roadshow, london, jan liden, ceo and mikael inglander, cfo
DESCRIPTION
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.TRANSCRIPT
London Roadshow18 July 2008
(2)
Continued solid results
• Continued solid results in all business areas– Net profit for the period Jan-Jun
increased by 8 percent to SEK 6 504m (6 022)
• Conversion to covered bonds on 21 April – decreased spreads, increased liquidity and facilitated funding
• New capital adequacy objective for full Basel 2 – Tier 1 capital ratio is to be 8.5-9.0 percent
• Credit quality remains good and in line with expectations
• The macro environment in the Baltic states has deteriorated compared with expectations in Q1, affected by a weaker European economy
• Net gains and losses on financial items were positively affected by unrealized valuation effects –valuation volatility expected to decrease as from Q3 2008.
(3)
H1 2008 – best half-year so far
050
100150
200250
300350
400450
Q206
Q306
Q406
Q107
Q2 07
Q307
Q407
Q108
Q208
Profit for the period of which First Securities
SEKm
Swedish Banking Baltic Banking International Banking Swedbank Markets
500
1,000
1,500
2,000
Q107
Q2 07
Q307
Q407
Q108
Q208
Profit for the period
SEKmSEKm
900950
1 000
1 0501 1001 1501 200
1 2501 300
Q107
Q2 07
Q307
Q407
Q108
Q208
Profit for the period
SEKm
25
50
75
100
125
150
Q107
Q2 07
Q307
Q407
Q108
Q208
Profit for the period
SEKm
(4)
Initiatives in line with our strategy
Ukraine and RussiaBalticsSweden
Stable base Growth and experience
Future growth and profitability
• Structural initiatives –operation and branches
• Channel management• Corporate market and
metropolitan areas• Private banking, life and
pension, environmentallyfriendly products and services
• Build-up of critical functionsand growth management
• Grow distribution network -ATMs, branches and agencynetwork
• Broaden product range• Re-branding completed• Capture future growth
• Productivity improvement • Cross-border capabilities• IT management and
development• Corporate sector – leverage on
pan-Baltic position • Broaden customer offerings• Re-branding starting in autumn
Share of lending: 80 % Share of lending: 16 % Share of lending: 2 %
(5)
A slowing Swedish economy
Real GDP growth
1.0%
1.5%
2.0%
2.5%
3.0%
2007 2008F 2009F
Sweden Euro-zone
CPI growth
0.0%
1.0%
2.0%
3.0%
4.0%
2007 2008F 2009FSweden Euro-zone
• The Swedish economy has performed better than the EU average. However, GDP growth, CPI and other indicators show that the Swedish economy will grow more slowly in the next few quarters
• Higher inflation, rising interest rates and weaker disposable income for households are expected to lead to weakening household consumption and credit growth.
Source: Swedbank, Economic Secretariat
(6)
Baltic macro development weaker than expected
Real GDP growth
0%2%4%6%8%
10%12%14%
2005 2006 2007 2008F 2009FEst Lat Lit
CPI growth
2%4%6%8%
10%12%14%16%
2005 2006 2007 2008F 2009FEst Lat Lit
• Economic slowdown in Estonia continues: GDP growth will slow to about 2% in 2008 and recover to 4% in 2009 if global economic developments improve and price growth slows
• In Latvia growth will slow to about 1.3% in 2008 and 2009, the bottom of the cycle is expected to be in winter 2008/2009
• The slowdown in Lithuania is expected to be modest: growth of about 6.5% is expected in 2008 and about 5.5% in 2009
• Export growth remains relatively strong, while weak domestic demand dampens imports. Trade and current account deficits are falling. The CPI has started to show signs of a slowdown, but external risks are high (oil, food).
