused greater uncertainty toward the
transportation sector, thus reducing investment prospects. Most of the sub-sectors are not
expected to grow in the near future, mainly because of the economic sanctions between the
EU and Russia, but also due to increased competition and decreased profit margins in the EU
market.
Exposure to transportation, by country
Other countries
Lithuania
Latvia
Estonia
Sweden
0
1
2
3
4
5
6
7
8
9
SEK bn
Exposure to the shipping and offshore sector
Swedbank has, in relation to the total portfolio and CET1, limited exposure to the shipping and
offshore sector. About 2% of Swedbank’s total exposures relate to shipping and offshore.
Exposures to the sector are largely denominated in USD, and since 2010 the exposure has
been stable around USD 5 to 5.5bn (equaling loans net of USD 3.5 to 4bn). Total exposure to
shipping and offshore amounted to SEK 42bn, and the increase during 2014 is hence mainly
explained by the strengthened USD. The sector portfolio can be split into about 60% offshore
and 40% shipping.
Exposures to shipping and offshore, risk profile
EAD, %
50
40
30
20
10
0
Def 0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21
Swedbank risk grade
The risk drivers for these sub-sectors differ in that offshore is more directly influenced by the
predicted price of oil, while shipping is more affected by global trade. The sector is cyclical,
with potentially higher loss levels as highlighted below. The increased uncertainty in oil prices
is mitigated by a strong risk profile, with 81% of our portfolio having an investment-grade
rating. This reflects a large proportion of listed clients. The total credit risk in this sector is
mitigated by strict limitation of Swedbank’s exposure and diversification between industry
segments. Swedbank has worked closely with customers to analyse the potential risks and to
ensure that actions are taken to secure future cash flows. Most lending to shipping and
offshore customers is collateralised, and LTV levels are conservative, about 65% at end-2014.
SWEDBANK
39
Exposures to shipping and offshore, by sub-segment, and effect from lower oil-price
Portfolio cumulative, %
SEKbn
14
12
Positive
Neutral
10
8
6
4
2
0
Negative
100
90
80
70
60
50
40
30
20
10
0
SEK committed
The offshore segments, representing about 60% of the total shipping and offshore sector
exposure, will to a large extent be negatively affected by a lower oil price environment, while
the shipping segments should be either positively affected or unaffected. Swedbank’s analysis
shows that the drilling exploration and supply segments should be affected earlier than other
segments. However, in general our customers have a substantial contract backlog which will
cushion the effects of the industry downturn. Stress tests show that most customers can
withstand a low oil price for a considerable time, and consequently credit losses will remain on
a low level. However, a prolonged period of oil prices at or below current levels would lead to
challenging conditions for large parts of the industry and would eventually imply loan losses.
Most offshore exposures are secured by modern vessels/units with a combination of low to
moderate LTVs and good contract coverage. However, in a distressed scenario, market prices
are likely to deteriorate even for modern vessels or units. The fact that most offshore
exposures are secured is a mitigating effect for potential loan losses; this has been confirmed
in recent stress tests.
For the shipping industry, the long-term outlook is stable due to the sector’s global
perspective and its importance for world trade. However, for some sub-sectors, the ordering
activity seen in recent years could cause lower profit margins in the near-to medium-term.
Management of credit risk
Working with credit exposures
To maintain a well-diversified credit portfolio with a low risk profile, and to find a favourable
balance between risk and returns, Swedbank works continuously to understand customers
and their market conditions. We follow up on single credit exposures through continuous
monitoring and periodic credit reviews of corporate customers, financial institutions and
sovereigns at least once per year.
An essential tool in the steering of Swedbank is risk-adjusted profitability. The business has
full responsibility for the business and its risk. Profitability, in terms of economic profit and
RAROC, is measured on all levels, down to individual customers and contracts. This is possible
through the use of various models that measure the risk on all individual credit exposures and
by allocating capital adequately and comprehensively, making it possible to put a correct price
on credit agreements. The overall risk appetite is broken down into detailed risk tolerance
limits and target levels for different industries, geographies and products. To safeguard that
business performance remains within the risk appetite and that Swedbank maintains a welldiversified credit portfolio with a low risk profile, the CEO and CRO issue limits for the credit
portfolio.
The credit organisation achieves enhanced duality with the business by participating in credit
SWEDBANK
40
committees on upper levels – which are also chaired by the credit organisation – when dealing
with credit risk decisions. The credit risk organisation also guides the business organisation by
setting the framework for taking credit risk and for qualitative standards. In decisions relating
to credit risk, the credit organisation achieves duality and acts as the second line of defence by
participating in the credit committees.
Classification of risks in the credit portfolio
Swedbank’s risk classification system is central in how we monitor individual credit exposures;
it regulates the monitoring process in various ways. The risk profile of the credit portfolio is
continuously analysed. For portfolio segments and individual customers where the risk of
default appears higher, customer reviews are carried out more often. If a customer’s risk
profile has deteriorated, a number of corrective measures are considered and implemented.
Using our risk classification system, Swedbank can calculate risk-adjusted profitability at the
level of the customer, the portfolio or the business segment.
At least once a year, Swedbank conducts a thorough and comprehensive stress test of the
entire Group (see chapter 7 for further information on Group-wide stress tests) which includes
the entire credit portfolio. Specific stress tests, portfolio analysis or ad-hoc reviews are also
conducted to further evaluate the Swedbank’s credit risk. These tests provide further
understanding and information on specific segments or exposure types which may be
perceived as having a high risk or a high potential impact on the Group. By identifying
increased risk levels at an early stage, Swedbank can take swift and appropriate actions on
certain exposures. Credit portfolio trends and findings from stress tests form an important
part of the monthly risk reports that go to the Group’s senior management and the Board of
Directors.
A sustainability analysis is carried out in all large and medium-sized corporate lending and
covers (i) social responsibility (how the company works to ensure respect for human rights, for
example in its supply chain, among its employees and in its local community), (ii) human rights,
(iii) corruption and (iv) environment (to determine whether there is a structured
environmental program). The sustainability analysis is an integral part of credit analysis and
aims to assess how the risks related to these areas affect Swedbank’s and its customers’
profitability, repayment ability, collateral security value and reputation – if they should
materialise.
Repayment capacity and collaterals
When Swedbank considers a credit request, we carefully analyse the counterparty’s capacity
to repay the new credit and all other credits, and how sustainable this capacity is. According to
the Swedbank Group Credit Policy, Swedbank shall strive to obtain adequate collateral. A
borrower’s cash flow, solvency and collateral are always key lending variables. This applies for
example to mortgage loans to private customers and property management companies, as
well as to securities lending, factoring, lease agreements and all other types of financing.
Collateral for granted credits varies depending on the assessed risk and the choice of product.
Swedbank uses a variety of collateral types, but the most common type is immovable property
collateral, both residential property as well as commercial property. The valuation of collateral
SWEDBANK
41
is based on a thorough review and analysis of the pledged assets and is an integrated part in
the credit risk assessment of the borrower. The establishment of the collateral value is a part
of the credit decision. The value of the collateral is reassessed within periodic credit reviews of
the borrower and in situations where the Group has reason to believe that the value has
deteriorated or the exposure has become a problem loan. The established value of the
collateral shall correspond to the most likely sales price at the date of valuation estimated in a
process of high quality and characterised by prudence. For financial collateral, such as debt
securities, equities and CIUs, valuation is normally monitored on a daily basis. Credits without
collateral are mainly granted for small loans to private customers or loans to large companies
with very sound repayment capacity. For the latter, special loan covenants are commonly
drawn up which entitle the Group to renegotiate or terminate the agreement if the borrower’s
repayment capacity deteriorates, or if the covenants are otherwise breached.
In special circumstances, the Group may buy credit derivatives or financial guarantees to
hedge the credit risk, but this is not part of the Group’s normal lending operations (see
Counterparty risk below).
Working with distressed credits
Each business unit is responsible for monitoring signals and conditions that might suggest
that the level of credit risk in individual exposures has increased, and in such situations a series
of customised actions is taken immediately to minimise Swedbank’s risk or losses. The
specialised Financial Restructuring and Recovery (FR&R) unit is contacted to support the
business when needed.
FR&R is a special unit within the Swedbank Risk organisation which supports the business
units when the risk associated with a certain exposure has increased. FR&R provides expertise
in managing insolvency and restructuring cases. This organisation is built up with knowledge
and expertise from previous crises. One of the unit’s tasks is to educate the business in
managing distressed credits and seeing early signals of crisis.
Amortised cost according to International Financial Reporting Standards (IFRS)
Loans to credit institutions and the public, categorised as loans and receivables, are recognised
on the balance sheet on the settlement day. These loans are measured at amortised cost as
long as there is no objective evidence indicating that a loan or a group of loans is impaired,
which occurs when it is likely that payment will not be received in accordance with the
contractual terms. Loans are initially recognised at cost, which consists of the loan amount
paid out less fees received and any costs that constitute an integral part of the effective
interest rate. The interest rate that produces the loan’s cost as a result of the calculation of
the present value of future payments is considered the effective interest rate.
The loan’s amortised cost is calculated by discounting the remaining future payments by the
effective interest rate. Interest income includes interest payments received and the change in
the loan’s amortised cost during the period, which produces a consistent return. On the closing
day, it is determined whether there is objective evidence to indicate an impairment need for a
loan or a group of loans. If, after the loan is initially recognised, one or more events have
occurred that negatively impact estimated future cash flows, and the impact can be estimated
reliably, recognition of impairment is made.
Credit impairment
Credit impairment is calculated as the difference between the loan’s carrying amount and the
present value of estimated future cash flows discounted by the loan’s original effective
interest rate. These exposures are reported as impaired exposures. The Group determines first
whether there is objective evidence for impairment of each individual loan. Loans for which
such evidence is lacking are included in portfolios with similar credit risk characteristics. These
portfolios are subsequently measured collectively. Any impairment is then calculated for the
portfolio as a whole.
Homogenous groups of loans with limited value and similar credit risk that have been
SWEDBANK
42
individually identified as having objective evidence of impairment are measured individually
based on the loss risk in the portfolio segment as a whole. If the impairment decreases in
subsequent periods, previously recognised impairment losses are reversed. Loans are never
recognised at a value higher than what the amortised cost would have been if the write-down
had not occurred.
Loan impairments are recognised through profit or loss as credit impairments. This is done
either as provisions for individually impaired loans, portfolio provisions or write-offs of
impaired loans. Write-offs can be recognised within credit impairments before utilisation of
any previous provisions. Provisions utilised in connection with write-offs are recognised on a
separate line within credit impairments. Write-offs are recognised when the amount of the
loss is ultimately determined. Repayments of write-offs and recovery of provisions are
recognised within credit impairments. The carrying amount of loans is amortised cost less
write-offs and provisions.
Individual provisions and portfolio provisions are recognised in the special provision account in
the balance sheet, while write-offs reduce the book value of outstanding loans. Provisions for
assumed losses on guarantees and other contingent liabilities are recognised on the liability
side. Impaired loans are those for which it is likely that payment will not be received in
accordance with the contract terms. A loan is not impaired if there is collateral that covers the
principal, unpaid interest and any late fees by a satisfactory margin. These loans are reported
as “Fully collateralised exposures with incurred loss event”.
Impairment for financial instruments measured at fair value
If there is a default on a counterpart with a financial instrument measured at fair value, the
credit impairment part is determined by a net present value calculation of future expected
cash flows. The discount factor used is the market interest of the product which is then
compared to the instrument’s amortised cost. If the net present value is lower than the
amortised cost amount, a provision or a value adjustment is recognised. The loss is reported as
credit impairment. All other changes in the instrument’s fair value are reported as market
changes in net gain and losses on financial instruments at fair value.
SWEDBANK
43
Measurement of credit risk
Swedbank’s internal risk classification system
Swedbank’s internal risk classification system is a central component in the credit process. It
comprises working methods and decision-making processes for lending operations, credit
monitoring and quantification of credit risk. The system aims to measure the risk that a
customer or a contract will default and, in that case, what the losses would be for Swedbank.
Swedbank’s internal risk classification system is a proprietary system that is approved by the
SFSA. The system, and the results it produces, is based on Swedbank's experience and
expertise in assessing and managing credit risks. Swedbank’s internal risk classification
system serves as a basis for:
•
risk assessments and credit decisions (in committees and automated)
•
calculating risk-adjusted profitability (including RAROC)
•
calculating portfolio provisions
•
monitoring and managing credit risk (including migrations)
•
reporting credit risks to the Board of Directors, the CEO and senior management
•
developing credit strategy and subsequent risk management activities
•
estimating capital requirements and capital allocation
Swedbank has been granted permission to use an internal rating-based approach, the IRB
approach, as a basis for calculating capital requirements for credit risk. The IRB approach is
applied for the absolute majority, 85%, of Swedbank’s credit exposures, with sovereign
exposures (12% of the total exposure) being the main exception.
For the retail exposure class in Sweden and the Baltic countries, Swedbank has approval to use
the advanced IRB approach for calculating capital requirements. During 2014 Swedbank
received approval to use the advanced IRB approach for its corporate exposures in Sweden
and Norway. For other IRB-approved exposure classes (corporate exposures outside the
advanced IRB scope and institutions exposures) in the Nordic countries and in the Baltic
countries, Swedbank calculates its own probabilities of default, but uses prescribed levels for
other parameters in calculating capital requirements.
For non IRB-approved parts of Swedbank’s credit portfolio, and also where an exception has
been granted by the SFSA, Swedbank uses the standardised approach in calculating its capital
requirement for credit risks.
Capital adequacy approaches, 2014
31 Dec 2014
SEKm
Swedish
Banking
LC&I
Baltic Banking
Group
Functions
Swedbank CS
SWEDBANK
Advanced IRB approach
EAD
REA Portfolios
Foundation IRB approach
EAD
REA Portfolios
Standardised approach
EAD
REA Portfolios
1,024,945
108,173
Retail and
corporate
exposures
16,524
7,683
Institutions
exposures
63,558
37,415
223,360
63,825
Retail and
corporate
exposures
51,176
18,823
Institutions
exposures
33,551
7,615
68,937
22,191
Retail
exposures
65,452
44,782
28,991
4,846
17
4
Retail
exposures
155,144
9,369
Corporate
and
institutions
exposures
Corporate
and
institutions
exposures
160,127
3,806
1,317,259
194,193
288,296
80,656
286,227
53,683
Entercard and
government
exposures
Government
exposures, parts
of the Nordic
branches
Government
exposures
Government
exposures,
Russia
44
Swedbank defines its risk classification system through governing documents. The
overarching rules are established by the Board of Directors, with more detailed regulations
issued by the CEO, CRO, or CCO, respectively. These regulations contain rules as to how
models should be structured and validated for development and regular quality controls. To
maintain efficiency and reliability, Swedbank performs yearly quantitative and qualitative
validations of the system. The validation tests conducted to date have shown that the models
are functional and are reliable.
When calculating capital requirements and expected loss using the IRB approach, three
concepts (PD, LGD and EAD) are central.
Swedbank uses a scale of 23 grades to classify the risk that a customer could default, where
21 represents the lowest risk of default and 0 represents the highest risk. In addition there is a
default grade. Based on the PD estimate calculated with through-the-cycle (TtC), Swedbank
assigns the customer or exposure a value on this risk scale. With the help of the risk scale,
customers or exposures are ranked from those with the highest risk, to those with the lowest.
The risk is also quantified.
Risk grade according to IRB methodology
Internal
Default
0 to 5
6 to 8
9 to 12
13 to 21
PD,%
100
>5.7
2.0 - 5.7
0.5-2.0
<0.5
Indicative rating Standard & Poor's
D
C to B
B+ to BBBB to BB+
BBB- to AAA
Swedbank’s risk rating systems
When developing rating systems for various counterparties, the most relevant information for
the assessment of PD must be taken into account. For this reason, Swedbank’s rating involves
a number of methods ranging from individual expert assessments (rating) to quantitative
methods and models based on statistical analysis of large numbers of customers and related
customer information (scoring).
Probability of default (PD)
Swedbank’s goal is to be as precise as possible in its risk calculations for each customer. It has
developed a number of different models for rating counterparties, customers, or contracts in
which each counterparty or contract is assigned a risk grade. For each risk grade, a risk value
has been quantified and established. The PD estimates the risk that a counterparty or contract
will default within a 12-month period.
PD varies over the cycle
When calculating capital requirements, Swedbank tries to take a TtC-perspective, which aims
at producing PD values that indicate the average 12-month default frequency across a full
business cycle. PD values also include a safety margin to account for the statistical
uncertainty in the estimates. Thus, TtC-adjusted PD figures should remain stable across a
business cycle at the portfolio level, while reflecting underlying long-term trends in the risk
profile of the portfolio and taking a conservative view in estimated level of defaults.
SWEDBANK
45
In addition, Swedbank aims at producing Point-in-Time (PiT) PD estimates. These estimates
express the risk that the borrower will default on payments to Swedbank over the next
12 months given the current economic conditions,
Rating
A rating system derives a risk rating for a counterparty with the help of an expert-based
system, in which values for selected criteria are weighted and converted into a risk grade.
Rating systems are mainly used for large exposures where a thorough understanding of the
risks is needed to ensure sound credit decisions. For this reason, Swedbank always conducts an
extensive individual analysis before granting credits, and updates the ratings at least once a
year.
Swedbank’s rating system:
•
Sovereigns: The rating is based on an assessment of a number of parameters that,
combined, describe the level of development, stability and financial strength of the
sovereign (government) in question.
•
Financial institutions: The rating is based on a total appraisal of the sovereign’s
(government’s) rating and the level of risk in the banking system and the specific bank.
The level of risk in the banking system is determined by weighing a number of
parameters that reflect the development, stability and financial strength of the banking
system. The level of risk of the specific bank is calculated by weighing up the financial
strength, strategy and risk level of its operations.
•
Large corporates: The rating is based on a total appraisal of a quantitative component
that assesses the company’s financial strength, and a qualitative component that
assesses the position of the industry, as well as the company’s market position and
strategy.
Scoring
In a scoring system, the risk grade of the counterparty (or contract) is based on the statistical
relation between a number of selected variables and defaults. Scoring systems are mainly
used in portfolios with large numbers of smaller exposures where statistical relationships
between different variables and default help to identify potential high-risk customers. When
granting loans to counterparties in this type of portfolio with many small exposures, a credit
process with a highly automated risk evaluation process is applied, and the Swedbank scoring
system is organised as follows:
•
Medium-sized corporates: represents a combination of a number of different scoring
models and an expert system. In the statistical component, the risk assessment is based
on information regarding the borrower’s financial status and behaviour. Market
conditions and the borrower’s strategy are assessed in the model’s expert component.
•
Retail exposures (private individuals and small corporates): comprises a number of
different statistical scoring models where each model is designed to provide an effective
instrument in its particular area. The risk assessment is based on information regarding
the borrower’s financial status and behaviour.
PD rating process
Swedbank’s credit exposures are risk-classified in accordance with an internal credit risk
framework. All counterparties are risk-classified before a credit limit is established, and
thereafter at least once every 12 months. A new risk classification is always made if the bank
receives information indicating that the risk has changed in such a way that the risk grade
established is no longer considered relevant.
Duality and segregation of duties in the risk classification process applied within Swedbank
ensure well-founded decisions and are reflected in the organisation of independent credit
SWEDBANK
46
decision-making authorities.
Any risk grade proposed for countries and financial institutions as well as corporate customers
(including SME & Large Corporate Segment) is approved individually by an independent credit
decision-making body in accordance with the established decision mandates.
Risk classification concerning credits to the retail segment is performed in automated subsystems.
Loss given default (LGD)
LGD measures what proportion of the exposure amount would be lost in the event of default.
Swedbank uses its own LGD estimates for retail exposures (residential mortgages and others).
As noted above, in 2014 Swedbank also received the SFSA’s approval to apply its own LGD
estimates to corporate exposures in Sweden and Norway. These estimates are in turn based
on internal historical data on extent of loss. The extent of loss depends on factors including
the counterparty’s financial status, the value of the collateral, and assumptions of amounts
recovered through the sale of any collateral based on historical outcomes and other factors.
The A-IRB approval increases Swedbank’s competitiveness in the corporate segment, as the
bank’s own LGD estimates are, on average, lower than the prescribed estimates due to
favourable collateral.
For institutions and outstanding corporate exposures, LGD is prescribed by the SFSA.
Capital requirements are based on LGD estimates which are representative for a severe
economic downturn; this means that they correspond to a degree of loss incurred under
economic stress and cannot be directly compared to the current affirmed loss levels. The LGD
values also include a safety margin that takes into account the statistical uncertainty in the
estimates. Swedbank’s LGD system is divided between real estate credit and other retail
credit.
LGD over economic cycles
The risk rating system is applied to the entire Consolidated Situation, with the exception of a
few small portfolios. The validation tests conducted to date have shown that the LGD models
are reliable and that, in general, downturn adjustments have been sufficient for current
downturn conditions.
Exposure at default (EAD)
EAD measures the utilised exposure at default. For on-balance sheet exposures, EAD is the
gross value of the exposure without taking provisions into account. For off-balance sheet
exposures, EAD is calculated using a credit conversion factor (CCF) which estimates the future
utilisation level of unutilised amounts. Consequently, CCF is a gauge of future credit utilisation
and estimates off-balance sheet credit exposures. EAD is thus the sum of the current
undertaking and the expected utilisation of the remaining limit.
For off-balance sheet retail and corporate exposures, CCF is based on Swedbank’s own
estimates. CCF is prescribed by the SFSA for institutions exposures. Since the estimates in
each risk dimension are adjusted to the business cycle and include safety margins, PD, LGD and
SWEDBANK
47
EL estimates will normally be more conservative than the actual outcome. This calculation
method aims at creating more stable capital requirements over fluctuating business cycles.
Equity exposures
In the consolidated situation, holdings in equities not included in the trading book are of
strategic nature for Swedbank’s operations. These holdings are not material for Swedbank
Consolidated Situation from a financial perspective. For holdings classified as associates, the
equity method is applied. In 2014, holdings in associates contributed SEK 1.0bn to the
comprehensive income (2013: SEK 0.7bn). Other holdings are measured at fair value. In most
cases, the fair value is determined by quoted prices. Otherwise, the bank’s own assumptions
are used, based on last transaction price. Total unrealised gains or losses in other holdings
measured at fair value amounted to SEK 0.2bn (2013: SEK -0.2bn).
Realised losses well below expected loss
The levels of realised losses in 2014 were below the expected loss (EL). This result was
achieved despite the turbulent economic environment, due to conservatism in models and in
rating and due to regulatory buffers.
In the Baltic countries, the realised losses were on very low levels compared to the expected
loss levels. One explanation is that the average PD is annually recalibrated and mapped to
historical observed default frequencies. With each additional year of normalised loss data, the
impact of the extreme downturn in 2007-2009 decreases. Another explanation is that the
customers with highest risk defaulted during the crisis, resulting in a remaining portfolio with
reduced risk.
In the graph below and in Appendix table 3-32, the regulatory values are used for estimates
made at 1 January 2014. It was first in June 2014 that Swedbank received permission from the
SFSA to use its own estimates for calculating LGD for corporates in Sweden and Norway.
Therefore, estimates for 2014 were unaffected by the change in methodology. However, the
realised outcome for LGD was below the levels of the A-IRB estimates. In 2014, no losses were
reported on institutions exposures. For further information see Appendix table 3-32.
Expected loss vs. realised loss
%
2.50
Expected loss
2.00
1.50
1.00
0.50
Swedbank CS
Swedish Banking
Baltic Banking
LC&I
Institutions
Corporate
Institutions
Corporate
Corporate
Retail - other
Retail - mortg.
Institutions
Corporate
Retail - other
Retail - mortg.
Institutions
Corporate
Retail - other
Retail - mortg.
0.00
Group
Functions
The above graph shows the calculated loss according to the capital requirement framework as
EL= EAD * PD * LGD with FSA regulatory add-ons and downturn adjustments.
SWEDBANK
48
Counterparty risk
Management of counterparty risk
Most of Swedbank’s counterparty risk belongs to the trading operations in Sweden and
emanates primarily from two units: Group Treasury and LC&I. Counterparty risk arises as a
result of hedging of own market risk and from customer-related trading activities. As for
products, most counterparty risk derives from interest rate swaps, basis swaps and currency
forwards. In nominal terms, forward rate agreements comprise a large share of the derivatives
trading. However, since these contracts have short maturities and to some extent are
centrally cleared, the counterparty risk inherent in these derivatives is low.
Measurement of counterparty risk
Measuring the risk arising from instruments such as loans and placements is straightforward
because the exposure at any point in the future is known. Derivatives and security financing
transactions, on the other hand, require a more advanced approach, because the future
exposure is unknown and therefore needs to be estimated. Swedbank generates estimates
based on several thousand different scenarios for price movements in the underlying factors.
Positive derivative values generate counterparty risk for Swedbank since the claim towards
the counterparty increases. Based on a conservative estimate, the Group sets an add-on factor
which is added to the market value of the derivative to reflect future potential market-value
changes.
Risk measurement and evaluation is an ongoing process and Swedbank makes regular
assessments, for example through specifying detailed internal add-ons for a number of
different risk types and their maturities. The internal risk add-on factors are reviewed at least
annually and more often if deemed necessary. The add-on factors are based on simulations of
various asset price volatilities. The follow-up and measurement of counterparty risk exposure
against approved limits is performed in a system specific to the task. Legal agreements as well
as collateral held are also taken into consideration within the system.
Swedbank maintains an independent Group-level control unit that has the responsibility to
identify, quantify, follow up, analyse and report the counterparty risk inherent in the business.
This unit also proposes preventative actions, writes and implements policies, works with early
warning indicators and highlights mitigating actions. New products and processes are
reviewed in the New Product Approval Process (NPAP) before they are put into operation (for
more information regarding the NPAP, see Chapter 6).
In addition to the standard measurements, Swedbank conducts stress tests to estimate the
effects of tail events. The portfolio of stress tests being carried out includes a monthly stress
test of extreme exchange rate and interest rate movements as well as a stress test of rating
downgrades on deals covered by agreements with rating triggers. Swedbank also conducts
various ad-hoc stress tests pertaining to immediate political or market events. Effects on
counterparty exposures, credit losses, REA, collateral flows and market risk are considered.
For foreign exchange (FX) settlement risk, the amount at risk is equal to the FX settlement
amount. All decision-making bodies within Swedbank that decide on counterparty limits for
instruments which imply FX settlement risk, in addition to the counterparty risk, also consider
the FX settlement risk. FX settlement limits are established for each counterparty trading in
instruments that entail such risk.
Wrong way risk (WWR) is divided into specific and general WWR. Specific WWR is considered in
the credit review process as well as measured via stress tests. General WWR is typically
measured via a range of stress test scenarios. For Swedbank, it makes sense to look at sectors
individually to detect relationships between exposures and probabilities of default. Both types
of WWR exposures are deemed to be miniscule.
For capital adequacy purposes, Swedbank uses the mark-to-market method to calculate the
exposure for counterparty risk.
SWEDBANK
49
In 2014, various new capital adequacy rules came into effect. One of them is the regulatory
Credit Value Adjustment (CVA), which is an extra capital requirement to account for potential
mark-to-market losses associated with a deterioration of a derivative counterparty’s
creditworthiness.
In March 2014, the Basel Committee finalised the Standardised Approach for measuring
counterparty credit risk exposures (SA-CCR), its new non-modelled approach for measuring
counterparty credit risk for capital adequacy purposes. This approach will come into force on
1 January 2017. It applies to OTC derivatives, exchange-traded derivatives, and long
settlement transactions. The SA-CCR replaces both the mark-to-market method (the approach
currently employed by Swedbank) and the standardised method in the current regulatory
framework. It will also be used by other parts of the regulatory framework. Specifically, it will
be used to measure derivatives exposures in the large exposures framework and in the
standard for capital requirements for bank exposures to central counterparties.
Mitigating counterparty risks
The Group uses a variety of methods to mitigate counterparty risk; the most important is
netting and collateral management, as outlined below. Other actions include steering
exposure and risks to clearing houses to reduce bilateral counterparty risk and by closing out
risk through various portfolio compression activities. In addition, a small part of the
counterparty risk exposure is reduced by credit derivatives.
Swedbank conducts credit derivative transactions primarily in connection with counterparty
risk and mainly trades with counterparties where an ISDA CSA agreement has been
established. Rather than using credit derivatives to mitigate counterparty risk in its trading
operations, Swedbank prefers to make use of collateral arrangements.
Counterparty risks – Outstanding credit derivatives
31 December 2014
Own credit portfolio
Trading operations
SEKm
Single name CDS
Index CDS
Total
Protection
Bought
Sold
Protection
Bought
190
6,336
6,526
Sold
759
5,077
5,836
31 December 2013
Own credit portfolio
Trading operations
Protection
Bought
Sold
Protection
Bought
679
5,890
6,569
Sold
709
5,045
5,754
Swedbank mitigates settlement risk through Delivery-vs-Payment (DVP) or Payment-vsPayment (PVP) arrangements when possible. One such settlement vehicle is the global FX
clearing system Continuous Linked Settlement (CLS), which eliminates settlement risk in FX
transactions with counterparties that are eligible for CLS clearing. Swedbank has been a
member of CLS since November 2012, after being a third-party participant for several years.
Netting and collateral management
Swedbank actively mitigates its counterparty risk mainly by establishing netting agreements
with counterparties. Trading with OTC derivatives leads to counterparty risk which needs to
be covered with capital. Swedbank strives to have ISDA Master Agreements with CSA
agreements in place with all our financial counterparties to ensure a well-functioning netting
and collateral management process. As part of the credit process, the credit memos provided
to credit committees specify what collateral is accepted for each individual counterpart. The
vast majority of the current received and pledged collateral is cash. The proportion of highly
liquid bonds is likely to increase as collateral, due to European Markets Infrastructure
Regulation (EMIR). Financial collateral is subject to daily monitoring and an independent
valuation.
Swedbank has 41 netting and collateral agreements with rating triggers. In the event of a
credit rating downgrade, the rating triggers require various actions such as additional
collateral posting, procurement of a third counterparty to step between Swedbank and the
original counterparty, or early termination of derivatives at market value. Rating triggers may
SWEDBANK
50
apply to the ratings of one or both parties in the agreement.
The effects of a potential rating downgrade do not pose a threat to Swedbank’s balance sheet.
A two-notch downgrade by Standard & Poor’s of Swedbank AB’s long-term credit rating to ‘A-’
would lead to SEK 1,116m in collateral being posted. A two-notch downgrade by Moody’s of
Swedbank AB’s long-term credit rating to ‘A3’ would cause the posting of SEK 2,423m in
collateral. Collateral calls resulting from a similar downgrade by Fitch would be smaller.
Novation would first start occurring at the ‘Baa1’ level, three notches below Swedbank’s
current rating. Terminations would start occurring only if Swedbank were rated subinvestment grade.
Counterparty risks – Derivatives as of 31 December
SEKm
2014
2013
123,202
70,338
64,352
45,370
Exposure after considering netting agreements
Exposure covered by collateral
Exposure after considering netting agreements and collateral
52,864
29,110
23,754
18,982
10,853
8,129
Potential future exposure from internal risk add-ons, thresholds and minimum transfer amounts
53,276
53,021
Net credit exposures for derivatives including potential future exposure according to internal model
77,031
61,150
Positive market value of derivative contracts
Exposure reduction from netting agreements
Netting and collateral effects for derivatives
Exposure, SEKbn
140
120
100
80
60
40
20
0
Exposure before netting and
collateral (Sum of positive market
values)
Exposure after considering netting
agreements
Exposure after considering netting
agreements and collateral
Maturity profile for derivative exposures
Exposure, SEK bn
100
80
60
40
20
0
Add-on 2014
Net credit exposure 2014
Add-on + Net credit exposure 2013
Note: Add-on + net credit exposure is the exposure according to the internal model. Net credit exposure is the largest of
market values after netting and collateral and threshold plus minimum transfer amount for transfer of collateral.
SWEDBANK
4. Market risks
Market risk exposures were cautiously managed and
performance was strong during the year despite the
uncertain macro environment. Towards the end of the
year, markets were characterised by increased volatility
as a result of rising geopolitical risks and various actions
by central banks. On average, VaR increased in 2014
compared to 2013, but remained at stable and low levels
considering the increased volatilities.
Highlights 2014
Both LC&I’s trading book and Group Treasury’s banking book kept their respective market risk
exposures stable and low, despite the more volatile macroeconomic environment from
increased geopolitical risks and recession-fighting actions by various central banks worldwide.
For Swedbank, the macroeconomic events that had the greatest impact on market risks were
the interest rate cuts made by both the Riksbank and the ECB. Against this backdrop, market
volatilities in many asset classes were higher compared to 2013, contributing to slightly
higher VaR figures for the Group, averaging SEK 100m (SEK 74m). Trading book VaR,
calculated for capital requirement charges, averaged SEK 18m (SEK 14m). During 2014, the
Group prepared for Lithuania joining the euro in January 2015, a change that eliminated
Swedbank’s large structural and strategic litas exposure.
Market risk exposures
Swedbank analyses market risk exposures using risk factors such as interest rates, exchange
rates or share prices. Broadly speaking, market risk exposures fall under either the trading
book (managed within the LC&I organisation) or the banking book (managed by Group
Treasury).
Value-at-Risk
During 2014, the total VaR across the banking and trading books averaged SEK 100m,
compared to SEK 74m for 2013. While still low, the average VaR was higher in 2014, largely
due to an internal steering change in the portfolios affecting VaR. More specifically, interest
rate risk from the modelled demand deposit exposures were removed because, in the current
low interest rate environment, the modelled risk produced some asymmetric and unrealistic
hedging effects. By removing demand deposits, Swedbank moved to a more conservative
approach to VaR calculation.
Interest rate cuts by the Riksbank and ECB were strong impacts for the increased market
volatility and the upward pressure on VaR. However, Swedbank managed market risks to
counter this effect, and kept VaR and other risk measures low and stable.
52
VaR allocated by risk category
Jan - Dec 2014 (2013)
Max
Min
Average
129 (99)
65 (49)
101 (75)
16 (17)
3 (2)
7 (8)
12 (9)
0 (1)
4 (3)
-12 (-12)
126 (101)
65 (58)
100 (74)
SEKm
Interest rate risk
Currency rate risk
Share price risk
Diversification
Total
31 Dec 2014
73
8
7
-13
75
31 Dec 2013
66
10
3
-12
66
Interest rate risk
Most of the interest rate risk at Swedbank is structural and arises in the banking book, where
interest-fixing periods and maturities on assets and liabilities, including derivatives, may not
coincide. The interest rate risk from fixed-rate assets, primarily customer loans, is for the most
part hedged either through fixed-rate funding or through interest-rate swap contracts. The
trading book also generates interest rate risk from customer-related activities.
An increase in all market interest rates (including real interest rates) of one percentage point
as of 31 December 2014 would have decreased the value of Swedbank’s interest-bearing
assets and liabilities, including derivatives, by SEK 1,574m (SEK 75m). The value of positions in
SEK would have decreased by SEK 1,502m (SEK 250m), while positions in foreign currency
would have decreased in value by SEK 72m (SEK -175m). The change in values compared to
2013 is due to the removal of the interest rate risk generated from the modelled demand
deposits exposures explained in the VaR section above. The figures for 2014 show a more
symmetric result for both the positive and negative rate fluctuations. See Appendix table 4-1.
Currency risk
Currency risk arises mainly through risks related to strategic holdings of foreign operations
and when deposits and lending take place in different currencies; for example, from
Swedbank’s operations in the one remaining non-euro Baltic state in 2014, Lithuania. In 2014,
a large part of Swedbank’s Lithuanian lending was denominated in euro, while portions of the
deposits were denominated in the local currency.
A considerable share of the currency risk pertains to Swedbank’s holdings in foreign
subsidiaries, which do not affect the Group’s net income. Swedbank’s exposure to the litas as
of 31 December 2014 was a short position of over SEK 5bn. This short litas exposure was a
result of both a structural risk from the funding in litas versus lending in euros; and a strategic
management decision to eliminate the negative financial impact in the event of devaluation,
despite the litas’ current peg to the euro, in anticipation of eurozone entry in 2015. The
Lithuanian litas exposure will be netted with EUR in 2015, producing a net EUR-only exposure
of SEK 9bn.
Swedbank’s currency position, as of 31 December 2014 and 31 December 2013
SEKm
20,000
15,000
10,000
5,000
,0
-5,000
-10,000
-15,000
EUR
LTL
UAH
31-Dec-13
SWEDBANK
NOK
USD
Net
31-Dec-14
53
A general shift in exchange rates of foreign currencies against the Swedish krona of both
positive and negative 5% would entail effects on Swedbank’s net gains and losses on financial
items at fair value of SEK -54m (SEK 6m) and SEK 12m (SEK 117m).
Credit spread risk
Credit spread risk within Swedbank arises when issuer-specific spreads change on interestbearing assets and credit derivatives. Credit spread risk is present in client-related and
mandated activities of the trading book and in the banking book through Group Treasury’s
liquidity portfolio consisting of interest-bearing assets. An increase of all issuer-specific
spreads as of 31 December 2014 by one basis point would have reduced the value of
Swedbank’s interest-bearing assets, including derivatives, by SEK 20m (SEK 18m).
Share price risk
Share price risk occurs only in the trading book, and comes from exposure to equities and
equity-related derivatives. Swedbank’s equity trading book is primarily customer-driven and
exists for the purpose of providing liquidity to the Group’s customer base. Thus, share price
risks are kept at low levels. Swedbank measures and limits share price risk through a risk
matrix that maps the outcome of 80 different scenarios where share prices are changed by a
maximum of +/– 20% and volatilities by a maximum of +/– 30%. A limit is in place for the
worst-case outcome from this matrix. At year-end, the worst-case outcome would have
entailed a decline in the value of the trading operation’s positions by SEK 83m (SEK 64m).
Commodity risk
Exposure to commodity prices arises only as a part of client-related business, and only in
exceptional cases. As a rule, Swedbank hedges any positions with commodity exposure with a
third party. As of year-end, Swedbank had no open commodity exposure.
Value-at-Risk (Trading Book)
Trading book VaR averaged higher this year, at SEK 18m (SEK 14m), mostly due to increased
market volatilities, and to some extent risk-taking positions.
Trading book, VaR and SVaR
Jan - Dec 2014 (2013)
Max
Min
SEKm
Value-at-Risk
Stressed Value-at-Risk
29 (24)
74 (61)
11 (8)
29 (20)
Average
31 Dec 2014
31 Dec 2013
18 (14)
46 (35)
22
46
17
47
Swedbank conducts both actual backtesting (using actual daily results) and hypothetical
backtesting (using close-of-business positions and revaluing the portfolio with the latest
market data) to ensure the validity of the VaR model. There were four instances during 2014
when hypothetical losses exceeded the VaR level.
Trading book, hypothetical profit/loss and VaR, 2014
SEKm
30
20
10
0
-10
-20
-30
J
SWEDBANK
F
M
A
M
J
Hypothetical PnL
J
A
S
O
VaR
N
D
54
In addition to the VaR model for capital requirement calculations, Swedbank also uses a model
for internal risk management purposes which includes credit spread risk factors. The total
trading book VaR in 2014 averaged SEK 22m, compared to SEK 19m in 2013. In general, risk
measured in VaR was well balanced between the asset classes and, in total, exhibited
favourable diversification.