Source: Hansabank Markets
(7)
Credit quality, Group
*Loan losses, net = write-offs + provisions - recoveries + change in property taken over
Loan losses, netLoan loss ratio
-200-100
0100200300400500600
Q1-
03Q
2-03
Q3-
03Q
4-03
Q1-
04Q
2-04
Q3-
04Q
4-04
Q1-
05Q
2-05
Q3-
05Q
4-05
Q1-
06Q
2-06
Q3-
06Q
4-06
Q1-
07Q
2-07
Q3-
07Q
4-07
Q1-
08Q
2-08 -0.20
-0.10 0.000.100.200.300.400.500.60
SEKm %
Impaired loans
Share of impaired loans
01,0002,0003,0004,0005,0006,000
Q3-
03Q
4-03
Q1-
04Q
2-04
Q3-
04Q
4-04
Q1-
05Q
2-05
Q3-
05Q
4-05
Q1-
06Q
2-06
Q3-
06Q
4-06
Q1-
07Q
2-07
Q3-
07Q
4-07
Q1-
08Q
2-08
0.000.050.100.150.200.250.300.350.400.450.50
SEKm %
(8)
Baltic banking overdues vs market
Estonia - overdue over 60 days / current portfolio
0.0%
0.5%
1.0%
1.5%
2.0%
31.1
2.05
30.0
6.06
31.1
2.06
30.0
6.07
31.1
2.07
30.0
4.08
Rest of the market HB Bank
Estonia - overdue over 30 days / current portfolio
0.0%0.5%1.0%1.5%2.0%2.5%3.0%
31.1
2.05
30.0
6.06
31.1
2.06
30.0
6.07
31.1
2.07
30.0
4.08
Rest of the market HB Bank
Latvia - overdue over 30 days / current portfolio
0%
1%
2%
3%
4%
5%
31.1
2.04
30.0
6.05
31.1
2.05
30.0
6.06
31.1
2.06
30.0
6.07
31.1
2.07
Rest of the market HBA Bank
Latvia - overdue over 90 days / current portfolio
0,0%0,5%1,0%1,5%2,0%2,5%3,0%
31.1
2.04
30.0
6.05
31.1
2.05
30.0
6.06
31.1
2.06
30.0
6.07
31.1
2.07
Rest of the market HBA Bank
Source: Swedbank, Bank of Estonia, and Financial and Capital Market Commission (Latvia)
(9)
Credit quality, Baltic Banking
0.54%
0.30%0.73%0.55%Q2 08
0.39%
0.25%0.53%0.38%Q1 08
0.47%
0.28%0.64%0.48%H1 08
-0.18%Group level provision adjustment0.28%Baltic Banking
0.10%Lithuania0.63%Latvia0.58%EstoniaQ4 07
*Loan loss ratio, net = (changes in provisions + net write-offs) / credit portfolio at the beginning of the period
Loan loss ratio, net*
Overdue ratio (more than 60 days)*
0.86%0.92%0.79%Q1 08
1.20%1.11%1.24%Q2 08
0.71%Baltic Banking0.75%Private0.65%CorporateQ4 07
*Overdue ratio (more than 60 days) = volume of loans more than 60 days overdue /12 month-old credit portfolio
(10)
Accounting and valuation effects
Accounting and valuation effects, SEKmQ2
2008Q1
2008Q4
2007
Swedbank Markets 0 – 187 – 40
Group Treasury, intra-group lending 419 – 253 20
Swedbank Mortgage 29 – 22 66
Group Treasury, liquidity portfolio – 4 53 – 5
(11)
Swedish Banking• Continued strong corporate lending
growth• Mortgage lending growth has started
to decline• Overall stable lending margins
– Back book mortgage margin stabilizing. New lending shows increasing margin
– Corporate margins are increasing slowly
• Deposit margins decreased as a result of mix effects
• Continued increase in card volumes• Capital gain of SEK 101m from sale of
MasterCard shares• Continued strong credit quality
– Stable low LTV ratio at 43% in Swedbank Mortgage
– Only 1.5% of the lending in Swedbank Mortgage has a LTV ratio over 75%.