Trading book, VaR by risk category
Jan - Dec 2014 (2013)
SEKm
Max
Min
Average
31 Dec 2014
31 Dec 2013
19 (18)
9 (1)
13 (10)
9
10
12 (9)
1 (1)
4 (4)
8
3
FX
16 (16)
2 (4)
7 (9)
9
10
Interest rate
28 (25)
10 (8)
17 (14)
-19 (-17)
20
-22
18
-17
22 (19)
23
25
Credit spread
Equity
Diversification
Total
31 (31)
15 (10)
Note: VaR figures above are generated from the VaR model used for internal risk-management purposes and are different
from the figures generated from the VaR model used for capital requirement calculations. The figures in this table for
2014 incorporate the credit-spread risk factor for the entire year, while the figures for 2013 include the credit-spread risk
factor only from Q2 2013.
Net interest income sensitivity
In addition to interest rate sensitivities, other measures such as net interest income (NII)
sensitivity in the banking book are calculated and monitored regularly. NII sensitivity is a result
of any mismatch between the interest rate fixing periods for assets and liabilities of which the
structural risk in the bank’s demand deposits is normally an important part. As of 31 December
2014, Swedbank’s NII sensitivity to an interest rate increase by one percentage point in all
market rates is an increase of SEK 3,203m (SEK 2,370m) measured over a one-year period.
Conversely, an interest rate cut of one percentage point would imply a decrease of
SEK 1,278m (SEK 2,601m). The calculation of the NII sensitivity does not shift interest rates
below zero. It takes into account internal assumptions of the relation between market rates
and customer rates for deposits; with declines in both market- and portfolio rates, the size of
the downshift has been reduced compared to 2013. See Appendix table 4-2.
Management of market risks
At Swedbank, market risk-taking is closely monitored along all levels of the Group. The risk
limit framework sets the boundaries for the market risk exposures. To ensure proper risk
management, the risk organisation secures daily limit monitoring, in-depth analysis, frequent
stress testing, and internal and external reporting.
The majority of Swedbank’s market risks is structural or strategic in nature and emerges
within Group Treasury, but market risk also occurs in the daily market-making and clientfacilitation activities of the trading book within LC&I.
Structural interest rate risks are a natural part of any banking business that manages lending
and funding. Interest rate risk arises from mismatches in interest-fixing periods between the
assets and liabilities. Group Treasury manages these risks by, to the greatest extent possible,
matching the assets and liabilities directly, or by, for example, using derivatives such as
interest-rate swaps.
Strategic currency risks arise mainly through risks related to strategic holdings of foreign
operations and when deposits and lending take place in different currencies. A significant
amount of strategic currency risk in Lithuanian litas disappeared in 2015 when Lithuania
joined the eurozone. Group Treasury is mandated to manage these risks and may use
derivatives such as cross-currency interest-rate swaps and forward rate agreements.
SWEDBANK
55
Measurement of market risk
Swedbank uses a variety of risk measures, both statistical and non-statistical, that guide its
day-to-day operations as well as address important regulatory requirements. Statistical
measures such as VaR and SVaR have become mainstays of the risk measurement process and
are used for calculating regulatory capital. Non-statistical measures such as sensitivity
analyses and stress tests are important complementary measures that provide a better
understanding of specific market risk factors or possible tail scenarios.
VaR and Stressed VaR
Swedbank’s VaR model (using Monte Carlo simulations and a 99% confidence level over a oneday time horizon) is a useful tool for comparing risk levels across different asset classes such
as interest rate, credit spread, foreign exchange or equity; and thus gives insight into each
asset class as well as into their relative risk levels. VaR does not include strategic currency risk,
since a VaR measure on a one-day time horizon for positions (which are meant to be held
strategically for longer periods of time) is not relevant. VaR does, however, include positions
that are not marked to market and have no direct impact on Swedbank’s net gains and losses
on financial items at fair value. Since VaR is premised on model assumptions, Swedbank
conducts daily back-testing to assess the accuracy and relevance of the model. Since 2012,
Swedbank has also been using its SVaR model, together with VaR, to calculate regulatory
capital requirements for market risks occurring in the trading book. The SVaR model uses
market data from the one-year period covering early 2008 to 2009, a period deemed to be of
significant stress. In addition to these Monte Carlo-based VaR and SVaR models, Swedbank
also runs Historical VaR, and other variants such as Exponential VaR and Expected Shortfall,
for further complementary monitoring and analysis.
Sensitivity analysis
Swedbank uses various sensitivity measures which show a portfolio’s sensitivity to changes in
one or more market risk factors. For example, measures used for interest rate sensitivities may
include the one basis point shift along various parts of the curve to capture basis risk or the
100 basis point parallel shift which attempts to capture convexity effects. In another example,
FX matrix risk reports show each foreign currency’s sensitivity to changes in both price and
volatility. Together these sensitivity measures provide important information to risk analysts
who monitor changes, trends and anomalies. These measures also form the building blocks of
important risk limits that guide the Group’s trading activities and banking operations.
Stress tests
The various statistical and sensitivity measures above have known shortfalls and limitations.
For example, the VaR model inputs are based on market data from the past year and therefore,
in periods of low volatility and stable correlations, VaR figures may not capture hypothetical
extreme market movements. Additionally, sensitivity measures only show general sensitivity
to small and large movements but provide no historical context to the figures. To address
these limitations, Swedbank has a comprehensive set of stress tests which are broadly
categorised into scenarios: (i) historical, (ii) forward-looking, and (iii) method and model. The
stress tests (and the scenarios underlying them) are meant to cover significant movements in
market risk factors and to highlight mismatches in open positions that might cause large-scale
losses.
Historical stress tests attempt to capture various effects on the current portfolio using past
market data from periods of particular stress. In effect, these tests present the possible losses
to the current portfolio if history were to repeat itself. The set of historical scenarios and
relevant market data goes as far back as 25 years. It covers financial events (such as the 1992
Swedish banking crisis or the 2008 subprime mortgage meltdown) and non-financial events
(such as the September 2001 terror attacks or the 2011 Japan earthquake).
Forward-looking stress tests attempt to quantify the change in portfolio value that would
result from hypothetical and extreme shifts in risk factors. These tests include standardised
single or cross-asset tests with large but probable shifts that are historically informed. Other
SWEDBANK
56
forward-looking tests can include more customised tests which may be run on an ad-hoc basis,
such as the 2014 EBA stress test. Some customised tests may be more routinely established,
such as the yearly ICAAP or the bi-annual Reverse Stress Test.
Method and model stress tests measure how statistical measures (such as VaR, Expected
Shortfall, or Historical Worst Loss) respond to changes in assumptions, parameters and market
conditions. The purpose is partly to capture the uncertainty in reported risk figures due to
assumptions and parameter estimations, and partly to capture how dependent the reported
risk figures are on current market conditions (such as interest rate levels and risk factor
covariance).
Capital requirements for market risks
According to current regulations, capital requirements for market risk may be based either on
a standardised model or on an internal VaR model, where the latter requires approval from the
SFSA. Swedbank first received approval to use an internal VaR model in 2004, and
implemented the market risk requirements under CRD III incorporating SVaR in 2011. Capital
requirement for market risk was SEK 1,525m as of year-end 2014 (SEK 1,688m according to
Basel 2 as of year-end 2013).
While the trading book saw a slight increase in capital requirement from both the internal VaR
model and the standard approach calculations, the banking book had a reduction in capital
requirement, largely driven by a more favourable standard approach to the calculation for FX
risk from correlated currencies such as LTL and EUR. The latter effect was included in the
Basel 3 estimate as of year-end 2013, reducing REA by SEK 4.1bn. See Appendix tables 4-3
and 4-4 for capital requirements for market risks.
Fundamental review of the trading book
The Basel Committee is working on Fundamental Review of the Trading Book, a
comprehensive revision of the global capital adequacy standard for market risk, which is
expected to apply from 2018. The Basel Committee's objective is to design a new framework
that addresses weaknesses in risk measurement under the current framework.
The latest proposal for the new standard implies substantial revisions to both the
standardised approach and to the internal models approach. Changes from the current
framework include a strengthened relationship between the standardised and the modelbased approaches, including mandatory calculation and public disclosure of standardised
capital charges on a desk-by-desk basis. The measure of risk has also been shifted from valueat-risk to expected shortfall so as to better capture tail risk. The proposal also includes a
revised boundary between the trading book and the banking book that is better aligned with
banks’ risk management practices and reduces incentives for regulatory arbitrage.
Swedbank’s work on implementing the upcoming standard will comprise development of a
new internal model as well as implementation of the revised standardised approach. The
Group has already initiated preparations for these tasks. However, it is too early to draw firm
conclusions regarding the absolute level of the future capital requirement, as the Basel
Committee’s intended final calibration of the new framework is uncertain.
SWEDBANK
5. Liquidity risks
Swedbank’s liquidity position remained strong, supported
by investors who are confident in Swedbank‘s overall
business strategy, solid profitability, strong capitalisation
and low risk position.
Highlights 2014
Swedbank had a similar long-term debt refinancing need in 2014 compared to 2013. In 2014,
the Group issued SEK 115bn of long-term debt to meet term-debt maturities with a nominal
value of SEK 103bn. The estimated issuance volume of long-term debt during 2015 will be
around SEK 160bn to meet maturities of nominal SEK 110bn. With one of the highest capital
ratios in Europe, solid asset quality and stable earnings capacity, together with a continued
good liquidity position, Swedbank can enjoy a reputation in the capital market that has further
benefited the Group’s absolute and relative funding cost.
Long-term issuance and refinancing need
Nominal, SEK
120
100
80
60
40
20
Covered bonds
Q415
Q315
Q215
Q115
Q414
Q314
Q214
Q114
Q413
Q313
Q213
Q113
Q412
Q312
Q212
Q112
Q411
Q311
Q211
Q111
Q410
Q310
Q210
Q110
0
Senior unsecured
Note: Distribution of quarterly long-term issuance (Q1 2010-Q4 2014) and funding plan (Q1 -Q4 2015).
Funding and liquidity strategy
Strategy
Swedbank’s funding strategy is based on its asset composition. More than half of the lending
consists of Swedish mortgages, which are primarily financed through covered bonds.
Swedbank is the market leader in its home markets in terms of savings solutions. Deposit
volumes, together with covered bonds and shareholder equity, nearly cover Swedbank’s total
funding requirements. This means that Swedbank has limited structural need for senior
unsecured funding. The funding strategy is also closely linked to the credit quality of the
assets in the balance sheet. One of Swedbank’s focus areas for managing liquidity risk is to
ensure that it retains very good quality in all lending activities. Swedbank strives to match
fund assets with unsecured funding of an equivalent amount and maturity.
58
The share of unsecured funding is mainly determined by the Group’s liquidity needs and the
buffer it wants to maintain in its cover pool in the form of overcollateralisation in order to
withstand fluctuations in housing prices.
Funding
Swedbank uses a number of different funding programs for its short- and long-term funding,
including programs for commercial paper, certificates of deposit, covered bonds, and senior
unsecured debt (see Appendix tables 5-1 to 5-3).
The year saw a further decline in interest rates and lower credit spreads, even though the
latter increased slightly during the fourth quarter. Activity in domestic and international
capital markets was high. The introduction of new capital adequacy rules led to increased
issuance of supplemental capital in the form of additional Tier 1 instruments by banks in
Europe. Demand for Swedbank’s bonds and commercial paper remained high.
During 2014, Swedbank issued a total of SEK 115bn in long-term debt to meet its refinancing
needs and maintain its conservative liquidity position. This was primarily done using
Swedbank’s main funding source – covered bonds – as well as through senior unsecured
funding. Funding was raised by using public and private transactions in various markets,
currencies and maturities. In 2014, a nominal SEK 103bn of long-term debt matured.
Swedbank’s average wholesale funding maturity profile, i.e. both long-term and short-term
funding programs, was slightly reduced from 29 months in December 2013 to 27 months in
December 2014. This was mainly due to a lower refinancing need during 2014, implying a
relatively lower issuance level compared to 2010-2012. During 2015, Swedbank plans to
issue approximately SEK 160bn in long-term funding to match maturing long-term debt of
nominal SEK 110bn.
The Group’s short-term funding is used mainly as a cash management tool, not to finance the
Group’s lending to the public. The outstanding volume increased by SEK 97bn during the year
to SEK 198bn, of which SEK 127bn was placed with central banks.
Liquidity reserve
The reason that Swedbank has established and is maintaining a liquidity reserve is to manage
its liquidity risk. When future refinancing needs are high, the liquidity reserve needs to be
adjusted to meet these maturities in different types of stressed scenarios in the markets, for
example when the markets are partly or fully closed for new issuance. This also means that,
when funding maturities are lower, the liquidity reserve can be smaller as liquidity risk
decreases.
At end-2014, Swedbank’s liquidity reserve was SEK 225bn according to the template defined
by the Swedish Bankers’ Association (see Appendix table 5-6). Swedbank held additional liquid
assets outside of Group Treasury that totaled SEK 76bn (see Appendix table 5-7).
Rating
Swedbank’s aim is to have a credit rating on the same level as the highest rated banks in the
Nordic region. The Group’s funding costs are affected by the level of its credit rating. It is,
therefore, a key priority for Swedbank to continue improving its relative rating.
On 29 April 2014, Standard & Poor's (S&P) raised Swedbank’s individual rating, mainly due to
the Group’s solid capitalisation. As a direct result, the rating for Swedbank’s subordinated debt
was also raised. At the same time, S&P revised its outlook for the ratings of Swedbank and
50 European banks to “negative”. The revision was a consequence of the EU Parliament’s
approval of the EU’s Bank Recovery and Resolution Directive (BRRD). S&P’s view was that the
directive increased the risk that investors in senior uncovered debt would be forced to absorb
losses if a bank incurred financial problems.
On 24 June 2014, Fitch revised its outlook for Swedbank’s rating to “positive”, taking into
account the Group’s credit quality, stable earnings and strong capitalisation. On 29 May 2014,
SWEDBANK
59
as a result of the BRRD, Moody’s also revised its outlook to “negative” for Swedbank and a
number of other European banks.
In recent years Swedbank has put extensive effort into improving business management
practices, risk management processes and capitalisation. These efforts have contributed to
substantially improving the Group’s comparative ratings. Rating agencies have, for example,
noted substantial and continuing improvements in the Group's financial fundamentals, funding
profile, liquidity metrics, lengthened funding maturities, and increased liquidity reserves.
Swedbank is very close to achieving its aim of becoming the highest-rated bank in the Nordic
region.
Swedbank’s ratings, 31 December 2014
Swedbank AB
Rating
Outlook
Standard &
Poor's
Short-term
Long-term
A-1
A+
Moody's
Short-term
Long-term
Fitch
Short-term
Long-term
Swedbank Mortgage
AB
Rating
Outlook
Covered bonds
Rating
Outlook
N
A-1
A+
N
AAA
S
P-1
A1
N
P-1
A1
N
Aaa
-*
F1
A+
P
* Based on Moody's rating methodology for covered bonds, no outlook is assigned.
Asset encumbrance
Swedbank believes that transparency and enhanced disclosure will be decisive for how market
participants assess the level of asset encumbrance for a given bank. Detailed disclosures on
asset quality, funding and liquidity, pledged assets, and assets available for pledging will be
required. This information, together with the specific structural characteristics of each
jurisdiction, as well as the business model and balance sheet of each bank, will allow market
participants to determine the level of encumbrance for a specific bank and require adequate
compensation for the assessed risk level.
Furthermore, Swedbank’s opinion is that aspects of both loss given default (LGD) and
probability of default (PD) should be considered; taking mitigating actions to minimise the PD
is as important as assessing the actual LGD. Regulators in Sweden have, for example, started
to introduce harsher capital and liquidity requirements with the intention of minimising the PD
in the banking sector. Safeguarding the asset quality on the balance sheet is another key risk
mitigating factor which reduces the PD.
In addition, the type of assets and funding instruments that are being utilised to encumber the
balance sheet of a bank impact the “quality” of the asset encumbrance. For example, secured
funding in the form of covered bonds, which have a direct link to the underlying business line
of mortgage lending is, in Swedbank’s view, of higher “quality” than secured funding in the
form of repos, where all different types of assets are used.
Swedbank also holds the opinion that the specific structure of the Swedish covered bond
market significantly reduces the PD for banks that utilise this funding instrument. In
particular, the high liquidity and stability demonstrated by the covered bond market during
turbulent market conditions make this instrument a solid funding source. On the other hand, a
bank with overly high reliance on senior unsecured funding – which has proven more volatile
during market distress – will increase its PD, while it might decrease the LGD for senior
bondholders.
Thus, in our view, the decisive factor concerning the level of asset encumbrance will be the
extent of disclosure that banks provide to market participants, so they can make their own
assessments (Appendix table 5-8 should be seen in this context, illustrating Swedbank's
current and potential level of asset encumbrance).
SWEDBANK
60
Management of liquidity risk
Managing liquidity risk is an integral part of Swedbank’s business operation. Thus, liquidity risk
is forecasted and analysed continuously, using different time horizons, to ensure that the
Group has adequate cash or cash equivalents to meet its obligations in a timely manner.
Swedbank’s funding strategy and liquidity buffer are key components in liquidity
management. In analysing the liquidity position, the Group’s balance sheet structure is crucial,
since this is where key ratios and other essential information are derived. Maturity structure
and maturity mismatches, in SEK and foreign currencies, are also taken into account. The
analysis of the Group’s expected future cash flows provides important information for
managing liquidity risk and for planning the Group’s funding.
Intra-day liquidity
Swedbank attaches the utmost importance to meeting its intra-day payment and settlement
obligations in a timely manner, and hence uses methodologies and systems which ensure that
obligations are fulfilled under normal and under stressed conditions during the day. The
management of intra-day liquidity comprises the following elements:
•
Measurement of daily liquidity inflows and outflows
•
Monitoring of intra-day liquidity positions
•
Funding of intra-day liquidity needs
•
Management of timing of liquidity outflows
•
Capacity to deal with unexpected disruptions in intra-day liquidity flows
Transferability
The ability to transfer liquidity between entities and countries is also of utmost importance in
management of liquidity risk. Swedbank manages liquidity risk centrally, which means that
individual subsidiaries or legal entities have very limited mandates to take on liquidity risks.
When it is deemed necessary to regulate loan-facility conditions between a parent company
and an entity, legally binding agreements are entered into to establish a clear responsibility for
the parent company to provide liquidity in times of crisis.
Funds Transfer Pricing
In 2014, Swedbank made additional improvements to its methodologies for pricing products
and services where liquidity, currency and interest rate risk are incorporated. The purpose of
the refined Funds Transfer Pricing methodology is to assign each business transaction a price
that reflects the relevant liquidity cost, ensure the correct allocation to the business areas, and
incentivise prudent management of liquidity risks.
Business continuity plans and Early Warning Indicators
Swedbank has special continuity plans to manage any serious disruption in the liquidity
situation, and uses a number of forward-looking risk indicators to perceive and act on
increased liquidity risks as early as possible. These indicators show different kinds of market
information, such as volatility in market prices and price discrepancies between various
financial instruments. The indicators can signal increased stress and risk aversion on the
financial market and hence increased liquidity risks.
SWEDBANK
61
Measurement of liquidity risk
Within Swedbank, Group Risk is responsible for defining the method of measuring Group-wide
liquidity risks. All liquidity risks must be identified and measured. The calculation of
Swedbank’s liquidity risks is based on future contractual cash flows which are netted and
accumulated over time. The liquidity risk measurement platform which was implemented
during 2011/2012 was further developed during 2014, enabling enhanced analysis of liquidity
risk through better quality and earlier ready-time of source data.
Liquidity risk limit structure
The Board decides on the Group’s overall liquidity Risk Appetite and has therefore set limits on
the minimum survival horizon and minimum required overcollateralisation (OC) level.
Survival horizon
As part of the Enterprise Risk Management (ERM) policy, a minimum survival horizon limit has
been established. The survival horizon represents the number of days with positive
cumulative net cash flows, taking the Group’s future contractual cash flows into
consideration. Impacts from non-contractual cash flows are analysed through various
simulations and stress tests. The model is conservative to the extent that it assumes no
access to the wholesale funding markets or any other external support from central banks in
the form of credit facilities and other type of intervention assumed in the calculation. At
present, the bank would survive far longer than 12 months with the capital markets
completely shut down (see Appendix figure 5-9).
Stress tests
In addition to daily measurement of the Survival Horizon, Swedbank performs stress tests
regularly to increase readiness for liquidity disturbances such as, for example, a severe bank
run. The stress tests take both idiosyncratic and market-related problems into account,
whereas analyses encompass the effect of a combination of the two.
In these tests, the bank constructs unlikely but still possible adverse scenarios, which trigger a
range of risk drivers. The major risk drivers are:
•
Client withdrawals of deposits
•
Severe utilisation of customer credit lines
•
Higher collateral requirements due to increased intraday requirements and margin calls
•
General price fall of the assets in the liquidity portfolio
•
Severe drop in real estate prices in the mortgage portfolio, which would have a negative
impact on the covered bond pool as a funding vehicle
•
No access to the capital markets, but the liquidity-generating capacity of the Group’s liquid
assets is assumed to remain intact
Cover pool
The volume of covered bonds that can be issued is determined by the size of Swedbank’s cover
pool. A certain overcollateralisation must also be maintained; the rating agencies that rate
Swedbank’s covered bond program require it so that the triple-AAA rating can be maintained.
As stipulated in the ERM policy, the Group’s covered bond pool shall be overcollateralised to
such a level that the highest rating from at least one rating agency shall be maintained even
under a scenario with a real estate price drop of 20%. This level is meant to ensure that
sufficient collateral is available to protect covered bond investors – even in the event of large
decreases in housing prices. At the end of 2014 the OC level was 61.9%, which is well above
the OC levels required by the rating agencies to maintain an AAA-rating (Moody’s 2.0%, S&P
20.51%).
A sensitivity analysis of house price decline on the cover pool is run regularly as part of the
internal liquidity stress tests. The impact on the OC level is described in Appendix table 5-10.
SWEDBANK
62
The loan-to-value (LTV) structure of Swedbank’s cover pool demonstrates strong resilience to
house price declines.
House price sensitivity of the cover pool
Overcollateralisation
70%
Overcollateralisation level, %
60%
50%
40%
30%
20%
10%
0%
Current
-5%
-10%
-15%
-20%
-25%
House price decline
-30%
-35%
-40%
Liquidity ratios
Swedbank also monitors liquidity risks through additional measures including Liquidity Cover
Ratio (LCR) and Net Stable Funding Ratio (NSFR) (see Appendix table 5-11).
LCR and NSFR
160%
140%
120%
100%
80%
60%
40%
20%
0%
LCR (FFFS 2012:6)
LCR CRR
31 Dec 2013
NSFR Basel III
31 Dec 2014
•
The LCR aims to ensure that a bank maintains an adequate level of unencumbered, highquality assets (a liquidity reserve) to meet its liquidity needs for the next 30-day time
horizon under the assumption of a severe liquidity stress scenario. Thus the LCR metric
focuses on a bank’s short-term liquidity and has grown in importance as a metric for
liquidity risk measurement. As of 1 January 2013, the SFSA requires Swedish banks to
uphold LCR to 100% on total exposure (all currencies combined) and in USD and EUR
respectively. As of 31 December 2014, Swedbank had an LCR of 120% according to FFFS
2012:6, and the LCR was reassuringly above 100% during the year. The European
implementation of LCR according to the Capital Requirements Regulation (CRR) is set to
1 October 2015. The LCR components are defined somewhat less strictly in CRR than in
the current SFSA requirements.
•
The NSFR shows a bank’s ability to manage stressed liquidity situations over a one-year
horizon. It ensures that a bank’s long-term illiquid assets are funded with a minimum
amount of stable long-term funding. An NSFR of above 100% means that the long-term
illiquid assets are adequately funded with stable funding. The NSFR will become a
minimum standard by 1 January 2018. In October 2014, the Basel Committee published its
final NSFR standard, which retains the structure of the consultative proposal issued in
January 2014. The key changes introduced in the final standard cover the required stable
funding for short-term exposures to banks and other financial institutions, derivatives
exposures; and assets posted as initial margin for derivative contracts. Swedbank has an
NSFR of 98%, according to the latest Basel definition.
Capital requirement for liquidity risk
There is no direct capital requirement for liquidity risk. However, liquidity constraints may
arise as a result of an imbalance between risks and capital. The ICAAP process (see section 7 of
this report) is designed to ensure that such imbalances do not arise. Consequently, a
conservative view of liquidity risks is important to the capital process.
SWEDBANK
6. Operational risks
The operational risks in the Group continue to decrease on
the back of proactive risk management and actions to
modernise the IT infrastructure. The high pace of
regulatory changes entails new challenges.
Highlights 2014
In 2014, the operational risk loss amount remained at low level with no single large loss event.
In addition, the only larger loss in 2013 (a fine from the Competition Board in Lithuania) was
recovered after a successful appeal. Accumulated losses for 2014 were on par with those that
occurred each year between 2011 and 2013 and were again below the expected annual loss.
Operational risk – total annual losses (SEKm)
250
200
150
100
50
0
2010
2011
Personnel
2012
Process
IT- and Systems
2013
2014
External
The main risk drivers of operational risk continue to be IT and system risk related to life-cycle
issues in legacy systems, and as a consequence of this, IT stability risk and process risk from
manual processing. Work to modernise, consolidate and improve efficiency in IT infrastructure
is continuing according to plan. The operational risk level for the Group continued to decrease
as a consequence of proactive risk management and actions to modernise IT infrastructure
and increase stability in IT. The Group’s compliance risk has risen due to additional regulatory
requirements from various regulators and supervisory authorities across Europe.
The high level of change in the Group – including the efforts to reduce product complexity, and
increase digitalisation according to a tight time frame and cost control – entail greater
operational risks. In 2014, Swedbank improved its performance in terms of handling changes
within the business. The amount of incidents linked to changes decreased, and the New
Product Approval Process (NPAP) has been effective in mitigating risks related to changes.
As our customers are increasingly accessing services via internet and other electronic
channels, cyber threats, such as trojans and distributed denial of service (DDOS) attacks are
high on the agenda. Criminals are using multiple channels to commit fraud, often combined
with other consumer frauds and scams. The losses in this area are, however, close to zero thus
far due to active risk mitigation. We are constantly improving our countermeasures to fight
64
these crimes, and we inform our customers on best practice for IT security. During 2014,
Swedbank did not suffer any loss related to a single major incident, and losses could not be
linked to any kind of systematic errors. Card fraud remains one of the general causes of losses.
Annual loss- by Basel Event Type
0%
20%
Annual loss - by Basel Business Line
40%
60%
80%
0%
Internal fraud
Corporate Finance
External fraud
Trading & Sales
Employment Practices & Workplace
Safety
Clients, Products & Business
Practices
Retail Banking
Damage to Physical Assets
Business Disruption & System
Failures
Execution, Delivery & Process
Mgmt
20%
40%
60%
80%
Commercial Banking
Payment & Settlement
2014
Agency Services
2014
2013
Asset Management
2013
2012
Retail Brokerage
2012
Management of operational risk
Operational risks are inherent in the Group’s business activities and are typical of any financial
institution. It is not cost-efficient to attempt to eliminate all operational risks, nor is it possible
to do so. Swedbank seeks to maintain the lowest possible level of operational risks, taking into
account market sentiment and regulations, as well as our strategy, rating ambitions and
capacity to absorb operational risk losses.
Larger losses of material significance are rare, and Swedbank seeks to reduce the likelihood of
these through relevant operational risk control, continuity management and compliance to
maintain readiness for events that could cause financial losses, reputational damage or impact
the availability of our services.
Risk-based planning
During 2013, a common risk-based planning process was established, which was refined
further in 2014 to ensure relevance of risk management and risk control activities and to
enable resource allocation within the Group Risk function over time. Improved coordination
and information-sharing between Group Risk, Group Compliance and Internal Audit has also
been in focus.
Reporting
Operational risk reporting takes place in the form of regular reporting and immediate
escalation. Comprehensive reports are sent to the Board and the CEO on a quarterly basis (and
on a deviation basis in the monthly CRO report). During 2014 we also improved and refined
the risk appetite and risk limit framework for operational risks, and formalised limit monitoring,
immediate escalation and reporting procedures.
Risk and Control Self-Assessments
Risk and Control Self-Assessments (RCSAs) are performed by all business areas and Group
Functions. The same methodology is used to evaluate operational risks across the Group, and
to secure that adequate measures are taken. The RCSA process is designed to provide business
areas and Group Functions with a forward-looking view of operational risks and an
assessment of the effectiveness of controls, and a tracking mechanism for action plans to
secure the proactive management of operational risks within accepted levels.
New Product Approval Process (NPAP)
The NPAP was implemented across the Group in 2011, and was revised in 2013/2014. It has
settled in to a large extent across departments and product categories. A NPAP handbook was
also published in 2014, enhancing user support.
SWEDBANK
65
The revised NPAP encompasses not only new products and services, but also markets,
processes and IT systems as well as major operational and organisational changes. Process
fine-tuning continues to secure product and processing quality, as well as to safeguard
customer interests and ensure that risks are within the risk tolerance limits.
The NPAP has been further simplified and aligned with existing product and project
management processes. It is designed to emphasise the responsibility of the business areas for
risk identification, analysis and mitigation. Group Risk contributes with an expert evaluation of
the risk analysis process and the residual risks, and has the mandate to halt changes where the
residual risks exceed the risk appetite and the underlying limits.
Security and Business Continuity Management
Through technical, organisational and administrative measures, Swedbank works proactively
with security management to protect all types of assets, including personnel, tangible assets,
and intangible assets. Swedbank’s security management model is derived from the
international standard ISO/IEC 27002:2013 Code of Practice for Information Security Controls.
Swedbank has coordinated processes to prevent and manage serious events such as IT
disruptions, financial disturbances and other relevant scenarios.
Swedbank’s principles for security, business continuity management, incident and crisis
management are defined in a Group-level framework. A crisis management team is available
on the Group level for high-level coordination and communication internally and externally. In
addition, business continuity plans are in place for all business-critical operations, IT systems
and services that are critical for society in the countries where Swedbank operates. The plans
on strategic, tactic, and operational levels describe how Swedbank is to operate in the event of
a serious business disruption or potential crisis situation.
Processes and controls
Swedbank is finalising the establishment of a Process Universe and a framework for process
and control management. The framework will clarify responsibilities for the processes (e.g.
deliveries, risk management and control environment). The Process Universe is designed to
emphasise responsibility for critical processes within the Group, as well as responsibility for
control activities within the process and for assessment of the effectiveness of these controls.
To achieve a process-based approach for risk management, the Process Universe will be used
as a basis for all risk management activities performed across the Group.
Specific control frameworks have been established for Internal Control over Financial
Reporting (ICFR) and for Credit Process Control (CPC).
Incident management
An incident is defined as “a deviation in business processes resulting in unexpected business
outcome caused by events such as crime, errors, disputes, service inability, delayed services, or
loss of control of the business process”.
To ensure that operational risk losses are consistently reported and monitored at the Group
level, all Group companies are required to report individual losses when the net loss is
expected to exceed SEK 25,000. Losses are entered into the operational risk loss database and
reported to the Group Operational Risk function on a quarterly basis as part of regular
reporting.
Risk management maturity assessment
The risk management maturity assessment tool was introduced in 2014 and is a scorecard
used by Risk Control to assess the Business’s risk management maturity level in various topics.
A high risk-management maturity level within the Business indicates a strong risk culture and
risk awareness – which in turn reduces the threat of unforeseen losses and keeps business
assets secure and safe. During 2015, the maturity assessment score will be used for adjusting
capital allocation to encourage the business to improve its operational risk management.
SWEDBANK
66
Legal and compliance
The CEO has established Group Legal and Group Compliance for governing, controlling and
supporting the proper handling of legal and compliance matters, respectively.
The Group has lawyers in all major business areas with specialisation in all core areas of
Swedbank. The lawyers provide legal services by supporting, understanding and acting upon
the need in the business. There are also internal rules on escalation, information-sharing and
reporting of legal risks and lawsuits. Each business area has implemented appropriate overall
processes and procedures for the effective handling of legal risks within its area of
responsibility in order to mitigate potential threats. Regular reviews are carried out to identify
and follow up on actual and/or potential legal risks, so that practices can be modified to ensure
compliance with local regulatory requirements.
The Compliance function is responsible for providing assurance to the CEO and the Board that
the Group’s business is being conducted in accordance with regulatory requirements applicable
to the operations subject to authorisation. Compliance’s activities are planned and prioritised
through a structured and documented process aimed at identifying the key compliance risks in
the Group. The current focus areas for Compliance are regulatory licenses, internal
governance, customer protection, market conduct, ethics, conflicts of interest, anti moneylaundering activities, counter-terrorist financing activities, and remuneration.
Insurance policies
Swedbank has insurance protection for significant parts of its operations. The goal of its
continuous risk-reduction work is to maintain and reinforce the Group’s reputation by
protecting, among other things, life, health, financial assets and data. Swedbank maintains
several insurance programs to mitigate operational risks (and other types of risks). These
insurance programs consist of external insurance solutions, internal captive solutions, and
externally reinsured captive solutions. The external programs include Crime, Professional
Liability, Directors’ and Officers’ Liability, and Property insurance.
Capital requirements for operational risk
Pillar 1 capital
Operational risk capital requirements are calculated under the standardised approach, as a
percentage of the average of the last three financial years’ gross revenues. The standardised
approach assigns different multipliers (beta factors) to different business lines depending on
the inherent risk of the operation. These beta factors express the capital requirement for the
industry in relation to gross income for each business line. The beta factors are determined by
the capital adequacy rules.
Capital requirement for operational risk, by business line
SEKm
Basic indicator approach
Corporate finance
Trading and sales
Retail banking
Commercial banking
Payment and settlement
Agency services
Asset Management
Retail brokerage
Total
Income
Indicator
2014
767
34,745
183
3,286
22,374
5,511
1,377
157
1,802
55
35,512
Capital requirement
Beta (%) *
2014
2013
2012
15
13.33
18
18
12
15
18
15
12
12
13.36
115
4,630
33
592
2,685
827
248
24
216
7
4,745
0
4,486
1
720
2,764
673
232
19
75
3
4,486
0
4,326
0
239
2,867
828
268
19
102
3
4,326
*The capital requirement for each business line is derived by multiplying the business line’s beta factor by its gross
income. The total capital requirement for an entity or a group of undertakings is obtained by adding the respective capital
requirement of all 8 business lines.
SWEDBANK
67
Upcoming regulatory changes
In October 2014, the Basel Committee issued a Consultative Document on risk capital
calculations on operational risk. The aim of the document is to address the weakness that was
revealed during the financial crisis and to reflect the experience gained from the
implementation of the Basel II operational risk framework initially published in 2004. In recent
years, the capital requirements for operational risk for a wide range of banks have remained
stable or even fallen for the standardised approaches: the Basic Indicator Approach and the
Standardised Approach.
According to the Basel Committee, the weaknesses of these simple standardised approaches
stem mainly from the use of gross income as a proxy indicator for operational risk exposure.
The two approaches do not take into account the fact that the relationship between a bank’s
size and its operational risk does not remain constant or that operational risk exposure
increases with a bank’s size in a non-linear fashion. In addition, the changes to banks’
operational risk profiles may render a calibration based on the past behavior of variables unfit
for the future.
The Committee has indicated that, on average, the current standardised framework is undercalibrated and that Advanced Measurement Approaches (AMA) capital charges are often
benchmarked against this under-calibrated capital requirement. A draft regulatory technical
standards (RTS) on AMA published by the European Banking Authority indicates a desired
higher level of supervisory scrutiny in the AMA modeling assumptions, which may lead to
more conservative capital estimates also for AMA banks.
The review seeks to address the weaknesses identified in the existing approaches by (i)
refining the operational risk proxy indicator by replacing gross income with a business
indicator (based on three macro-components for a bank’s income statement); and (ii) improving
calibration of the regulatory coefficients based on the results of the quantitative impact study
(QIS). The Basel Committee has considered it appropriate to develop only one approach based
on a single indicator of operational risk exposure with size-based coefficients.
Future transition to AMA
In recent years, Swedbank has worked extensively with the clear objective to minimise
operational risks, avoid unnecessary risk-taking and diminish the risk for operational losses.
Focus areas in this work have been to refine and improve internal processes and controls as
well as further improve business acumen and risk ownership in the business areas and group
functions.
The Group has worked with its governance structure and resource allocation. Competence and
resources have been transferred from Group Risk to the business, and most business areas and
Group Functions have established dedicated risk management functions to support
management. To further strengthen risk ownership, Business Area Risk and Compliance
Committees (BARCC), chaired by the BA/GF head, have been established in business areas and
group functions.
Furthermore, several measures have been introduced to decrease subjectivity; for example, we
have developed and refined our internal loss-distribution model. The Board’s risk appetite has
been further clarified, and CEO and CRO limits have been established. Key risk indicators have
been defined and are monitored in risk reports on various levels up to the Board. The Risk
Management Maturity Assessment tool has been introduced to clarify requirements on risk
management, strengthen internal controls, and incentivise improvements. Conclusions have
been fed into Executive Management’s target setting and into internal performance follow-up.
In line with strengthened risk management and risk culture, and reduced subjectivity, we now
consider ourselves to fulfil AMA requirements. We have also initiated activities to perform an
external validation of our loss-distribution model and to implement risk-based capital
allocation principles.
SWEDBANK
68
Swedbank now applies the Standardised Approach for operational risk capital requirement
calculations. The Basel Committee’s proposed revision to the simpler approaches would
significantly increase the regulatory capital requirement for operational risks, affecting the
entire banking industry. There is still a high degree of uncertainty with regards to the Basel
Committee’s final calibration of the new framework. It is thus too early to draw firm
conclusions regarding the absolute level of the future capital requirements for operational
risks. It is however likely that the impact on Swedbank’s capital requirements will be below
peer average.
Since Swedbank is already using an internal model to estimate economic capital for
operational risk, and given the aligned qualitative requirements on AMA and non-AMA banks,
the transition to the advanced measurement approach is a natural next step.
SWEDBANK
7. Group-wide stress tests
During 2014 stress test results, external as well as
internal, showed a unanimous picture of Swedbank’s
limited risks, adequate capitalisation, and strong capacity
to handle a variety of severe negative scenarios in all four
home markets.
Highlights 2014
During 2014, Swedbank demonstrated its strong position by uniformly showing solid results
in both externally and internally performed stress tests. Both Riksbanken’s Stability Report
and the SFSA’s Stability Report, which incorporate stress tests, showed strong resilience for
Swedbank. The Internal Capital Adequacy Assessment Process (ICAAP) and the European
Banking Authority’s (EBA) pan-European stress tests further displayed Swedbank’s strong
position.
The Riksbank stress test builds on a “1 in 25 years” scenario, i.e. a severe downturn with high
loan losses in all of Swedbank’s home markets. Despite the severity, the scenario has a very
limited effect on Swedbank, and during the three-year scenario range, the CET 1 capital ratio
drops from 20.7% to 20.1%, i.e. by only 54bps. The limited impact is mainly due to Swedbank’s
high earnings capacity before loan losses.
The SFSA stress test is based on a number of assumptions affecting earnings, but primarily,
high credit losses in all segments are induced, also this stress is perceived as “1 in 25 years”.
Swedbank’s outcome displays a solid bank where the peak-to-trough drop is 120bps and
where, at the end of the three-year scenario, the CET 1 capital ratio drop is regained.
The ICAAP result displays strength, with a CET 1 capital ratio low-point of 18.3% in the
starting year and with the capital ratio then increasing annually throughout the scenario
range. The capitalisation is strong even though the scenario includes a major recession in a
low rate environment in Sweden and the Baltic countries that adversely affects the bank.
The EBA’s negative scenario (stress test) focuses on systemic risks with growth contraction in
a high rate environment. The outcome indicates that Swedbank is in the high end of the wellcapitalised banks in Europe, as the pass rate of 5.5% CET 1 capital ratio was exceeded by
10.8%.
Swedbank’s Group-wide stress test results during 2014, CET 1 capital ratio (%)
25
23
21
19
17
15
2013
2014
ICAAP
2015
EBA
2016
SFSA
2017
Riksbanken
2018
70
The CET 1 capital ratio at year-end 2013 was 18.3%, which was the starting point for the
ICAAP. The Riksbank and the SFSA tests have a starting point of 20.7% (based on Q3 2014
figures) and finally note the corresponding figure for year-end 2014 which amounted to
21.2%. Swedbank strengthened its capital level during 2014 due to strong earnings, but
effects from the A-IRB introduction also added to the positive trend.
Furthermore, Swedbank’s three Baltic subsidiaries participated in the ECB stress test, as
Estonia and Latvia are part of the eurozone and Lithuania entered it on 1 January 2015. As of
that date, all three countries were part of the ECB Single Supervisory Mechanism. The Baltic
subsidiaries all demonstrated their solid capitalisation and strong position among peers in the
Baltics.
The solid results in both external and internal stress tests show that Swedbank is an
institution with limited risks, adequate capitalisation and with a strong position in its four
home markets - Sweden and the Baltics.
Internal Capital Adequacy Assessment Process –
Pillar 2
Measurement - Types of risk
Swedbank calculates Pillar 2 capital for all relevant risk types. Strategic risk and reputational
risk are handled indirectly within the capital adequacy assessment, as the capital buffer
implicitly protects against such risks. These risks remain an important part of Swedbank’s
potential exposure and are carefully monitored and managed. Liquidity constraints may arise
as a result of an imbalance between risk and capital. The ICAAP is designed to ensure that
imbalances like this do not arise, and consequently, a conservative view of liquidity risks is
important to the process.
Risk types according to the ICAAP process
Risk type
Pillar 1
Capital is allocated
Pillar 2
Contributes to calculated capital need?
Credit risk
Concentration risk
Market risk
Market risk: Interest rate risk in banking book
Operational risk
Business risk: Earnings volatility risk
Insurance risk
Risks in post-employment benefits
Strategic risk: Business plans
Strategic risk: Projects and acquisitions
Yes
Yes1
Yes
No
Yes
No
Yes 2
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes 3
Yes
Yes
Yes, as a one-off sum added
Risk type
Pillar 1
Pillar 2
No
No
No
Yes
Yes, stress test
Yes
No specific capital is allocated
Reputational risk
Liquidity risk
Strategic risk: Decision risk
Identified and mitigated?
1. The Basel formulae are calibrated to include sector- and geographical concentration risk, i.e. the Pillar 1 measure
already includes a large amount of concentration risk.
2. Holdings in insurance business are deducted from capital, and an assessment is made to determine whether the
invested capital amount is adequate considering the adverse scenario applied in the Group’s ICAAP. The assessment is
made in accordance with the current as well as future solvency regulations.
SWEDBANK
71
The adverse ICAAP scenario
The ICAAP macro scenario, being one of five scenarios evaluated, stipulates an outstretched
growth contraction occurring in 2014 and holding its grip for a demanding three-year period
before entering into positive GDP territory in 2017. The protracted recession scenario was
selected because it was considered the most probable macro development given the European
debt crisis. The scenario’s severity level is set on the conservative side; when comparing
Swedish historic economic crises with similar macro developments, these appear less
frequently than 1 in 25 years (see Appendix table 7-1).
Sweden is particularly affected in the test due to its major dependency on foreign trade, and the
Swedish krona appreciates against the euro, meaning that Sweden is considered a safe haven. GDP
falls by about 9% over three years, and unemployment rises to almost 12% in 2015 before
slowly decreasing.
The Baltic economies are also hit hard as falling external demand weakens both investments
and consumption. Exports are severely affected as the global economy contracts. Lithuania
does not join the EMU. The GDP decline for Estonia is about 9%, for Latvia 9% and for
Lithuania 11%. Unemployment rises to almost 15%, 16.5% and 16% for each country,
respectively. House prices decline by 19% in Sweden and by 12-22% in the Baltic countries
during the scenario period.
Swedish crisis compared to stress test scenarios for ICAAP and EBA, GDP-indexed (%)
110
105
100
95
90
Year-0
I C A A P
Year-1
Year-2
Year-3
Sweden 76-81
Sweden 90-95
2014 ICAAP
EBA
S C E N A R I O :
“ P R O T R A C T E D
Year-4
Year-5
Sweden 07-12
R E C E S S I O N ”
Triggers
Outcome
•
Deepening crisis in the European
banking system
•
Negative GDP for three consecutive years (2014-2016)
•
•
Sudden stop in credit and capital
flows
Drop in housing prices in all home markets
•
•
SEK appreciates against EUR, making Swedish export
sector suffer
Debt leveraging and fiscal
consolidation
•
•
The Baltic states experience falling external demand,
affecting investment, consumption and export
Negative global sentiment
SWEDBANK
72
Impact on Swedbank – simulation results
In the ICAAP, the scenario simulation calculations are based on the Swedbank CS balance
sheet as of 31 December 2013. The result of the simulation shows the impact on Swedbank
during a severe five-year scenario (see Appendix table 7-2). No management interventions are
included.
Net interest income (SEKbn)
Credit impairments (SEKbn)
30.0
15.0
25.0
10.0
20.0
5.0
15.0
10.0
2013
2014
2015
2016
2017
2018
0.0
2013
2014
Total net interest income
2015
2016
2017
2018
Loan losses, net
REA (SEKbn)
CET1 capital ratio (%)
500.0
25.0
23.0
475.0
21.0
450.0
19.0
425.0
17.0
400.0
2013 2014 2015 2016 2017 2018
Total REA
15.0
2013
2014
2015
2016
2017
2018
CET 1 capital ratio (%)
Net interest income
Net interest income (NII) starts at an all-time high level of SEK 23.7bn. The first scenario year
carries a NII fall of 7.5%, mainly due to the falling short-rates. During the rest of the scenario
range, NII picks up, mainly because of increased margins on transaction accounts. The increase
in cost of deposits appears as the rates on savings accounts follow the interest rates, but
carries a slow or incomplete adaptability towards the funding spreads.
Lending volumes are kept unchanged in the scenario, as no deleveraging is assumed. Income
rises in the later scenario years as a result of somewhat improved margins but mainly
increasing interests and funding spreads.
The deposit volumes are kept unchanged as a result of limited deleveraging on lending,
reduced interest to invest, and the buildup of buffers. As interest rates increase, margins on
transaction accounts improve, bringing about an increase in deposits.
The presented NII level and an overall strong result in 2013 generate a stable starting point.
Consequently, the result of the income statement simulation, even when a severe simulation
is applied, presents Swedbank as resilient during difficult times.
SWEDBANK
73
Credit impairments
The accumulated credit losses throughout the scenario amount to SEK 24.9bn, with 2015
being the single most severe year, carrying SEK 9.1bn, i.e. 37% of the total loss amount.
Throughout the scenario, Swedish Banking accounts for 60% of the losses and LC&I for 24%.
Baltic Banking losses constitute SEK 3.9bn or 16% of the losses, of which 36% appear during
2015. The Baltic loss level, being more moderate than in previous ICAAPs, states a more stable
Baltic scenario, as both Estonia and Latvia are part of the EMU and Lithuania maintained its
EUR peg until year-end 2014.
Expenses
Expenses in Swedbank start at a slightly higher level due to increased personnel costs, though
these are partly counteracted by lower costs in other areas. The SEK 0.4bn drop between the
starting year and the first year of the scenario is due to one-off effects occurring from tax
effects in the US and Estonia, and to write-offs from Ektornet property in Ukraine and the US.
In the scenario, a conservative stance concerning costs and expenses is set, as no major cost
cuts are incorporated in the scenario.
These results are also analysed from a risk weight and capital perspective.
REA and capital assessment results
Swedbank Group IRB EAD grew by SEK 36bn during 2013, while average risk weights
decreased by 1.3% to 23.1%, signifying the overall lower risk in the portfolio. The lower REA
for credit risk is partly offset by an increased regulatory REA for market risk and operational
risk. The reduction of credit-risk REA is further accentuated as the CRD IV effects of
SEK 11.3bn are discounted to 2013.
Swedbank CS capital assessment results
Capital assessment 1)
SEKbn,
Total REA, Basel 3
Common Equity Tier 1, Basel 3
Common Equity Tier 1 ratio %, Basel 3
2013
440.9
80.8
18.3
2014
441.4
81.1
18.4
2015
443.9
83.3
18.8
2016
432.8
86.7
20.0
2017
414.5
91.1
22.0
2018
416.6
96.1
23.1
1) Adjusted for regulatory effects (CRD IV/ Basel 3).
The 2014 REA increase stems from operational risk and negative credit risk migrations. From
2015 to 2017, REA decreases by 7% as scenario lending volume falls by 9% due to defaults
taken out as stable lending volumes before credit losses have been assumed.
The starting value of the CET 1 capital ratio constitutes the scenario low-point of 18.3%.
Additionally, the total capital ratio is positively affected by an issuance of new Tier 2 debt of
EUR 750m in February 2014, and the total capital ratio amounts to 21.9% in 2014. The
scenario simulation result clearly demonstrates Swedbank’s strong resilience to severe
circumstances, and no risk capital buffer is deemed necessary.
Management interventions
To ensure that the scenario result is on the conservative side, no actions to improve the
outcome during the scenario range are performed.
•
Actions to minimise credit losses are performed and reduce credit losses by
SEK 2.2bn.
•
Being conservative in the scenario, expenses remain on a stable cost level. As an
intervention, we apply cost cuts of SEK 3.5bn over the first three years of the
scenario.
SWEDBANK
74
As the scenario simulation result shows operating profit in all years, management
interventions will further add to the result, but the effects of these efforts that would appear
in a scenario with years of losses are marginalised by tax and dividend, and so the final impact
on the CET 1 capital ratio effects is a mere 26bps.
Finally, a number of possible divestments could occur during a severe scenario such as this
one. It is difficult to determine when in the scenario they might occur, or which divestments
might be executed. It is clear, however, that divestment actions would further improve the
Group’s CET 1 capital ratio.
The European Banking Authority’s pan-European
stress test
In October 2014, the European Banking Authority (EBA) and European Central Bank (ECB)
published the Asset Quality Review (AQR) and stress test outcome. Swedbank delivered a
strong result with 16.3% CET 1 capital ratio, thereby demonstrating that it is one of Europe’s
best-capitalised banks. The hurdle rate of 5.5% set by the EBA was thereby surpassed by
10.8%.
Swedbank’s final result displayed a total drop of 216bps, of which 30bps was due to the AQR
performed by the SFSA, and 186bps was due to the stress test. Of the 186bps drop, 78bps
stemmed from the outcome produced by Swedbank, and the additional 108bps was due to
adjustments required by the SFSA/EBA. From a Swedish point of view, the 216bps drop
demonstrated additional strength because it did not exceed the Swedish regulators’ decreed
acting space of 250bps, i.e. the capital conservation buffer.
The EBA aims to create a level playing field with its methodology. In doing so, it uses a static
balance sheet approach, i.e. it is not permissible to incorporate anticipated changes during the
scenario range in the figures. Accordingly, Swedbank was not permitted to include the positive
effects from either the A-IRB approval as of Q2 2014 or the euro introduction in Latvia and
Lithuania, which would have provided additional evidence of the Group’s strong result.
The European Central Bank’s stress test
In preparation for the implementation of the Single Supervisory Mechanism (SSM) that came
into force in November 2014, the ECB performed an extensive AQR and a stress test. Since
Swedbank’s Baltic subsidiaries were either in the eurozone (and thus the SSM) or were about
to join it, all three Baltic subsidiaries participated in the ECB exercise. The ECB has thus taken a
permanent seat in the SFSA’s supervisory college for Swedbank.
All three Baltic subsidiaries showed strong results. They were in the top layer in Europe in
terms of handling the adverse scenario and maintaining their strong capitalisation levels, with
final outcomes of 32.9%, 31.8% and 22.8% for Estonia, Latvia and Lithuania, respectively.
These results should be compared to the adverse scenario hurdle rate of 5.5% CET 1 capital
ratio used by both the EBA and ECB.
Externally performed stress tests
The Riksbank performs a stress test in which it exposes Sweden’s four largest banks to a
severe scenario. The result is displayed in its semi-annual Stability Report. Swedbank’s
outcome in the Riksbank stress tests has been strong, and this was again shown in the latest
Stability Report 2014:2, delivered in December 2014. For the past two years, the scenario has
incorporated a GDP fall, high unemployment, a house price drop, and high interbank rates.
With this scenario setting, the Riksbank tests the banks’ ability to handle severe loan losses,
and Swedbank is exposed to high loan losses in all four home markets. The CET 1 capital ratio
SWEDBANK
75
starting value of 20.7% dropped 54bps, or to 20.1% throughout the three-year scenario
range. This strong outcome is due to the fact that Swedbank’s earnings ability is strong and
therefore profit before loan losses remains high.
The SFSA annually performs a stress test for economic stability reasons and as part of its
capital evaluation of the banks. The objective is to expose Swedish banks to a severe negative
economic environment and evaluate the outcome, not by using a macro scenario but rather via
a number of severe assumptions. These stipulated assumptions focus on affecting earnings
possibilities but primarily on high credit loss levels in all segments. The outcome displays
Swedbank’s strong position firstly by creating annual profits during all three scenario years.
Secondly, the peak-to-trough CET 1 capital ratio drop is 120bps, which means that Swedbank
is well within the SFSA allowed acting space of the capital conservation buffer’s 250bps as the
severity level is being perceived as at least “1 in 25 years”. Thirdly, Swedbank shows strong
recovery in the final year of the scenario, where the drop is regained.
SWEDBANK
Appendix 76
Swedbank Consolidated Situation:
Appendix
All figures are in SEK million unless otherwise stated.
2. Capital requirements - Appendix
2-1. Capital adequacy in Swedbank Consolidated Situation
2014
2013
SEKm
Basel 3
Basel 2
Basel 3*
CET1 capital
Tier 1 capital
87 916
92 914
84 606
88 615
80 826
86 371
Total capital
Risk Exposure Amount
105 588
414 214
90 772
451 931
91 026
440 620
Surplus of capital
CET1 capital ratio, %
Tier 1 capital ratio, %
Total capital ratio, %
33 137
72 451
21.2
22.4
25.5
36 154
54 618
18.7
19.6
20.1
35 250
55 776
18.3
19.6
20.7
Capital requirement Basel 1 floor
Total capital adjusted according to rules for Basel 1
floor
66 092
64 768
107 187
92 690
41 095
27 922
Surplus of capital according to Basel 1 floor
As of 31 December 2014 the Swedbank Consolidated Situation included the Swedbank Group with the following exceptions. In the consolidated
accounts, the associated company EnterCard (group) is consolidated according to the equity method. In Swedbank Consolidated Situation, EnterCard is
consolidated according to the proportional consolidation method. The insurance companies included in the consolidated accounts, Swedbank Försäkrings
AB, Sparia Insurance AB, Sparia Group Insurance Company Ltd., Swedbank Life Insurance SE, and Swedbank P&C Insurance AS, are not included in
Swedbank Consolidated Situation and are instead subject to solvency rules rather than capital adequacy rules.
* According to Swedbank's current calculation based on the new regulations.
SWEDBANK
Appendix 77
2-2. Total capital, Swedbank Consolidated Situation
Note
SEKm
1
Shareholders’ equity according to the Group balance sheet
2
Non-controlling interests
3
Anticipated dividends
4
Deconsolidation of insurance companies
5
Associated companies consolidated according to purchase method
6
Unrealised value changes in financial liabilities due to changes in own creditworthiness
7
Cash flow hedges
8
Goodwill
9
Deferred tax assets
10
2014
2013*
117 203
109 540
46
165
-12 511
-11 100
- 692
-1 982
2 251
74
92
103
139
-12 434
-11 198
- 166
- 399
Intangible assets
-1 698
-1 943
11
Net provisions for reported IRB credit exposures
-1 599
- 959
12
13
Shares deducted from CET1 capital
Total CET1 capital
- 410
87 916
84 606
14
Additional Tier 1 capital
15
Shares deducted from Tier 1 capital
16
Total Tier 1 capital
17
Tier 2 capital instruments
18
19
20
21
Total capital
*) 2013 according to Basel 2
4 998
5 536
-1 527
92 914
88 615
12 674
4 643
- 959
-1 527
12 674
2 157
105 588
90 772
1 Shareholders’ equity according to the Group balance sheet
This item includes capital contributed by the shareholders, which is reported as share capital and statutory reserves. This item also includes earnings in
previous years and in the current year reported via the comprehensive income statement, including the capital part of untaxed reserves. Profit generated
during the year is included in CET1 capital as soon as it has been verified by the company’s auditor.
2 Non-controlling interests
The equity interests of minority equity holders in companies that are fully consolidated, eligible for inclusion in CET1 capital.
3 Anticipated dividends
Deduction for estimated dividends.
4 Deconsolidation of insurance companies
Deduction of equity capital emanating from the insurance companies in Swedbank Group. The insurance companies are consolidated in the Group but not
in Swedbank Consolidated Situation under the capital adequacy rules.
5 Associated companies consolidated according to purchase method
The equity interests of majority equity holders in associated companies that were fully consolidated in Swedbank Consolidated Situation according to
earlier rules. As from the implementation of CRR in Sweden in January 2014, associated companies are consolidated according to the equity method.
6 Unrealised value changes in financial liabilities due to changes in own creditworthiness
Recognised changes in the value of equity arising from financial liabilities (not held for trade or not subject of an effective and documented fair value
hedge but reported at fair value) due to changes in own creditworthiness are not eligible for inclusion in the capital.
7 Adjustment for cash flow hedges
Recognised changes in the value of equity arising from cash flow hedges are not eligible for inclusion in the capital base.
8 Goodwill
Goodwill reported on the balance sheet is deducted from CET1 capital. Goodwill emanating from significant holdings of shares is also deducted. Goodwill
attributable to shareholdings in foreign subsidiaries can vary due to exchange rate fluctuations.
9 Deferred tax assets
Deferred tax assets reported on the balance sheet are deducted from CET1 capital. However, under certain conditions and if below specified threshold
levels, parts of deferred taxes can instead be included in Risk Exposure Amount.
10 Intangible assets
Intangible assets, other than goodwill, such as the value of acquired customer relationships are deducted from CET1 capital.
11 Net provisions for reported IRB credit exposures
Deduction for the negative difference between expected losses calculated within the IRB approach and the reported provisions. The difference arises
when losses calculated in accordance with the capital adequacy rules exceed Swedbank’s best assessment of loss levels and provision needs according to
incurred loss model in financial reporting. Expected losses are calculated in accordance with the capital adequacy regulations and using data from
Swedbank’s internal risk rating system, where risks are overestimated rather than underestimated. In addition, extra safety margins are applied, which
have been built into the risk rating system due to the SFSA’s interpretation of the regulations. According to earlier rules, 50% was deducted from CET1
capital and 50% was deducted from Tier 2 capital. As from the implementation of CRR in Sweden in January 2014, the deduction is made 100% from
CET1 capital.
12 Shares deducted from CET1 capital
Deduction according to CRR from CET 1 capital for certain types of equity shares and contributions, if such holdings exceed specified threshold levels.
Swedbank's holdings do not exceed threshold levels, but are instead included in Risk Exposure Amount.
During Q4 2014, the European Banking Authority (EBA) published its interpretation of how trading in own shares and capital instruments in the
securities operations affects capital. As a result, the maximum holding approved by the SFSA has to be deducted, compared with previous practice where
the actual holding was deducted.
13 Total CET1 capital
Common Equity Tier 1 (CET1) capital consists mainly of equity capital less proposed dividends and deduction for goodwill/intangible assets and deferred
tax assets. The ratio of CET1 capital to Risk Exposure Amount is the CET1 capital ratio.
14 Additional Tier 1 capital
Additional Tier 1 capital is made up of subordinated loans whose terms are such that they fulfil requirements in CRR, either fully or according to
grandfathering rules, to include them in Tier 1 capital. They may be redeemed or repurchased on approval by the Competent Authority (SFSA). Normally,
such approval cannot be given until five years after the loan was issued. Additional Tier 1 capital is also called “hybrid capital” because the properties of
SWEDBANK
Appendix 78
these instruments contain elements of both debt and equity. Interest payments are determined according to the contract, but are allowed only if there
are distributable funds. For Additional Tier 1 capital to be fully compliant with CRR (which entered into force 1 Jan 2014), there must be a discretionary
right for the issuer to cancel the interest payments.
The priority rights of the contribution are subordinated to all other deposits and borrowings including subordinated loans that may not be included as
Additional Tier 1 capital. The principal amount of Additional Tier 1 capital can be appropriated to cover losses to the extent that may be required to avoid
Swedbank AB being obliged to enter into liquidation. The appropriation is processed by writing down the principal amount fully or partially and
converting such amount into a conditional capital contribution, given a resolution hereof is passed at General Meeting and the SFSA has given its
permission. For Additional Tier 1 capital to be fully compliant with CRR specific terms around mandatory write-down or conversion to shares when
breaching a pre-determined trigger, the CET1 capital ratio level must be included.
Additional Tier 1 capital is included in the total capital in accordance with CRR, including grandfathering rules related to such instruments issued under
earlier rules and not fully compliant with CRR rules on Additional Tier 1 capital. Since some of the loans are issued in foreign currencies, the size of the
Additional Tier 1 capital can vary due to exchange rate fluctuations. For specification of outstanding Additional Tier 1 capital, please see table 2-4 in this
appendix.
15 Shares deducted from Tier 1 capital
Deduction according to earlier rules from Tier 1 capital for certain types of equity shares and contributions to institutions that were not part of
Swedbank Consolidated Situation. As from the implementation of CRR in Sweden in January 2014, such shares are instead included in Risk Exposure
Amount, as long as they do not exceed specified threshold levels.
16 Total Tier 1 capital
Tier 1 capital consists mainly of equity capital less proposed dividends and deduction for intangible assets. Additional Tier 1 capital compliant with CRR is
also included. Subject to grandfathering rules in CRR, Additional Tier 1 capital issued under earlier rules may be included in Tier 1 capital. The ratio of Tier
1 capital to Risk Exposure Amount is the Tier 1 capital ratio.
17 Tier 2 capital instruments
Tier 2 capital instruments are made up of subordinated loans whose terms are such that they fulfil requirements in CRR, either fully or according to
grandfathering rules, to include them in Tier 2 capital. Term reductions are made according to CRR rules if the remaining maturity is less than five years.
They may be redeemed or repurchased on approval by the Competent Authority (SFSA). Normally, such approval cannot be given until five years after
the loan was issued. Tier 2 capital instruments loans may be included in the total capital because they constitute a subordinated debt, which means that
if the obligor is declared bankrupt, the holder would be repaid after other creditors, but before shareholders and holders of Additional Tier 1 capital. In
addition, subordinated loans may be used to cover any losses from ongoing operations to prevent liquidation. Since some of the loans are issued in
foreign currencies, the size of the Tier 2 capital instruments can vary due to exchange rate fluctuations. For specification of outstanding Tier 2 capital
instruments, please see table 2-4 in this appendix.
18 Net provisions for reported IRB credit exposures
Deduction for the negative difference between expected losses calculated within the IRB approach and the reported provisions. The difference arises
when losses calculated in accordance with the capital adequacy rules exceed Swedbank’s best assessment of loss levels and provision needs according to
incurred loss model in financial reporting. Expected losses are calculated in accordance with the capital adequacy regulations and using data from
Swedbank’s internal risk rating system, where risks are overestimated rather than underestimated. In addition, extra safety margins are applied, which
have been built into the risk rating system due to the SFSA’s interpretation of the regulations. According to earlier rules, 50% was deducted from CET1
capital and 50% was deducted from Tier 2 capital. As from the implementation of CRR in Sweden in January 2014, the deduction is made 100% from
CET1 capital.
19 Shares deducted from Tier 2 capital
Deduction according to earlier rules from Tier 2 capital for certain types of equity shares and contributions to institutions that were not part of
Swedbank Consolidated Situation. As from the implementation of CRR in Sweden in January 2014, such shares are instead included in Risk Exposure
Amount, as long as they do not exceed specified threshold levels.
20 Tier 2 capital
Tier 2 capital includes Tier 2 capital instruments, less deductions that may be made from Tier 2 capital. After CRR entered into force on 1 Jan 2014, no
such deductions are made from Tier 2 capital.
21 Total capital
The capital base is intended to act as a buffer against the risks to which Swedbank Consolidated Situation is exposed and comprises the sum of CET 1
capital, Additional Tier 1 capital, and Tier 2 capital. The ratio of the Total capital to the Risk Exposure Amount is the Total capital ratio.
2-3. Transitional own funds disclosure according to Article 5 in EU Regulation No 1423/2013.
SEKm
31-Dec-14
B
C
B: Regulation (EU) No 575/2013 article reference
C: Amounts subject to pre-regulation (EU) No 575/2013 treatment or prescribed residual amount of Regulation (EU) 575/2013
Common Equity Tier 1 capital: instruments and reserves
1
2
3
3a
4
5
5a
6
7
9
Capital instruments and the related share premium accounts
of which: Instrument type 1
Retained earnings
Accumulated other comprehensive income (and any other reserves)
Funds for general banking risk
38,071
N/A
N/A
N/A
32,388
31,675
0
26 (1), 27, 28, 29, EBA
list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
26 (1)
26 (1) (f)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to
phase out from CET1
Public sector capital injections grandfathered until 1 January 2018
Minority interests (amount allowed in consolidated CET1)
Independently reviewed interim profits net of any foreseeable charge or dividend
Common Equity Tier 1 (CET1) capital before regulatory adjustments
Common Equity Tier 1 (CET1) capital: regulatory adjustments
N/A
N/A
46
5,246
107,426
486 (2)
483 (2)
84, 479, 480
26 (2)
N/A
N/A
N/A
N/A
N/A
Additional value adjustments (negative amount)
Intangible assets (net of related tax liability) (negative amount)
Empty set in the EU
0
-14,132
0
34, 105
36 (1) (b), 37, 472 (4)
N/A
N/A
N/A
-166
103
36 (1) (c), 38, 472 (5)
33 (a)
N/A
N/A
-1,599
36 (1) (d), 40, 159, 472
(6)
N/A
10
11
Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of
related tax liability where the conditions in Article 38 (3) are met) (negative amount)
Fair value reserves related to gains or losses on cash flow hedges
12
Negative amounts resulting from the calculation of expected loss amounts
SWEDBANK
Appendix 79
13
14
15
16
Any increase in equity that results from securitised assets (negative amount)
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing
Defined-benefit pension fund assets (negative amount)
Direct and indirect holdings by an institution of own CET1 instruments (negative amount)
0
74
0
-3,791
32 (1)
33 (1) (b) (c)
36 (1) (e), 41, 472 (7)
36 (1) (f), 42, 472 (8)
N/A
N/A
N/A
N/A
17
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those entities
have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the
institution (negative amount)
0
36 (1) (g), 44, 472 (9)
N/A
18
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution
does not have a significant investment in those entities (amount above 10% threshold and net of eligible short
positions) (negative amount)
0
36 (1) (h), 43, 45, 46, 49
(2) (3), 79, 472 (10)
N/A
19
20
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the institution
has a significant investment in those entities (amount above 10% threshold and net of eligible short positions)
(negative amount)
Empty set in the EU
0
0
36 (1) (i), 43, 45, 47, 48
(1) (b), 49 (1) to (3), 79,
470, 472 (11)
N/A
20a
20b
Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the
deduction alternative
of which: qualifying holdings outside the financial sector (negative amount)
0
0
36 (1) (k)
36 (1) (k) (i), 89 to 91
N/A
N/A
20c
20d
of which: securitisation positions (negative amount)
of which: free deliveries (negative amount)
0
0
36 (1) (k) (ii), 243 (1) (b),
244 (1) (b), 258
36 (1) (k) (iii), 379 (3)
N/A
N/A
21
22
Deferred tax assets arising from temporary difference (amount above 10% threshold , net of related tax liability
where the conditions in Article 38 (3) are met) (negative amount)
Amount exceeding the 15% threshold (negative amount)
0
0
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
48 (1)
N/A
N/A
23
24
of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities
where the institution has a significant investment in those entities
Empty set in the EU
0
0
25
25a
of which: deferred tax assets arising from temporary difference
Losses for the current financial year (negative amount)
0
0
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
36 (1) (a), 472 (3)
N/A
N/A
25b
Foreseeable tax charges relating to CET1 items (negative amount)
0
36 (1) (l)
N/A
26
26a
Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment
Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468
26b
27
28
Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional filters and
deductions required pre-CRR
Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount)
Total regulatory adjustments to Common Equity Tier 1 (CET1)
29
Common Equity Tier 1 (CET1) capital
Additional Tier 1 (AT1) capital: instruments
30
31
32
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards
33
phase out from AT1
34
35
36
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row 5)
issued by subsidiaries and held by third parties
of which: instruments issued by subsidiaries subject to phase-out
Additional Tier 1 (AT1) capital before regulatory adjustments
Additional Tier 1 (AT1) capital: regulatory adjustments
37
Direct and indirect holdings by an institution of own AT1 instruments (negative amount)
38
N/A
36 (1) (i), 48 (1) (b), 470,
472 (11)
N/A
N/A
0
N/A
N/A
0
-19,511
N/A
N/A
481
36 (1) (j)
N/A
N/A
N/A
N/A
87,916
0
0
0
51, 52
N/A
N/A
N/A
5,019
0
486 (3)
483 (3)
N/A
N/A
9
0
5,028
85, 86, 480
486 (3)
N/A
N/A
N/A
-30
52 (1) (b), 56 (a), 57, 475
(2)
N/A
Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings
with the institution designed to artificially inflate the own funds of the institution (negative amount)
0
56 (b), 58, 475 (3)
N/A
39
Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution
does not have a significant investment in those entities (amount above 10% threshold and net of eligible short
positions) (negative amount)
0
56 (c), 59, 60, 79, 475 (4)
N/A
40
Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the institution
has a significant investment in those entities (amount above 10% threshold and net of eligible short positions)
(negative amount)
0
56 (d), 59, 79, 475 (4)
N/A
41
Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR treatment
and transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e. CRR
residual amounts)
N/A
N/A
41a
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1
capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013
N/A
472, 473(3)(a), 472 (4),
472 (6), 472 (8) (a), 472
(9), 472 (10) (a), 472 (11)
(a)
41b
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during
the transitional period pursuant to article 475 of Regulation (EU) No 575/2013
N/A
477, 477 (3), 477 (4) (a)
N/A
41c
42
43
44
45
Amounts to be deducted from added to Additional Tier 1 capital with regard to additional filters and deductions
required pre-CRR
Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount)
Total regulatory adjustments to Additional Tier 1 (AT1) capital
Additional Tier 1 (AT1) capital
Tier 1 capital (T1 = CET1 + AT1)
N/A
0
-30
4,998
92,914
467, 468, 481
56 (e)
N/A
N/A
N/A
N/A
N/A
12,177
62, 63
N/A
796
0
486 (4)
483 (4)
N/A
N/A
N/A
Tier 2 (T2) capital: instruments and provisions
46
47
phase out from T2
SWEDBANK
Appendix 80
48
49
50
51
Qualifying own funds instruments included in consolidated T2 capital (including minority interest and AT1
instruments not included in rows 5 or 34) issued by subsidiaries and held by third party
Credit risk adjustments
Tier 2 (T2) capital before regulatory adjustment
Tier 2 (T2) capital: regulatory adjustments
52
Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount)
53
272
0
0
13,245
87, 88, 480
486 (4)
62 (c) & (d)
N/A
N/A
N/A
N/A
-70
63 (b) (i), 66 (a), 67, 477
(2)
N/A
Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have
reciprocal cross holdings with the institutions designed to artificially inflate the own funds of the institution
(negative amount)
0
66 (b), 68, 477 (3)
N/A
54
54a
54b
Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities
where the institution does not have a significant investment in those entities (amount above 10% threshold
and net of eligible short positions) (negative amount)
Of which new holdings not subject to transitional arrangements
Of which holdings existing before 1 January 2013 and subject to transitional arrangements
0
0
0
66 (c), 69, 70, 79, 477 (4)
N/A
N/A
N/A
55
Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector entities
where the institution has a significant investment in those entities (net of eligible short positions) (negative
amounts)
-500
66 (d), 69, 79, 477 (4)
N/A
56
Regulatory adjustments applied to Tier 2 in respect of amounts subject to pre-CRR treatment and transitional
treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)
N/A
56a
Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital
during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013
N/A
472, 472(3)(a), 472 (4),
472 (6), 472 (8), 472 (9),
472 (10) (a), 472 (11) (a)
N/A
56b
Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during
N/A
475, 475 (2) (a), 475 (3),
475 (4) (a)
N/A
56c
57
58
59
Amounts to be deducted from or added to Tier 2 capital with regard to additional filters and deductions required
pre-CRR
Total regulatory adjustments to Tier 2 (T2) capital
Tier 2 (T2) capital
Total capital (TC = T1 + T2)
59a
Risk-weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments subject
to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amount)
N/A
Of which:… items not deducted from CET1 (Regulation (EU) No 575/2013 residual amounts) (items to be
detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liability, indirect
holdings of own CET1, etc.)
N/A
472, 472 (5), 472 (8) (b),
472 (10) (b), 472 (11) (b)
N/A
Of which:…items not deducted from AT1 items (Regulation (EU) No 575/2013 residual amounts) (items to be
detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant
investments in the capital of other financial sector entities, etc.)
N/A
475, 475 (2) (b), 475 (2)
©, 475 (4) (b)
N/A
477, 477 (2) (b), 477 (2)
(c), 477 (4) (b)
N/A
60
Items not deducted from T2 items (Regulation (EU) No 575/2013 residual amounts) (items to be detailed line by
line, e.g. Indirect holdings of own T2 instruments, indirect holdings of non-significant investments in the capital
of other financial sector entities, indirect holdings of significant investments in the capital of other financial
sector entities, etc.)
Total risk-weighted assets
N/A
-570
12,674
105,588
N/A
414,214
N/A
467, 468, 481
N/A
N/A
N/A
N/A
N/A
N/A
Capital ratios and buffers
61
62
63
Common Equity Tier 1 (as a percentage of total risk exposure amount)
Tier 1 (as a percentage of total risk exposure amount)
Total capital (as a percentage of total risk exposure amount)
64
65
Institution-specific buffer requirement (CET1 requirement in accordance with article 92 (1) (a) plus capital
conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important
institution buffer expressed as a percentage of total risk exposure amount) 1)
of which: capital conservation buffer requirement
66
of which: countercyclical buffer requirement
not yet
implemented
N/A
of which: systemic risk buffer requirement
not yet
implemented
N/A
67
67a
68
69
70
71
of which: Global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII)
buffer
Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2)
[non-relevant in EU regulation]
Amounts below the thresholds for deduction (before risk-weighting)
72
Direct and indirect holdings of the capital of financial sector entities where the institution does not have a
significant investment in those entities (amount below 10% threshold and net of eligible short positions)
73
74
Direct and indirect holdings of the CET1 instruments of financial sector entities where the institution has a
Empty set in the EU
75
Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax liability
where the conditions in Article 38 (3) are met)
Applicable caps on the inclusion of provisions in Tier 2
21.2%
22.4%
25.5%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
N/A
N/A
N/A
7.0%
2.5%
CRD 128, 129, 140
N/A
N/A
not yet
implemented
16.4%
N/A
N/A
N/A
758
5,538
N/A
CRD 131
N/A
CRD 128
N/A
N/A
N/A
N/A
36 (1) (h), 45, 46, 472
(10), 56 (c), 59, 60, 475
(4), 66 (c), 69, 70, 477 (4)
36 (1) (i), 45, 48, 470,
472 (11)
N/A
N/A
N/A
452
36 (1) (c), 38, 48, 470,
472 (5)
N/A
76
77
Credit risk adjustments included in T2 in respect of exposures subject to standardised approach (prior to the
application of the cap)
Cap on inclusion of credit risk adjustments in T2 under standardised approach
0
0
62
62
N/A
N/A
78
Credit risk adjustments included in T2 in respect of exposures subject to internal rating-based approach (prior to
the application of the cap)
0
62
N/A
SWEDBANK
Appendix 81
79
Cap for inclusion of credit risk adjustments in T2 under internal ratings-based approach
0
62
N/A
N/A
N/A
5,017
796
2,875
0
484 (3), 486 (2) & (5)
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
484 (5), 486 (4) & (5)
N/A
N/A
N/A
N/A
N/A
N/A
Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1 Jan
2022)
80
81
82
83
84
85
- Current cap on CET1 instruments subject to phase-out arrangements
- Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)
- Current cap on AT1 instruments subject to phase-out arrangements
- Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities)
- Current cap on T2 instruments subject to phase-out arrangements
- Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)
1) CET1 capital requirement including buffer requirements
2) CET1 capital ratio as reported, less minimum requirement of 4.5% (excluding buffer requirements) and less any CET1 items used to meet the Tier 1
and total capital requirements.