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
Q107
Q2 07
Q307
Q407
Q108
Q208
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Income Costs C/I-ratio
C/I-ratioSEKm C/I-ratioSEKm
(12)
Baltic Banking Operations
• Strong and stable income• Lending margins decreased as a
result of higher funding costs • Deposit margins affected
negatively by decreasing local interest rates and increased competition
• Capital gain of SEK 66m from the sale of PKK
• Profit based staff costs have been reduced by SEK 185m owing to lower provision requirements.
0200400600800
1,0001,2001,4001,6001,8002,0002,2002,400
Q107
Q2 07
Q307
Q407
Q108
Q208
0.0
0.1
0.2
0.3
0.4
0.5
Income Costs C/I-ratio
SEKm C/I-ratio
C/I-ratio excluding one-offs
(13)
International Banking
• Annika Wijkström new head of International Banking
• Strong net interest income development• Continued strong economic growth in
Ukraine and Russia but with high inflation• Ukrainian Banking operations
– Continued high lending growth– Higher costs due to operational excellence
projects and profit-based staff costs• Russian Banking
– Ownership transferred from Hansabank to Swedbank
– Raimo Valo new CEO– Recovered tax on lease assets of SEK 19m
• Strong lending growth in the Nordic branches.
0
25
50
75
100
Q107
Q2 07
Q307
Q407
Q108
Q208
International Banking, profit for the periodof which Russian Bankingof which Ukrainian Banking Operations
SEKm
(14)
Swedbank Markets
• Magnus Geeber new head of Swedbank Markets
• Good development in fixed income and FX trading despite difficult conditions at times
• Stable market share in equity trading and structured products but lower market activity
• Increased activity in Project and Corporate Finance compared with Q1
• Good performance in First Securities after a slow start to the year.
050
100150
200250
300350
400450
Q206
Q306
Q406
Q107
Q2 07
Q307
Q407
Q108
Q208
of which First Securities
Profit for the period attributable to shareholders of Swedbank
SEKm
(15)
Swedbank lending and funding
Swedbank Treasury (excluding Mortgage)
• Large deposits
• Liquidity reserves
• Net lender in the interbank market
• Liquidity limits – conservative view
Swedbank Mortgage constitutes a larger part of Swedbank Group’s balance sheet than other financial institutions
Distribution of Net Funding Need
Swedbank Mortgage
Lending to the public, SEK 1,169bn
Swedbank Group, excl. Swedbank MortgageSEK 596bn
Swedbank MortgageSEK 573bn- Exclusively Swedish mortgage lending
Funding12%
Equity8%
Deposits80%
Covered Bonds73%
Equity5%
Commercial Papers
22%
Ukraine1%
Russia 1%
Lithuania5%
Latvia5%
Estonia 7%
SwedbankMortgage
49%
Sweden 30%
Nordic; 3%
(16)
New capital adequacy target – mid-term
• New target:The capital ratios will at least meet the level that at any given time is considered appropriate to maintain sustainable financial stability and develop operations. Considering full effect of Basel 2, the Tier 1 capital ratio is to be 8.5-9.0%.
• Swedbank is currently well capitalized given the current risk profile and the risk development under an adverse scenario
• Swedbank is currently capitalized in line with European peers in full Basel 2• In relative terms Swedbank has a low risk business model with a
predominance of Swedish mortgage business and low counterparty risks, which indicates a lower than average Tier 1 capital ratio. Growing presence in Eastern Europe indicates higher Tier 1 capital ratio
(17)
Prof it for the period, SEKm
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
Q2-2008
Q1-2008
Q4-2007
Q3-2007
Q2-2007
Return on equity, %
0.0
5.0
10.0
15.0
20.0
25.0
Q2-2008
Q1-2008
Q4-2007
Q3-2007
Q2-2007
Earnings per share, SEK
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Q2-2008
Q1-2008
Q4-2007
Q3-2007
Q2-2007
Tier 1 capital rat io, %
0.01.02.03.04.05.06.07.08.09.010.0
Q2-2008
Q1-2008
Q4-2007
Q3-2007
Q2-2007
(18)
Income statement, Group
SEKmQ2
2008Q1
2008 %Q2
2007 %Net interest income 5,295 5,241 1 4,591 15Net commission income 2,374 2,180 9 2,552 – 7Net gains/losses on financial items at fair value 1,141 75 579 97Other income 623 950 – 34 504 24Total income 9,433 8,446 12 8,226 15Staff costs 2,268 2,311 – 2 2,016 13Profit-based staff costs 185 268 – 31 409 – 55Other expenses 1,977 1,861 6 1,699 16Total expenses 4,430 4,440 – 0 4,124 7Profit before loan losses 5,003 4,006 25 4,102 22Loan losses, net 423 288 47 102 Operating profit 4,580 3,718 23 4,000 15Tax 935 805 16 856 9Profit for the period 3,645 2,913 25 3,144 16Attributable to shareholders of Swedbank 3,604 2,900 24 3,112 16
(19)
Net interest income Q2-08 (Q1-08)
5,241 5,295
15111 44 1
72
187 2
4,600
4,800
5,000
5,200
5,400
5,600N
et in
tere
st in
com
eQ
1-08
Sw
edis
h B
anki
ng
Bal
tic B
anki
ng O
pera
tions
Bal
tic B
anki
ng
Inve
stm
ent
Inte
rnat
iona
l B
anki
ng
Sw
edba
nk
Mar
kets
Ass
et m
anag
emen
t and
Insu
ranc
e
Sha
red
Ser
vice
s an
d ot
her
Net
inte
rest
inco
me
Q2-
08
SEKm
(20)
Swedish Banking, change in net interest income
SEKmQ2 2008
vs Q1 2008Q2 2008
vs Q2 2007Net interest income Q1 2008 2,982Net interest income Q2 2007 2,905
Changes:Higher lending volumes 54 227Unchanged lending margins 0.0Decreased lending margins – 244Higher deposit volumes 34 140Decreased deposit margins – 44Higher deposit margins 79Other changes – 55 – 136Total change – 11 66Net interest income Q2 2008 2,971 2,971
(21)
Baltic Banking, change in net interest income
SEKmQ2 2008
vs Q1 2008Q2 2008
vs Q2 2007Net interest income Q1 2008 1,575Net interest income Q2 2007 1,377
Changes:Higher lending volumes 33 214Decreased lending margins -92 -108FX-effects, lending -5 11Higher deposit volumes 14 78Decreased deposit margins -76 -127FX-effects, deposits -3 8Other changes 85 78Total change – 44 154Net interest income Q2 2008 1,531 1,531
(22)
Net commission income, Group
SEKmQ2
2008Q1
2008 %Q2
2007 %Payments 839 793 6 743 13Lending 199 136 46 178 12Brokerage 188 213 – 12 242 – 22Asset management 945 950 – 1 1,126 – 16Insurance 71 68 5 80 – 11Corporate finance 177 19 172 3Other – 45 1 11 Total net commissions 2,374 2,180 9 2,552 – 7
(23)
Expenses
SEKmQ2
2008Q1
2008 %Q2
2007 %Swedish Banking 2,239 2,255 – 1 2,330 – 4Baltic Banking 795 899 – 12 851 – 7International Banking 349 309 13 113 of which Ukrainian Banking 197 150 31 Swedbank Markets 585 456 28 499 17Asset Management & Insurance 206 253 – 19 239 – 14Other 256 268 – 4 92 Total expenses 4,430 4,440 – 0 4,124 7of which staff costs in: Swedish Banking 1,017 1,099 – 7 1,084 – 6Baltic Banking 343 522 – 34 495 – 31International Banking 177 157 13 64 Swedbank Markets 390 258 51 318 23Asset Management & Insurance 98 110 – 11 102 – 4
* Baltic Banking profit based staff costs have been reduced by SEK 185m owing to lower provision requirements.