2-4. Subordinated debt: Capital instruments main features, 31 December 2014
Swedbank AB
(publ)
Swedbank AB
(publ)
Swedbank AB
(publ)
Swedbank AB
(publ)
Swedbank AB
(publ)
Swedbank AB
(publ)
XS0188779028
English/Swedish
XS0321184706
English/Swedish
XS0363160127
English/Swedish
SE0000122111
Swedish
XS0861583887
English/Swedish
XS1036494638
English/Swedish
Add'l Tier 1
Ineligible
Add'l Tier 1
Ineligible
Add'l Tier 1
Ineligible
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Eligible at solo/(sub-)consolidated/solo &
(sub-)consolidated
Solo & Consolidated
Solo & Consolidated
Solo & Consolidated
Solo & Consolidated
Solo & Consolidated
Solo & Consolidated
Instrument type (types to be specified by
each jurisdiction)
Add'l Tier 1
(grandfathered) as
in Regulation (EU)
No 575/2013 art
484.4
Add'l Tier 1
(grandfathered) as
in Regulation (EU)
No 575/2013 art
484.4
Add'l Tier 1
(grandfathered) as
in Regulation (EU)
No 575/2013 art
484.4
Tier 2 as in
Regulation (EU) No
575/2013 art 63
Tier 2 as in
Regulation (EU) No
575/2013 art 63
Tier 2 as in
Regulation (EU) No
575/2013 art 63
Amount recognised in regulatory capital
(currency in million, as of most recent
reporting date)
Nominal amount of instrument
Issue price
SEK 2,525m
GBP 200m
98.95%
SEK 2,221m
SEK 2,000m
100%
SEK 1,069m
SEK 873m
100%
SEK 117m
SEK 111m
100%
SEK 4,806m
EUR 500m
99.98%
SEK 7,257m
EUR 750m
99.81%
100% of Nominal
amt
100% of Nominal
amt
100% of Nominal
amt
100% of Nominal
amt
100% of Nominal
amt
100% of Nominal
amt
Liability - amortised
cost
26-Mar-04
Perpetual
No maturity
cost
17-Sep-07
Perpetual
No maturity
cost
12-May-08
Perpetual
No maturity
cost
26-Apr-89
Dated
26-Apr-19
cost
05-Dec-12
Dated
05-Dec-22
cost
26-Feb-14
Dated
26-Feb-24
Issuer
Unique identifier (e.g. CUSIP, ISIN or
Bloomberg identifier for private
placement)
Governing law(s) of the instrument
Regulatory treatment
Transitional CRR rules
Post-transitional CRR rules
Redemption price
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory
approval
Yes
Yes
Yes
No
Yes
Yes
Optional call date, contingent call dates,
and redemption amount
17-Mar-16, 100%
of Nominal amt, In
add'n
Tax/Regulatory call
17-Sep-17, 100%
of Nominal amt, In
add'n
Tax/Regulatory call
17-Sep-18, 100%
of Nominal amt, In
add'n
Tax/Regulatory call
N/A
05-Dec-17, 100%
of Nominal amt, In
add'n
Tax/Regulatory call
26-Feb-19, 100% of
Nominal amt, In
add'n
Tax/Regulatory call
Subsequent call dates, if applicable
17-Mar and 17-Sep
each yr, after first
call date
17-Mar and 17-Sep
each yr,
after first call date
17-Mar and 17-Sep
each yr, after first
call date
N/A
N/A
N/A
Fixed to floating
Fixed to floating
Fixed to floating
Fixed
Fixed
Fixed
Fixed 2.375% per yr
to call date (equiv to
Euro Swap Rate
+1.40% per yr),
thereafter reset
Fixed rate equiv to
Euro Swap Rate
+1.40% per yr
No
Coupons / dividends
Fixed or floating dividend/coupon
Fixed 5.75% per yr,
until first call date,
thereafter Floating
Libor 6-month
+1.92% per yr
Yes
Fixed 6.665 % per
yr, until first call
date, thereafter
Floating Stibor 6month +3 % per yr
Yes
Fixed 8.278% per
yr, until first call
date, thereafter
Floating Stibor 6month +4.50% per
yr
Yes
Fixed 11% per yr
until maturity
No
Fixed 3% per yr to
call date (equiv to
Euro Swap Rate
+2.15% per yr),
thereafter reset
Fixed rate equiv to
Euro Swap Rate
+2.15% per yr
No
Fully discretionary, partially discretionary
or mandatory (in terms of timing)
Partially
discretionary
Partially
discretionary
Partially
discretionary
Mandatory
Mandatory
Mandatory
Fully discretionary, partially discretionary
or mandatory (in terms of amt)
Partially
discretionary
Partially
discretionary
Partially
discretionary
Mandatory
Mandatory
Mandatory
Existence of step up or other incentive to
redeem
Noncumulative or cumulative
Convertible or non-convertible
If convertible, conversion trigger (s)
If convertible, fully or partially
If convertible, conversion rate
Yes
Non-cumulative
Non-convertible
N/A
N/A
N/A
Yes
Non-cumulative
Non-convertible
N/A
N/A
N/A
Yes
Non-cumulative
Non-convertible
N/A
N/A
N/A
No
Cumulative
Non-convertible
N/A
N/A
N/A
No
Cumulative
Non-convertible
N/A
N/A
N/A
No
Cumulative
Non-convertible
N/A
N/A
N/A
If convertible, mandatory or optional
conversion
N/A
N/A
N/A
N/A
N/A
N/A
If convertible, specify instrument type
convertible into
N/A
N/A
N/A
N/A
N/A
N/A
Coupon rate and any related index
Existence of a dividend stopper
SWEDBANK
Appendix 82
If convertible, specify issuer of instrument
it converts into
Write-down features
N/A
Yes
N/A
Yes
N/A
Yes
N/A
No
N/A
No
N/A
No
If write-down, write-down trigger (s)
If write-down, full or partial
If write-down, permanent or temporary
When equity is less
than half of the
registered share
capital
Full or Partially
Temporary
When equity is less
than half of the
registered share
capital
Full or Partially
Temporary
When equity is less
than half of the
registered share
capital
Full or Partially
Temporary
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
If temporary write-down, description of
write-up mechanism
Shareholders
resolution re
Reconversion and
Reinstatement
made out of
unappropriated
earnings
Shareholders
resolution re
Reconversion and
Reinstatement
made out of
unappropriated
earnings
Shareholders
resolution re
Reconversion and
Reinstatement
made out of
unappropriated
earnings
N/A
N/A
N/A
Position in subordination hierarchy in
liquidation (specify instrument type
immediately senior to instrument)
Non-compliant transitioned features
Tier 2
Yes
Tier 2
Yes
Tier 2
Yes
Senior debt
No
Senior debt
No
Senior debt
No
If yes, specify non-compliant features
Instrument issued
according to earlier
rules. Features
include e.g. step-up
and do not include
fully discretionary
coupons
Instrument issued
rules. Features
and do not include
fully discretionary
coupons
Instrument issued
rules. Features
and do not include
fully discretionary
coupons
N/A
N/A
N/A
Note: The full terms and conditions of all Additional Tier 1 and Tier 2 instruments can be found on Swedbank’s website:
https://www.swedbank.com/investor-relations/debt-investor/funding/final-terms--conditions/index.htm.
2-5a. Amount of specific countercyclical capital buffer in Swedbank Consolidated Situation as of 31
December 2014
SEKm
2014
Institution-specific countercyclical buffer
rate
Total REA
0%
414 214
Institution-specific countercyclical
buffer
0
2-5b. Geographical distribution of credit risk exposure for the calculation of the countercyclical capital buffer
for Swedbank Consolidated Situation as of 31 December 2014
%
Sweden
Share of relevant
exposures
61.97%
Country
buffer rate
0.00%
Estonia
8.14%
0.00%
Latvia
7.28%
0.00%
Lithuania
6.74%
0.00%
Norway
5.46%
0.00%
Finland
3.01%
0.00%
USA
1.09%
0.00%
Denmark
1.08%
0.00%
Bermuda
1.08%
0.00%
Great Britain
0.66%
0.00%
Other countries
3.49%
0.00%
Institution-specific buffer
rate
100%
0.00%
2-6. Capital requirement – Swedbank Consolidated Situation
SEKm
Capital requirement for credit risks, standardised approach
Capital requirement for credit risks, IRB
Capital requirement for credit risk, default fund contribution
Capital requirement for settlement risks
Capital requirement for market risks
Trading book
of which VaR and SVaR
of which risks outside VaR and SVaR
FX risk other operations
Capital requirement for credit value adjustment
Capital requirement for operational risks
SWEDBANK
2014
2013*
4 295
21 988
3
2
1 525
1 335
711
624
190
579
4 745
1 936
28 041
0
3
1 688
1 095
530
565
593
0
4 486
Appendix 83
Capital requirement
Risk exposure amount credit risks
Risk exposure amount settlement risks
Risk exposure amount market risks
Risk exposure amount credit value adjustment
Risk exposure amount operational risks
Risk exposure amount
33 137
36 154
328 574
30
19 059
7 241
59 310
414 214
374 711
40
21 103
0
56 077
451 931
2-7. Risk Exposure Amount and Own funds requirement, Swedbank Consolidated Situation, 31 Dec. 2014
Risk
exposure
amount
SEKm
Credit risks, STD
Own funds
requirement
53,683
4,295
469
633
10
38
51
1
927
14,416
14,851
1,992
554
24
4
74
1,153
1,188
159
44
2
0
16,065
3,738
274,849
1,285
300
21,988
Institutional exposures
Corporate exposures
of which specialised lending in category 1
Retail exposures
of which mortgage lending
of which other lending
Securitisation
Exposures without counterparties
Credit risks, Default fund contribution
Settlement risks
20,823
170,197
9
426
615
1,139
1,666
13,616
1
34
49
91
76,375
50,009
26,366
82
7,372
42
30
6,110
4,001
2,109
7
589
3
2
Market risks
19,059
1,525
Trading book
Credit value adjustment
Operational risks
16,684
8,887
7,797
2,375
7,241
59,310
1,335
711
624
190
579
4,745
1,432
57,878
414,214
115
4,630
33,137
Central government or central bank exposures
Regional governments or local authorities exposures
Public sector entities exposures
Multilateral development banks exposures
International organisation exposures
Corporate exposures
Retail exposures
Exposures secured by mortgages on immovable property
Exposures in default
Exposures associated with particularly high risk
Exposures in the form of covered bonds
Items representing securitisation positions
Exposures to institutions and corporates with a short-term credit assessment
Exposures in the form of units or shares in collective investment undertakings
Equity exposures
Other items
Credit risks, IRB
of which Basic indicator approach
of which Standardised approach
Total
SWEDBANK
Appendix 84
2-8. Capital requirement split by business area/country
Capital requirement split by business area, as of 31 December 2014
SEKm
Capital requirement for credit risk
SCS
26 286
Swedish
Banking
LC&I
Baltic Banking
Other
Estonia
Latvia
Lithuania
Investment
12 262
7 224
2 130
1 862
1 691
62
1 054
21 988
1 666
13 616
9 268
184
4 566
6 612
765
5 584
1 959
32
1 248
1 805
18
1 129
1 590
20
1 058
3
750
647
30
of which retail exposures
mortgage
6 110
4 001
4 314
2 776
21
0
665
422
598
428
512
374
0
other
of which securitisation exposures
2 109
7
1 537
20
4
242
170
139
0
3
590
4 295
204
2 993
238
609
14
171
60
57
0
100
38
3
20
Credit risks, IRB approach
of which institutional exposures
of which corporate exposures
of which other non-credit-obligation assets
Credit risk, standardised approach
of which exposures to central governments and central
banks
of which exposures to regional governments or local
authorities
of which public sector entities exposures
51
1
of which multilateral development banks
of which exposures to international organisations
of which exposures to institutions
of which exposures to corporates
of which exposures secured on immovable property
of which exposures in default
of which exposures associated with particularly high
risk
of which exposures in the form of covered bonds
of which equity exposures
of which exposures to institutions and corporates with
a short-term credit assessment
of which exposures to CIUs
of which other items
Credit risks, default fund contribution
Capital requirement for market risk
of which risks in trading book where VaR and SVaR
models are applied
of which risks in trading book outside VaR and SVaR
of which currency rate risk outside VaR
Capital requirement for settlement risk
Capital requirement for operational risk
Total capital requirement
41
6
1
35
47
16
18
9
74
50
22
1 153
1 188
159
44
671
941
123
36
334
180
2
0
1 285
2
1 076
15
59
6
299
91
30
49
1
4
3
1 342
711
624
190
3
579
4 744
33 137
4
44
2 540
14 850
71
305
15
4
3
1 525
3
59
0
2
25
2
72
27
5
3
711
624
7
3
368
912
9 850
129
73
55
178
178
280
2 410
221
2 083
226
1 917
0
62
167
564
1 964
Capital requirement split by business area, as of 31 December 2013
SEKm
Capital requirement for credit risk
Credit risks, IRB approach
of which institutional exposures
of which corporate exposures
mortgage
other
of which securitisation exposures
of which other non credit-obligation assets
Credit risk, standardised approach
of which exposures to governments and central banks
of which exposures to local governments and
comparable associations and authorities
of which exposures to administrative bodies, noncommercial undertakings and religious communities
of which multilateral development banks
of which exposures to institutions
of which exposures to corporates
of which exposures secured on real estate property
SWEDBANK
FCG
29 977
28 041
1 294
19 752
6 226
3 916
2 310
8
761
1 936
45
Swedish
Banking
LC&I
13 743
12 992
191
8 135
4 288
2 633
1 655
8 934
8 468
695
7 659
12
1
11
5
97
467
24
2 618
2 363
10
1 674
664
391
273
1 980
1 869
10
1 119
740
527
213
1 701
1 603
2
1 080
521
364
157
8
8
16
256
0
111
0
98
0
8
2
29
6
0
122
2
5
1
6
1
0
17
23
11
28
2
379
750
39
129
0
22
312
825
90
4
6
629
35
Estonia
0
234
170
Baltic Banking
Latvia Lithuania
Russia
Other
123
26
869
712
387
86
0
Investment
26
97
10
0
3
235
157
10
1
16
19
45
1
0
Appendix 85
of which past due items
of which exposures to CIUs
of which other items
Capital requirement for market risk
of which risks in trading book where VaR models are
applied
of which risks in trading book outside VaR
24
17
4
0
1
0
3
450
1 688
59
2
33
1 100
96
51
63
4
6
144
581
of which currency rate risk outside VaR
Capital requirement for settlement risk
Capital requirement for operational risk
593
3
4 486
6
581
2 390
36 154
16 135
Total capital requirement
530
566
530
566
2
4
3
902
10
939
240
211
241
0
36
466
2 859
2 192
1 942
8
165
1 915
2-9. Leverage ratio
Leverage ratio
Tier 1 capital, SEKm
Total exposure, SEK m
Leverage ratio, %
SWEDBANK
2014
92 914
2 066 385
4.50
2013
86 371
1 867 070
4.63
Appendix 86
3. Credit risks - Appendix
Credit Risk exposures - overview
3-1. Key parameters, by risk category as of 31 December 2014
PD >5.7%
Default
Retail - mortgages
Exposure, in SEKm
Exposure weighted average PD, in %
Exposure weighted average LGD, in %
Average RW, in %
Expected loss, in SEKm
Retail - other
Exposure, in SEKm
Average RW, in %
Corporate - Advanced IRB
Exposure, in SEKm
High risk
PD 2.0 5.7%
Increased
risk
PD 0.5 2.0%
Average
risk
PD <
0.5%
Low risk
Non-rated
exposures
Total
2014
Total
2013
825,644
0.97
3,160
12,890
22,501
74,747
726,122
839,420
100.00
18.81
15.85
14.12
3.28
14.60
1.02
15.07
0.08
10.10
64.46
715
71.90
302
38.46
107
18.79
114
2.20
74
0.87
10.76
5.96
975
100.00
4,518
14.22
12,725
3.28
25,861
1.05
48,386
0.16
92,464
2.58
71,350
42.11
161.83
41.45
70.93
41.40
51.94
39.33
36.02
35.12
11.69
37.55
28.52
42.27
40.47
420
269
173
107
30
999
1,173
1,312
10.11
5.93
1,570
3.65
1,428
2,940
17,383
85,155
278,468
385,375
100.00
26.26
10.61
21.51
3.18
22.58
0.98
21.45
0.20
22.46
0.96
22.25
165.07
438
79.44
67
58.19
122
42.43
177
24.02
125
30.57
929
1,457
100.00
5,647
14.64
7,034
3.87
19,366
1.02
40,631
0.25
74,135
3.84
434,151
1.60
Average RW, in %
44.71
0.00
44.12
166.48
42.85
105.73
43.46
79.81
43.58
44.04
43.54
41.88
67.70
Corporate - specialised lending
Exposure, in SEKm
Average RW, in %
Institutions
Exposure, in SEKm
Average RW, in %
Other IRB exposure classes
Exposure in SEKm
651
366
117
86
44
1,264
56.29
3,018
2,057
106.4
310
2,225
113.35
423
136,263
0.15
21.71
121,698
0.14
24.88
15.28
76
13.29
66
75,841
75,841
9.83
9.83
12,830
74.97
77,898
1,605,555
1.08
1,467,898
1.22
12.38
310
17.86
17.12
4,889
22.45
23.88
6,250
286,227
18.76
286,227
18.76
253,028
9.56
364,125
17.39
1,891,783
1,720,926
21.77
Average RW, in %
Corporate - Foundation IRB
Exposure, in SEKm
Average RW in %
Total IRB approach
Exposure, in SEKm
Average RW, in %
Exposure in SEKm
Average RW in %
Total exposures
Exposure in SEKm
Average RW in %
2,057
106.4
310
59
100.00
45.00
0.00
27
314
6.85
45.00
177.33
10
661
4.67
44.99
154.38
14
1,538
1.20
45.00
109.75
8
133,690
0.05
21.18
13.13
18
7,079
100.00
26,308
14.62
60,305
3.35
206,668
1.01
1,227,297
0.12
28.95
84.37
2,250
26.45
94.14
1,014
26.28
56.11
532
23.62
37.08
492
16.21
10.10
291
7,079
84.37
26,308
94.14
60,305
56.11
206,668
37.08
1,227,297
10.10
17.37
Note: Exposures according to the capital adequacy framework, IRB approach exposures defined as EAD.
SWEDBANK
Appendix 87
3-2. Key parameters by business segment, as of 31 December 2014
Swedish
Banking
Baltic
Banking
- of
which
Estonia
- of
which
Latvia
- of
which
Lithuania
784,202
55,171
25,859
13,549
15,763
2,776
1,224
422
428
374
Exp.weighted avg. PD (excl defaults), %
0.35
2.68
2.26
4.07
Exposure weighted avg. LGD, %
10.3
16.8
13.0
20.0
Average risk weight, %
4.4
27.7
20.4
Expected loss in SEKm
381
931
124
Expected loss, non-defaults in SEKm
335
262
77,715
1,537
Exp. weighted avg. PD (excl defaults), %
- of which
Investment
and Other
Total
2014
Total
2013
47
839,420
0
4,001
825,644
3,916
2.25
0.45
0.50
0.50
20.1
17.7
10.8
10.1
39.5
29.6
10.6
6.0
5.9
577
230
0
1,312
1,570
78
107
78
597
576
13,767
6,311
3,556
3,900
967
15
92,464
552
243
170
139
20
0
2,110
71,350
2,310
1.23
3.29
2.77
4.55
3.01
1.46
1.91
1.54
2.13
36.2
44.5
43.9
48.4
41.8
45.1
13.8
37.5
42.3
24.7
50.1
48.0
59.8
44.5
26.4
26.3
28.5
40.5
682
311
93
130
88
6
0
999
1,173
369
204
77
76
51
6
0
579
646
Retail - mortgages
Exposure in SEK
Capital requirement
Retail - other
Exposure in SEK
Capital requirement
Corporate - Advanced IRB
Exposure in SEK
LC&I
Group
Functions
163,029
222,346
4,340
5,085
0.98
0.30
0.59
19.3
24.3
22.2
33.3
28.6
444
485
0
929
325
166
0
491
Capital requirement
Corporate - Foundation IRB
Exposure in SEK
385,375
0
9,425
30.6
5,710
56,973
24,757
13,965
18,251
9,867
1,585
74,135
Capital requirement
226
3,260
1,150
1,064
1,046
499
30
4,015
0.96
2.30
1.34
4.43
1.96
0.49
0.77
1.92
0.85
36.8
44.4
44.4
44.2
44.5
45.0
28.7
43.5
41.9
434,151
19,550
49.5
71.5
58.1
95.3
71.6
63.2
23.4
67.7
56.3
58
1,119
403
385
331
85
2
1,264
3,018
22
567
142
268
157
21
2
612
1,553
2,057
1,182
590
285
0
2,057
175
98
65
12
0
175
2,225
202
106.4
104.2
136.9
52.6
90.1
106.4
113.3
310
154
65
91
0
310
55
29
22
3
Corporate - specialised lending
Exposure in SEK
Capital requirement
Expected loss on non-defaults in
SEKm
Institutions
Exposure in SEK
55
70
423
6,707
2,898
1,390
708
800
37,041
89,617
136,263
Capital requirement
184
70
32
18
20
765
647
1,666
0.39
0.10
0.07
0.11
0.13
0.22
0.04
0.11
0.08
45.0
44.8
44.6
45.0
45.0
30.1
15.6
21.7
24.9
28.9
31.8
121,698
1,294
34.3
30.4
31.6
25.8
9.0
15.3
13.3
8
1
1
60
7
76
66
8
1
1
33
7
50
34
Other IRB exposure classes
Exposure in SEK
4,106
3,525
731
1,641
1,117
36
4,269
63,941
75,841
Capital requirement
204
77
14
60
0
3
242
73
596
12,830
770
62.2
27.3
24.8
45.4
0.0
100.0
70.8
1.4
9.8
75.0
1,041,469
134,391
60,230
34,009
40,116
36
274,537
155,158
1,605,555
9,268
5,358
1,960
1,805
1,590
3
6,612
750
21,988
1,467,898
28,041
0.52
2.52
1.87
4.19
2.14
0.30
0.06
0.62
0.65
14.1
32.6
30.4
34.4
34.4
25.9
16.2
17.9
22.4
40.7
66.4
49.6
30.1
6.0
17.1
23.9
635
9
4,889
5,897
226
9
2,384
3,232
Total IRB approach
Exposure in SEK
Capital requirement
11.1
49.8
1,574
2,672
100.0
1,059
1,090
326
473
289
Exposure in SEK
63,558
28,991
10,971
6,638
11,086
296
33,551
160,127
286,227
Capital requirement
2,993
388
171
57
101
59
609
305
4,295
253,028
1,936
58.9
16.7
19.5
10.8
11.3
2.5
22.7
2.4
18.8
9.6
1,105,027
163,382
71,201
40,647
51,202
332
308,088
315,288
1,891,783
1,720,926
12,260
5,746
2,130
1,862
1,692
62
7,220
1,055
26,281
29,977
13.9
44.0
37.4
57.3
41.3
2.3
29.3
4.2
17.4
21.8
Total exposures
Exposure in SEK
Capital requirement
Note: Exposures according to the capital adequacy framework, IRB approach exposures defined as EAD.
SWEDBANK
Appendix 88
Credit risk exposures - retail exposure class (IRB)
Retail exposures refer to exposures to private individuals, exposures to small or medium-sized legal entities and to tenant owner
associations where the total exposure to such legal entities is less than SEK 6m. However, exposures secured by residential property
eligible to reduce LGD are excluded at hurdle. Exposures and loans in table 3-3 below are stated in SEKm.
3-3. Retail exposure class, outstanding exposures by risk grade
31 December 2014
Risk
grade
Def
PD
100.000%
Exposure Retail
mortgage
Loans onbalance:
Retail
mortgage
Offbalance
limit:
Retail
mortgage
Exposure
offbalance:
Retail
mortgage
Risk
weight:
Retail
mortgage
Exposure:
Retail
other
Loans onbalance:
Retail
other
Offbalance
limit:
Retail
other
Exposure
offbalance:
Retail
other
Risk
weight:
Retail
other
3,160
3,140
1
1
64%
975
975
35
26
162%
0
1
2
38.400%
27.153%
19.200%
1,486
1,159
1,970
1,479
1,153
1,963
2
3
2
2
2
2
98%
94%
84%
398
352
487
398
350
467
22
19
44
19
16
39
112%
91%
82%
3
4
13.576%
9.600%
1,979
2,961
1,969
2,951
4
4
4
3
77%
57%
726
1,024
686
951
63
108
53
91
69%
62%
5
6.788%
6
4.800%
7
8
9
3.394%
2.400%
1.697%
3,336
5,087
7,750
9,664
12,464
3,327
5,075
7,727
9,797
12,414
8
21
33
52
69
6
16
28
44
59
56%
48%
38%
34%
28%
1,531
3,166
3,579
5,979
5,389
1,370
2,250
3,973
4,166
4,642
214
527
684
2143
1069
180
455
566
1865
887
59%
56%
54%
49%
43%
10
1.200%
11
12
13
14
15
16
17
0.849%
0.600%
0.424%
0.300%
0.212%
0.150%
0.106%
20,140
23,321
18,823
23,354
20,093
23,190
18,733
23,307
108
127
170
191
93
110
147
168
20%
17%
15%
11%
6,532
6,854
7,086
6,903
5,171
5,411
5,380
4,793
1791
2149
2492
3541
1440
1550
1816
2228
41%
35%
27%
24%
18
19
20
0.075%
0.053%
0.038%
29,992
17,671
26,044
127,178
108,753
49,588
36,878
29,823
17,537
25,875
126,629
108,324
49,108
36,626
162
187
194
241
213
345
148
137
168
180
238
213
345
148
7%
6%
5%
3%
2%
2%
1%
4,887
5,189
5,018
6,341
5,105
4,818
3,876
3,546
3,712
3,606
4,981
3,875
3,060
2,875
3291
2960
3030
3530
4218
4671
4702
1355
1503
1415
1359
1241
1758
1000
21%
16%
13%
9%
7%
5%
4%
21
0.030%
Total Swedbank
306,663
839,420
305,407
835,646
479
2,764
479
2592
1%
6%
6,248
92,464
533
67,173
18143
59446
5715
26576
3%
29%
3-4. Retail exposure class, risk profile
3-5. Retail exposure class, 12-month migration
EAD, SEKbn
Share of total EAD
40
700
600
500
400
300
200
100
0
35
30
25
20
15
10
to
≥4
2-3
default grades grades
5
0
Def 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
2013
2014
Swedbank risk grade
3-6. Retail mortgage, as of 31 December 2014
Average LGD, %
50
45
40
35
30
25
20
15
10
5
0
Def 0 1 2 3 4 5 6 7 8 9 101112131415161718192021
Swedbank risk grade
SWEDBANK
+/- 1
grade
2-3
≥4
from
grades grades default
Downgrades
Swedish Banking
Upgrades
Baltic Banking
LC&I
3-7. Retail other, as of 31 December 2014
Average LGD, %
50
45
40
35
30
25
20
15
10
5
0
Def 0 1 2 3 4 5 6 7 8 9 101112131415161718192021
Swedbank risk grade
Appendix 89
3-8. Retail exposure class, exposure weighted, SEKm
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Industrial and warehouse properties
Other property management
Total Swedbank
Swedish
Banking
540,388
127,815
87,854
61,144
4,178
1,616
6,331
7,438
2,567
76
1,722
1,011
567
11,807
7,045
2,002
1,195
1,566
7,016
4,960
866,491
Baltic
Banking
54,590
10,467
0
393
465
107
359
855
495
3
88
80
20
269
54
52
14
150
704
44
68,939
- of which
Estonia
25,487
4,670
- of which
Latvia
13,397
2,565
- of which
Lithuania
15,706
3,231
149
237
66
261
430
242
215
136
21
47
234
153
3
18
18
1
54
3
17
4
30
229
16
17,106
29
91
20
51
190
100
56
48
18
184
19
35
10
120
303
19
32,170
15
14
2
32
32
172
10
19,663
LC&I
14
249
2,387
3
25
17
2
115
10
8
18
511
149
88
28
14
18
7,205
144
10,857
Total
594,992
138,531
90,242
61,539
4,667
1,740
6,692
8,408
3,071
79
1,819
1,109
1,098
12,226
7,187
2,083
1,222
1,734
14,926
5,148
946,287
3-9. Retail exposure class, exposure-weighted average risk weights by industry and business area, %
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Total Swedbank
Swedish
Banking
2.7
7.8
7.1
12.4
36.9
30.5
33.5
40.7
29.4
43.6
43.6
34.6
38.9
29.8
24.9
33.7
41.4
37.9
41.5
33.9
6.3
Baltic
Banking
27.6
49.5
- of which
Estonia
20.3
47.5
- of which
Latvia
39.5
64.1
- of which
Lithuania
29.4
40.8
52.0
52.7
44.1
52.5
50.6
46.8
52.2
48.8
38.0
51.4
44.2
46.0
64.9
66.7
63.1
65.1
68.1
53.9
56.3
45.2
29.2
51.4
1.3
1.2
1.4
1.5
47.3
47.6
32.2
49.9
38.8
30.5
43.6
44.6
42.2
51.3
43.2
39.6
44.2
25.8
50.1
50.1
45.1
44.7
48.0
43.5
34.6
43.7
43.0
46.7
52.7
43.4
52.3
46.1
54.9
46.6
43.7
43.7
96.4
69.8
8.6
95.1
95.1
61.8
60.7
32.6
LC&I
42.0
27.5
19.4
37.9
46.8
44.7
42.5
25.4
25.3
50.9
38.6
13.9
40.6
33.4
52.7
52.9
46.9
62.1
50.0
25.6
Total
5.0
11.0
7.4
12.7
38.6
31.5
34.6
41.5
32.2
43.3
44.2
35.4
27.1
30.4
25.4
34.3
41.6
38.6
51.7
34.4
8.2
3-10. Exposure-weighted average PD by industry and business area, retail exposure class, %
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Total Swedbank
SWEDBANK
Swedish
Banking
0.25
0.52
0.25
1.07
2.19
1.59
2.08
2.18
2.10
2.87
2.90
1.83
2.10
1.29
1.25
1.18
1.41
1.50
1.13
1.54
0.43
Baltic
Banking
2.66
2.66
- of which
Estonia
2.21
2.10
- of which
Latvia
4.03
3.93
- of which
Lithuania
2.21
2.45
6.08
5.71
4.67
5.49
4.96
5.50
1.67
6.85
4.91
3.47
6.44
9.72
6.52
5.40
5.33
5.54
8.26
2.82
5.86
4.81
4.52
5.29
4.36
5.31
6.08
6.56
4.76
5.16
5.56
6.20
1.67
5.93
5.50
7.65
8.82
4.22
10.84
3.48
8.90
7.04
10.52
4.17
7.13
6.77
5.06
6.81
5.59
4.87
6.42
3.41
3.49
5.09
9.71
4.48
6.15
4.44
4.04
7.79
2.36
9.60
9.24
1.35
10.33
10.33
6.17
5.50
2.40
LC&I
3.03
0.64
0.49
3.47
6.50
4.39
3.63
0.75
2.87
3.24
8.04
0.23
3.25
2.65
4.52
4.74
3.31
0.43
2.72
1.42
Total
0.47
0.68
0.25
1.10
2.57
1.81
2.27
2.44
2.65
2.82
3.09
2.15
1.26
1.42
1.33
1.36
1.50
1.85
1.00
1.63
0.60
Appendix 90
Credit risk exposures – corporate exposure class (IRB)
Exposures not assigned to any other exposure class are assigned to the corporate exposure class. This category includes mainly
exposures to large and to medium-sized legal entities where the total exposure is more than SEK 6m, after reduction of collateral in
residential property eligible to reduce LGD. Within corporate exposures, specialised lending is a sub-class referring to exposures with a
high degree of correlation between the exposure and the collateral or asset financed, e.g. special purpose vehicles (SPVs).
3-11. Corporate exposure class - outstanding exposures, by risk grade
31 December 2014
Off-balance
limit Corporate
A-IRB
Exposure
off-balance
- Corporate
A-IRB,
SEKm
Average
risk weight
Corporate
A-IRB, %
Exposure
Corporate
F-IRB, SEK
m
Outstanding
loans
Corporate FIRB, SEKm
1,359
88
45
284%
1,457
1,482
23
6
0%
33
2
2
134%
306
305
52
17
177%
99
212
558
101
188
628
9
31
23
5
23
15
154%
75%
75%
888
323
1,168
882
312
1,122
37
27
170
21
12
65
218%
176%
178%
4
5
9.600%
6.788%
536
1,493
515
1,706
56
201
34
112
71%
78%
1,648
1,313
1,596
1,057
244
452
110
274
154%
132%
6
7
4.800%
3.394%
3,063
4,905
2,704
5,461
486
401
363
266
80%
56%
3,153
2,769
2,777
2,505
1,181
565
456
276
120%
96%
8
9
2.400%
1.697%
9,415
13,957
9,099
13,213
1,142
1,651
808
1,189
55%
48%
1,113
2,331
1,071
2,125
222
746
105
303
88%
86%
10
11
1.200%
0.849%
19,304
24,889
18,035
24,363
2,793
5,171
1,690
2,637
45%
43%
5,259
9,610
4,990
7,586
1,164
4,009
382
2,393
87%
77%
12
13
14
15
16
0.600%
0.424%
0.300%
0.212%
0.150%
27,005
36,411
44,447
56,753
46,937
24,598
31,506
38,153
46,057
33,906
4,695
8,943
11,853
13,123
17,172
2,668
4,482
6,202
6,957
7,893
38%
35%
30%
25%
23%
2,167
13,523
1,860
11,607
1,771
1,635
11,552
2,392
10,467
1,735
1,219
5,172
318
3,131
2,217
874
1,958
164
1,151
530
67%
61%
39%
46%
31%
17
18
19
0.106%
0.075%
0.053%
48,007
31,683
10,163
32,522
19,727
5,045
30,269
15,245
4,725
12,164
7,846
2,016
19%
17%
10%
6,576
362
3,780
5,548
134
1,977
3,522
700
3,918
1,095
344
1,742
31%
26%
20%
20
21
0.038%
0.030%
2,218
1,849
636
12
3,150
5
1,223
3
13%
3%
697
455
647
455
81
1
29
0
17%
4%
385,375
309,563
121,234
58,643
31%
74,135
64,352
29,170
12,307
68%
Total
Swedbank
3-12. Corporate exposure class, risk profile
Share of total EAD
16
14
12
10
8
6
4
2
0
Def 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
2013
2014
3-13. Corporate exposure class, 12-month migration
EAD, SEKbn
300
250
200
150
100
50
0
Swedbank risk grade
3-14. Corporate A-IRB, as of 31 December 2014
Average LGD, %
50
Downgrades
Baltic Banking
LC&I
Upgrades
3-15. Corporate F-IRB, as of 31 December 2014
Average LGD, %
50
40
40
30
30
20
20
10
10
0
Swedish Banking
from default
27.153%
19.200%
13.576%
Average
risk weight
Corporate
F-IRB, %
≥3 grades
1
2
3
Exposure
undrawn
commitments
Corporate F-IRB,
SEKm
1-2 grades
41
Off-balance
limit Corporate
F-IRB
unchanged
38.400%
PD
1-2 grades
1,428
0
Def
≥3 grades
100.000%
Risk grade
to default
Exposure Corporate AIRB, SEK m
Loans onbalance
Corporate
A-IRB,
SEKm
0
Def 0 1 2 3 4 5 6 7 8 9 101112131415161718192021
Swedbank risk grade
SWEDBANK
Def 0 1 2 3 4 5 6 7 8 9 101112131415161718192021
Swedbank risk grade
Appendix 91
3-16. Corporate exposure class, exposures by industry and business area, SEKm
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Total Swedbank
Swedish
Banking
249
2,387
13,499
5,713
12,651
5,616
6,127
9,745
3,852
45
2,925
1,286
2,723
103,069
38,609
31,684
14,932
17,844
7,016
6,426
183,330
Baltic
Banking
0
454
- of which
Estonia
0
127
- of which
Latvia
0
181
- of which
Lithuania
0
146
3,048
8,704
7,007
1,926
9,001
4,261
2
2,236
832
857
15,909
680
10,308
2,190
2,731
3,091
71
57,400
1,410
3,183
2,418
1,040
3,537
1,418
1,094
2,867
569
469
2,317
1,901
2
606
63
194
3,135
129
2,307
488
211
518
49
13,965
544
2,655
4,020
417
3,146
942
904
362
655
8,049
353
4,000
1,383
2,313
2,170
16
25,290
726
407
8
4,726
198
4,002
319
207
403
6
18,146
LC&I
124
371
33,822
8,527
10,202
14,663
2,534
42,043
631
5,393
12,112
85,370
6,808
42,928
22,965
12,669
7,205
5,744
228,741
Total
249
2,841
13,623
9,133
55,177
21,150
18,255
33,409
10,646
42,090
5,792
7,511
15,692
204,348
46,097
84,920
40,087
33,244
17,313
12,241
469,471
Note: Includes only exposures in the corporate exposure class in the IRB approach. There are also exposures to corporate customers in the retail exposure
class. For example, the majority of the customers in the Agriculture, forestry and fishing industry are included in the Retail mortgage exposure class.
Baltic Banking uses the foundation methodology and prescribed values to calculate LGD for the corporate exposure class, which affects the risk weight.
3-17. Corporate exposure class, exposure-weighted average risk weights by industry and business area, %
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Total Swedbank
Swedish
Banking
27.5
19.4
52.1
45.3
46.1
32.8
39.6
49.4
49.5
69.8
44.8
45.8
42.9
22.6
22.1
23.6
21.0
23.2
41.5
57.9
33.8
Baltic
Banking
- of which
Estonia
- of which
Latvia
- of which
Lithuania
80.8
77.2
82.5
81.7
90.8
78.3
48.9
79.7
70.0
77.2
0.0
73.6
100.8
67.8
72.3
89.2
69.9
73.4
76.2
59.7
97.2
71.4
64.2
69.1
40.3
65.2
58.4
62.9
119.2
85.7
50.4
104.4
98.2
85.6
0.0
104.7
96.1
55.8
108.9
141.4
103.8
128.1
100.7
85.4
102.3
95.3
102.4
81.1
53.9
88.3
62.3
81.6
59.1
54.2
71.4
60.3
101.1
50.1
56.5
73.9
47.3
79.6
58.9
65.9
143.1
67.5
68.6
33.8
70.2
63.4
76.9
93.3
103.1
70.4
LC&I
47.4
13.1
40.1
29.2
26.5
31.7
41.8
38.0
41.0
34.2
19.2
21.2
18.0
19.3
19.5
32.4
62.1
46.1
30.1
Total
27.5
29.2
52.1
59.2
47.5
36.7
36.5
47.2
58.7
38.0
55.5
43.6
26.0
25.9
22.5
27.0
23.0
31.1
53.3
52.6
36.9
3-18. Corporate exposure class, exposure-weighted average PD by industry and business area, %
31 December 2014
Private mortgage
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Total Swedbank
SWEDBANK
Swedish
Banking
0.64
0.49
0.93
1.44
1.13
1.03
1.25
1.23
1.21
1.78
1.99
0.95
1.17
0.85
0.64
0.93
1.17
0.87
1.13
1.58
0.98
Baltic
Banking
- of which
Estonia
- of which
Latvia
- of which
Lithuania
3.62
5.93
3.04
2.35
4.58
2.33
0.68
2.77
2.01
3.43
1.20
2.54
3.24
0.98
2.46
3.68
2.21
2.89
2.75
2.33
6.42
2.30
2.16
1.99
0.40
1.39
1.07
1.68
7.06
2.78
1.25
4.73
4.76
4.53
1.20
5.67
3.57
0.44
5.27
5.91
4.52
7.72
7.37
4.68
6.17
4.43
5.85
2.25
0.77
4.02
1.05
3.83
1.29
0.51
1.12
1.55
4.03
0.92
1.51
2.29
1.23
2.26
1.42
1.49
5.62
2.44
2.13
1.59
2.16
1.48
3.09
5.24
20.52
2.03
LC&I
0.85
0.08
0.40
0.24
0.42
0.27
0.53
0.38
0.24
0.25
0.12
0.31
0.23
0.22
0.39
0.54
0.43
1.29
0.31
Total
0.64
0.99
0.93
2.43
0.87
0.60
0.95
1.02
1.93
0.39
2.01
0.70
0.35
0.75
0.62
0.73
0.81
0.90
1.05
1.47
0.80
Appendix 92
3-19. Credit risk: Remaining maturity in specialised lending
31 December 2014
SEKm
Less than 2.5 years
2.5 years or more
Category 1
Category 2
Category 3
Category 4
Category 5
0
83
246
228
486
49
371
84
341
170
Credit risk exposures - institutions exposure class (IRB)
The institutions exposure class includes exposures to credit institutions, banks and investment firms, as well as exposures to local
authorities in the Baltic countries. Operations with customers in the institutions exposure class are concentrated to Sweden, and in
particular to the LC&I and Group Functions (Group Treasury) business areas, which have the most expertise in analysing these types
of customers, business segments and countries. Swedbank’s exposures are mainly to large and established credit institutions with
whom it has long-standing business relations, and most are from the Nordic countries. The risk for these types of customers is
considered low. Exposures to banks in the GIIPS countries make up only 0.14% of total institution exposures (see table 3-24).