*
(24)
Business areas
Q2 08 vs Q2 07SEKm Q2 08 % Q2 08 % Q2 08 % Q2 08 % Q2 08 %Net interest income 2,971 2 1,531 11 441 476 61 27 13Net commission income 1,057 -5 478 0 55 38 352 – 8 432 – 15Other income 425 12 405 18 132 138 – 29 68 33Total income 4,453 1 2,414 10 628 966 11 527 – 10
Staff costs 1,017 – 6 343 – 31 177 390 23 98 – 4Other expenses 1,222 – 2 452 27 172 198 8 108 – 21Total expenses 2,239 – 4 795 – 7 349 585 17 206 – 14
Profit before loan losses 2,214 7 1,619 20 279 381 2 321 – 7Loan losses 85 245 93 0 0Operating profit 2,129 4 1,374 8 186 381 3 321 -7
Net shareholders' profit 1,601 8 1,272 10 147 235 0 244 – 6
Return on allocated equity, % 22.1 34.8 7.8 23.3 44.7
SwedishBanking
BalticBanking
InternationalBanking
SwedbankMarkets
AssetMgmt
(25)
Key figures
Jan-Jun2008
Jan-Jun2007
Return on equity, % 18.7 19.5Earnings per share, SEK 12.62 11.68Equity per share, SEK 135.81 120.23C/I ratio before loan losses 0.50 0.50Loan loss ratio, net, % 0.12 0.03Share of impaired loans, % 0.20 0.08Tier 1 capital ratio, new rules, % 8.8 9.0Tier 1 capital ratio, transition rules, % 6.7 6.7 Capital adequacy ratio, new rules, % 12.6 13.4
(26)
Continued solid results
• Continued solid results in all business areas– Net profit for the period Jan-Jun
increased by 8 percent to SEK 6 504m (6 022)
• Conversion to covered bonds on 21 April – decreased spreads, increased liquidity and facilitated funding
• New capital adequacy objective for full Basel 2 – Tier 1 capital ratio is to be 8.5-9.0 percent
• Credit quality remains good and in line with expectations
• The macro environment in the Baltic states has deteriorated compared with expectations in Q1, affected by a weaker European economy
• Net gains and losses on financial items were positively affected by unrealized valuation effects –valuation volatility expected to decrease as from Q3 2008.
(27)
Appendix
(28)
Exposure FAQ• No direct US Sub-Prime exposure
– Minimal indirect exposure through investments of EUR 23.4m in bonds issued by US mortgage institutions who, in their turn, have exposures towards US sub-prime
• Total exposure to structured credits is minimal– Total commitments towards conduits or SIVs is EUR 127m
• The exposure has originated when reshaping an existing loan in order to gain better collateral, lower risk and higher margin
– Negligible exposure to CDOs• Swedbank holds a very small CDO trading stock for client trades in CDOs which we have issued
ourselves with mainly large Caps as underlying risk• Total holdings were EUR 21m at end Q2
– Exposure to Mortgage Backed Securities is about EUR 648m• European Aaa and mainly residential (RMBS)• Held for EUR liquidity purposes and client trading
• Hedge fund exposure is about EUR 150m, all collateralized• Exposure towards private equity firms and their target companies is about
EUR 1 375m in total – Nordic related LBOs
• In total, the above mentioned exposures represent less than 1.5% of total assets
(29)
CPI growth
0%
5%
10%
15%
20%
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Est Lat Lit
Real GDP growth
0%
5%
10%
15%
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Est Lat Lit
Main Baltic macro indicators
Number of real-estate transactions and average sales price
0
600
1 200
1 800
2 400
3 000
jan-05
maj-05
sep-05
jan-06
maj-06
sep-06
jan-07
maj-07
sep-07
jan-08
maj-08
# of
tran
sact
ions
0
400
800
1 200
1 600
2 000
EUR
/m2
Tallinn, # of transactions Riga, # of transactions Vilnius, # of transactionsTallinn, avg sales price Riga, avg sales price Vilnius, avg sales price
Consumer confidence
-30
-20
-10
0