3-20. Institutions exposure class, outstanding exposures by risk grade
Exposure,
SEKm
Risk grade
PD
Def
0
100.000%
38.400%
1
27.153%
2
3
4
5
19.200%
13.576%
9.600%
6.788%
6
7
8
9
10
11
12
13
4.800%
3.394%
2.400%
1.697%
1.200%
0.849%
0.600%
0.424%
14
15
16
17
0.300%
0.212%
0.150%
0.106%
18
19
20
21
Total
Swedbank
0.075%
0.053%
0.038%
0.030%
31 December 2014
Outstanding
Exposure offloans, SEKm balance, SEKm
59
Average risk
weight, %
59
0%
2
2
250%
312
315
41
177%
551
111
411
117
19
28
157%
142%
1,538
1,440
82
110%
1,132
624
111
60%
11,531
3,153
575
34%
63,117
28,431
3,785
13%
57,910
44,458
48
8%
136,263
79,008
4,690
16%
3-21. Institutions exposure class, risk profile
Share of total EAD
3-22. Institutions exposure class, 12-mo. migration
EAD, SEKbn
60
120
50
100
80
40
60
30
40
20
20
10
0
0
Def 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
2013
2014
Swedbank rating grade
SWEDBANK
to
≥4
default grades
2-3
grades
+/- 1
grade
2-3
grades
Downgrades
Swedish Banking
≥4
from
grades default
Upgrades
Baltic Banking
LC&I
Group Treasury
Appendix 93
3-23. Outstanding exposures, by geographical area*
31 December
2014
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Sweden
783,405
78,378
310,685
63,949
Estonia
Latvia
Lithuania
25,665
13,405
15,692
6,288
3,551
3,888
26,064
14,603
18,815
1
4
11
SEKm
Other
Govts and
central
banks
Local govts
or local
authorities
Other
Total
71,454
47,074
32,525
40,038
1,427,507
729
1,641
1,117
18,295
9,204
20,255
1,014
153
156
3,644
947
1,297
43,508
61,230
81,700
Russia
152
12
81
344
0
0
0
585
1,175
Norway
353
169
30,766
2,910
9
4,419
248
6,559
45,434
Denmark
Finland
215
23
22
19
2,859
18,042
5,613
6,212
4
6
832
1,788
0
0
2,971
1,671
12,516
27,761
25
11
4,867
9,274
61
69,475
0
128
83,840
485
839,420
127
92,464
34,785
461,567
47,944
136,263
819
75,841
3,362
174,703
0
34,096
19,588
77,428
107,111
1,891,783
USA
Other
Total Swedbank
31 December
2013
IRB approach
Other
Govts and
central
banks
Local govts
or local
authorities
Other
Total
8,112
39,426
53,547
60,545
1,360,607
2
951
11,185
751
8,022
74,125
20
6
684
1,471
224
222
11,657
6,843
260
81
236
0
3,565
5,682
1,133
48,338
46,652
2,539
6
3
16
518
1,307
12,830
2,586
1,149
10,591
20,198
3,578
107,472
142
0
0
0
0
54,756
3,500
1,327
188
216
6,622
90,800
35,549
6,736
33,085
28,366
84,929
Retail mortgages
Retail other
Corporate
Institutions
Sweden
773,078
58,386
298,714
68,799
Estonia
23,739
5,679
23,796
Latvia
Lithuania
Russia
13,264
14,414
124
3,410
3,566
27
14,870
15,681
89
297
188
22
30
487
825,644
72
23
13
15
160
71,350
26,341
2,175
16,788
4,089
33,835
436,376
2,606
1,871
5,469
3,299
38,941
121,698
SEKm
Norway
Denmark
Finland
USA
Other
Total Swedbank
1,720,926
* Exposures to customers in the country. For institutions exposures, the country of origin where the customer’s head office is located is used for all
exposures.
3-24. Exposures to Greece, Ireland, Italy, Portugal and Spain, 31 December
SEKm
Greece
Ireland
31 December 2014
Italy
Portugal
Spain
Bonds
of which sovereign
of which held to maturity
Loans (money market and certificates)
Loans (committed credit facilities)
Derivatives net*
Other**
Total Swedbank CS
0
11
9
20
19
7
22
8
49
0
7
85
31
117
2013
Total
Total
-
162
-
119
119
26
118
49
193
4
79
98
342
*Derivatives at market value, taking into account netting and collateral agreements. Considering the bank's internal risk add-ons for counterparty risk at
potential future change in prices, the derivative exposures amount to: Ireland SEK 18m, Italy SEK 437m and Spain SEK 228m. Total SEK 683m.
**Includes mortgage loans and trade finance.
SWEDBANK
Appendix 94
3-25. Outstanding exposures by industry
31 December 2014
IRB approach
Retail mortgages
Retail other
Other
Govts
and
central
banks
Other
Total
594,981
0
249
0
0
2
0
5,365
86,627
84,533
54,333
45,066
2,294
7,150
2,932
13,631
9,049
1
48
47
278
0
12
1
250
37
0
807
6
2,823
2,072
974
600,597
137,729
103,636
71,607
Manufacturing
255
4,223
55,387
177
59
1,012
0
976
62,089
347
1,311
19,557
3
16
17,293
19,426
1,377
59,331
Construction
Retail
801
741
5,509
7,507
18,816
32,538
76
60
63
123
0
229
32
4
526
10,059
25,825
51,261
Transportation
150
5
338
2,805
73
1,455
10,128
40,994
5,749
130
194
7
45
0
6
0
872
0
491
0
175
137
37
308
13,887
42,175
8,038
101
103
886
994
7,403
17,132
6
2,606
15
1,120
0
0
18
123
50
14,131
8,478
36,208
Property management
7,352
5,541
812
4,754
1,586
1,244
202,487
42,602
83,279
3
0
0
17
1
2
580
49
19
6,477
4,123
1,236
10,963
3,159
2,056
232,634
57,061
88,648
Industrial and warehouse property
252
747
1,001
7,751
978
947
4,728
3,705
53,316
23,290
16,934
8,481
2
0
52
18
1
13
100
195
0
512
1,880
2,604
334
784
457
826
776
4,973
985
5,212
55,658
Credit institutions
Other exposures
0
0
0
7
100
0
132,833
0
63,368
10,424
149,563
378
5,254
0
18,446
2,987
369,565
13,797
Total Swedbank
839,420
92,464
461,567
136,263
75,841
174,703
34,096
77,428
1,891,783
SEKm
Private mortgages
Private other
31 December 2013
SEKm
Private mortgages
Private other
Manufacturing
Construction
Retail
Transportation
Property management
Industrial and warehouse property
Credit institutions
Other exposures
Total Swedbank
SWEDBANK
Corporate Institutions
IRB approach
Local
govts or
local
authorities
31,267
26,136
28,791
Other
Govts and
central
banks
Local govts
or local
authorities
Other
Total
0
240
0
131
1,177
171
750
1,078
390
57
48
365
131
0
0
0
0
0
11,484
0
26
0
0
0
1
396
3
2
1,073
38
892
16,641
37
110
80
0
241
22
385
1,263
11,322
0
155
273
4,005
121
966
245
0
3
31
4,611
590,191
133,450
91,189
68,857
151
0
12
2
11
51
44
116,951
0
151
23
44
27
57
970
389
799
5,986
492
0
0
0
492
0
5,573
89,082
418
6,650
3,775
1,380
694
801
430
982
27,015
157
1,529
8
113
0
1,408
97
7,082
51,941
7,156
189,336
49,641
121,823
12,830
107,472
54,756
90,799
1,720,926
Retail mortgages
Retail other
Corporate
Institutions
588,456
89,915
78,623
52,300
465
481
1,482
1,178
332
11
439
316
115
0
29,184
2,779
6,715
3,301
1,005
5,122
6,109
2,609
61
1,342
708
292
469
2,787
8,714
9,420
61,545
15,110
19,716
36,549
10,453
33,374
5,157
8,719
21,512
0
1
0
98
253
14
157
94
166
178
10
7
3,648
6,773
5,097
858
291
528
1,778
2,957
0
22
4,984
1,888
1,122
1,077
898
3,872
3,217
0
50
301
38,852
85,332
32,531
12,018
13,593
20,267
1
257
825,644
71,350
267,944
67,906
48,912
27,386
46,111
14,274
33,681
7,239
10,169
31,088
88,861
34,622
16,212
20,792
40,511
285,788
14,046
Appendix 95
3-26. Outstanding exposures to SME corporates, by industry
31 December 2014
IRB approach
Govts
Local
and
govts or
central
local
banks authorities
Retail mortgages
Retail other
Corporate
Other
Total
587
0
0
265
103
1,219
0
0
35
54
725
1,538
80,877
233
2,146
1,735
791
2,041
0
0
1,885
78
85,698
4,087
Manufacturing
Construction
75
240
428
3,692
966
4,165
3,359
821
2,008
0
0
0
266
92
181
7,393
2,119
6,783
Retail
Transportation
356
58
6,319
2,289
4,064
1,752
0
0
399
39
11,138
2
49
18
0
19
87
184
1,139
695
0
52
2,069
50
650
237
0
12
949
96
6,236
727
3,745
403
13,526
0
0
7
834
1,233
24,341
5,116
453
1,226
915
6,988
2,867
0
0
311
183
67
601
653
347
0
0
821
784
3,485
1,364
0
6
2,147
1,524
2,004
1,346
0
0
0
0
0
0
0
0
126
215
241
123
0
0
13,641
4,417
3,160
90,421
32,744
34,386
SEKm
Private mortgages
Private other
Property management
Industrial & warehouse prop.
Credit institutions
Other exposures
Total Swedbank
Institutions
0
Other
0
0
0
4,318
4,138
3,123
6,384
3,180
0
7
161,870
3-27. Collateral reducing LGD, exposures (EAD)
31 December 2014
IRB approach
Other
Govts and
central
banks
Local govts or
local
authorities
Other
Total
20
0
0
0
5,279
983,243
6,736
28,662
0
29
1
2,212
37,640
48,062
146
0
0
1
1,173
53,809
Other
Total
Retail mortgages**
Retail other
Corporate
Institutions
814,493
24,152
139,299
Exposures covered by
financial collaterals
0
0
guarantees and credit
derivatives**
1,257
3,171
SEKm
physical collaterals*
31 December 2013
IRB approach
Govts and
central
banks
Local govts
or local
authorities
Retail mortgages**
Retail other
768,452
41,479
103,910
33
3,559
917,434
financial collaterals
26
96
3,821
11,362
416
15,721
derivatives**
337
2,795
23,982
616
842
28,573
SEKm
physical collaterals*
Corporate Institutions
Other
*Mainly collaterals in residential properties.
**Municipalities and property management companies are the major guarantors.
SWEDBANK
Appendix 96
3-28. Outstanding exposures by maturity*
31 December 2014
IRB approach
33,538
Other
4,566
167,325
602
1,313
105,595
8,962
7,060
3,479
20,884
5,116
785,958
218,244
44,630
13,024
27,025
4,508
332
491
10,800
2,135
7,845
11,562
2,480
361
17,554
2,728
12,729
511,730
75,414
106,375
1,581
136,263
3,786
75,841
5,829
174,703
45
34,096
13,850
77,428
26,737
1,891,783
Retail other
19,824
Corporate
25,262
Institutions
6,749
Other
64,810
< 3 months
3-12 months
428,553
103,826
38,319
9,316
172,476
55,447
12,469
30,785
1-5 years
5-10 years
> 10 years
241,073
15,410
46,912
17,952
4,310
2,407
163,651
34,995
8,607
180
839,420
337
92,464
1,129
461,567
SEKm
Payable on demand
Without maturity
Total Swedbank
31 December 2013
SEKm
Payable on demand
< 3 months
3-12 months
1-5 years
5-10 years
> 10 years
Without maturity
Total Swedbank
Govts and
central
banks
Local govts
or local
authorities
9,109
Retail mortgages**
3,467
IRB approach
Total
Retail mortgages**
Retail other
Corporate
Institutions
Other
Govts
and
central
banks
7,246
370,095
106,921
281,179
16,043
43,952
207
825,644
13,802
30,281
4,179
16,791
4,166
1,985
146
71,350
30,981
167,217
43,691
157,634
27,190
6,859
2,804
436,376
7,200
5,876
20,237
57,057
5,231
24,898
1,199
121,698
262
246
1,338
4,053
524
602
5,805
12,830
14,531
68,090
3,721
3,000
1,632
3,660
12,838
107,472
Local govts
or local
authorities
Other
Total
9,242
19,562
5,022
16,526
4,051
348
5
54,756
55,579
14,412
2,378
9,136
1,649
3,165
4,481
90,800
138,844
675,779
187,487
545,377
60,484
85,469
27,486
1,720,926
* Maturity is the remaining contractual maturity as of 31 December, except for contracts where the terms and conditions are set periodically, e.g.
mortgages. In these cases, the time to the next change in terms and conditions is used as maturity, in accordance with the guidelines from the SFSA.
** Looking at the exposure class of retail mortgage exposure, the majority of loans relate to private mortgages and have a contracted floating interest
rate, i.e. a three-month fixed rate, after which the loans roll over to a new three-month fixed rate. Compared to the Baltic countries, mortgage loans in
Sweden tend to have substantially shorter contracted interest rate fixing periods. The majority of mortgage loans that have a remaining maturity of
over 10 years represent lending in the Baltic countries.
3-29. Exposures* and average exposure
31 December 2014
SEKm
Total exposure
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
839,420
92,464
461,567
136,263
Other**
Govts and
central banks
Local govts
or local
authorities
Other
Total
75,841
174,703
34,096
77,428
1,891,783
Exposure before credit risk mitigation
840,677
94,508
471,559
133,357
75,795
169,427
23,670
78,961
1,887,954
Average exposure
809,191
100,780
435,361
139,969
56,138
266,624
33,596
64,661
1,906,320
31 December 2013
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts and
central banks
Local govts
or local
authorities
Other
Total
Total exposure
825,644
71,350
436,376
121,698
12,830
107,472
54,756
90,800
1,720,926
Average exposure
811,051
71,990
423,558
134,198
14,365
217,157
51,828
74,461
1,798,607
SEKm
* Exposures according to the capital adequacy framework, IRB approach exposures defined as EAD.
** Swedbank’s holdings in interest-bearing debt securities, SEK 763m as of 31 December 2014, were exposures classified according to capital adequacy
rules as the securitisation exposure class (included in ‘other’ above). These holdings consist of residential mortgage-backed securities (RMBS) with an
AAA rating. These assets are not growing; they are a legacy from previous operations which have now ceased. Also included in Other IRB is the ‘noncredit obligation exposure’ class consisting of assets which do not require deliveries from a counterparty, e.g. the residual value in leasing agreements
where Swedbank carries the financial risk.
SWEDBANK
Appendix 97
3-30. Unutilised advance commitments
31 December 2014
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts and
central banks
Local govts
or local
authorities
Other
Total
Unutilised advance commitments
2,764
59,446
150,867
6,980
0
3,979
23,660
27,197
274,893
Associated exposures to unutilised
advanced commitments
2,592
26,576
71,228
4,690
0
1,986
11,971
3,094
122,135
SEKm
31 December 2013
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Unutilised advance commitments
34,695
14,752
126,879
9,085
Associated exposures to unutilised
advanced commitments
10,449
13,095
89,415
6,523
SEKm
Other
Govts and
central banks
Local govts
or local
authorities
Other
Total
0
2,433
21,669
26,907
236,420
0
755
11,068
1,736
133,042
3-31. IRB exposures by exposure type and exposure class
31 December 2014
On-Balance
Off-Balance
EAD
Derivatives
REA
EAD
Repos
SEKm
EAD
REA
REA
EAD
Swedish Banking
991,008
99,868
45,420
13,401
5,028
2,577
12
REA
9
LC&I
178,448
56,842
47,733
15,902
47,345
9,773
1,011
131
Baltic Banking
0
122,021
60,024
11,932
6,786
436
162
0
- of which Estonia
55,855
22,370
4,151
2,069
235
65
0
0
- of which Latvia
31,472
20,807
2,515
1,751
33
20
0
0
- of which Lithuania
Group Functions & Other
Total Swedbank
31 December 2014
34,695
16,848
5,266
2,966
168
77
0
0
131,854
6,384
0
0
23,304
2,989
3
0
1,423,330
223,118
105,085
36,089
76,113
15,502
1,027
140
On-Balance
Off-Balance
REA
Retail mortgage
836,828
49,621
2,592
388
0
0
0
0
65,335
20,306
26,576
5,742
540
309
14
9
363,035
132,196
70,949
28,324
25,383
7,474
142
14
1,777
1,939
278
248
2
1
0
0
Institutions
80,515
11,601
4,690
1,387
50,188
7,718
871
117
Other non-credit obligations
75,079
7,373
0
0
0
0
0
0
763
82
0
0
0
0
0
0
1,423,330
223,118
105,085
36,089
76,113
15,502
1,027
140
Corporate
Corporate specialised lending
Securitisation
Total Swedbank
SWEDBANK
REA
EAD
Repos
EAD
Retail other
EAD
Derivatives
SEKm
REA
EAD
REA
Appendix 98
3-32. Estimated loan losses and realised outcome*
2014
Swedbank CS
Retail - mortgages
Retail - other
Corporate**
Institutions**
Swedish Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
Baltic Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
LC&I
Retail - mortgages
Retail - other
Corporate**
Institutions**
Group Functions
Retail - mortgages
Retail - other
Corporate**
Institutions**
2013
Swedbank FCG
Retail - mortgages
Retail - other
Corporate**
Institutions**
Swedish Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
Baltic Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
LC&I
Retail - mortgages
Retail - other
Corporate**
Institutions**
Group Functions
Retail - mortgages
Retail - other
Corporate**
Institutions**
SWEDBANK
PD in %
LGD in %
Estimated
on the
defaults
EL in %
Realised****
Estimated
Realised
Estimated
Realised***
Estimated
on total
portfolio
0.51
2.15
0.85
0.08
0.43
0.74
0.70
0.00
10.09
42.43
41.75
25.33
12.60
39.73
44.40
n.a.
7.18
11.92
17.69
n.a.
0.07
0.92
0.36
0.03
0.07
0.15
0.11
0.00
0.36
1.53
1.08
0.09
0.21
0.63
1.05
0.00
9.54
41.84
41.36
39.75
8.98
37.62
43.52
n.a.
1.02
6.83
13.70
n.a.
0.04
0.62
0.46
0.04
0.00
0.09
0.14
0.00
2.76
4.84
2.29
0.11
1.09
1.22
0.81
0.00
18.14
45.01
41.81
29.58
23.38
49.18
44.78
n.a.
25.55
34.68
16.66
n.a.
0.50
2.18
0.96
0.03
0.28
0.42
0.13
0.00
1.24
4.00
0.29
0.12
0.00
0.00
0.32
0.00
16.32
42.97
42.87
32.12
n.a.
n.a.
45.00
n.a.
n.a.
n.a.
21.95
n.a.
0.25
1.73
0.13
0.05
0.00
0.00
0.07
0.00
5.09
1.06
0.04
0.00
0.00
0.00
19.06
14.87
17.52
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
1.26
0.13
0.01
0.00
0.00
0.00
Estimated
Realised***
Estimated
on total
portfolio
LGD in %
Estimated
on the
defaults
Realised****
Estimated
Realised
0.54
2.14
1.00
0.11
0.25
0.79
0.67
0.00
10.34
42.77
42.85
27.69
13.36
40.37
43.37
n.a.
6.46
11.51
15.21
n.a.
0.08
0.91
0.44
0.04
0.08
0.18
0.06
0.00
0.39
1.59
1.16
0.10
0.25
0.79
1.05
0.00
9.81
42.25
40.43
43.94
10.15
38.71
42.09
n.a.
0.72
6.39
9.71
n.a.
0.05
0.64
0.48
0.04
0.00
0.10
0.06
0.00
2.84
4.96
3.06
0.33
1.32
1.58
0.43
0.00
18.65
45.42
43.86
44.47
24.13
48.99
42.52
n.a.
25.74
37.80
32.24
n.a.
0.53
2.25
1.34
0.15
0.34
0.60
0.14
0.00
0.28
4.28
0.33
0.18
0.00
1.72
0.25
0.00
6.01
44.48
44.62
34.08
20.50
45.00
n.a.
0.00
17.19
n.a.
0.01
1.84
0.18
0.07
0.00
0.00
0.04
0.00
2.45
0.29
0.05
0.00
0.00
0.00
31.14
44.64
18.78
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
0.89
0.12
0.01
0.00
0.00
0.00
PD in %
EL in %
Appendix 99
2012
Swedbank FCG
Retail - mortgages
Retail - other
Corporate**
Institutions**
Swedish Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
Baltic Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
LC&I
Retail - mortgages
Retail - other
Corporate**
Institutions**
Group Functions
Retail - mortgages
Retail - other
Corporate**
Institutions**
2011
Swedbank FCG
Retail - mortgages
Retail - other
Corporate**
Institutions**
Swedish Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
Baltic Banking
Retail - mortgages
Retail - other
Corporate**
Institutions**
LC&I
Retail - mortgages
Retail - other
Corporate**
Institutions**
PD in %
Estimated
on total
portfolio
LGD in %
Estimated
on the
defaults Realised****
Estimated
Realised***
0.56
2.21
1.36
0.08
0.40
1.66
0.69
0.00
10.74
42.93
11.29
41.70
0.40
1.61
1.62
0.17
0.32
1.36
0.59
0.00
10.00
42.15
3.00
5.19
4.32
0.19
1.52
3.11
0.56
0.00
1.90
4.19
0.43
0.11
1.40
0.95
0.04
EL in %
Estimated
Realised
2.82
13.84
0.06
0.95
0.03
0.29
10.26
40.89
1.25
8.28
0.04
0.68
0.00
0.11
20.45
46.73
26.55
45.88
26.30
40.28
0.61
2.42
0.45
1.15
3.50
0.06
0.81
0.00
11.84
34.15
10.30
15.90
0.42
0.00
0.23
1.43
0.01
0.00
0.00
0.00
0.00
45.05
n.a.
n.a.
0.63
0.00
Estimated
on total
portfolio
LGD in %
Estimated
on the
defaults
Realised****
Estimated
Realised
PD in %
EL in %
Estimated
Realised***
0.48
2.26
1.81
0.07
0.50
1.94
0.92
0.01
10.71
42.95
17.06
38.83
12.12
29.92
0.05
0.97
0.06
0.58
0.36
1.56
1.77
0.09
0.32
1.28
0.83
0.00
9.84
42.67
10.16
42.74
3.14
22.91
0.04
0.66
0.01
0.29
2.03
5.43
5.71
0.38
3.02
4.81
3.90
0.00
22.81
44.16
27.19
34.41
25.39
37.91
0.46
2.40
0.82
1.83
1.34
4.85
0.61
0.07
3.57
0.58
0.07
0.01
11.74
41.26
16.22
19.39
3.96
6.45
0.16
2.00
0.14
0.04
*
**
The results are exposure-weighted.
Swedbank applies prescribed LGD values for exposures to corporates and institutions. Permission to use own estimates for the exposure class
corporate in Sweden and Norway was received in June 2014 and is thus not included in the estimates above.
***
At Swedbank, a credit exposure is regarded to be in default if any of the following criteria are fulfilled:
a. There has been an assessment indicating that the counterparty is unlikely to pay its credit obligations as agreed or
b. The counterparty is past due more than 90 days on any material credit obligation to Swedbank, and Swedbank will have to claim collateral or
take other similar action.
**** LGD is defined as the portion of exposure amount that would be lost in the event of default. Realised LGD is based on all available data as of
31 December for defaulted counterparties/accounts. For defaults that still have an ongoing work-out process, provisioning amount is used
instead of established loss. The outcome for these will be adjusted when additional information becomes available.
Note: Swedbank FCG= Swedbank Financial Companies Group (applicable under Basel 2 until end-2013)
SWEDBANK
Appendix 100
Past-due loans and impairments
Past-due loans refer to overdrafts or loans where amounts due for payment have not been paid in accordance with the terms of the
loan. Loan agreements become classified as “impaired loans” when there is objective proof that a loss event has occurred at an
individual level after the loan’s first reporting date, and a loss arises when the loan’s anticipated future cash flows differ from the
contractual cash flows (both discounted by the loan’s original effective interest rate).
Loss events on an individual level include when a borrower incurs financial difficulties, when it is likely that the borrower will file for
bankruptcy or liquidation, when the borrower is facing a financial reconstruction, or when there is a breach of contract such as late or
nonpayment of interest or principal or various concessions due to the borrower’s financial difficulties. Exposures past due by more
than 60-90 days or those for which the terms have changed in a significant manner due to the borrower’s financial difficulties are
automatically considered impaired loans. A loan is not considered impaired if there is collateral that covers the principal, unpaid
interest and any late fees by a satisfactory margin.
Credit impairments comprise actual loan losses and probable losses on credits granted, minus recoveries. Established loan losses may
refer to all or part of a credit and are recognised when there is, using a conservative assessment, no realistic chance of recovery.
Recoveries consist of payments on actual losses that were written off in previous years, or reversals of previous provisions for
probable loan losses.
3-33. Change in provisions
SEKm
2014
2013
Opening balance
New provisions
4,074
249
8,824
-71
-821
-344
-1,718
-430
-77
0
249
3,330
-282
-2,283
218
4,258
Utilisation of previous provisions
Recoveries of previous provisions
Portfolio provisions for loans that are not impaired
Group adjustments
Change in exchange rates
Closing balance
3-34. Value adjustments recorded directly to the income statement
SEKm
2014
2013
Established losses
1,808
-821
2,989
-1,745
-62
925
-150
1,094
Credit impairment for contingent liabilities and other credit risk exposures
Value adjustments recorded directly to the income statement
3-35. Recoveries recorded directly to the income statement
2014
2013
Recoveries, loans that individually are assessed as impaired
-396
-385
Recoveries, that individually are not assessed as impaired
Recoveries recorded directly to the income statement
0
-396
0
-385
SEKm
3-36. Specific credit risk adjustments (in thousands) during the periods, by exposure class
IRB approach
Retail mortgages
Retail other
Corporate
F-IRB
2014
940,526
687,746
1,655,644
2013
117,818
2,106,215
2,059,730
SEKm
Institutions
Total
Other IRB
Govts and
central
banks
Local govts
and
comparable
associations
and
authorities
Other
Total
386
0
200
3,049
568,216
3,855,767
138
0
258
4,991
569,617
4,858,767
The total amount of specific provisions decreased by SEK 1bn during the year to SEK 3.9bn at year-end 2014. This is a result of reduced impaired
exposures in the Baltic countries and can be seen in the Retail and in the Corporate exposure classes.
SWEDBANK
Appendix 101
3-37. Impaired* and past due** loans, by significant geographical area
31 December
2014
Provisions for anticipated loan
losses***
Principal past due loans
Impaired
loans
gross
5-30
days, that
are not
impaired
31-60
days, that
are not
impaired
> 60 days,
that are
not
impaired
Sweden
2,075
603
582
Estonia
1,312
739
143
Latvia
1,465
491
Lithuania
1,214
558
SEKm
Provisions for anticipated loan losses
during 2014***
Total
impaired
and past
due loans
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
563
3,822
741
510
1,251
351
-48
302
43
2,237
367
171
537
29
22
51
124
35
2,115
682
240
922
121
-54
67
251
189
2,211
347
124
471
46
-44
2
0
0
0
0
42
97
388
-4
383
6
4
0
4
5
5
0
-4
-4
1
0
Russia
Norway
207
Denmark
19
0
24
8
250
55
8
6
Finland
0
USA
0
4
4
0
2
Other
0
38
38
0
8
8
1,133
3,330
938
-123
815
Total Swedbank
6,281
2,409
31 December
2013
1,100
853
10,643
2,197
losses***
during 2014***
Impaired
loans
gross
5-30
days, that
are not
impaired
31-60
days, that
are not
impaired
> 60 days,
that are
not
impaired
Total
impaired
and past
due loans
Individual
provisions
Portfolio
provisions
Total
provisions
Sweden
2,687
800
482
629
4,599
853
558
Estonia
1,338
756
130
42
2,266
432
149
Latvia
2,145
583
290
86
3,104
1,032
Lithuania
1,563
781
203
162
2,709
489
0
0
Norway
9
130
2
40
181
9
46
55
Denmark
5
0
0
0
5
3
SEKm
Individual
provisions
Portfolio
provisions
1,411
513
-69
444
581
-136
-65
-201
294
1,326
255
-75
180
168
657
-48
-68
-116
-2
16
14
3
2
0
2
0
Russia
Total
provisions
Finland
9
9
-6
9
3
USA
2
2
111
0
111
Other
Total Swedbank
7,747
0
3,050
1,108
959
12,864
2,818
30
30
46
-38
8
1,256
4,074
734
-290
444
*
Loans where payments are unlikely to be made in accordance with contract terms. Such loans are not considered impaired if there is collateral that
covers the full amount of the loan and any late fees by a safe margin.
** Past-due loans refer to overdrafts or loans where, according to the terms of the loan, amounts due for payment have not been paid.
*** Impaired loans are measured, individually and collectively, to determine whether provisioning is needed. When provisioning is needed, a calculation is
made between the loan’s carrying amount and the present value of estimated future cash flows discounted by the loan’s effective interest rate.
3-38. Impaired* and past due** loans, by industry
31 December 2014
losses***
losses during 2014***
Impaired
loans
gross
5-30
days, that
are not
impaired
31-60
days, that
are not
impaired
> 60
days, that
are not
impaired
Total
impaired
& past
due loans
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
2,323
1,423
541
236
4,523
732
178
910
79
11
90
2
2
111
0
116
1
39
40
-4
4
0
Private other
475
261
90
25
851
234
100
334
140
-11
129
274
102
33
9
418
62
70
132
27
-13
14
Manufacturing
614
84
85
242
1,025
210
188
398
77
-7
70
10
19
6
0
34
2
27
29
3
-9
-6
Construction
127
44
24
7
202
33
40
73
10
-8
2
Retail
469
95
32
4
600
184
104
288
447
-13
434
Transportation
114
88
18
88
308
38
39
77
17
-9
8
159
0
0
0
159
86
32
118
-45
20
-25
109
6
24
7
147
19
24
43
-1
-1
-2
8
7
10
0
24
2
11
13
2
-2
0
14
1
6
0
21
10
10
20
8
1
9
Property management
847
78
36
185
1,147
229
177
406
66
-46
20
SEKm
Private mortgages
Information & communication
260
5
6
164
436
64
21
85
n.a.
n.a.
n.a.
88
64
25
19
196
31
47
78
n.a.
n.a.
n.a.
127
0
2
0
129
16
14
30
n.a.
n.a.
n.a.
Other property mgmt
372
9
3
2
386
118
95
213
n.a.
n.a.
n.a.
428
56
30
1
515
163
53
216
27
-23
4
244
142
54
47
488
128
41
169
83
-17
66
Credit institutions
64
0
0
0
64
64
0
64
2
0
2
Total Swedbank
6,281
2,409
1,100
853
10,643
2,197
1,133
3,330
938
-123
815
SWEDBANK
Appendix 102
31 December 2013
losses***
Impaired
loans
gross
5-30
days, that
are not
impaired
31-60
days, that
are not
impaired
> 60
days, that
are not
impaired
Total
impaired
& past
due loans
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
2,942
1,679
518
490
5,628
1,019
167
1,186
10
4
6
0
20
7
35
42
Private other
443
238
82
25
788
237
111
348
233
73
45
67
418
63
83
Manufacturing
629
188
48
47
912
244
195
SEKm
Private mortgages
Portfolio
provisions
Total
provisions
160
-2
158
-7
-18
-25
141
-21
120
146
-89
31
-58
439
108
-1
107
13
94
17
21
145
6
36
42
-5
-1
-6
Construction
189
53
36
7
284
71
48
119
-55
-25
-80
Retail
286
135
33
10
463
119
117
236
58
-36
22
69
126
66
119
379
22
48
70
-60
9
-51
103
Transportation
946
0
0
0
946
211
12
223
110
-7
65
19
4
17
106
22
25
47
17
-10
7
6
14
2
0
22
2
13
15
-16
-3
-19
Property management****
3
4
1
0
8
1
9
10
7
-9
-2
1,061
242
174
83
1,560
379
223
602
209
-108
101
397
28
7
52
484
130
31
161
n.a.
n.a.
n.a.
157
166
21
18
363
61
74
135
n.a.
n.a.
n.a.
107
7
16
4
135
41
21
62
n.a.
n.a.
n.a.
Other property mgmt
399
40
130
9
578
147
97
244
n.a.
n.a.
n.a.
483
61
31
2
578
213
76
289
82
-45
37
293
121
44
71
531
139
58
197
75
-42
33
75
63
0
63
-2
-2
-4
12,864
2,818
1,256
4,074
734
-290
444
Credit institutions
75
Total Swedbank
7,747
3,050
1,108
959
* Loans where payments are unlikely to be made in accordance with contract terms. Such loans are not considered impaired if there is collateral that
**** For Property management the split into sub segments for provisions for anticipated loan losses during 2014 is not applicable
Exposures according to Pillar 3 and loans in the balance sheet
Credit risk can be measured and monitored using different perspectives. In Swedbank’s annual report, the loan portfolio is valued at a
net amount, i.e. after provisions for anticipated loan losses, in accordance with accounting standards and the IFRS framework. In this
Pillar 3 report, exposures are calculated as exposure at default (EAD) in accordance with the Capital Requirement Directive and the
Basel 2 framework. The main differences in numbers are that EAD also includes off-balance items (such as guarantees and unutilised
amounts of credit facilities), securities financing (reversed re-purchase agreements, net) and derivative contracts. Also, this Pillar 3
report refers to exposures of Swedbank Consolidated Situation, whereas the annual report refers to exposures of the Group.
In this Pillar 3 report, exposures are expressed as EAD for IRB exposure, and as exposure value for exposure calculated by the
standardised approach, if nothing else is stated.
SWEDBANK
Appendix 103
3-39. Balance sheet amount, link to original exposure, SEKm
31 December
2014
On-balance
sheet items
Cash and
balances with
central banks
T- bills and other
bills eligible for
refinancing with
central banks and
bonds and other
interest-bearing
securities, etc.
Loans to credit
institutions and
Loans to the
public
Derivatives
Current and
deferred tax
assets
Other assets,
prepaid expenses
and accrued
income
Total
IRB approach
Difference
Total
regarding
exposures
repos,
for on- derivatives
balance,
and
derivatives
market
Other
and repos
risk differences*
rated non-rated
exposures exposures
Standardised
approach
exposures
2,256
152,254
154,510
57,746
719
20,778
79,243
1,299,006
7,802
63,846
9,340
1,774
1,774
10,536
258,528
80,640
1,772,272
76,111
3,306
1,436,169
66,798
77,575
Deductions
in Capital
base
-40,742
58,930
30,378
1,370,654
76,857
73,216
85,451
37,750
8,928
182,465
-53,592
9,260
Balance
Sheet
Swedbank
CS
Consolidation
differences
Balance
Sheet Group
113,768
500
113,768
169,051
1,629
170,680
1,520,727
-1,109
1,519,618
123,201
1
123,202
146
1,920
22
1,942
14,405
15,051
50,381
1,979,048
141,706
142,249
192,087
2,121,297
The table shows the credit risk exposures for total assets. Contingent liabilities and commitments are excluded.
*Some items are treated differently in the capital adequacy report vs. the balance sheet, e.g. security settlement claims are not included in the capital
adequacy report. Another difference is that the capital adequacy report does not include the supplement in the balance sheet of market value on the post
that is in fair value option within Swedbank Mortgage AB and Swedbank AB.
SWEDBANK
Appendix 104
4. Market risks – Appendix
4-1. Change in value of assets and liabilities measured at fair value, incl. derivatives, if market interest rate
rises 1 pp
31 Dec 2014
<3
mths.
3-6
mths.
6-12
mths.
1-2 yrs.
2-3 yrs.
3-4 yrs.
4-5 yrs.
5-10
yrs.
> 10
yrs.
Total
-401
119
-662
-390
42
186
-374
47
-69
-1,502
-11
-4
25
-45
-38
16
2
8
-25
-72
Total
-412
115
-637
Of which financial instruments measured at fair value
through profit and loss
-435
4
202
-372
55
-94
-1,574
-603
Swedbank Group, (SEKm)
SEK
Foreign currency
SEK
-1,524
914
-1,274
68
796
1,039
-44
-1,545
967
-5
22
23
-9
-2
19
7
27
-2
80
-1,529
936
-1,251
59
794
1,058
-37
-1,518
965
-523
<3
mths.
3-6
mths.
6-12
mths.
1-2 yrs.
2-3 yrs.
3-4 yrs.
4-5 yrs.
5-10
yrs.
> 10
yrs.
Total
SEK
-36
-172
-323
-464
1,524
-39
-247
-6
12
250
Foreign currency
-59
-85
70
-12
-27
-16
-14
-18
-14
-175
Total
-96
-256
-253
Of which financial instruments measured at fair value
through profit and loss
-476
1,497
-54
-261
-23
-3
75
SEK
Foreign currency
Total
-118
27
-91
-41
-10
-51
-64
15
-49
-129
-11
-140
29
-13
16
-4
-1
-5
-675
22
-653
Foreign currency
Total
31 Dec 2013
Swedbank Group, (SEKm)
-186
5
-181
-126
-34
-160
-36
44
8
4-2. Banking Book exposure by interest rate fixing periods
Interest rate fixing periods
6-12 mths.
1-3 yrs.
Banking Book (SEKm)
< 3 mths.
3-6 mths.
Interest bearing assets
1,045,453
136,953
87,162
235,478
70,463
17,756
-933,584
-176,206
-64,337
-91,897
-4,881
40,176
-52,698
-10,246
24,218
-276,194
96,659
55,943
-104,495
55,814
21,781
-61,436
47,724
4,043
Interest bearing liabilities
Off-balance sheet items net
Total Exposure
3-5 yrs.
> 5 yrs.
4-3. Capital requirement for market risks as of 31 December – Swedbank Consolidated Situation
Capital requirement 2014
Swedbank Consolidated Situation (SEKm)
Risks in trading book Interest rate risk
standard
method
571
of which specific risk
of which general risk
Equity risk
571
1
of which positions in CIUs
of which options where the capital requirement is equal
to the option's market value
Currency risk in trading book
Commodity risk
Total capital requirement for risks in trading book
of which stressed VaR***
Currency risk outside trading book
Total capital requirement for market risks
6
1
4
internal
method*
711
Total
1282
571
711
132
526
711
126
1
1
127
4
1
4
0
171
46
1335
0
126
0
171
46
624
711
506
190
Capital requirement 2013*
506
190
1525
standard
method
526
6
internal
method**
530
Total
1056
530
73
526
530
79
1
73
317
33
565
530
391
593
74
4
0
317
33
1095
391
593
1688
*2013 according to Basel 2. **The parent company’s capital requirement for general interest-rate risk, share price risk and currency risk in the trading
book as well as Swedbank Estonia AS’, Swedbank Latvia AS’ and Swedbank Lithuania AB’s capital requirement for general interest-rate risk and currency
risk in the trading book are calculated in accordance with the VaR model. ***Stressed VaR is a requirement in CRDIII from end-December 2011.
SWEDBANK
Appendix 105
4-4. Capital requirement for market risks as of 31 December – Swedbank AB
Capital requirement 2014
standard
method
556
Swedbank AB (SEKm)
Risks in trading book Interest rate risk
internal
method*
709
556
Equity risk
0
0
0
of which positions in CIUs
of which options where the capital requirement is equal to
the option's market value
Currency risk in trading book
Commodity risk
564
of which stressed VaR***
Currency risk outside trading book
Total capital requirement for market risks
207
Total
1265
556
514
709
126
709
126
1
0
1
126
126
170
170
7
Total capital requirement for risks in trading book
Capital requirement 2013*
standard
method
514
7
1
709
1273
516
504
504
207
1480
35
internal
method**
521
Total
1035
514
521
73
521
74
73
73
316
316
521
1037
382
382
35
1072
1
1
*2013 according to Basel 2. **The parent company’s capital requirement for general interest-rate risk, share price risk and currency risk in the trading
book as well as Swedbank Estonia AS’, Swedbank Latvia AS’ and Swedbank Lithuania AB’s capital requirement for general interest-rate risk and currency
risk in the trading book are calculated in accordance with the VaR model. ***Stressed VaR is a requirement in CRDIII from end-December 2011.
5. Liquidity risks - Appendix
5-1. Outstanding debt securities in issue
SEKm
Commercial papers
Covered bonds
of which recalculations according to IFRS 10
Government guaranteed bonds
Senior unsecured bonds
Structured retail bonds
Total
2014
195,192
511,666
114,840
13,314
835,012
2013
100,170
510,930
-79
8,578
92,898
13,699
726,275
5-2. Outstanding short-term funding volumes
SEKm
Domestic CP
Domestic CP - Swedbank Mortgage
European CP/CD
USCP
Yankee CD
French CD
Finnish CD
Total
2014
6,070
1,650
23,053
97,057
69,965
0
564
198,359
2013
3,300
40
13,668
52,539
28,981
2,161
713
101,402
2014
91,600
18,534
4,804
114,938
2013
73,311
25,757
4,017
103,085
5-3. Issued long-term debt
SEKm
Covered bonds
Senior unsecured bonds
Structured retail bonds
Total
SWEDBANK
Appendix 106
5-4. Long-term funding by maturity, as of 31 December
2014
5-5. Long-term funding by currency, as of 31
December 2014
Nominal, SEKbn
70%
200
60%
150
50%
40%
100
30%
20%
50
10%
0%
0
2015
2016
2017
2018
2019
SEK
2020-
EUR
USD
CHF
Other
5-6. Liquidity Reserve, Group*, as of 31 December 2014
SEKm
Total
SEK
Cash and holdings in central banks
Deposits in other banks available overnight
Securities issued or guaranteed by sovereigns, central banks or multilateral
development banks
Securities issued or guaranteed by municipalities or Public sector entities
Covered bonds
- Issued by other institutions
- Own issued
Securities issued by non-financial corporates
Securities issued by financial corporates (excl. covered bonds)
Other
Total
Currency distribution
EUR
USD
Other
127,415
255
14,772
255
26,312
68,434
17,897
40,757
656
53,430
53,430
19,676
498
51,432
51,432
9,890
158
1,998
1,998
11,110
81
856
1,192
39,214
80,736
2,048
224,561
86,633
17,978
* According to the template defined by the Swedish Bankers’ Association. Note: 91% of the securities in the liquidity reserve are rated AAA.
5-7. Additional Liquidity Reserve, Group*, as of 31 December 2014
SEKm
Cash and holdings in central banks
Deposits in other banks available overnight
Securities issued or guaranteed by sovereigns, central banks or multilateral
development banks
Securities issued or guaranteed by municipalities or public-sector entities
Covered bonds
- Issued by other institutions
- Own issued
Securities issued by non-financial corporates
Securities issued by financial corporates (excl. covered bonds)
Other
Total
Total
Currency distribution
SEK
EUR
USD
14,131
529
52,437
38,267
14,170
1,890
6,670
9,856
1
44,358
30,541
13,817
21
75,657
54,236
Other
559
1,938
2,285
2,123
162
1,768
1,632
4,994
1,778
528
5,794
5,603
191
101
44
6,244
6,932
8,245
*83% of the additional assets fulfil the Liquidity Reserve definition by the Swedish Bankers’ Association except that they are held outside Treasury. 81%
of the additional assets are rated AAA.
Definition of Liquidity Reserve by the Swedish Bankers’ Association
Assets included in the liquidity reserve should comply with the following:
- assets shall be included and held by the Treasury function in a bank
- assets cannot be encumbered
- market values are used for the assets: only unencumbered securities receiving 0-20% risk weight under the standardised approach to credit risk of the
Basel 2 framework can be included
- securities received in reverse repo transactions are included in the liquidity reserve, and securities used as collateral for repo transactions are excluded
SWEDBANK
Appendix 107
5-8. Asset encumbrance, as of 31 December 2014
Type of assets (Balance Sheet items)
SEKm
Assets of the reporting institution
Carrying
amount of
encumbered
assets
512,388
Fair value of
encumbered assets
Carrying amount of
unencumbered
assets
1,466,658
Loans on demand
Equity instruments
Debt securities
Loans and advances other than loans on demand
of which mortgage loans
21,546
Fair value of
unencumbered assets
21,713
490,842
475,698
114,765
9,872
9,872
148,784
149,930
1,038,765
523,555
Other assets
154,472
Type of assets (Off-balance Sheet items)
Unencumbered assets
SEKm
Collateral received by the reporting institution
Loans on demand
Equity instruments
Debt securities
Loans and advances other than loans on demand
Fair value of
encumbered
collateral
received or
own debt
securities
issued
8,120
8,120
Other collateral received
Own debt securities issued other than own covered bonds or ABSs
Fair value of collateral
received or own debt
securities issued
available for
encumbrance
57,210
Nominal amount of
collateral received or
own debt securities
issued not available
for encumbrance
4,357
5,315
49,377
2,518
4,357
Purpose of encumbrance (On- and off-balance sheet items)
Carrying amount of selected financial liabilities
517,622
Derivatives
Deposits
Debt securities issued
Other sources of encumbrance
Total
16,771
25,153
475,698
2,571
Assets, collateral
received and own
debt securities issued
other than covered
bonds and ABSs
encumbered
517,937
17,086
25,153
475,698
2,571
520,193
520,508
SEKm
Matching
liabilities,
contingent
liabilities or
securities lent
Information on encumbrance
-Apart from mortgage loans, used for Swedbank's main funding source (i.e. covered bonds), small volumes derive from derivatives and repos
-Apart from mortgage loans, originated from the 100%-owned subsidiary Swedbank Mortgage AB, the absolute majority belongs to Swedbank AB (less
than 1% is from other subsidiaries within the Group)
-For over-collateralisation level, see table 5-10
-Unencumbered assets under “other assets” include assets not eligible for pledging in central banks (e.g. intangible assets)
Unencumbered assets - available for pledging in Central Bank (including repos)
SEKm
31 Dec 2014
Government debt securities
Central banks and supranational debt instruments
Covered bonds
Debt instruments issued by corporate and other issuers
Securities issued by corporate issuers
ABS
Mortgage loans
Total
SWEDBANK
31 Mar 2014
30,318
31,739
104,977
8,345
1,204
265
298,210
41,940
27,037
87,114
5,969
932
291
242,878
475,058
406,161
Appendix 108
5-9. Survival Horizon, as of 31 December 2014
SEK bn
300
250
200
150
100
50
0
0
20
Days forward
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
340
360
The survival horizon represents the number of days with positive cumulative net cash flows, taking into consideration the Group’s future contractual
cash flows and assuming no access to wholesale funding markets. The survival horizon is hence considered as a base stress scenario.
The following main principles are used in the calculation:
- Cash flows are assumed to occur according to contractual agreements
- Highly liquid securities (i.e. interest-bearing securities that are pledgeable at central banks) are assumed to generate liquidity from day 1, and it is
assumed that the liquidity-generating capacity of the highly liquid securities is intact
- The corresponding cash equivalent of the highly liquid securities is market value reduced for hair-cuts set by central banks
- Highly liquid securities are available from the day they are registered on an account with a Swedbank clearer
- Non-pledgeable securities are assumed to generate cash flow at coupon payment days and at maturity
- Holdings of securities issued by entities within Swedbank Group are not part of highly liquid securities, but are considered non-pledgeable
- Maturing wholesale market debt is not rolled over
- Undrawn committed and non-committed customer credit and/or liquidity facilities are not utilised
- On-demand deposits from private and corporate customers are excluded, and no cash outflows occur from these deposits. Cash outflows from retail
(private individuals and SMEs as defined by Swedish LCR regulation FFFS 2012:6) term deposits are excluded since these are assumed to be rolled over;
corporate term deposits mature on contractual basis and imply cash outflows
Exceptions and clarifications - contractual cash flows:
-Revolving loans which give the counterparty an embedded option to extend the loans and to switch currency at maturity are excluded, since they are
assumed to be rolled over
- There is no external support, in the form of credit facilities and other types of intervention, from central banks assumed in the calculation
- Securities issued by Swedbank Mortgage AB and over-collateralisation in Swedbank Mortgage AB’s cover pool may be used as intraday collateral in the
Riksbank and Norges Bank
Exceptions and clarifications - liquid assets:
- The liquidity effect of repo/reversed repo transactions, with highly liquid securities as collateral, is assumed to be zero
- The liquidity effect of repo/reversed repo transactions with non-pledgeable securities occurs on the start day and end day of the repo transaction. The
cash flows from the securities in a reversed repo transaction are modelled to generate contractual cash flows at coupon payment days and at maturity
day from the day they are registered on an account with a Swedbank clearer
- The liquidity effect of repo/reversed repo transactions with securities issued by Swedbank Group is confined to the cash leg’s cash flows, since such
securities are not part of highly liquid securities.
5-10. Cover pool sensitivity analysis, 31 December 2014
House price decline, SEK bn
Total assets in the cover pool
Total outstanding covered bonds
Overcollateralisation level, %
SWEDBANK
Current
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
777.9
480.6
61.9%
773.4
480.6
60.9%
764.6
480.6
59.1%
750.7
480.6
56.2%
732.1
480.6
52.3%
709.3
480.6
47.6%
682.8
480.6
42.1%
652.8
480.6
35.8%
619.5
480.6
28.9%
Appendix 109
5-11. Liquidity coverage ratios and other liquidity and funding ratios
Liquidity coverage ratios (new Swedish regulation FFFS
2012:6) 1)
Liquidity coverage ratio (LCR), Total, %
Liquid assets, SEKbn
Liquid assets level 1, SEKbn
Liquid assets level 2, SEKbn
Cash outflows, SEKbn
Customer deposits, SEKbn
Market borrowing, SEKbn
Other cash outflows, SEKbn
Cash inflows, SEKbn
Inflow from maturing lending to non-financial customers, SEKbn
Other cash inflow, SEKbn
Liquidity coverage ratio (LCR), EUR, %
Liquidity coverage ratio (LCR), USD, %
Liquidity coverage ratio (LCR), SEK, % 2)
31 Dec 2014
31 Dec 2013
120
219
140
79
331
98
193
40
149
9
140
332
217
45
142
206
132
74
227
87
110
30
82
9
73
662
618
45
Liquidity coverage ratio (CRR) 3)
Liquidity coverage ratio (LCR), Total
31 Dec 2014
122
31 Dec 2013
Liquidity and funding ratios
31 Dec 2014
31 Dec 2013
Net stable funding ratio (NSFR) according to new recommendation 4)
Available stable funding (ASF), SEKbn
Required stable funding (RSF), SEKbn
Liquid assets in relation to maturing funding during next 3, 6 and 12 months 5)
liquidity reserve 3 months
liquidity reserve + additional liquid assets 3 months
98
1,217
1,247
97
1,110
1,142
102
72
61
136
96
82
135
88
74
174
113
95
1) LCR - calculated in accordance with the new Swedish regulation 2012:6. LCR = Liquidity reserve/(cash outflows - cash inflows).
2) LCR in SEK is lower in comparison to EUR and USD LCRs due to capped liquid assets and capped cash inflows denominated in SEK and cash flows in
general as main operations are conducted in SEK. It is also due to foreign currency funding and the corresponding swap agreements used to hedge FX
risks. In contrast to EUR and USD, it is also more restrictive to invest in SEK-denominated liquid assets due to the low availability/restrictions of these
assets. There is currently no regulatory requirement to reach 100%.
3) LCR - calculated in accordance with Swedbank's interpretation of the Regulation (EU) 575/2013 (CRR) issued 26 June 2013. The calculation does not
take into account the Delegated Act on Liquidity Coverage Requirement.
4) NSFR according to Swedbank’s best understanding of BCBS’s new consultative document on the new NSFR recommendation (BCBS295).
5) Liquidity ratios: liquid assets in relation to maturing wholesale funding during next 3, 6 and 12 months:
- Liquidity reserve according to the definition of the Swedish Bankers' Association
- Additional liquid assets: Assets, pledgeable in central banks, held by the Group outside of Group Treasury
- Maturing funding during 3, 6 and 12 months: All wholesale funding maturing within 3, 6 and 12 months, including short-term CP/CDs, and net of
lending and "borrowing to/from credit institutions (net Interbank)"
SWEDBANK
Appendix 110
7. Group-wide stress tests – Appendix
Note: The ICAAP is based on Swedbank Consolidated Situation as defined in Definitions below.
7-1. Stress test ICAAP scenario parameters1
2013
2014
2015
2016
2017
2018
GDP growth, %
Unemployment, %
Inflation index
Real estate price index
Estonia
1
8.0
100
100
-3.8
8.2
98.5
87.5
-3.6
11.1
97.9
81.2
-1.4
11.9
97.6
81.8
2.5
10.9
99.4
84.4
2.7
10.5
101.4
86.1
GDP growth, %
Unemployment, %
Inflation index
Latvia
1
8.6
100
100
-4.3
11.5
99.5
88
-4
13.5
98.5
79.2
-1
14.5
98.5
79.2
3
14.8
100.7
81.2
4
13.5
103.4
84.0
GDP growth, %
Unemployment, %
Inflation index
Lithuania
4.4
11.8
100
100
-5
13
99
93
-3.5
16
98.0
88.8
-1
16.5
98.0
88.8
3.5
15.5
100.0
91.0
5
13
102.5
95.1
GDP growth, %
Unemployment, %
Inflation index
Interest rates
3.3
11.7
100
100
-5.5
13.5
99
93
-4
15.5
98.3
89.3
-1
16
98.3
89.3
3
15.7
100.8
92.0
5
13.5
103.8
95.6
3m Government rate SEK, %
3m Government rate EUR, %
FX
0.74
0.05
0.4
-0.05
0.35
0
0.45
0.2
0.85
0.8
1.65
1.5
6.47
8.91
10.65
6.86
8.04
10.52
7.00
7.88
10.52
7.11
7.76
10.52
7.04
7.84
10.52
6.89
8.00
10.52
Sweden
USD/SEK
EUR/SEK
GBP/SEK
1) 2013 figures are based on preliminary estimates of the full-year data, as final figures were published after the submission of the ICAAP report.
7-2. Income statement under ICAAP scenario1
SEKbn
Net interest income
Total income
Total expenses
Profit before impairments
Credit impairments
Operating profit
Tax expense
Profit for the period
Profit for the period attributable to:
Shareholders of Swedbank AB 2
2013
23.7
39.0
18.8
20.2
-0.3
20.5
4.0
16.2
2014
21.9
37.0
18.4
18.5
4.8
13.7
3.0
10.5
2015
23.4
37.4
18.8
18.6
9.1
9.5
2.1
7.3
2016
24.4
38.6
18.8
19.9
6.1
13.8
3.0
10.5
2017
25.5
40.7
19.0
21.8
3.0
18.8
4.1
14.3
2018
25.5
41.5
19.1
22.4
2.0
20.4
4.5
15.5
12.1
7.9
5.5
7.9
10.7
11.6
0.3
0.2
0.0
0.1
0.2
0.3
1) ICAAP is based on the Swedbank Consolidated Situation which does not include insurance companies.
2) The Board of Directors has set the dividend policy to 75% of profit for the year. This policy is applied in the ICAAP scenario.
7-3. Credit impairments by business area – ICAAP1
Swedish Banking
Large Corporates & Institutions
Estonia
Latvia
Lithuania
Other 2
Total
EAD, SEKbn
2013
1000.9
252.5
58.2
31.3
36.1
77.8
1456.9
2014
0.3
0.5
0.4
0.8
0.9
0.0
0.3
2015
0.5
1.0
0.9
1.5
1.2
0.0
0.6
Credit impairment ratio, %
2016
2017
2018
Accumulated 2014 - 18
0.4
0.2
0.2
1.5
0.5
0.3
0.0
2.4
0.7
0.4
0.2
2.5
1.2
0.5
0.3
4.3
0.5
0.3
0.1
3.0
0.0
0.0
0.0
0.0
0.4
0.2
0.1
1.7
2) Other includes Russia, Ukraine and Ektornet.
SWEDBANK
Appendix 111
7-4. Credit impairments for Swedish Banking and LC&I (by sector) – ICAAP1
Agriculture, forestry and fishing
Manufacturing
Construction
Swedish Banking
Transportation
Shipping
Property management
Bank
Private Mortgage
Private Other
Total
EAD, SEKbn
2013
65.0
50.4
16.6
27.0
34.2
8.1
31.7
4.4
8.6
15.4
165.3
87.6
24.4
17.4
49.2
579.8
68.2
1253.4
2014
0.2
0.8
0.5
0.5
1.0
1.7
1.0
1.4
0.4
0.3
0.6
0.2
0.7
1.7
0.2
0.1
0.2
0.3
2015
0.4
1.8
1.1
1.1
2.6
4.8
1.8
2.7
0.6
0.5
1.3
0.4
1.1
1.9
0.4
0.1
0.2
0.6
2016
2017
2018
0.2
0.1
0.1
1.0
1.0
0.7
0.4
4.6
0.6
0.3
0.3
2.8
0.6
0.3
0.3
2.8
1.2
0.6
0.5
5.8
1.5
0.8
0.7
9.6
1.1
1.0
0.0
4.9
1.5
0.8
0.8
7.2
0.3
0.2
0.2
1.7
0.3
0.2
0.1
1.4
0.7
0.3
0.3
3.2
0.2
0.1
0.1
1.0
0.8
0.4
0.3
3.3
0.8
0.3
0.2
4.8
0.2
0.0
0.0
0.9
0.2
0.1
0.1
0.5
0.3
0.1
0.1
1.1
0.4
0.2
0.1
1.7
7-5. Credit impairments for Baltic Banking (by sector) 1 – ICAAP
Agriculture, forestry and fishing
Manufacturing
Construction
Retail
Transportation
Shipping & Offshore
Property management
Bank
Private Mortgage
Private Other
Total
EAD, SEKbn
2013
3.2
8.8
5.2
2.2
8.9
5.8
0.0
2.4
0.8
5.8
14.4
0.0
0.2
4.4
4.9
49.7
8.9
125.6
2014
0.7
1.0
0.2
1.3
1.0
0.9
0.0
0.8
0.5
0.1
1.0
0.0
2.1
1.3
0.0
0.5
0.7
0.7
2015
0.9
1.6
0.2
1.9
2.5
1.6
0.0
1.1
0.5
0.1
1.8
0.0
2.2
1.7
0.1
0.8
0.8
1.1
2016
2017
2018
0.8
0.6
0.3
3.2
1.0
0.5
0.3
4.4
0.2
0.1
0.1
0.9
1.5
0.9
0.5
6.1
1.5
0.7
0.3
5.9
0.9
0.4
0.2
4.0
0.0
0.0
0.0
0.0
0.9
0.5
0.3
3.5
0.4
0.3
0.2
1.8
0.1
0.0
0.0
0.3
1.1
0.6
0.3
4.8
0.0
0.0
0.0
0.0
1.6
1.0
0.5
7.4
1.4
0.8
0.6
5.7
0.0
0.0
0.0
0.2
0.6
0.3
0.1
2.2
0.6
0.4
0.3
2.8
0.7
0.4
0.2
3.1
1) ICAAP is based on the Swedbank Consolidated Situation which does not include insurance companies. The ICAAP segment breakdown differs
somewhat from the Other asset quality segment breakdown.
7-6. REA and capital – ICAAP1
SEKbn,
Total REA, Basel 3
Common Equity Tier 1, Basel 3
Common Equity Tier 1 ratio %, Basel 3
2013
440.9
80.8
18.3
2014
441.4
81.1
18.4
2015
443.9
83.3
18.8
2016
432.8
86.7
20.0
2017
414.5
91.1
22.0
2018
416.6
96.1
23.1
1) Adjusted for regulatory effects (CRD IV/ Basel 3).
SWEDBANK
Appendix 112
Definitions
Swedbank Consolidated Situation
•
•
Swedbank Robur AB
Holding company
Sweden
•
•
Swedbank Robur Fonder AB
Fund management
Sweden
•
•
Swedbank Investeerimisfondid
AS
Investment management
Estonia
•
•
Swedbank leguldijumu
Parvaldes Sabierdiba AS
Latvia
•
•
Swedbank investiciju valdymas
UAB
Lithuania
•
•
Swedbank Asset Management
AS
Fund management
Norway
•
•
Banking operations
Sweden
•
•
IT
Sweden
•
•
Sparbanken Öresund AB
Cerdo Bankpartner AB
Swedbank Asset Management
SA
Banking operations
Luxembourg
•
•
Sparia Insurance Company Ltd
Insurance company
Sweden
•
-
Sparia Group Insurance Company
Ltd
Insurance company
Sweden
•
-
Swedbank Franchise AB
Holding company
Sweden
•
•
Swedbank Fastighetsbyrå AB
Real estate franchiser
Sweden
•
•
Swedbank Juristbyrå AB
Legal advice franchiser
Sweden
•
•
Swedbank Företagsförmedling
AB
Corporate finance
franchiser
Sweden
•
•
Svensk Fastighetsförmedling AB
Real estate franchiser
Sweden
•
•
Ölands Bank AB
Banking operations
Sweden
•
•
Ektornet AB
Parent company
Sweden
•
•
Ektornet Estonia AB
Holding company
Sweden
•
•
Ektornet Latvia AB
Holding company
Sweden
•
•
Ektornet Lithuania AB
Holding company
Sweden
•
•
Ektornet Sweden AB
Holding company
Sweden
•
•
Ektornet Cyprus Holding Ltd
Holding company
Cyprus
•
•
Ektornet US SARL
Holding company
Luxembourg
•
•
Swedbank Försäkring AB
Insurance company
Sweden
•
-
ATM Holding AB
Holding company
Sweden
•
•
ATM operations
Sweden
20%
20%
Financial reconstruction
and recovery
Sweden
•
•
•
Bankomat AB
FR&R Invest AB
Holding company
Luxembourg
•
Frispar Företagskredit AB
Finance
Sweden
•
•
Swedbank Securities US LLC
Securities company
USA
•
•
OOO Leasing
Leasing
Russia
•
•
Leasing
Russia
•
•
FRIR Rus OOO
Loan operations
Russia
•
•
Swedbank Management Company
SA (ManCo)
Holding company
Luxembourg
•
•
Swedbank AS (Latvia)
Banking operations
Latvia
•
•
•
•
Leasing and factoring
Latvia
•
•
•
•
FR&R Lux Holding SA
Hansa Lizing Kaliningrad LLC
Swedbank Lizings SIA
SWEDBANK
Swedbank
Lithuania CS
Sweden
Swedbank
Lithuania Group
Mortgage
Swedbank Latvia
CS
Swedbank Mortgage AB
Swedbank Latvia
Group
•
Country
Sweden
Swedbank
Estonia CS
•
Business activity
Banking operations
Swedbank
Estonia Group
Swedbank CS
Legal entity name
Swedbank AB
Swedbank Group
The consolidated situation for Swedbank as of 31 December 2014 comprised the Swedbank Group with the exception of insurance
companies. The EnterCard Group is included through the proportionate consolidation method. The difference between Swedbank
Group and Swedbank Consolidated Situation (CS) is shown more in detail below, where “•” means 100% consolidation and “–“ means
not consolidated. Where percentages are shown, the company is included using the equity method unless otherwise stated. Any changes in
legal entity structure are reflected on www.swedbank.com.
Appendix 113
Swedbank Atklatais Pensiju
Fonds AS
•
•
•
•
Latvia
Banking operations
Lithuania
•
•
•
•
Swedbank Lizingas UAB
Lithuania
•
•
•
•
Swedbank valda UAB
Real estate management
Lithuania
•
•
•
•
Banking operations
Estonia
•
•
Swedbank Liising AS
Estonia
•
Swedbank Life Insurance SE
Life insurance
Estonia
•
Swedbank P&C Insurance AS
Insurance
Estonia
•
Swedbank Support OÜ
IT and property
management
Estonia
•
•
•
•
AS Sertifitseerimiskeskus
Certification services
Estonia
25%
25%
25%
25%
Tieto Estonia Services OÜ
IT
Estonia
20%
20%
20%
20%
Swedbank AB (Lithuania)
Swedbank AS (Estonia)
•
•
•
•
•
-
•
-
-
•
-
50%
EnterCard Holding AB1
Credit card transactions
Sweden
50%
Proportional
method
Swedbank Sjuhärad AB
Banking operations
Sweden
48%
48%
Sparbanken Rekarne AB
Banking operations
Sweden
50%
50%
Sparbanken Skåne AB
Banking operations
Sweden
22%
22%
Vimmerby Sparbank AB
Banking operations
Sweden
40%
40%
Finansiell ID-Teknik BID AB
Computer services
Sweden
28%
28%
BGC Holding AB
Giro transactions
Sweden
29%
29%
BDB Bankernas Depå AB
Deposit
Sweden
20%
20%
Rosengård Invest AB
Investments
Sweden
25%
25%
UC AB
Business and credit
information
Sweden
20%
20%
Getswish AB
Mobile transactions
Sweden
20%
20%
Babs Paylink AB
Rental of terminals for card
transactions
Sweden
49%
49%
1) Parent company in EnterCard Group with subsidiaries EnterCard Norge AS and EnterCard Sverige AB.
Swedbank definitions of risk types
Credit risk
Market Risk
Liquidity risk
Operational risk
The risk that a borrower will fail to meet their contractual obligations to Swedbank and the risk that pledged collateral will
not cover the claim. Credit risk also includes counterparty risk, concentration risk and settlement risk
The risk that the bank’s results, equity or value will decrease due to changes in risk factors in financial markets. Market risk
includes interest rate risk, currency risk, share price risk and commodity risk, as well as risks from changes in volatility and
correlations.
The risk that Swedbank cannot fulfil its payment commitments at maturity or when they fall due.
The risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. The
definition of operational risk includes Legal risk and Information risk. Operational risk is further broken down into the
following sub-risk categories: Personnel risk, Process risk, IT & System risk, and External risk.
Terminology and abbreviations
“AC”
A-IRB
“ALL Policy”
“AMA”
“AQR”
“BARCC”
“Board”
“BRRD”
“Capital base”
“CCF”
Audit Committee
Advanced Internal Ratings-Based Approach
Swedbank’s Asset, Liability and Liquidity Policy
Advanced Measurement Approaches
Asset Quality Review
Business Area Risk and Compliance Committee
Board of Directors of Swedbank AB
Bank Recovery and Resolution Directive (EU)
The capital base serves as a buffer against unexpected losses that can arise from risks to which a bank is exposed. The
capital base must at all times be of such size that the minimum capital requirements are met. The main constituent of the
capital base is the CET1 capital, which consists mainly of equity capital less proposed dividends and various deductions (e.g.
goodwill) as set out in capital adequacy regulations. “Basel 2” and “Basel 3” in this report mean the EU and Swedish
implementation of these international regulatory standards.
Credit Conversion Factor
“CEO”
“CET1”
“CIU”
“CPC”
“CRO”
“CRD IV”
Chief Executive Officer of Swedbank AB
Common Equity Tier 1
Collective Investment Undertaking
Credit Process Control
Chief Risk Officer of Swedbank AB
Capital Requirements Regulation and Directive – CRR/CRD IV
SWEDBANK
Appendix 114
“CRR”
EU Capital Requirements Regulation (EU Regulation No 575/2013)
“CS”
“CSA”
“CVA”
Consolidated Situation
Credit Support Annex
Credit Value Adjustment
“DDOS”
“EAD”
Distributed denial of service
Exposure at Default
“EBA”
“ECB”
“EL”
European Banking Authority
European Central Bank
Expected Loss
“EMIR”
European Markets Infrastructure Regulation
“EMU”
Economic and Monetary Union of the European Union
“ERM Policy”
“EUR”
Euro (European currency)
“FSA”
“FSB”
“FTP”
Financial Supervisory Authority
Financial Stability Board
Funds Transfer Pricing
“GAAC”
“GRCC”
Group Asset Allocation Committee
Group Risk and Compliance Committee
“Group”
Swedbank Group (see definition below)
“ICAAP”
“ICFR”
Internal Capital Adequacy Assessment Process
Internal Control over Financial Reporting
“IFRS”
“ISDA”
“LC&I”
“LCC”
“LCR”
“LGD”
“LNG/LPG”
“LTL”
International Financial Reporting Standards
International Swaps and Derivatives Association
Large Corporate & Institutions
Low-Cost Carriers
Liquidity Coverage Ratio
Loss Given Default
Liquefied Natural Gas/Liquefied Petroleum Gas
Lithuanian Litas (Lithuanian currency until 31 December 2014)
“LTV”
“M”
Loan-To-Value
Maturity (risk parameter)
“MREL”
“NII”
“NPAP”
“NSFR”
“OC”
Minimum level of own funds and eligible liabilities
Net Interest Income
New Product Approval Process
Net Stable Funding Ratio
Overcollateralisation
“Parent Company”
“PD”
“RAROC”
Swedbank AB (publ)
Probability of Default
Risk Adjusted Return On Capital
“RC”
“RCC”
“RCSA”
“REA”
“Riksbank”
“RORO”
“RTS”
“SEK”
“SFSA”
Remuneration Committee
Risk and Capital Committee
Risk and Control Self-Assessment
Sweden's Central Bank
Roll-On, Roll-Off (vessels designed to carry wheeled cargo)
Regulatory Technical Standards
Swedish Krona (Swedish currency)
Swedish Financial Supervisory Authority
“Spb”
“SSM”
“SVaR”
“Swedbank”
“Swedbank Baltic”
“Swedbank Group”
“Swedish FSA”
“TLAC”
“UL”
“VaR”
“VAT”
Sparbanken (refers to e.g. Sparbanken Skåne, Sparbanken Öresund)
Single Supervisory Mechanism
Stressed Value-at-Risk
Swedbank Consolidated Situation (see definition above)
Swedbank AS (Estonia), Swedbank AS (Latvia) and Swedbank AB (Lithuania)
Swedbank AB (publ) and all its underlying legal entities (regardless of percentages of holding), (see definition above)
Swedish Financial Supervisory Authority
Total Loss Absorbing Capital
Unexpected Loss
Value-at-Risk
Value-Added Tax
SWEDBANK
Appendix: Swedbank Estonia
Consolidated Situation (CS)
Introduction
Swedbank’s Risk Management and Capital Adequacy Report 2014 (Pillar 3 report) provides information on Swedbank’s
capital adequacy and risk management. The report is based on regulatory disclosure requirements set out in the Capital
Requirements Regulation (Regulation (EU) 575/2013). In accordance with Article 13 in the Capital Requirements
Directive, certain information shall be provided for significant subsidiaries. Information for Swedbank Estonia
Consolidated Situation (CS) is provided in this Appendix and pertains to conditions as of 31 December 2014.
Information on the organisational and legal structure of Swedbank Estonia Consolidated Situation is provided in the
Appendix for Swedbank Consolidated Situation, in the Swedbank Risk Management and Capital Adequacy Report 2014.
Information about the Swedbank corporate governance structure and measures undertaken to manage operations in
Swedbank Consolidated Situation is presented in the Swedbank Corporate Governance Report. Information about risk
implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration)
for Swedbank Estonia Consolidated Situation is disclosed in the document “Information about remuneration in
Swedbank 2014”. Swedbank’s Group-wide framework includes instructions for management of credit risk, including
instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk
adjustments. Information about management of credit risk is provided in Chapter 3 in the Swedbank Risk Management
and Capital Adequacy Report 2014. The Group-wide framework also includes instructions describing the approach used
to assess the adequacy of internal capital to support current and future activities. This information is provided in
Chapter 7 in the Swedbank Risk Management and Capital Adequacy Report 2014. All documents mentioned above are
available on www.swedbank.com. All figures are in EUR thousands unless otherwise stated.
Under the EU Capital Requirements Regulation (CRR), a bank’s total capital must be equivalent to at least the sum of
the capital requirements for credit- market- and operational risks, including capital buffers and potential Pillar 2 addons. In addition to a capital conservation buffer of 2.5%, the Estonian FSA has also introduced a buffer requirement of
2% for systemic risk. The capital conservation buffer was introduced in Q2 2014, and the systemic buffer was
introduced in Q3 2014. This means that the capital requirement for Swedbank Estonia CS in Pillar 1, as a percentage of
REA, amounts to 9.0% CET1 capital and 12.5% total capital. In addition, the capitalisation of Swedbank Estonia CS
must comply with the capital requirement in Pillar 2. As a backstop rule, Swedbank Estonia CS also needs to comply
with the Basel 1 floor, i.e. 80% of the capital requirements according to Basel 1. In Estonia the capital requirement
related to the Basel 1 floor is 10% for Estonian banks.
At 31 December 2014, Swedbank Estonia CS’s Common Equity Tier 1 and Total Capital ratio were 51.7% and 51.7%,
respectively. The actual total capital at end-2014 exceeded the capital requirement according to the Basel 1 floor by
EUR 1,305m. Hence, the capitalisation of Swedbank Estonia CS is maintained above the capital requirements according
to CRR/CRDIV and the Basel 1 floor with adequate buffers. In the 2014 ICAAP, Swedbank Estonia CS was assessed to
be adequately capitalised (including Pillar 2 risks) and able to comply with regulatory capital requirements going
forward.
SWEDBANK
Swedbank Estonia Consolidated Situation
Estonia 1. Capital adequacy
2014
EURt
Basel 3
2013
Basel 2
CET1 capital
Tier 1 capital
1,821,412
1,821,412
1,449,750
1,449,750
Total capital
1,821,412
3,524,836
1,449,750
4,185,954
Surplus of capital
281,987
1,539,425
51.67%
418,595
1,031,155
34.60%
51.67%
34.60%
51.67%
34.60%
floor
542,131
529,698
1,847,371
1,482,910
1,305,240
953,212
The corresponding information for Swedbank Consolidated Situation can be found in table 2-1 in the Appendix for Swedbank Consolidated Situation in
the Swedbank Risk Management and Capital Adequacy Report 2014.
Estonia 2. Total capital
Note
EURt
1
2
3
4
5
6
7
Cash flow hedges
8
Goodwill
9
Deferred tax assets
10
Intangible assets
11
12
13
Total CET1 capital
14
15
16
17
18
2014
2013*
1,839,140
1,677,429
11,351
-98,873
-3,120
-3,896
-25,959
-33,159
1,821,412
-91,751
1,449,750
1,821,412
1,449,750
1,821,412
1,449,750
19
20
21
Total capital
*) 2013 according to Basel 2. For definitions, please see table 2-2 in the Appendix for Swedbank Consolidated Situation in the Swedbank Risk
Management and Capital Adequacy Report 2014.
Estonia 3. Transitional own funds disclosure according to Article 5 in EU Regulation No 1423/2013
EURt
31-Dec-14
B
C
1
2
3
3a
Retained earnings
SWEDBANK
115,982
1,692,384
20,284
21,841
26 (1), 27, 28, 29, EBA
list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
26 (1)
26 (1) (f)
4
5
5a
6
7
phase out from CET1
9
Empty set in the EU
10
11
Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net
of related tax liability where the conditions in Article 38 (3) are met) (negative amount)
12
13
14
15
16
17
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where those
entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of
the institution (negative amount)
18
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector entities where the
institution does not have a significant investment in those entities (amount above 10% threshold and net of
eligible short positions) (negative amount)
19
20
institution has a significant investment in those entities (amount above 10% threshold and net of eligible
short positions) (negative amount)
Empty set in the EU
20a
Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for
the deduction alternative
20b
1,850,491
-3,120
34, 105
36 (1) (b), 37, 472 (4)
36 (1) (c), 38, 472 (5)
33 (a)
-25,959
36 (1) (d), 40, 159, 472
(6)
32 (1)
33 (1) (b) (c)
36 (1) (e), 41, 472 (7)
36 (1) (f), 42, 472 (8)
36 (1) (g), 44, 472 (9)
36 (1) (h), 43, 45, 46, 49
(2) (3), 79, 472 (10)
36 (1) (i), 43, 45, 47, 48
(1) (b), 49 (1) to (3), 79,
470, 472 (11)
36 (1) (k)
36 (1) (k) (i), 89 to 91
36 (1) (k) (ii), 243 (1) (b),
244 (1) (b), 258
20c
20d
21
22
Deferred tax assets arising from temporary difference (amount above 10% threshold, net of related tax
liability where the conditions in Article 38 (3) are met) (negative amount)
23
24
Empty set in the EU
25
25a
25b
26
Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR
treatment
26a
26b
27
28
29
30
31
32
33
phase out from AT1
34
35
36
486 (2)
483 (2)
84, 479, 480
26 (2)
36 (1) (k) (iii), 379 (3)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
48 (1)
36 (1) (i), 48 (1) (b), 470,
472 (11)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
36 (1) (a), 472 (3)
36 (1) (l)
481
36 (1) (j)
-29,079
1,821,412
51, 52
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interest not included in row
5) issued by subsidiaries and held by third parties
486 (3)
483 (3)
85, 86, 480
486 (3)
37
38
Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross
holdings with the institution designed to artificially inflate the own funds of the institution (negative
amount)
39
Direct, indirect and synthetic holdings of the AT1 instruments of financial sector entities where the
SWEDBANK
52 (1) (b), 56 (a), 57, 475
(2)
56 (b), 58, 475 (3)
56 (c), 59, 60, 79, 475
(4)
40
41
Regulatory adjustments applied to Additional Tier 1 capital in respect of amounts subject to pre-CRR
treatment and transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013
(i.e. CRR residual amounts)
41a
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity
Tier 1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013
472, 473(3)(a), 472 (4),
472 (6), 472 (8) (a), 472
(9), 472 (10) (a), 472
(11) (a)
41b
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital
477, 477 (3), 477 (4) (a)
41c
42
43
44
45
Amounts to be deducted from added to Additional Tier 1 capital with regard to additional filters and
46
47
phase out from T2
48
49
50
51
56 (d), 59, 79, 475 (4)
467, 468, 481
56 (e)
1,821,412
62, 63
486 (4)
483 (4)
87, 88, 480
486 (4)
62 (c) & (d)
52
Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative
amount)
53
(negative amount)
54
Direct, indirect and synthetic holdings of the T2 instruments and subordinated loans of financial sector
entities where the institution does not have a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
54a
54b
55
entities where the institution has a significant investment in those entities (net of eligible short positions)
(negative amounts)
56
Regulatory adjustments applied to Tier 2 in respect of amounts subject to pre-CRR treatment and
transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual
amounts)
56a
472, 472(3)(a), 472 (4),
472 (6), 472 (8), 472 (9),
472 (10) (a), 472 (11) (a)
56b
Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital
475, 475 (2) (a), 475 (3),
475 (4) (a)
56c
57
58
59
Amounts to be deducted from or added to Tier 2 capital with regard to additional filters and deductions
required pre-CRR
Tier 2 (T2) capital
59a
Risk-weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments
subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amount)
63 (b) (i), 66 (a), 67, 477
(2)
66 (b), 68, 477 (3)
66 (c), 69, 70, 79, 477
(4)
66 (d), 69, 79, 477 (4)
467, 468, 481
1,821,412
detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liability,
indirect holdings of own CET1, etc.)