10
20
jan-05
maj-05
sep-05
jan-06
maj-06
sep-06
jan-07
maj-07
sep-07
jan-08
maj-08
Estonia Latvia Lithuania
(30)
Components of GDP growth - Latvia
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
2004 2005 2006 2007 Q108
households government investmentsnet exports errors
Components of GDP growth - Estonia
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
2004 2005 2006 2007 Q108
households government investmentsnet exports errors
Components of GDP growth - Lithuania
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
2004 2005 2006 2007 Q108
households government investmentsnet exports errors
GDP growth components
* Please note that Q1 08 data for GDP growth components are initial figures that can change as new information becomes available
(31)
Current account (% of GDP)
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Q10
4
Q20
4
Q30
4
Q40
4
Q10
5
Q20
5
Q30
5
Q40
5
Q10
6
Q20
6
Q30
6
Q40
6
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Est Lat Lit
Baltic current account deficitEstonia
-5%
0%
5%
10%
15%20%
25%
30%
35%
40%
Q10
5
Q20
5
Q30
5
Q40
5
Q10
6
Q20
6
Q30
6
Q40
6
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Exports YoY growth Imports YoY growth
Latvia
0%
5%10%
15%
20%
25%30%
35%
40%
Q10
5
Q20
5
Q30
5
Q40
5
Q10
6
Q20
6
Q30
6
Q40
6
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Exports YoY growth Imports YoY growth
Lithuania
0%5%
10%15%20%25%30%35%40%45%
Q10
5
Q20
5
Q30
5
Q40
5
Q10
6
Q20
6
Q30
6
Q40
6
Q10
7
Q20
7
Q30
7
Q40
7
Q10
8
Exports YoY growth Imports YoY growth
(32)
Estonia
-5
0
5
10
15
20
25
30
35
2005 2006 2007 2008
HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %
Baltic consumer price indexLatvia
-5
0
5
10
15
20
25
30
35
2005 2006 2007 2008
HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %
Lithuania
-5
0
5
10
15
20
25
30
35
2005 2006 2007 2008
HICP, %Energy, %Food including alcohol and tobacco, %Core inflation, %
(33)
0
2
4
6
8
10
12
14
jan-07 feb-07 mar-07 apr-07 maj-07 jun-07 jul-07 aug-07 okt-07 nov-07 dec-07 jan-08 feb-08 mar-08 apr-08 jun-08
%
3m Talibor 3m Rigibor 3m Vilibor 3m Euribor
Talibor, Rigibor, Vilibor, Euribor
(34)
Asset quality and provisioning costsNet loan losses
0%
50%
100%
150%
200%
250%
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 080
5
10
15
20
25
30
EU
Rm
Net loan losses NLL YoY % growth
Net loan losses
-2,0%-1,5%-1,0%-0,5%0,0%0,5%1,0%1,5%2,0%2,5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 Q108
Q208
Estonia Latvia Lithuania Group
0.55%0.31%0.75%0.58%Q2 08
0.39%0.25%0.54%0.38%Q1 08
0.40%Group0.23%Lithuania0.56%Latvia0.39%Estonia
2007
Net loan losses by country
Net loan losses = (changes in general and special provisions + net write offs) / credit portfolio at the beginning of the year
0.55%0.06%
0.32%0.83%0.98%
0.71%Q2 08
0.31%0.09%incl industry0.57%0.86%incl real estate
0.39%0.16%
0.32%
0.43%Q1 08
0.40%GroupN/Aincl home loans
0.33%Private
0.42%Corporate2007
Net loan losses
(35)
Asset quality – overdue more than 60 daysOverdue more than 60-days/12m old
portfolio
0,0%
0,4%
0,8%
1,2%
1,6%
2,0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 Q108
Q208
Group
Overdue over 60-days/12m old portfolio
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008Real estate, rent Retail and wholesaleConstruction IndustryLogistics and comm Other business services
Overdue over 60-days/12m old portfolio
0,0%
0,4%
0,8%
1,2%
Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08
Private Corporate
Overdue over 60-days/12m old portfolio
0,0%
0,4%
0,8%
1,2%
1,6%
2,0%
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Est Lat Lit Group
(36)
Baltic Banking lending by sectors
580
1 050
1 801
1 803
3 110
8 621
3 181
0 2 000 4 000 6 000 8 000 10 000
Other
Construction
Transport
Industry
Retail &Wholesale
Real-estatemgmt
Individuals
-13
-26
21
2
176
249
93
-75 0 75 150 225 300
Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08
43%
xx% - share of portfolio
3%
5%
9%
9%
15%
16%
*Real estate management related portfolio growth includes refinancing of existing loan from Sweden to Latvian business unit (Nordic real estate group with significant Latvian investments)
**
(37)
Estonian lending by sectors
201
308
513
694
1 158
3 685
1 570
0 1 000 2 000 3 000 4 000
Other
Construction
Transport
Industry
Retail &Wholesale
Real-estatemgmt
Individuals
-4
-40
18
-5
28
116
-17
-50 0 50 100 150
Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08
45%
xx% - share of portfolio
2%
4%
6%
9%
14%
19%
(38)
Latvian lending by sectors
262
287
653
536
1 052
2 739
838
0 1 000 2 000 3 000 4 000
Other
Construction
Transport
Industry
Retail &Wholesale
Real-estatemgmt
Individuals
6
11
28
0
114
38
13
-50 0 50 100 150
Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08
43%
xx% - share of portfolio
4%
5%
10%
8%
17%
13%
*Real estate management related portfolio growth includes refinancing of existing loan from Sweden to Latvian business unit (Nordic real estate group with significant Latvian investments)
**
(39)
Lithuanian lending by sectors
455
636
573
899
2 197
116
867
0 1 000 2 000 3 000 4 000
Other
Construction
Transport
Industry
Retail &Wholesale
Real-estatemgmt
Individuals
-16
3
-25
8
34
95
97
-50 0 50 100 150
Portfolio (EURm), June 2008 Portfolio growth (EURm), Q2 08
38%
xx% - share of portfolio
2%
8%
11%
10%
16%
15%
* Other - largest increase in Energy, gas and water supply sector
**
(40)
Mortgages
• Standard mortgage product allows issue of new loans with maximum LTV of 85% and loan-service ratio below 50%.
• Mortgage portfolio LTV ratios have remained solid at 59% in Estonia, 74% in Latvia and 61% in Lithuania.
• Quality of existing portfolio and each new customer/transaction are evaluated using automated scoring tools.
• Decision making process, product conditions, and pricing are adjusted based on creditworthiness of the clients.
• Sub-prime mortgage lending is not practiced in Baltics
22y23y21yAverage maturity
LithuaniaLatviaEstonia30 June 2008
61%74%59%Average portfolio LTV
(41)
Group lending by sectors – real estate
Portfolio, June 2008
Estonia
22%
6%
26%
25%
15%
6%
3%
16%
43%
5% 9%
9%
15%
Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt
Latvia13%
10%
38%
22%
15%2%
Lithuania13%
5%
34%
41%
4% 4%
Office
Production&Warehouse
Residential
Retail
Land plots
Other
(42)
Real estate portfolio
• As indicated by internal stress-tests and portfolio analyses, real estate and in particular residential real estate development is the most sensitivesector in Baltic Banking portfolio. ‘Sensitivity’ has started to appear inoverdue and default figures of corporateportfolio.
• Around 2/3 from total Real Estate portfolio are cash flow generating properties with good tenant mix. Properties under development process (1/3 from portfolio) are currently affected the most by decreasing prices and liquidity in the market. Hansabank has always strictly restrained from financing speculative type of properties.
• Additional defaults in the residential real estate development sector are expected in the second half of 2008, but no major surprises are expected due to previously implemented portfolio limitations and individual level monitoring. Restructuring capacity has been put in place.