472, 472 (5), 472 (8) (b),
472 (10) (b), 472 (11) (b)
Of which:…items not deducted from AT1 items (Regulation (EU) No 575/2013 residual amounts) (items to
be detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant
60
Items not deducted from T2 items (Regulation (EU) No 575/2013 residual amounts) (items to be detailed
line by line, e.g. Indirect holdings of own T2 instruments, indirect holdings of non-significant investments in
the capital of other financial sector entities, indirect holdings of significant investments in the capital of
other financial sector entities, etc.)
475, 475 (2) (b), 475 (2)
©, 475 (4) (b)
477, 477 (2) (b), 477 (2)
(c), 477 (4) (b)
3,524,836
61
62
63
51.7%
51.7%
51.7%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
64
65
66
67
conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically
important institution buffer expressed as a percentage of total risk exposure amount) 1)
9.00%
2.5%
0%
2.0%
CRD 128, 129, 140
SWEDBANK
67a
68
69
70
71
buffer
0%
43.7%
CRD 131
CRD 128
36 (1) (h), 45, 46, 472
(10), 56 (c), 59, 60, 475
(4), 66 (c), 69, 70, 477
(4)
72
73
74
Empty set in the EU
36 (1) (i), 45, 48, 470,
472 (11)
Deferred tax assets arising from temporary difference (amount below 10 % threshold, net of related tax
liability where the conditions in Article 38 (3) are met)
36 (1) (c), 38, 48, 470,
472 (5)
75
76
77
62
62
78
79
Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach
(prior to the application of the cap)
62
62
Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2014 and 1
Jan 2022)
80
81
82
484 (3), 486 (2) & (5)
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
83
84
85
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
484 (5), 486 (4) & (5)
1. CET1 capital requirement including buffer requirements
2. CET1 capital ratio as reported, less minimum requirement of 4.5% (excluding buffer requirements) and less any CET1 items used to meet the Tier 1 and
total capital requirements.
Note: Table 4, Subordinated debt: Capital instruments main features, is not relevant for Swedbank Estonia CS.
Estonia 5a. Amount of specific countercyclical capital buffer as of 31 December 2014
EURt
2014
rate
Total REA
0%
3,524,836
buffer
0
The corresponding information for Swedbank Group can be found in table 2-5a in the Appendix for Swedbank Consolidated Situation in the Swedbank
Risk Management and Capital Adequacy Report 2014.
Estonia 5b. Geographical distribution of credit risk exposure for the calculation of the countercyclical capital
buffer as of 31 December 2014
%
Share of relevant
exposures
98.45%
Country
buffer rate
0%
Latvia
0.70%
0%
Finland
0.52%
0%
Great Britain
0.08%
0%
Sweden
0.07%
0%
Russia
0.04%
0%
Ireland
0.03%
0%
France
0.02%
0%
Netherlands
0.02%
0%
Other
0.07%
0%
100%
0%
Estonia
rate
The corresponding information for Swedbank Consolidated Situation can be found in table 2-5b in the Appendix for Swedbank Consolidated Situation in
SWEDBANK
Estonia 6. Capital requirement
EURt
Trading book
FX risk
Capital requirement
2014
2013*
38,195
208,808
44,032
341,139
924
835
1,412
1,218
835
89
309
33,751
1,218
194
0
32,013
281,987
418,596
3,087,531
0
11,546
3,866
421,893
3,851,710
0
14,120
0
320,130
3,524,836
4,185,960
*2013 according to Basel 2.
Estonia 7. Risk Exposure Amount and Own funds requirement, 31 December 2014
EURt
Risk
exposure
amount
Own funds
requirement
Credit risks, STD
477,433
38,195
53,433
4,275
20,173
47,413
62,118
1,614
3,793
4,969
60
5
230,166
64,070
2,610,098
18,413
5,126
208,808
53,120
1,662,070
6,100
29,825
30,121
63,751
19,106
4,250
132,966
488
2,386
2,410
5,100
0
70,064
44,507
25,557
0
1,528
11,546
924
10,435
835
10,435
1,111
3,866
835
89
309
Corporate exposures
Retail exposures
Equity exposures
Other items
Credit risks, IRB
Corporate exposures
Retail exposures
Securitisation
Settlement risks
Market risks
Trading book
SWEDBANK
875,802
556,335
319,467
Operational risks
421,893
Total
33,751
421,893
33,751
3,524,836
281,987
Estonia 8. Credit risk: Remaining maturity in specialised lending.
31 December 2014
EURt
Less than 2.5 years
2.5 years or more
Category 1
Category 2
Category 3
Category 4
Category 5
43
21,086
25,386
24,754
22,349
8,682
16,742
806
746
3,989
Estonia 9. Credit risk, Outstanding exposures by geographical area.*
31 December 2014
IRB approach
Govts &
central
banks
EURt
Retail mortgages
Retail other
Corporate
Institutions
Other
Sweden
Estonia
Latvia
Lithuania
Russia
Norway
Denmark
Finland
USA
786
2,704,955
450
131
2,250
887
116
2,054
1,063
173
662,019
145
54
1,039
66
25
988
30
5,442
2,747,422
28,298
20
1,637
0
0
16,178
0
49
95
1
1,928,760
2,845
1
3,094
23
85,022
16
76,866
6
6
17
11
0
34
5
13,504
2,726,196
1,433
665,972
6,789
2,805,786
213,121
304,250
40
77,001
190,305
2,128,188
Other
Total
Local govts &
comparable
associations &
authorities
106,866
9,122
106,866
Other
74,341
464,950
637
4,523
0
21,408
2
19
0
140,874
706,754
Total
80,808
8,691,933
29,536
4,734
7,788
22,373
12,359
19,296
86,120
566,066
9,521,013
exposures.
Estonia 10. Credit risk, Outstanding exposures by industry
31 December 2014
IRB approach
Local govts &
comparable
associations &
authorities
0
0
Other
0
0
Total
2,687,030
534,356
149,883
165
1,027
50,223
266
1,956
60
0
15
149,883
166,096
368,118
735,361
158,396
Retail mortgages
2,687,030
0
Retail other
0
492,380
Corporate
0
13,357
Institutions
0
0
Other
0
28,619
Govts &
central
banks
0
0
Manufacturing
Construction
Retail
Transportation
Information and
communication
0
1,779
2,107
2,332
2,379
7,039
2,170
0
2,050
0
13,905
22,909
4,618
25,125
38,544
23,318
0
3,876
0
148,966
335,922
266,251
123,951
374,388
158,455
0
96,275
0
0
0
0
0
0
0
0
0
0
1,281
6,153
1,641
6,675
12,899
4,740
0
670
0
0
0
311,406
0
0
32
0
12
0
0
0
98,890
0
0
27
0
0
1,130
3,961
38,541
0
1,535
31
0
860
46,058
Property management
Industrial & warehouse
Other property
management
665
8,020
1,137
1,208
28
1,342
11,398
884
2,484
1,001
69,913
931,202
37,223
502,977
145,833
0
0
343
1,771
99
227
133
54,001
0
5,183
277,918
440
0
0
0
350,181
1,012,015
39,343
5,647
7,029
245,169
440
318,781
EURt
Private mortgages
Private other
SWEDBANK
1,312
54,001
5,183
434,826
188,802
0
102,898
506,896
146,995
Credit institutions
23,428
246,853
10,438
119
1,725
6,184
862
1,168
1,712
183
1,762,404
1,041
304,250
236
0
75,048
100,786
41,923
41,923
304,250
77,001
2,128,188
106,866
706,754
9,521,013
Other exposures
Total
297,380
80,250
2,167,440
8,633
0
2,726,196
665,972
2,805,786
Estonia 11. Credit risk, Outstanding exposures to SME corporates, by industry
31 December 2014
Other
Local govts
and
comparable
Govts &
associations
central
and
banks
authorities
Other
8,663
0
0
253
0
0
0
148,234
Total
3,074
16,425
148,234
13,632
22,237
49,459
59,180
988
4,056
165
885
66,023
88,465
2,332
2,262
4,618
24,280
9,679
15,221
1,206
4,318
3,368
0
21,203
46,081
Retail
Transportation
6,945
2,170
37,883
22,811
58,564
30,760
2,050
3,682
13,273
8,607
2,593
0
571
65
8
0
0
112,064
58,342
0
19,576
Property management
1,130
663
7,908
1,137
1,208
3,944
1,253
10,887
884
2,484
5,535
3,904
80,797
0
36,349
1,097
257
1,236
40
158
141
3
0
0
0
11,847
6,080
100,828
2,061
40,199
Industrial and warehouse
Other property mgmt
28
5,535
8,622
1,001
6,518
23,225
18,766
25,682
21,096
115
923
6,030
0
0
5,672
19,910
862
1,131
1,251
227
0
0
1,305
0
0
4,776
0
0
41,904
177,092
357,382
159,846
767,663
EURt
IRB approach
Retail mortgages
Retail other Corporate
Private mortgages
Private other
3,074
0
0
7,509
0
Manufacturing
1,779
2,107
Construction
Credit institutions
Other exposures
Total
Institutions
0
31,439
0
0
38,658
64,645
Estonia 12. Credit risk, Collateral reducing LGD, exposures (EAD)
31 December 2014
EURt
physical collateral*
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
2,513,233
10,438
81,679
derivatives**
1,044
Other
Govts &
central
banks
Local govts &
comparable
associations &
authorities
Other
Total
0
0
2,605,350
18,768
1,468
0
20,236
103,036
23,266
7
9,571
135,935
0
2,862
0
3,906
financial collateral
Exposures covered by two or
more of the above collaterals
55
SWEDBANK
Estonia 13. Credit risk, Outstanding exposures by maturity*
31 December 2014
IRB approach
Local govts &
comparable
associations
& authorities
1
Other
108,458
Retail mortgages**
5,927
Retail other
5,281
Corporate
46,728
Institutions
15
Other
636
Govts &
central
banks
1,250,878
2,424
12,968
131,214
17,793
99,127
509,813
121,115
496,673
1,887,217
5,368
94,480
63,469
2,891
11,149
62,276
195,420
70,698
51,278
611
3,158
15,705
97,692
55,661
122,212
5-10 years
283,265
22,072
224,845
0
49
60,595
72,664
68,990
732,480
> 10 years
2,290,398
8,773
20,706
0
0
77,188
14,727
71,808
2,483,600
0
2,726,196
3,113
665,972
8,502
2,805,786
140,918
304,250
0
77,001
422,131
2,128,188
0
106,866
181,933
706,754
756,597
9,521,013
EURt
Payable on demand
< 3 months
3-12 months
1-5 years
Without maturity
Total
Total
1,417,924
443,314
843,914
2,843,184
* Maturity is the remaining contractual maturity as of 31 December, except for contracts where the terms and conditions are set periodically, for
example mortgages. In these cases, the time to the next change in terms and conditions is used as maturity, in accordance with the guidelines from the
SFSA.
Estonia 14. Credit risk, Exposures* and average exposure
31 December 2014
EURt
Total exposure
Exposure before credit risk
mitigation
Average exposure
IRB approach
Local govts &
comparable
associations &
authorities
Other
706,754
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts &
central
banks
2,726,196
665,972
2,805,786
304,250
77,001
2,128,188
106,866
Total
9,521,013
2,726,696
768,497
2,826,439
303,538
77,001
1,994,600
105,249
516,687
9,318,707
2,682,474
635,394
2,797,756
164,286
75,711
993,157
84,132
1,419,584
8,852,494
Estonia 15. Credit risk, Change in provisions
EURt
Opening balance
New provisions
Group adjustments
Closing balance
2014
65,233
-3,347
-3,183
-9,302
6,501
0
764
56,666
Estonia 16. Value adjustments recorded directly to the income statement
EURt
Established losses
2014
15,049
-3,183
-225
11,641
SWEDBANK
Estonia 17. Recoveries recorded directly to the income statement
2014
EURt
-9,018
0
-9,018
Estonia 18. Impaired* and past-due** loans, by significant geographical area
31-Dec-14
losses***
EURt
Impaired
loans
gross
5-30 days,
not
impaired
31-60 days,
not
impaired
> 60 days,
not
impaired
Estonia
138,319
77,894
15,106
Total
138,319
77,894
15,106
Total
impaired &
past due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
4,484
235,803
38,662
18,004
56,666
3,164
2,312
5,476
4,484
235,803
38,662
18,004
56,666
3,164
2,312
5,476
Total
provisions
Estonia 19. Impaired* and past-due** loans, by industry
31 December 2014
EURt
Private mortgages
Private other
Manufacturing
Construction
Retail
Transportation
losses***
Impaired
loans
gross
5-30
days, not
impaired
31-60
days, not
impaired
> 60
days, not
impaired
Total
impaired
& past
due
46,598
57,111
9,841
2,264
115,815
5,123
3,995
9,118
-1,932
-143
0
2
7
47
56
0
754
754
-69
69
0
2,003
8,964
1,373
564
12,904
739
1,168
1,907
1,722
-789
933
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
-2,075
422
36
49
17
524
100
481
581
44
62
107
3,268
114
119
0
3,501
570
5,437
6,007
-119
4,245
4,125
-178
0
0
20
0
20
11
581
592
-447
268
1,898
62
60
0
2,019
522
245
767
436
-305
131
13,178
133
47
34
13,392
3,973
1,391
5,364
3,190
-242
2,949
-754
316
113
11
64
504
73
395
468
-742
-12
10,753
0
0
0
10,753
5,684
39
5,723
15
-15
0
211
7
0
0
218
55
160
215
10
2
13
36
0
0
0
0
0
2
61
63
134
-98
105
9
0
0
115
27
86
113
7
24
31
22,772
4
26
77
22,879
8,437
2,146
10,583
-260
-478
-739
2,425
0
0
4
2,429
281
64
345
n.a.
n.a.
n.a.
0
0
15
0
15
0
879
879
n.a.
n.a.
n.a.
2,425
0
0
0
2,425
861
198
1,059
n.a.
n.a.
n.a.
Other property mgmt
Credit institutions
Total
17,922
4
11
73
18,011
7,295
1,005
8,300
n.a.
n.a.
n.a.
36,688
455
465
63
37,671
13,332
657
13,989
837
-683
154
105
10,882
3,090
1,354
15,432
14
408
422
337
408
745
0
0
0
0
0
0
0
0
0
0
0
138,319
77,894
15,106
4,484
235,803
38,662
18,004
56,666
3,164
2,312
5,476
**** For Property management the split into sub segments for provisions for anticipated loan losses during 2014 is not applicable.
SWEDBANK
Appendix: Swedbank Latvia
Introduction
Directive, certain information shall be provided for significant subsidiaries. Information for Swedbank Latvia
Information on the organisational and legal structure of Swedbank Latvia Consolidated Situation is provided in the
Swedbank Consolidated Situation is presented in the Swedbank Corporate Governance Report. Information about risk
implications of the remuneration process (and aggregate as well as granular quantitative information on remuneration)
for Swedbank Latvia Consolidated Situation is disclosed in the document “Information about remuneration in
Swedbank 2014”. Swedbank’s Group-wide framework includes instructions for management of credit risk, including
instructions for granting and prolonging credits, for collateral valuation, for determining impairment and for credit risk
adjustments. Information about management of credit risk is provided in Chapter 3 in the Swedbank Risk Management
and Capital Adequacy Report 2014. The Group-wide framework also includes instructions describing the approach used
to assess the adequacy of internal capital to support current and future activities. This information is provided in
Chapter 7 in the Swedbank Risk Management and Capital Adequacy Report 2014. All documents mentioned above are
available on www.swedbank.com. All figures are in EUR thousands unless otherwise stated.
the capital requirements for credit- market- and operational risks, including capital buffers and potential Pillar 2 addons. Besides a capital conservation buffer of 2.5%, no other buffer requirements have been communicated by the
Latvian FSA. The capital conservation buffer came into force in 2014. This means that the capital requirement for
Swedbank Latvia CS in Pillar 1, as a percentage of REA, amounts to 7.0% in CET1 capital and 10.5% in Total capital. In
addition, the capitalisation of Swedbank Latvia CS must comply with the capital requirement in Pillar 2. As a backstop
rule, Swedbank Latvia CS also needs to comply with the Basel 1 floor, i.e. 80% of the capital requirements according to
Basel 1.
At 31 December 2014, Swedbank Latvia CS’s Common Equity Tier 1 and Total Capital ratio were 34.3% and 34.3%,
EUR 818m. Hence, the capitalisation of Swedbank Latvia CS is maintained above the capital requirements according to
CRR/CRDIV and the Basel 1 floor with adequate buffers. In the 2014 ICAAP, Swedbank Latvia CS was assessed to be
adequately capitalised (including Pillar 2 risks) and able to comply with regulatory capital requirements going forward.
SWEDBANK
Swedbank Latvia Consolidated Situation
Latvia 1. Capital adequacy
2014
2013
EURt
Basel 3
CET1 capital
Tier 1 capital
987 966
987 966
886 654
886 654
987 966
2881 673
886 654
3160 149
Surplus of capital
230 534
757 432
252 812
633 842
34.28%
28.06%
34.28%
28.06%
34.28%
28.06%
194 526
198 374
1012 532
899 972
818 006
701 598
Total capital
floor
Basel 2
Latvia 2. Total capital
Note
EURt
1
2014
2013*
1019 788
907 792
2
3
0
0
0
0
4
0
0
5
0
0
6
0
0
7
Cash flow hedges
0
0
8
Goodwill
0
0
9
Deferred tax assets**
0
0
10
Intangible assets
-7 256
-7 820
11
-24 566
-13 318
12
13
Total CET1 capital
0
987 966
0
886 654
14
0
0
15
16
0
987 966
0
886 654
17
0
0
18
0
0
19
0
0
20
21
Total capital
0
987 966
0
886 654
*2013 according to Basel 2. For definitions, please see table 2-2 in the Appendix for Swedbank Consolidated Situation in the Swedbank Risk
**) According to transitional rules (CRR 575/2013 article 478 (2) and Financial and Capital Market Commission Regulations No. 285), 0% deduction is
applied to DTA in 2014.
Latvia 3. Transitional own funds disclosure according to Article 5 in EU Regulation No 1423/2013
EURt
31-Dec-14
B
C
1
2
Retained earnings
SWEDBANK
942,856
N/A
N/A
N/A
76,453
26 (1), 27, 28, 29, EBA
list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
3
3a
4
5
5a
6
7
phase out from CET1
479
N/A
26 (1)
26 (1) (f)
N/A
N/A
N/A
N/A
1,019,788
486 (2)
483 (2)
84, 479, 480
26 (2)
N/A
-7,256
N/A
34, 105
36 (1) (b), 37, 472 (4)
0
N/A
36 (1) (c), 38, 472 (5)
33 (a)
-24,566
N/A
N/A
N/A
N/A
36 (1) (d), 40, 159, 472
(6)
32 (1)
33 (1) (b) (c)
36 (1) (e), 41, 472 (7)
36 (1) (f), 42, 472 (8)
9
Empty set in the EU
10
11
of related tax liability where the conditions in Article 38 (3) are met) (negative amount)**
12
13
14
15
16
17
N/A
36 (1) (g), 44, 472 (9)
18
N/A
36 (1) (h), 43, 45, 46, 49
(2) (3), 79, 472 (10)
19
20
Empty set in the EU
N/A
N/A
20a
N/A
20b
N/A
36 (1) (k) (i), 89 to 91
36 (1) (k) (ii), 243 (1) (b),
244 (1) (b), 258
36 (1) (i), 43, 45, 47, 48
(1) (b), 49 (1) to (3), 79,
470, 472 (11)
36 (1) (k)
20c
N/A
20d
N/A
36 (1) (k) (iii), 379 (3)
21
22
N/A
N/A
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
48 (1)
23
24
Empty set in the EU
N/A
N/A
25
N/A
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
25a
0
36 (1) (a), 472 (3)
25b
N/A
36 (1) (l)
26
treatment
N/A
26a
N/A
26b
27
28
29
30
31
32
33
34
35
36
-11,314
36 (1) (i), 48 (1) (b), 470,
472 (11)
N/A
N/A
-31,822
987,966
481
36 (1) (j)
N/A
N/A
N/A
51, 52
phase out from AT1
N/A
N/A
486 (3)
483 (3)
N/A
N/A
N/A
85, 86, 480
486 (3)
37
N/A
52 (1) (b), 56 (a), 57, 475
(2)
38
amount)
N/A
56 (b), 58, 475 (3)
SWEDBANK
39
N/A
56 (c), 59, 60, 79, 475
(4)
40
N/A
56 (d), 59, 79, 475 (4)
41
N/A
41a
N/A
472, 473(3)(a), 472 (4),
472 (6), 472 (8) (a), 472
(9), 472 (10) (a), 472
(11) (a)
41b
N/A
477, 477 (3), 477 (4) (a)
N/A
N/A
N/A
N/A
987,966
467, 468, 481
56 (e)
41c
42
43
44
45
46
N/A
62, 63
47
phase out from T2
N/A
N/A
486 (4)
483 (4)
48
49
50
51
N/A
N/A
N/A
N/A
87, 88, 480
486 (4)
62 (c) & (d)
52
amount)
N/A
63 (b) (i), 66 (a), 67, 477
(2)
53
(negative amount)
N/A
66 (b), 68, 477 (3)
54
N/A
66 (c), 69, 70, 79, 477
(4)
54a
N/A
54b
N/A
55
(negative amounts)
N/A
56
amounts)
N/A
56a
N/A
472, 472(3)(a), 472 (4),
472 (6), 472 (8), 472 (9),
472 (10) (a), 472 (11) (a)
56b
N/A
475, 475 (2) (a), 475 (3),
475 (4) (a)
56c
57
58
59
required pre-CRR
Tier 2 (T2) capital
59a
Deferred tax assets that rely on future profitability net of related tax liability
60
61
62
63
64
SWEDBANK
N/A
N/A
N/A
987,966
66 (d), 69, 79, 477 (4)
467, 468, 481
0
0
472, 472 (5), 472 (8) (b),
472 (10) (b), 472 (11) (b)
0
472 (5)
N/A
475, 475 (2) (b), 475 (2)
©, 475 (4) (b)
N/A
2,881,673
477, 477 (2) (b), 477 (2)
(c), 477 (4) (b)
34.28%
34.28%
34.28%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
7.0%
CRD 128, 129, 140
65
66
67
2.5%
0.0%
0.0%
67a
68
69
70
71
buffer
0.0%
26.3%
CRD 131
CRD 128
72
N/A
36 (1) (h), 45, 46, 472
(10), 56 (c), 59, 60, 475
(4), 66 (c), 69, 70, 477
(4)
73
74
Empty set in the EU
N/A
N/A
75
36 (1) (i), 45, 48, 470,
472 (11)
3,055
36 (1) (c), 38, 48, 470,
472 (5)
76
77
N/A
N/A
62
62
78
79
N/A
N/A
62
62
N/A
N/A
N/A
N/A
N/A
N/A
484 (3), 486 (2) & (5)
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
484 (5), 486 (4) & (5)
Jan 2022)
80
81
82
83
84
85
1) CET1 capital requirement including buffer requirements.
2) CET1 capital ratio as reported, less minimum requirement of 4.5% (excluding buffer requirements) and less any CET1 items used to meet the Tier 1
and total capital requirements.
**) According to transitional rules (CRR 575/2013 article 478 (2) and Financial and Capital Market Commission Regulations No. 285), 0% deduction is
applied to DTA in 2014.
Note: Table 4, Subordinated debt: Capital instruments main features, is not relevant for Swedbank Latvia CS.
Latvia 5a. Amount of specific countercyclical capital buffer as of 31 December 2014
EURt
2014
rate
Total REA
0%
2,881,673
buffer
0
The corresponding information for Swedbank Consolidated Situation can be found in table 2-5a in the Appendix for Swedbank Consolidated Situation in
Latvia 5b. Geographical distribution of credit risk exposure for the calculation of the countercyclical capital
buffer as of 31 December 2014
%
Share of relevant
exposures
97.37%
Country buffer
rate
0%
Germany
0.68%
0%
Cyprus
0.58%
0%
Lithuania
0.54%
0%
Russia
0.53%
0%
Sweden
0.13%
0%
Great Britain
0.07%
0%
Estonia
0.02%
0%
USA
0.02%
0%
Other
0.06%
0%
100%
0%
Latvia
rate
SWEDBANK
Latvia 6. Capital requirement
EURt
Trading book
FX risks
2014
2013*
12 472
191 702
0
0
415
415
0
415
0
43
25 902
14 901
210 861
0
0
3 599
998
0
998
2 601
0
23 451
Capital requirement
230 534
252 812
2552 179
0
5 186
536
323 772
2822 025
0
44 988
0
293 138
2881 673
3160 150
*2013 according to Basel 2.
Latvia 7. Risk Exposure Amount and Own funds requirement, as of 31 December 2014
EURt
Risk
exposure
amount
Own funds
requirement
Credit risks, STD
155,897
12,472
2,464
8,068
997
0
0
75,956
23,020
23,302
12,184
319
0
0
0
0
0
231
9,356
2,396,282
197
645
80
0
0
6,077
1,842
1,864
975
26
0
0
0
0
0
18
748
191,702
38,228
1,490,764
5
4,195
33,406
47,545
0
788,782
564,316
224,466
0
78,508
0
0
3,058
119,261
0
336
2,672
3,804
0
63,102
45,145
17,957
0
6,281
0
0
Market risks
5,186
415
Trading book
FX risks
5,186
0
5,186
0
536
415
0
415
0
43
Corporate exposures
Retail exposures
Equity exposures
Other items
Credit risks, IRB
Corporate exposures
Retail exposures
Securitisation
Settlement risks
SWEDBANK
Operational risks
323,772
25,902
0
323,772
0
25,902
2,881,673
230,534
Total
Latvia 8. Credit risk: Remaining maturity in specialised lending
31 December 2014
EUR t
Category 1
Category 2
Category 3
Category 4
Category 5
9
0
2,187
2,960
25,249
3,800
14,391
4,627
8,983
0
Less than 2.5 years
2.5 years or more
Latvia 9. Credit risk: Outstanding exposures by geographical area*
31 December 2014
EURt
Sweden
Estonia
Latvia
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts &
central
banks
Local govts
and
comparable
associations
and
authorities
338
32
3,885
0
0
0
0
Other
Total
342,365
346,620
666
153
36
0
0
0
0
20,632
21,487
1,411,715
374,157
1,491,154
462
172,993
967,293
16,136
111,044
4,544,954
424
49
18,144
0
0
0
0
5,981
24,598
11,336
235
6,886
1,412
0
0
0
2
19,871
Norway
64
4
0
78
0
0
0
7,811
7,957
Denmark
283
31
0
606
0
0
0
0
920
27
6
0
0
0
0
0
0
33
203
22
398
47,695
0
0
0
0
48,318
Lithuania
Russia
Finland
USA
Other
3,407
566
43,441
182,956
0
30,612
0
186,210
447,192
Total
1,428,463
375,255
1,563,944
233,209
172,993
997,905
16,136
674,045
5,461,950
exposures.
Latvia 10. Credit risk: Outstanding exposures by industry
31 December 2014
IRB approach
EURt
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts and
central
banks
Local govts
and
comparable
associations
and
authorities
Other
Total
Private mortgages
1,412,350
0
0
0
0
0
0
42,291
1,454,641
Private other
0
270,715
28,093
0
687
0
0
5,815
305,310
0
0
0
0
0
0
0
0
0
3,838
18,787
115,516
0
0
0
0
8,887
147,028
Manufacturing
1,204
13,118
302,662
0
25
0
0
788
317,797
264
1,937
65,193
0
12
129,537
11,081
820
208,844
408
4,560
49,502
0
11
0
0
462
54,943
Retail
2,337
22,361
244,364
0
28
0
0
1,600
270,690
Transportation
1,947
14,211
200,584
0
18
0
5,042
5,066
226,868
0
312
185
31
0
0
0
0
528
445
1,410
63,844
0
9
0
0
52
65,760
Construction
276
1,648
6,644
0
6
0
0
6
8,580
0
92
43,953
0
0
0
0
186,953
230,998
Property management
401,861
1,266
4,419
383,521
0
28
0
0
12,627
344
17
52,256
0
0
0
0
254
52,871
363
1,386
243,168
0
0
0
0
1,203
246,120
51,846
Other property mgmt
SWEDBANK
0
405
51,441
0
0
0
0
0
559
2,611
36,656
0
28
0
0
11,170
51,024
3,651
20,512
54,705
0
101
0
13
5,019
84,001
Credit institutions
Other exposures
Total
477
1,173
5,178
0
13
0
0
10,934
17,775
0
0
0
233,178
0
868,368
0
377,183
1,478,729
0
0
0
0
172,055
0
0
15,542
187,597
1,428,463
375,255
1,563,944
233,209
172,993
997,905
16,136
674,045
5,461,950
Latvia 11. Credit risk: Outstanding exposures to SME corporates, by industry
31 December 2014
IRB approach
Retail mortgages
Retail other
Corporate
1,557
0
0
Private other
0
2,478
0
0
3,551
Manufacturing
EURt
Private mortgages
Institutions
Govts &
central
banks
Other
Local govts and
comparable
associations
and authorities
Other
Total
0
14
1,571
6,381
0
125
8,984
0
0
0
0
18,518
26,228
0
0
48,297
55,643
1,136
12,349
41,965
0
193
264
1,910
2,145
0
566
4,885
Construction
214
4,123
9,131
0
138
13,606
Retail
2,072
21,219
51,480
0
263
75,034
Transportation
1,587
14,039
13,519
0
0
29,145
0
196
185
0
0
381
395
1,224
5,334
0
0
6,953
2,818
276
1,565
977
0
0
0
79
360
0
0
439
Property management
961
3,862
35,895
12,483
53,201
0
0
0
0
344
16
1,088
0
254
1,702
192
1,386
23,951
0
1,203
26,732
0
405
2,865
0
0
3,270
425
2,055
7,991
0
11,026
21,497
2,969
20,155
24,811
0
3,853
51,788
338
1,133
1,753
0
22
3,246
Credit institutions
0
0
0
0
0
0
Other exposures
0
0
0
0
0
0
15,320
102,850
220,164
17,658
355,991
Other property mgmt
Total
0
0
0
0
Latvia 12. Credit risk: Collateral reducing LGD, exposures (EAD)
31 December 2014
EURt
Exposures covered by physical
collateral*
Exposures covered by financial
collateral
Exposures covered by guarantees
and credit derivatives**
Exposures covered by 2 or more
of the above collaterals
IRB approach
Local govts
and
comparable
associations
and
authorities
Other
Total
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts and
central
banks
1,157,902
15,505
62,649
0
0
0
0
34,792
1,270,848
0
0
12,266
0
0
0
0
0
12,266
93
41,736
22,078
1,697
0
0
0
8,760
74,364
114
0
964
0
0
0
0
0
1,078
SWEDBANK
Latvia 13. Credit risk: Outstanding exposures by maturity*
31 December 2014
EURt
IRB approach
Retail mortgages**
Retail other
Corporate
Institutions
Other
Govts and
central
banks
Local govts
and
comparable
associations
and
authorities
Other
Total
45,550
7,913
31,755
66,761
93,772
869,201
5
56,794
1,171,751
487,033
Payable on demand
< 3 months
1,204
21,206
78,587
6,089
42,317
30,156
11
307,463
3-12 months
5,007
100,471
393,622
79,277
547
23,584
487
69,779
672,774
57,217
199,226
803,496
81,082
8
18,019
8,162
95,256
1,262,466
5-10 years
141,136
26,147
179,015
0
0
41,703
1,233
13,660
402,894
> 10 years
1,178,349
18,774
76,891
0
0
15,242
6,238
32,405
1,327,899
1-5 years
0
1,518
578
0
36,349
0
0
98,688
137,133
1,428,463
375,255
1,563,944
233,209
172,993
997,905
16,136
674,045
5,461,950
Without maturity
Total
SFSA.
Latvia 14. Credit risk: Exposures* and average exposure
31 December 2014
EURt
Total exposure
IRB approach
Local govts
and
comparable
associations
and
authorities
Other
Total
16,136
674,045
5,461,950
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts and
central
banks
1,428,463
375,255
1,563,944
233,209
172,993
997,905
1,428,556
416,731
1,585,300
232,250
172,993
934,176
9,567
682,947
5,462,520
1,340,662
498,262
1,647,050
188,095
132,759
472,987
12,965
1,063,737
5,356,517
mitigation
Average exposure
Latvia 15. Credit risk: Change in provisions
EURt
Opening balance
New provisions
Group adjustments
Closing balance
2014
149,006
-8,558
-38,827
-2,287
-3,360
0
1,211
97,185
Latvia 16. Value adjustments recorded directly to the income statement
EURt
Established losses
2014
60,181
-38,827
-840
20,514
SWEDBANK
Latvia 17. Recoveries recorded directly to the income statement
2014
EURt
-19,008
0
-19,008
Latvia 18. Impaired* and past-due** loans, by geographical area
31-Dec-14
Provisions for anticipated loan losses***
during 2014***
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
3,640
222,883
71,858
25,327
97,185
12,842
-5,694
7,148
3,640
222,883
71,858
25,327
97,185
12,842
-5,694
7,148
EURt
Impaired
loans
gross
5-30 days,
not
impaired
31-60 days,
not
impaired
> 60 days,
not
impaired
Latvia
154,408
51,719
13,116
Total
154,408
51,719
13,116
Total
provisions
Latvia 19. Impaired* and past-due** loans, by industry.
31 December 2014
losses***
during 2014***
Impaired
loans
gross
5-30 days,
not
impaired
31-60
days, not
impaired
> 60
days, not
impaired
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
108,060
40,307
10,645
1,795
160,807
50,919
6,602
57,521
3,500
-391
3,109
0
0
0
0
0
0
0
0
0
0
0
Private other
8,847
3,251
784
163
13,045
4,408
2,124
6,532
1,683
-354
1,329
1,524
655
170
224
2,573
495
3,382
3,877
513
-1,015
-502
Manufacturing
4,114
1,652
267
97
6,130
1,736
1,285
3,021
600
-495
105
27
378
0
0
405
14
92
106
-20
22
2
Construction
1,135
111
27
411
1,684
598
531
1,129
-540
274
-266
Retail
6,451
951
488
53
7,943
3,014
3,182
6,196
1,468
-437
1,031
Transportation
3,932
1,463
362
135
5,892
1,104
1,834
2,938
301
-626
-325
0
0
0
0
0
0
1
1
-3
1
-2
1,247
292
13
0
1,552
497
524
1,021
-305
-69
-374
83
0
0
0
83
42
76
118
-31
3
-28
0
0
0
0
0
0
14
14
-42
14
-28
15,907
1,608
111
687
18,313
7,552
4,323
11,875
5,609
-2,362
3,247
5,366
0
0
569
5,935
3,770
538
4,308
n.a.
n.a.
n.a.
2,555
920
104
2
3,581
346
1,336
1,682
n.a.
n.a.
n.a.
0
0
0
0
0
0
667
667
n.a.
n.a.
n.a.
7,986
688
7
116
8,797
3,436
1,782
5,218
n.a.
n.a.
n.a.
2,559
837
222
75
3,693
1,227
1,177
2,404
-3
-423
-426
522
214
27
0
763
252
180
432
112
164
276
0
0
0
0
0
0
0
0
0
0
0
154,408
51,719
13,116
3,640
222,883
71,858
25,327
97,185
12,842
-5,694
7,148
EURt
Private mortgages
Other property mgmt
Credit institutions
Total
SWEDBANK
Appendix: Swedbank Lithuania
Introduction
Directive, certain information shall be provided for significant subsidiaries. Information for Swedbank Lithuania
Information on the organisational and legal structure of Swedbank Lithuania Consolidated Situation is provided in the
the Swedbank Consolidated Situation is presented in the Swedbank Corporate Governance Report. Information about
risk implications of the remuneration process (and aggregate as well as granular quantitative information on
remuneration) for Swedbank Lithuania Consolidated Situation is disclosed in the document “Information about
remuneration in Swedbank 2014”. Swedbank’s Group-wide framework includes instructions for management of credit
risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and
for credit risk adjustments. Information about management of credit risk is provided in Chapter 3 in the Swedbank Risk
Management and Capital Adequacy Report 2014. The Group-wide framework also includes instructions describing the
approach used to assess the adequacy of internal capital to support current and future activities. This information is
provided in Chapter 7 in the Swedbank Risk Management and Capital Adequacy Report 2014. All documents mentioned
above are available on www.swedbank.com. All figures are in LTL thousands unless otherwise stated.
the capital requirements for credit-, market- and operational risks, including capital buffers and potential Pillar 2 addons. Besides the expected introduction of a capital conservation buffer of 2.5% during 2015, no other buffer
requirements have been communicated by the Lithuanian Central Bank. This means that the capital requirement for
Swedbank Lithuania CS from 2015 in Pillar 1, as a percentage of REA, amounts to 7.0% in CET1 capital and 10.5% in
total capital. In addition, the capitalisation of Swedbank Lithuania CS must cover the capital requirement in Pillar 2. As a
backstop rule, Swedbank Lithuania CS also needs to comply with the Basel 1 floor, i.e. 80% of the capital requirements
according to Basel 1.