* Overdues over 60 days / 12 months old portfolio
Real estate management overdues*
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008
Estonia Latvia Lithuania
(43)
Group lending by sectors – retail & wholesale
Portfolio, June 2008
Estonia
34%
35%
32%
3%16%
43%
5%
9%
9%
15%
Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt
Latvia
31%
43%
26%
Lithuania
69%
19%
12%
Distributors
Specialty retail
Other
(44)
Group lending by sectors – transport
Portfolio, June 2008
Estonia23%
28%25%
24%
3%
16%
43%
5%
9%
9%
15%
Construction OtherIndividuals TransportIndustry Retail & WholesaleReal-estate mgmt
Latvia
41%
11%13%
35%
Lithuania
85%
4%
1%10%
Trucking
Marine
Terminals&Ports
Other
(45)
Sectors under close watch
TransportationTrucking companies are facing problems due to increasing fuel prices and lagging freight rates. This global problem has started to be reflected in Baltic Banking provisions (especially in SME segments) since the beginning of the year.
Retail & wholesaleTrade volume growth rates slowed down and started to decrease in Estonia and Latvia in Q2 2008 (still growing in Lithuania). There is no substantial impact on portfolio quality yet, but deterioration is expected along with a decrease in consumption.
Wood processingRaw material price increases coupled with downward pressure on sales prices are having a negative impact on Baltic wood processing industry. Current portfolio quality is around average with only few problem cases observed. Additional problems may occur after export duties are imposed on Russian round wood as there is dependence on imported round wood in Estonia.
Transportation overdues*
0,0%
0,5%
1,0%
1,5%
2,0%
Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008Estonia Latvia Lithuania
* Overdues over 60 days / 12 months old portfolio
(46)
Collateral breakdown
20,167
279
706
985
3,621
668
7,960
6,660
273
2007
100%
2%
4%
6%
18%
2%
38%
35%
1%
%1%270State
20,667
320
852
1,172
3,810
316
7,927
7,172
Q2 08
100%
1%
4%
5%
18%
3%
39%
33%
%
Other collateral*
Unsecured
Unsecured corporate
Unsecured private
Corporate real-estate
Private real-estate
Guarantees
Total
• Hansabank’s loan portfolio is adequately secured.
• Private mortgage portfolio is fully covered by family houses and apartments (as a rule owner occupied).
• Full asset pledge, including tangible assets and current assets, is the most common case for the Corporate portfolio. Collateral position enhancement with owner guarantees and additional collateral is used for more risky customers and SME segments.
• The share of unsecured loans is insignificant (used for top ratings in corporate segment and consumer products in private segment).
Baltic Collateral (EUR m)
*Other collateral is deposits, customer payments, vehicles, etc
(47)
Regular process of outstanding loan review • Portfolio quality improvement measures were introduced at the end of 2006• Real estate sector growth is under control, with regular scrutiny of existing portfolio• Strengthened risk units
– Increased number of people dealing with problem loans– Strengthened workout team– Improved quality and increased frequency of portfolio quality reporting
• Targets set for new origination quality
• Regular loan review process includes– Overall portfolio stress test once a year – Portfolio review twice a year– Quarterly “watch list” report– IRB portfolio scoring once a month
• On the individual loan basis:– Client rating review minimum once a year
• Rating classes 5 and higher are subject to more frequent assessment– Quarterly financials/covenants assessment– For SME/SSE and private portfolio weekly overdue report (with client names identified)
(48)
Credit quality management process
1. Proactive management of watch list clients– Private clients - communication on step-by-step actions to take before falling into overdues.
Development of standard proactive solutions to ensure serviceability of the credit– Corporate clients - proactive communication, frequent client meetings and positive attitude to find
solutions2. Overdue management - concentrates on time horizon from occurrence of distress situation (either through
late payment or on the basis of client information) to moving credit over to restructuring or workout phase. The primary focuses in overdue management are:
– Process design for fast and prudent management of overdues, clear process ownership– Prudent tactics to handle overdue payments. Constant re-evaluation of the tactics on their
effectiveness and adequacy– Clearly set timing and channels for client contacts– Build capacity to work with distressed clients including adequate training of employees– Internal target setting and incentives to reach targets– Timely reporting and follow up on activities taken
3. Distressed debt restructuring– Defined tactics of restructuring. Solutions to ensure client serviceability of the debt– Extended capacity to work with distressed clients– Effective solutions for collected collaterals handling