At 31 December 2014, Swedbank Lithuania CS’s Common Equity Tier 1 and Total Capital ratio were 29.9% and 29.9%,
LTL 2,366m. Hence, the capitalisation of Swedbank Lithuania CS is maintained above the capital requirements
according to CRR/CRDIV and the Basel 1 floor with adequate buffers. In the 2014 ICAAP, Swedbank Lithuania CS was
assessed to be adequately capitalised (including Pillar 2 risks) and able to comply with regulatory capital requirements
going forward.
At 1 January 2015, the introduction of EUR in Lithuania reduced the capital requirements, since it decreased the FX
exposures in Swedbank Lithuania CS’s operations and since the add-on for EUR lending (being foreign currency) was
removed.
SWEDBANK
Swedbank Lithuania Consolidated Situation
Lithuania 1. Capital adequacy
2014
LTLt
Basel 3
CET1 capital
Tier 1 capital
2013
Basel 2
3144 322
3144 322
2760 476
2760 476
3144 322
10519 766
2771 611
12431 137
Surplus of capital
841 583
2302 739
29.9
994 491
1777 120
22.2
29.9
22.2
29.9
22.3
Total capital
floor
870 879
929 290
3236 917
2860 048
2366 038
1930 758
Lithuania 2. Total capital
Note
LTLt
1
2
3
4
5
6
7
Cash flow hedges
8
Goodwill
9
Deferred tax assets
10
Intangible assets
11
12
13
Total CET1 capital
14
15
16
17
18
2014
2013*
3278 340
2849 070
-41 124
- 299
- 157
-92 595
-88 437
3144 322
2760 476
3144 322
2760 476
11 135
19
20
21
Total capital
3144 322
3144 322
2771 611
2771 611
Lithuania 3. Transitional own funds disclosure according to Article 5 in EU Regulation No 1423/2013
LTLt
31-Dec-14
B
C
1
2
3
3a
Retained earnings
SWEDBANK
1,732,045
1640080
91965
1,351,640
194,655
26 (1), 27, 28, 29, EBA
list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
26 (1)
26 (1) (f)
4
5
5a
6
7
phase out from CET1
9
Empty set in the EU
10
11
of related tax liability where the conditions in Article 38 (3) are met) (negative amount)
12
13
14
15
16
17
18
19
20
Empty set in the EU
20a
20b
3,278,340
-299
-41,124
-92,595
34, 105
36 (1) (b), 37, 472 (4)
36 (1) (c), 38, 472 (5)
33 (a)
36 (1) (d), 40, 159, 472
(6)
32 (1)
33 (1) (b) (c)
36 (1) (e), 41, 472 (7)
36 (1) (f), 42, 472 (8)
36 (1) (g), 44, 472 (9)
36 (1) (h), 43, 45, 46, 49
(2) (3), 79, 472 (10)
36 (1) (i), 43, 45, 47, 48
(1) (b), 49 (1) to (3), 79,
470, 472 (11)
36 (1) (k)
36 (1) (k) (i), 89 to 91
36 (1) (k) (ii), 243 (1) (b),
244 (1) (b), 258
20c
20d
21
22
23
24
Empty set in the EU
25
25a
25b
26
treatment
26a
26b
27
28
29
30
31
32
33
phase out from AT1
34
35
36
486 (2)
483 (2)
84, 479, 480
26 (2)
36 (1) (k) (iii), 379 (3)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
48 (1)
36 (1) (i), 48 (1) (b), 470,
472 (11)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
36 (1) (a), 472 (3)
36 (1) (l)
481
36 (1) (j)
3,144,322
51, 52
486 (3)
483 (3)
85, 86, 480
486 (3)
37
38
amount)
39
SWEDBANK
52 (1) (b), 56 (a), 57, 475
(2)
56 (b), 58, 475 (3)
56 (c), 59, 60, 79, 475
(4)
40
41
41a
472, 473(3)(a), 472 (4),
472 (6), 472 (8) (a), 472
(9), 472 (10) (a), 472
(11) (a)
41b
477, 477 (3), 477 (4) (a)
41c
42
43
44
45
46
47
phase out from T2
48
49
50
51
56 (d), 59, 79, 475 (4)
467, 468, 481
56 (e)
62, 63
486 (4)
483 (4)
87, 88, 480
486 (4)
62 (c) & (d)
52
amount)
53
(negative amount)
54
54a
54b
55
(negative amounts)
56
amounts)
56a
472, 472(3)(a), 472 (4),
472 (6), 472 (8), 472 (9),
472 (10) (a), 472 (11) (a)
56b
475, 475 (2) (a), 475 (3),
475 (4) (a)
56c
57
58
59
required pre-CRR
Tier 2 (T2) capital
59a
63 (b) (i), 66 (a), 67, 477
(2)
66 (b), 68, 477 (3)
66 (c), 69, 70, 79, 477
(4)
66 (d), 69, 79, 477 (4)
467, 468, 481
472, 472 (5), 472 (8) (b),
472 (10) (b), 472 (11) (b)
60
61
62
63
64
65
66
67
SWEDBANK
475, 475 (2) (b), 475 (2)
©, 475 (4) (b)
477, 477 (2) (b), 477 (2)
(c), 477 (4) (b)
10,519,766
29.9%
29.9%
29.9%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
4.5%
CRD 128, 129, 140
67a
68
69
70
71
buffer
CRD 131
CRD 128
21.9%
36 (1) (h), 45, 46, 472
(10), 56 (c), 59, 60, 475
(4), 66 (c), 69, 70, 477
(4)
72
73
74
Empty set in the EU
36 (1) (i), 45, 48, 470,
472 (11)
36 (1) (c), 38, 48, 470,
472 (5)
75
76
77
62
62
78
79
62
62
Jan 2022)
80
81
82
484 (3), 486 (2) & (5)
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
83
84
85
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
484 (5), 486 (4) & (5)
1)CET1 capital requirement including buffer requirements. 2) CET1 capital ratio as reported, less minimum requirement of 4.5% (excluding buffer
requirements) and less any CET1 items used to meet the Tier 1 and total capital requirements.
Note: Table 4, Subordinated debt: Capital instruments main features, is not relevant for Swedbank Lithuania CS.
Lithuania 5a. Amount of specific countercyclical capital buffer as of 31 December 2014
LTLt
2014
rate
Total REA
buffer
0%
10,519,766
0
Lithuania 5b. Geographical distribution of credit risk exposure for the calculation of the countercyclical
capital buffer as of 31 December 2014
%
Share of relevant
exposures
99.80%
Country
buffer rate
0%
Great Britain
0.09%
0%
Ireland
0.02%
0%
Russia
0.02%
0%
Sweden
0.01%
0%
Spain
0.01%
0%
Latvia
0.01%
0%
Estonia
0.01%
0%
Finland
0.00%
0%
Other
rate
0.03%
100%
0%
0%
Lithuania
SWEDBANK
Lithuania 6. Capital requirement
LTLt
Trading book
FX risk
2014
2013*
46 959
575 078
59 318
614 473
129 550
18 164
41 544
111 386
369
89 627
189 514
0
89 627
Capital requirement
841 583
994 476
7775 447
8422 387
1619 373
4 613
1120 333
2888 225
0
1120 338
10519 766
12430 950
Lithuania 7. Risk Exposure Amount and Own funds requirement, as of 31 December 2014
LTLt
Risk
exposure
amount
Own funds
requirement
Credit risks, STD
586,983
46,959
9
1
76,910
114,411
8,013
6,153
9,153
641
1
0
387,639
7,188,464
31,011
575,078
92,193
4,763,544
65
19,828
4,611
30,181
7,375
381,084
5
1,586
369
2,414
2,332,727
1,700,697
632,030
186,619
136,056
50,562
1,623,986
129,919
227,048
18,164
1,392,325
4,613
111,386
369
Corporate exposures
Retail exposures
Equity exposures
Other items
Credit risks, IRB
Corporate exposures
Retail exposures
Securitisation
Settlement risks
Market risks
Trading book
SWEDBANK
Operational risks
1,120,333
Total
89,627
1,120,333
89,627
10,519,766
841,583
Lithuania 8. Credit risk: Remaining maturity in specialised lending
31 December 2014
LTLt
Category 1
Category 2
Category 3
Category 4
Category 5
92
9,112
14,945
1,915
2,094
12,072
15,798
47,959
Less than 2.5 years
2.5 years or more
Lithuania 9. Credit risk: Outstanding exposures by geographical area*
31 December 2014
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Sweden
0
0
0
0
Estonia
0
384
1,140
0
LTLt
Latvia
Lithuania
Russia
Norway
Other
Govts &
central
banks
Local govts &
comparable
associations and
authorities
Other
0
0
0
0
0
0
0
0
20,413
21,937
Total
66
134
245
0
0
0
0
593
1,038
5,713,412
1,415,765
6,803,456
3,984
81
6,619,049
56,877
926,989
21,539,613
0
0
0
0
0
0
0
0
0
1,133
13
0
11,582
0
0
0
58,710
71,438
665
894
0
8,107
0
0
0
0
9,666
Finland
0
602
15
0
0
0
0
0
617
USA
0
0
0
0
0
0
0
0
0
Other
26,092
4,919
267,781
0
0
47,313
346,105
Total
5,741,368
1,422,711
291,454
81
6,619,049
1,054,018
21,990,414
Denmark
6,804,856
56,877
exposures.
Lithuania 10. Credit risk: Outstanding exposures by industry
31 December 2014
IRB approach
Other
Govts &
central
banks
Local govts &
comparable
associations and
authorities
Other
Total
0
0
0
0
5,720,555
0
0
0
0
160
1,235,508
0
0
0
0
0
0
198,885
0
0
12,410
0
0
222,012
32,666
987,661
0
59
0
0
49,200
1,070,748
5,797
1,472,350
0
0
1,824,543
56,877
10,040
3,371,061
1,068
17,564
151,877
0
0
0
0
3,958
174,467
4,152
65,231
1,182,651
0
0
0
0
23,396
1,275,430
478
35,996
359,038
0
7
0
0
1,817
397,336
0
0
0
0
0
0
0
0
0
2,419
2,913
264,283
0
0
0
0
28
269,643
155,727
LTLt
Retail mortgages
Retail other
Corporate
Institutions
Private mortgages
5,720,555
0
0
0
Private other
0
1,178,223
57,125
0
0
0
488
10,229
Manufacturing
1,162
1,454
Construction
Retail
Transportation
Information &
communication
251
4,887
148,106
0
0
0
0
2,483
395
325
3,628
0
0
0
0
35,847
40,195
Property management
3,611
7,964
1,814,502
0
15
0
20
1,826,112
0
1,553,201
123,391
56
303
72,017
0
886
1,452
1,550,864
0
2,278
5,041
116,072
391
1,168
75,549
5,335
57,405
162,697
Other property mgmt
SWEDBANK
72,377
0
0
0
0
0
0
0
0
15
0
20
77,143
0
0
0
4,400
229,980
143
0
1,048
1,921
0
0
49,724
0
477
53,170
Credit institutions
0
0
0
291,454
0
4,731,839
0
127,198
5,150,491
Other exposures
Total
0
2,463
132
0
0
390
0
794,994
797,979
5,741,368
1,422,711
6,804,856
291,454
81
6,619,049
56,877
1,054,018
21,990,414
Lithuania 11. Credit risk: Outstanding exposures to SME corporates, by industry
31 December 2014
LTLt
Private mortgages
IRB approach
Retail mortgages
Retail other
Corporate
Other
Local govts
&
Govts comparable
& associations
central
&
banks
authorities
Other
4,526
0
0
0
0
Total
4,526
Institutions
Private other
Agriculture, forestry,
fishing
Manufacturing
Construction
0
0
37,939
0
36,678
0
0
0
62
0
74,679
0
488
1,050
1,454
549
9,967
31,374
5,797
16,325
37,349
102,091
23,965
41,656
0
11
0
0
0
9,471
7,338
2,739
47,804
143,997
Retail
Transportation
3,389
478
0
61,649
34,857
0
162,424
106,655
0
0
7
0
4,023
487
0
231,485
142,484
Information &
communication
2,022
2,913
10,341
0
0
15,276
251
4,620
11,152
0
1,904
17,927
Property management
0
1,943
56
886
316
6,540
303
1,452
1,304
68,118
0
43,814
0
15
0
0
0
20
0
0
76,635
359
46,151
Other property mgmt
610
391
4,665
0
3,616
1,168
55,450
1,048
10,374
13,930
67,513
1,434
0
15
0
0
0
20
4,014
107
14,600
15,524
131,642
2,589
0
0
0
2,177
0
133
0
0
0
148
0
2,458
20,815
270,972
670,813
30,313
992,945
Credit institutions
Other exposures
Total
0
0
0
33
0
0
0
38,554
61,269
0
1,620
Lithuania 12. Credit risk: Collateral reducing LGD, exposures (EAD)
31 December 2014
LTLt
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts &
central
banks
Local govts &
comparable
associations and
authorities
Other
Total
5,065,641
0
17,694
0
0
5,083,335
0
0
293,121
0
0
293,121
derivatives**
0
109,953
39,577
1,219
0
150,749
125,237
0
33,149
0
0
158,386
Exposures covered by 2 or
more of the above
collaterals
SWEDBANK
Lithuania 13. Credit risk: Outstanding exposures by maturity*
31 December 2014
LTLt
Payable on demand
IRB approach
Retail mortgages**
Retail other
Corporate
Institutions
Other
Govts &
central
banks
20,785
14,178
125,216
32
7
4,544,086
Local govts &
comparable
associations
and authorities
Other
Total
0
81
4,704,385
1,035
92,650
297,232
2,838
0
3,270
250
6,725
404,000
16,397
306,275
1,033,240
2,824
37
1,731,328
4,703
78,335
3,173,139
1-5 years
168,423
892,980
3,968,710
1,399
37
47,366
30,057
58,255
5,167,227
5-10 years
431,914
67,582
1,337,131
0
0
8,759
21,867
2,304
1,869,557
> 10 years
5,102,814
45,713
4,411
0
0
94,329
0
0
5,247,267
< 3 months
3-12 months
0
3,333
38,916
284,361
0
189,911
0
908,318
1,424,839
5,741,368
1,422,711
6,804,856
291,454
81
6,619,049
56,877
1,054,018
21,990,414
Without maturity
Total
SFSA.
Lithuania 14. Credit risk: Exposures* and average exposure
31 December 2014
LTLt
Total exposure
mitigation
Average exposure
IRB approach
Other**
Govts and
central
banks
Local govts and
comparable
associations
and authorities
Other
Total
81
6,619,049
56,877
1,054,018
21,990,414
290,075
81
6,461,056
56,877
24,288
7
551,587
4,740
Retail mortgages
Retail other
Corporate
Institutions
5,741,368
1,422,711
6,804,856
291,454
5,742,317
1,530,256
6,858,671
478,447
118,559
567,071
20,939,333
87,835
1,832,534
Lithuania 15. Credit risk: Change in provisions
LTLt
2014
Opening balance
New provisions
254,671
10,631
-46,639
-27,334
Group adjustments
Closing balance
-21,527
0
1,608
171,410
Lithuania 16. Value adjustments recorded directly to the income statement
LTLt
Established losses
2014
85,487
-46,639
2,801
41,649
SWEDBANK
Lithuania 17. Recoveries recorded directly to the income statement
2014
LTLt
-19,290
0
-19,290
Lithuania 18. Impaired* and past-due** loans, by geographical area
31-Dec-14
losses***
during 2014***
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
68,683
805,423
126,319
45,092
171,410
16,636
-16,018
618
68,683
805,423
126,319
45,092
171,410
16,636
-16,018
618
LTLt
Impaired
loans
gross
5-30 days,
not
impaired
31-60 days,
not
impaired
> 60 days,
not
impaired
Lithuania
442,178
203,191
91,370
Total
442,178
203,191
91,370
Total
provisions
Lithuania 19. Impaired* and past-due** loans, by industry
31 December 2014
LTLt
Private mortgages
Private other
losses***
during 2014***
Impaired
loans
gross
5-30
days, not
impaired
31-60
days, not
impaired
> 60
days, not
impaired
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
231,652
98,864
56,680
13,193
400,389
62,826
10,152
72,978
10,635
410
11,045
0
0
0
0
0
0
0
0
0
0
0
7,285
27,184
6,043
5,628
46,140
3,804
7,161
10,965
6,882
-2,595
4,287
6,556
4,003
86
2,574
13,219
2,450
1,454
3,904
-383
-276
-658
28,410
20,369
23,444
30,767
102,991
9,555
12,135
21,690
-11,269
-5,478
-16,747
2,550
1,251
312
0
4,113
350
2,493
2,843
1,849
-2,327
-479
Construction
4,371
721
2
1,294
6,387
1,658
514
2,172
611
39
651
Retail
20,397
14,702
796
496
36,391
10,291
3,103
13,394
4,782
-880
3,902
Transportation
18,212
22,328
138
825
41,503
6,859
2,156
9,015
5,880
-193
5,687
20,033
0
0
0
20,033
11,523
13
11,536
-2,477
-115
-2,592
24,039
73
0
2,603
26,716
2,610
325
2,935
340
-942
-602
0
1,194
70
0
1,264
42
834
876
-263
-113
-376
364
35
0
0
399
160
24
184
-11
-20
-31
72,846
6,672
1,764
10,477
91,759
11,857
2,820
14,677
-1,823
-2,911
-4,733
46,622
977
0
7,405
55,004
7,734
111
7,845
n.a.
n.a.
n.a.
12,384
5,695
1,764
3,072
22,915
1,316
2,126
3,442
n.a.
n.a.
n.a.
10,927
0
0
0
10,927
2,189
318
2,507
n.a.
n.a.
n.a.
2,914
0
0
0
2,914
618
265
883
n.a.
n.a.
n.a.
1,093
4,418
1,432
49
6,992
406
1,648
2,054
-955
-535
-1,490
4,371
1,378
602
778
7,129
1,928
259
2,187
2,837
-82
2,755
0
0
0
0
0
0
0
0
0
0
0
442,178
203,191
91,370
68,683
805,423
126,319
45,092
171,410
16,636
-16,018
618
Manufacturing
Other property mgmt
Credit institutions
Total
SWEDBANK
Appendix: Swedbank Mortgage AB
Introduction
Requirements Regulation (Regulation (EU) 575/2013) and the Swedish Financial Supervisory Authority (SFSA)
regulation FFFS 2014:12. In accordance with Article 13 in the Capital Requirements Directive, certain information shall
be provided for significant subsidiaries. Information for Swedbank Mortgage AB is provided in this Appendix and
pertains to conditions as of 31 December 2014. Information on the organisational and legal structure of Swedbank
Mortgage AB is provided in the Appendix for Swedbank Consolidated Situation, in the Swedbank Risk Management and
Capital Adequacy Report 2014. Information about the Swedbank corporate governance structure and measures
undertaken to manage operations in Swedbank Consolidated Situation is presented in the Swedbank Corporate
Governance Report. Information about risk implications of the remuneration process (and aggregate as well as granular
quantitative information on remuneration) for Swedbank Mortgage AB is disclosed in the document “Information about
remuneration in Swedbank 2014”. Swedbank’s Group-wide framework includes instructions for management of credit
risk, including instructions for granting and prolonging credits, for collateral valuation, for determining impairment and
for credit risk adjustments. Information about management of credit risk is provided in Chapter 3 in the Swedbank Risk
Management and Capital Adequacy Report 2014. The Group-wide framework also includes instructions describing the
approach used to assess the adequacy of internal capital to support current and future activities. This information is
provided in Chapter 7 in the Swedbank Risk Management and Capital Adequacy Report 2014. All documents mentioned
above are available on www.swedbank.com. All figures are in SEK million unless otherwise stated.
Swedbank Mortgage’s legal capital requirement is based on the CRR, but more specifically restricted by the Basel 1
floor within CRR. The SFSA has made clear that the Basel 1 floor, i.e. 80% of the capital requirements according to
Basel 1, will be maintained for Swedish institutions as a backstop rule. Since Swedbank Mortgage’s capital requirement
according to the Basel 1 floor is higher than the requirements in CRR/CRDIV Pillar 1 and Pillar 2 combined (including a
risk-weight floor on Swedish mortgage of 25% and a conservation buffer of 2.5%), these rules constitute the minimum
capital requirements for Swedbank Mortgage. According to calculations made and Swedbank’s best knowledge of the
future capital regulations, the Basel 1 floor will remain as the minimum requirement for Swedbank Mortgage also after
the introduction of a countercyclical buffer in 2015.
At 31 December 2014, Swedbank Mortgage’s Common Equity Tier 1 and Total Capital ratio were 65.5% and 73.1%,
SEK 6,042m. Hence, the capitalisation of Swedbank Mortgage is maintained above the capital requirements according
to CRR/CRDIV and the Basel 1 floor with adequate buffers. In the 2014 ICAAP, Swedbank Mortgage was assessed to be
adequately capitalised and able to comply with regulatory capital requirements (including Pillar 2 risks) going forward.
SWEDBANK
Swedbank Mortgage AB - Appendix
Mortgage 1. Capital adequacy
2014
2013
SEKm
Basel 3
CET1 capital
Tier 1 capital
34 302
34 302
35 599
35 599
Total capital
38 302
52 393
35 599
48 411
Surplus of capital
4 191
34 110
65.5
3 872
31 726
73.5
65.5
73.5
73.1
73.5
32 523
30 190
38 565
35 824
6 042
5 634
floor
Basel 2
Mortgage 2. Total capital
Note
SEKm
1
2
3
4
5
Share of capital of accrual reserve
6
7
Cash flow hedges
8
Goodwill
9
Deferred tax assets
10
Intangible assets
11
12
13
Total CET1 capital
14
15
16
17
18
19
20
21
Total capital
2014
2013*
33 269
34 455
833
833
90
92
373
618
- 174
- 263
- 225
34 302
35 599
34 302
35 599
4 000
4 000
0
38 302
35 599
Management and Capital Adequacy Report 2014.The corresponding information for Swedbank Consolidated Situation can be found in table 2-2 in the
Appendix for Swedbank Consolidated Situation in the Swedbank Risk Management and Capital Adequacy Report 2014.
Mortgage 3. Transitional own funds disclosure according to Article 5 in EU Regulation No 1423/2013
SEKm
31-Dec-14
B
C
1
2
3
3a
Retained earnings
4
phase out from CET1
SWEDBANK
11,500
N/A
N/A
N/A
17,247
-373
26 (1), 27, 28, 29, EBA
list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
26 (1)
26 (1) (f)
n/a
486 (2)
5
5a
6
n/a
5,727
34,101
483 (2)
84, 479, 480
26 (2)
7
9
Empty set in the EU
34, 105
36 (1) (b), 37, 472 (4)
10
11
Deferred tax assets that rely on future profitability excluding those arising from temporary difference (net of
related tax liability where the conditions in Article 38 (3) are met) (negative amount)
12
13
14
15
16
17
entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the
institution (negative amount)
18
19
20
Empty set in the EU
20a
Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the
deduction alternative
20b
-263
90
36 (1) (c), 38, 472 (5)
33 (a)
36 (1) (d), 40, 159, 472
(6)
32 (1)
33 (1) (b) (c)
36 (1) (e), 41, 472 (7)
36 (1) (f), 42, 472 (8)
36 (1) (g), 44, 472 (9)
36 (1) (h), 43, 45, 46, 49
(2) (3), 79, 472 (10)
36 (1) (i), 43, 45, 47, 48
(1) (b), 49 (1) to (3), 79,
470, 472 (11)
36 (1) (k)
36 (1) (k) (i), 89 to 91
36 (1) (k) (ii), 243 (1) (b),
244 (1) (b), 258
20c
20d
21
22
23
24
Empty set in the EU
25
25a
25b
26
Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment
26a
26b
27
28
29
30
31
32
33
phase out from AT1
34
35
36
36 (1) (k) (iii), 379 (3)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
48 (1)
36 (1) (i), 48 (1) (b), 470,
472 (11)
36 (1) (c), 38, 48 (1) (a),
470, 472 (5)
36 (1) (a), 472 (3)
36 (1) (l)
n/a
n/a
481
36 (1) (j)
200
34,302
51, 52
37
38
amount)
39
SWEDBANK
373
486 (3)
483 (3)
85, 86, 480
486 (3)
0
52 (1) (b), 56 (a), 57, 475
(2)
56 (b), 58, 475 (3)
56 (c), 59, 60, 79, 475 (4)
40
41
treatment and transitional treatments subject to phase-out as prescribed in Regulation (EU) No 585/2013 (i.e.
CRR residual amounts)
41a
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier
1 capital during the transitional period pursuant to article 472 of Regulation (EU) No 575/2013
n/a
472, 473(3)(a), 472 (4),
472 (6), 472 (8) (a), 472
(9), 472 (10) (a), 472
(11) (a)
41b
Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during
n/a
477, 477 (3), 477 (4) (a)
n/a
467, 468, 481
56 (e)
41c
42
43
44
45
46
47
phase out from T2
48
49
50
51
56 (d), 59, 79, 475 (4)
n/a
34,302
4,000
62, 63
486 (4)
483 (4)
87, 88, 480
486 (4)
62 (c) & (d)
4,000
52
amount)
53
(negative amount)
54
54a
54b
55
(negative amounts)
56
Regulatory adjustments applied to Tier 2 in respect of amounts subject to pre-CRR treatment and transitional
treatments subject to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amounts)
56a
n/a
472, 472(3)(a), 472 (4),
472 (6), 472 (8), 472 (9),
472 (10) (a), 472 (11) (a)
56b
Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during
n/a
475, 475 (2) (a), 475 (3),
475 (4) (a)
56c
57
58
#
required pre-CRR
Tier 2 (T2) capital
n/a
467, 468, 481
59a
Risk-weighted assets in respect of amounts subject to pre-CRR treatment and transitional treatments subject
to phase out as prescribed in Regulation (EU) No 575/2013 (i.e. CRR residual amount)
60
63 (b) (i), 66 (a), 67, 477
(2)
66 (b), 68, 477 (3)
66 (c), 69, 70, 79, 477 (4)
66 (d), 69, 79, 477 (4)
n/a
4,000
38,302
detailed line by line, e.g. Deferred tax assets that rely on future profitability net of related tax liability, indirect
holdings of own CET1, etc.)
472, 472 (5), 472 (8) (b),
472 (10) (b), 472 (11) (b)
Of which:…items not deducted from AT1 items (Regulation (EU) No 575/2013 residual amounts) (items to be
detailed line by line, e.g. Reciprocal cross holdings in T2 instruments, direct holdings of non-significant
475, 475 (2) (b), 475 (2)
©, 475 (4) (b)
Items not deducted from T2 items (Regulation (EU) No 575/2013 residual amounts) (items to be detailed line
by line, e.g. Indirect holdings of own T2 instruments, indirect holdings of non-significant investments in the
capital of other financial sector entities, indirect holdings of significant investments in the capital of other
financial sector entities, etc.)
61
62
63
64
65
66
67
conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important
institution buffer expressed as a percentage of total risk exposure amount) 1)
SWEDBANK
477, 477 (2) (b), 477 (2)
(c), 477 (4) (b)
52,393
65.5%
65.5%
73.1%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
7.0%
2.5%
not yet implemented
not yet implemented
CRD 128, 129, 140
67a
68
69
70
71
buffer
72
73
74
Empty set in the EU
75
not yet implemented
59.5%
n/a
n/a
n/a
CRD 131
CRD 128
36 (1) (h), 45, 46, 472
(10), 56 (c), 59, 60, 475
(4), 66 (c), 69, 70, 477
(4)
36 (1) (i), 45, 48, 470,
472 (11)
n/a
36 (1) (c), 38, 48, 470,
472 (5)
76
77
62
62
78
79
Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior
to the application of the cap)
62
62
Jan 2022)
80
81
82
83
84
85
n/a
n/a
484 (3), 486 (2) & (5)
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
484 (5), 486 (4) & (5)
1)CET1 capital requirement including buffer requirements. 2) CET1 capital ratio as reported, less minimum requirement of 4.5% (excluding buffer
requirements) and less any CET1 items used to meet the Tier 1 and total capital requirements.
Mortgage 4. Subordinated debt: Capital instruments main features, 31 December 2014
1
2
3
Issuer
Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for
private placement
Governing law(s) of the instrument
4
5
6
Transitional CRR rules
Post-transitional CRR rules
Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated
7
Instrument type (types to be specified by each jurisdiction)
Amount recognised in regulatory capital (currency in million,
as of most recent reporting date)
Nominal amount of instrument
Issue price
Redemption price
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory approval
Optional call date, contingent call dates, and redemption
amount
Subsequent call dates, if applicable
Swedbank Mortgage AB (publ)
Group internal / not listed
Swedish
Regulatory treatment
8
9
9a
9b
10
11
12
13
14
15
16
Tier 2
Tier 2
Solo
Tier 2 as published in Regulation
(EU) No 575/2013 article 63
SEK 4,000m
SEK 4,000m
100%
100% of Nominal amount
Liability - amortised cost
17-Mar-2014
Dated
18-Mar-2024
No
N/A
N/A
Coupons / dividends
17
18
19
20a
20b
21
22
23
24
25
Fixed or floating dividend/coupon
Coupon rate and any related index
Existence of a dividend stopper
Fully discretionary, partially discretionary or mandatory (in
terms of timing)
Fully discretionary, partially discretionary or mandatory (in
terms of amt)
Existence of step up or other incentive to redeem
Noncumulative or cumulative
Convertible or non-convertible
If convertible, conversion trigger (s)
If convertible, fully or partially
SWEDBANK
Floating
Stibor 3-month +1.65% per annum
No
Mandatory
Mandatory
No
Cumulative
Non-convertible
N/A
N/A
26
27
28
29
30
31
32
33
34
35
36
37
If convertible, conversion rate
If convertible, mandatory or optional conversion
If convertible, specify instrument type convertible into
If convertible, specify issuer of instrument it converts into
Write-down features
If write-down, write-down trigger (s)
If write-down, full or partial
If write-down, permanent or temporary
If temporary write-down, description of write-up mechanism
Position in subordination hierarchy in liquidation (specify
instrument type immediately senior to instrument)
Non-compliant transitioned features
If yes, specify non-compliant features
N/A
N/A
N/A
N/A
No
N/A
N/A
N/A
N/A
Senior debt
No
N/A
Mortgage 5a. Amount of specific countercyclical capital buffer as of 31 December 2014
SEKm
2014
rate
Total REA
0%
52,393
0
Mortgage 5b. Geographical distribution of credit risk exposure for the calculation of the countercyclical
capital buffer as of 31 December 2014
%
Share of relevant
exposures
99.68%
Country
buffer rate
0%
Denmark
0.17%
0%
Norway
0.12%
0%
Germany
0.01%
0%
Great Britain
0.00%
0%
Switzerland
0.00%
0%
Netherlands
0.00%
0%
Finland
0.00%
0%
U.S.
0.00%
0%
0.00%
0.00%
100.00%
0%
0%
0%
Sweden
Belgium
Other
rate
Mortgage 6. Capital requirement
SEKm
2014
2013*
Trading book
FX risk
Capital requirement
212
3 302
0
0
0
0
0
0
0
0
678
4 191
0
3 337
0
0
0
0
0
0
0
0
535
3 872
43 924
0
0
0
8 469
52 393
41 717
0
0
0
6 694
48 411
*) 2013 according to Basel 2. The corresponding information for Swedbank Consolidated Situation can be found in table 2-6 in the Appendix for
Swedbank Consolidated Situation in the Swedbank Risk Management and Capital Adequacy Report 2014.
SWEDBANK
Mortgage 7. Risk Exposure Amount and Own funds requirement, 31 December 2014
Risk
exposure
amount
SEKm
Credit risks, STD
Corporate exposures
Retail exposures
Equity exposures
Other items
Credit risks, IRB
Corporate exposures
Retail exposures
Securitisation
Non-credit obligations
Settlement risks
Own funds
requirement
2,649
212
821
1,564
66
125
265
21
41,274
3,302
30
9,181
2
734
32,045
32,045
2,564
2,564
18
1
8,469
678
8,469
52,393
678
4,191
Market risks
Trading book
Operational risks
Total
Note: Table 8, Credit risk: Remaining maturity in specialised lending, is not relevant for Swedbank Mortgage AB.
Mortgage 9. Credit risk: Outstanding exposures by geographical area*
31 December 2014
SEKm
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts
&
central
banks
35,948
49
59
329
Local govts
and
comparable
associations
and
authorities
Other
Total
8,932
95,682
910,096
Sweden
769,098
Estonia
2
0
0
2
Latvia
9
0
0
9
Lithuania
1
0
0
1
23
0
0
23
Russia
Norway
338
7
0
0
345
Denmark
210
53
0
0
263
0
0
3
Finland
SWEDBANK
3
USA
13
0
0
13
Other
246
0
4
250
Total
769,943
95,686
911,005
0
36,008
49
59
329
8,932
exposures.
Mortgage 10. Credit risk: Outstanding exposures by industry
31 December 2014
SEKm
IRB approach
Retail mortgages
Private mortgages
Retail other
Corporate
Institutions
Other
Govts
&
central
banks
Local govts
and
comparable
associations
and
authorities
0
Other
Total
1,401
533,354
531,730
223
0
0
0
84,505
52
0
133
84,690
54,582
Private other
51,910
2,427
0
246
Manufacturing
3,383
57
0
6
3,446
5,267
234
0
114
14,682
11,109
Construction
322
8,745
10,479
558
0
72
Retail
6,916
248
0
21
7,185
Transportation
2,288
26
0
6
2,460
0
0
79
194
0
1
2,013
3,685
79
1,818
140
3,657
21
0
8
234
330
0
0
565
Property management
12,819
27,575
0
722
41,161
8,370
20,859
0
421
29,649
2,680
3,325
0
248
6,253
545
652
0
0
1,243
1,225
2,739
0
52
4,015
24,753
3,463
0
92
28,308
30,106
602
114
30,821
91,793
91,848
Other property mgmt
46
46
0
Credit institutions
49
Other exposures
Total
0
0
7
59
769,943
0
36,008
49
59
329
8,932
958
1,017
95,686
911,005
Mortgage 11. Credit risk: Outstanding exposures to SME corporates, by industry
31 December 2014
SEKm
Private mortgages
Private other
Manufacturing
Construction
Retail
Transportation
Property management
SWEDBANK
IRB approach
Retail mortgages
Retail
- other
Corporate
530
99
80,848
181
41
211
402
265
21
2
155
36
52
213
23
33
283
163
90
6,105
5,081
437
65
Institutions
29
0
0
31
6,173
5,245
404
185
0
Other
Local govts
and
Govts
comparable
and
associations
central
and
banks
authorities
Other
0
0
0
0
0
0
0
0
0
0
0
0
0
0
118
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
3
0
0
Total
630
0
81,018
394
64
244
685
428
21
2
184
36
121
12,281
10,330
841
250
Other property mgmt
523
338
0
0
649
262
537
168
0
0
0
0
860
1,187
430
0
0
0
0
0
0
122
97,725
Credit institutions
Other exposures
Total
89,799
0
7,805
0
0
0
0
Mortgage 12. Credit risk: Collateral reducing LGD, exposures (EAD)
31 December 2014
SEKm
IRB approach
Retail mortgages
Retail other
Corporate
Institutions
Other
Govts
&
central
banks
Local govts
and
comparable
associations
and
authorities
Other
Total
754,980
29,638
0
0
784,618
0
0
0
0
0
derivatives**
870
5,954
0
0
6,825
Exposures covered by two or
more of the above collaterals
457
19
0
0
476
*Mainly collaterals in residential properties. **Municipalities and property management companies are the major guarantors.
Mortgage 13. Credit risk: Outstanding exposures by maturity*
31 December 2014
SEKm
Payable on demand
IRB approach
Retail mortgages**
Retail
- other
Corporate
Institutions
Other
Govts
&
central
banks
Local govts
and
comparable
associations
and
authorities
Other
Total
0
1,068
1,036
31
< 3 months
411,745
22,673
0
74
3,760
2,059
440,311
3-12 months
103,806
3,543
0
81
1,709
359
109,498
1-5 years
242,785
8,725
0
145
2,922
534
255,111
5-10 years
10,455
1,035
0
28
500
17
12,084
> 10 years
Without maturity
Total
116
769,943
0
0
49
0
0
0
59
36,008
49
59
329
0
0
41
92,717
92,933
8,932
95,686
911,005
SFSA.
Mortgage 14. Credit risk: Exposures* and average exposure
31 December 2014
SEKm
Total exposure
mitigation
Average exposure
IRB approach
Retail mortgages
Retail
other
Corporate
Institutions
Other**
Govts
&
central
banks
769,943
0
36,008
49
59
329
771,224
751,307
41,932
249
34,378
59
37
28
348
Local govts
and
comparable
associations
and
authorities
Other
Total
8,932
95,686
911,005
2,146
95,644
911,005
9,672
49,627
845,646
SWEDBANK
Mortgage 15. Credit risk: Change in provisions
2014
SEKm
Opening balance
155
New provisions
-18
-9
Group adjustments
-5
1
0
Closing balance
0
122
Mortgage 16. Value adjustments recorded directly to the income statement
2014
SEKm
Established losses
75
-9
0
65
Mortgage 17. Recoveries recorded directly to the income statement
2014
SEKm
-5
0
-5
Mortgage 18. Impaired* and past-due** loans, broken down by significant geographical area
31-December 2014
losses***
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
160
1,042
31
91
122
42
1
42
160
1,042
31
91
122
42
1
42
Impaired
loans
gross
5-30 days,
not
impaired
31-60 days,
not
impaired
> 60 days,
not
impaired
Sweden
294
308
281
Total
294
308
281
SEKm
SWEDBANK
Total
provisions
Mortgage 19. Impaired* and past-due** loans, broken down by industry
31 December 2014
SEKm
Private mortgages
losses***
Impaired
loans
gross
5-30
days, not
impaired
31-60
days, not
impaired
> 60
days, not
impaired
Total
impaired
& past
due
Individual
provisions
Portfolio
provisions
Total
provisions
Individual
provisions
Portfolio
provisions
Total
provisions
160
734
15
49
64
27
15
42
6
0
18
18
-7
1
-6
0
0
0
0
0
0
0
0
17
181
215
178
2
2
2
Private other
0
72
18
21
112
13
5
18
17
Manufacturing
0
2
0
2
0
0
0
0
0
0
0
5
3
8
0
0
0
0
-1
-1
Construction
0
13
13
26
0
0
0
0
-2
-2
Retail
1
6
11
18
1
1
2
0
0
0
Transportation
0
1
2
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
14
16
0
1
1
0
0
0
0
1
4
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
45
2
13
16
6
-4
1
37
5
3
37
2
1
40
2
13
16
n.a.
n.a.
n.a.
0
1
2
3
0
0
0
n.a.
n.a.
n.a.
0
0
0
0
0
0
n.a.
n.a.
n.a.
0
1
1
0
0
0
n.a.
n.a.
n.a.
0
11
11
22
0
1
1
0
-3
-3
0
26
18
44
0
1
1
-1
-4
-5
Credit institutions
0
0
0
0
0
0
0
0
1,042
31
91
122
42
1
42
Total
294
308
281
0
160
**** For Property management the split into sub segments for provisions for anticipated loan losses during 2014 is not applicable
SWEDBANK

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